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lected would be his own property, and if put into the business of a partnership of which he might be a member, would create no liability on the part of the firm except to himself. But in the present case, the money used by J. F. Clements & Co. was in Clements's hands, as the mere agent of the Collector of Internal Revenue, whose money it was, that is, as between the collector and Clements, though ultimately it was payable to the United States Government. It was a trust fund. Now it is a rule, that the rights of a cestui que trust adhere to the trust property or fund, and follow it, into whosesoever hands it may come, except those of a bonâ fide purchaser for value and without notice. It was forcibly said by Lord ELLENBOROUGH, that " an abuse of trust can confer no rights on the party abusing it, nor on those who claim in privity with him:” 3 M. & S. 574. If the subject-matter of the trust be lands or chattels, such as can be identified, they may be followed and recovered in specie ; if it be money, that is, converted by the trustee, whoever receives it with knowledge of the trust, or without a valuable consideration, becomes a debtor to the cestui que trust. Or, if the money has been used in the purchase of property, say of lands, the cestui que trust may at his election either take the property (2 Dyer 160, 1 Amb. 409), or he may follow the money into the hands of the vendor, holding the vendor as his debtor. This is a settled rule, founded upon the most obvious necessity, that of preventing the facilities there would otherwise be given for the fraudulent conversion of trust property. The rule is enforced at law whenever the circumstances raise a legal cause of action. In courts of equity, relief is given universally. It is one of the various applications of the equitable doctrine of implied trusts : See at large 2 Story's Eq. Jur., $$ 1257-8; Lewin on Trusts (201–2), 24 Law Lib.; Oliver v. Pratt, 3 How. S. C. Rep. 333. Among the cases to which this rule has been applied, there are some in which the party receiving trust-money, knowing it to be such, has been held liable as a debtor directly to the cestui que trust. Some of these may be noticed.
In Smith v. Jameson, 5 T. R. 601, Robert Jameson, while a partner in business with Thomas Jameson, was also one of the assignees in bankruptcy of Lewis and Potter. As assignee of the bankrupt he received 25631., which he brought into his partnership with the privity of his partner Thomas Jameson. The part
nership was dissolved, and all its effects and credits assigned to Robert, he assuming the debts. After this a commission of bankruptcy issued against Robert and Thomas Jameson, and Robert was removed as one of the assignees of Lewis & Potter. assignees then claimed to prove the 25631. against the estate of Robert and Thomas Jameson under the commission of bankruptcy against them. The Lord Chancellor directed this action at law to try the question whether the assignees of Lewis & Potter could maintain an action against the partnership of Robert and Thomas Jameson for the sums received by Robert as assignee of Lewis & Potter's estate, and appropriated by him to his own partnership. It was admitted that the partners by receiving the money became indebted to the estate of Lewis & Potter, but insisted that the assignment of the partnership effects by Thomas Jameson to Robert, while the latter continued to be an assignee of Lewis & Potter, was a discharge. This objection the court overruled, and the assignee recovered.
In Stone v. Marsh, 13 Eng. Com. Law 249, one of several trustees of stock under a will, by means of a forged power of attorney sold the stock, and the proceeds were carried into the business of a firm of which he was a partner. Upon an issue out of Chancery to inquire whether the partnership which received the money was indebted for it to the trustees, it was so held by Lord TENTERDEN, who also seems to have considered it immaterial whether or not the other partners were ignorant of the fraud.
In Hutchinson v. Smith, 7 Paige 26, one Smith, the treasurer of Monroe county, commencing business in January 1827, used money in his hands as county treasurer in the purchase of a stock of goods. Soon afterwards he took into partnership with him Phelps, whose interest in the stock and business it was agreed should be estimated from January. Phelps entered the firm, knowing that the county funds had been put into the business. In July Smith died. The firm was then, as it was afterwards ascertained, insolvent. Phelps, the surviving partner, assigned all the partnership property to a creditor for the payment of the debts, preferring some; and among other preferred debts was the obligation to the county, which was included at the instance of the sureties on the treasurer's bond. The funds assigned proving insufficient to pay all the debts of the firm, the non-preferred creditors filed their bill to set aside the assignment, and, among
other grounds, objected that the debt due to the county was the private debt of Smith, for which the partnership was not liable. But the Vice-Chancellor, and on appeal the Chancellor, held it to be a partnership debt, and properly provided for by the assignment.
In Richardson v. French, 4 Metc. 577, the same principle was applied to the case of a partnership, into which one of the partners, being also an administrator, brought funds from the estate of his intestate. See further, Collyer on Partn., $ 391, and cases cited.
