against the company and the transferee to set aside the transfer, and for an account of the dividends received since the transfer. (1) So a company is liable to an action for damages at the instance of a person who has bought shares or advanced money on the faith of a certificate of title issued by a company, although the company may have been induced to issue it by fraud or forgery. (m)

Secondly as regards frauds.

An ordinary firm is liable for frauds committed by one of its members whilst acting for the firm, and in trans

acting its *business; and the innocent partners *302 Frauds of cannot divest themselves of responsibility on the ground that they never authorized the commission of the fraud.'

On the other hand, the firm is not liable for the other frauds of its members, unless it has in fact sanctioned such frands, or the transactions of which they form part. It will be convenient to examine this subject with reference to misapplications of money and false representations by partners, and then to consider the liability of companies for the frauds of their directors.

Liability of partnerships for misapplication of money by their members.

In order that a firm may be liable for the misapplication of money by one of its members, some obligation on the part of the firm to take care of the money must be shown. A receipt of the money by the firm primâ facie imposes this obligation; but where there is no receipt by the firm, there is primâ facie no obligation on its part with respect to the money in question. It becomes important, therefore, to determine accurately when money is to be considered as received by the firm. Upon this point the following observations suggest themselves.

1. The firm must be treated as receiving what any partner receives as its real or ostensible agent, i. e., in the course of transacting the business of the firm.

2. In a case of this sort it is immaterial whether the other partners know anything about the money or not, for ex hypothesi, it is in the custody of one who must be regarded as their agent. (n)

3. The firm cannot be treated as receiving what one partner receives otherwise than as its real or ostensible agent, unless the money actually comes into the possession or under the control of the other partners. (0)

4. Agency being excluded in such a case as the last, the money cannot be considered as in the possession or under the control of the innocent partners, unless they know that it is so, or unless they are culpably ignorant of the fact. (p)

demnation, and a note given in consideration of a balance due under such contract to the firm, will be void as against the firm, or an assignee with notice, although A, the other partner, had no knowledge of the illegality of the contract. Tenney v. Foote, 95 Ill. 101. (n) See infra, rules 1 and 2.

(0) See rules 3 and 4.

(p) Compare rule 2 with rules 3, 4 and 5; and as to culpable ignorance, compare Marsh v. Keating, 2 C. L. & Fin. 289; Sims v. Brutton, 5 Ex. 802; Ex parte Geaves, 8 DeG. M. & G. 291.

*These principles will be found to reconcile most, if not *303 all, of the numerous decisions upon the important subject now under consideration, and to warrant the following rules deduced from them.

1. Where one partner, acting within the scope of his authority, as evidenced by the business of the firm, obtains money and misapplies it, the firm is answerable for it.1

1. Liability of received by one course of

firm for money

partner in the

business.

Chambers.

In Willett v. Chambers (2) two persons carried on business as solicitors and conveyancers, in partnership. One Willett v. of them received money from a client to invest on mortgage, and misapplied it. The other partner was held liable to repay it to the client. Lord Mansfield relied upon the fact that the bill for the fictitious mortgage was made out in the name of the firm, and was paid to the innocent partner. The transaction therefore was clearly a partnership transaction, and the defendant, although perfectly innocent of the fraud himself, was liable for the consequences.

In Brydges v. Branfill (2), one of several solicitors connived at a frand committed by a client of the firm in obtaining money out of the court of chancery.

1 See ante, 299, note.

Where a claim was placed in the hands of two attorneys who were partners in the practice of law, for collection, and judgment was obtained, land of the debtor sold under execution, and redemption from the sale made by paying the money to the sheriff, who paid it over to one of the attorneys, but prior to the redemption, the co-partnership between the attorneys was dissolved: Held, that both of the partners were liable to the client for the money thus received by one of them after the dissolution. Smyth v. Harvie, 31 Ill. 62; S. P. Poole v. Gist, 4 McCord, 259.

Where money was fraudulently obtained by a partner, in the name of the firm, and in business transactions such as the firm was engaged in: Held, that the firm might be liable therefor, although the transactions were unknown to the other partner; but that, if the

The money was Branfill.

person dealing with such partner, knew that the latter was acting in violation of his duty to the firm, the latter would not be liable. Alexander v. State, 56 Ga. 478.

(q) Cowp. 814. See, also, Atkinson v. Mackreth, 2 Eq. 570; St. Aubyn v. Smart, 5 Eq. 183, and 3 Ch. 646; Dundonald v. Masterman, 7 Eq. 515. Compare Viney v. Chaplin, 2 DeG. & J. 483, and Bourdillon v. Roche, 27 L. J. Ch. 681, and Harman v. Johnson, 2 E. & B. 61; Plumer v. Gregory, 18 Eq. 621; noticed infra. These cases show that whilst it is the ordinary business of a solicitor to receive money from a client for investment on a specific security, it is not part of his ordinary business to receive money for investment generally, nor to receive money for a client on the payment off of a mortgage, or on a sale. (r) 12 Sim. 369. See, too, Todd v. Studholme, 3 K. & J. 324.

received by the one partner under a power of attorney, and was handed over to the client. The other partners were entirely innocent, and were, in fact, ignorant of the transaction. It was nevertheless held that they were jointly and severally liable to make good the money to those to whom it really belonged .(s)

*304

*In these cases the receipt of the money by one of the partners was the receipt by the firm; and the firm was liable, although in fact