We see, then, that the firm of J. F. Clements & Co., by using, with the knowledge of both partners, the funds held by Clements as deputy collector, became debtors to the United States collector. A bond of the firm securing the money to him would have been unquestionably valid as a partnership obligation. Next, we inquire how stood the sureties? Did there arise out of this transaction any liability on the part of the firm to them, forming a sufficient consideration for this judgment? Now, had the sureties before taking the judgment (as they have since done), made good to the United States collector Clements's defalcation, they would have succeeded in equity to the exact position of the collector before stated as a creditor of the firm. In equity, sureties, upon payment of the debt or performance of the duty of their principal, are subrogated to all rights, securities, and remedies of the creditor as means of indemnifying themselves, except only that under the English decisions, sureties paying the debt cannot take an assignment of the instrument upon which they are bound; which right, however, is conceded to them under the American decisions, and in this state it is given by statute: Rev. Code, chap. 65. But when this judgment was confessed the sureties had paid nothing, and whether, in fact, they would sustain any loss was contingent until the collector should elect to take his remedy against them rather than against Clements or the firm. Could they in that position take a bond of indemnity? And, if any, could they take an absolute bond for the payment of money, such as the bond upon which this judgment was confessed? There can be no doubt on these points. By force of the defalcation alone and before any payment was made by the sureties, their liability to pay became fixed, although whether this liability would be enforced might for a time remain uncertain. So also the firm of J. F. Clements & Co., by the very act of converting to its own use the trust funds for which the sureties were bound, incurred a liability directly to the sureties; a liability, first, to answer to them in the event of their loss, according to the equitable doctrine of subrogation, in the same manner and to the same extent in which they stood responsible to the collector; and, second (as it seems to be now settled), even before any loss had accrued to the sureties, the firm might have been brought into a court of equity and compelled to exonerate the sureties by paying the debt: 1 Story Eq. Jur., SS 327, 639, 730; Lord Chancellor in Nesbit v. Smith, 2 Bro. C. C.  and note (a); Cox v. Tyson, 1 Turn. & Russ. 395; Hays v. Ward, 4 Johns. Ch. 132; 1 Lead. Cas. in Eq. 87.
Such is the right of a surety as against his principal. The same right these sureties had against J. F. Clements & Co., because the firm, as well as Clements individually, were bound to exonerate the sureties. Thus the firm were, by the very act of using this money, brought under an obligation to indemnify the sureties; not only to make good in the future such loss as might in the event be sustained, but to exonerate the sureties, if so required, at once. Clearly then it was both their right and duty promptly to indemnify the sureties. In what form, we next inquire, might this be done? Might it be by an absolute bond for the payment of a sum of money estimated as sufficient to cover the loss ? This was controverted in the argument. But the validity of a money bond as a mode of indemnifying sureties has been affirmed by the Court of Errors and Appeals in Temnell v. Jeffer8on, 5 Harring. 206. There a judgment-bond for $15,000 had been given by Temnell to certain trustees in trust to apply the proceeds towards indemnifying the sureties of Temnell as administrator of Miers Burton, deceased, and as guardian of his children. The Chancellor (Johns) sustained the precise objection here made, that sureties, before actual payment of the debt for which they are bound, cannot take as an indemnity an absolute bond for the payment of money, but only a bond with a collateral condition to indemnify them, upon which judgment might be entered by virtue of a warrant of attorney so as to effect a lien on real estate, but without the power to take execution until the damages should be ascertained through a verdict or an inquisition upon breaches of condition assigned. The Court of Errors and Appeals held the contrary, sustaining the right of the surety to take for his indem
nity an absolute bond before payment of the money or performance of the duty for which he stood liable; before even the time fixed for payment or performance by the principal had arrived. That decision is conclusive. See also Toissant v. Martimant, 2 T. R. 100; Penney v. Foy, 8 B. & C. 11 (15 E. C. L. 147).
It results that the judgment confessed by J. F. Clements & Co. to the sureties of Clements is valid as an obligation of the firm, and the defendants are entitled against the partnership creditors to the fruits of their execution.
Bill dismissed, and the injunction dissolved.
Note. — There were other questions raised and decided in this case, but they depended upon statute law and were not of sufficiently general interest for publication.
MR. BRADLEY AND THE SUPREME COURT OF THE DISTRICT
OF COLUMBIA.- POSTSCRIPT.
In our March number we had occasion to review the recent controversy between the Supreme Court of the District of Columbia and Mr. Bradley, and to express our opinion very plainly on the conduct of both parties.
Since the publication of that article, we have received a very courteous note from Mr. Bradley, calling attention to some points in the case that we had not previously known, and that modify somewhat the views we have expressed as to his temper in general, and also as to the letter to Judge FISHER of August 6th 1867.
By Mr. Bradley's account, the charge of falsehood made to Judge Olin on a former occasion was in retort only to a charge from the bench that he knew what he was stating to be false. We should be very reluctant to admit any justification for a member of the bar to speak in terms of such flagrant disrespect to a judge on the bench; but if judges so far forget themselves as to engage frequently in angry personal altercations with the bar, we, who practise under a code of judicial ethics of so much higher standard, should be lenient to occasional departures from propriety by less fortunate lawyers.
A far more important matter, however, is the letter to Judge FISHER of August 6th 1867; and concerning this Mr. Bradley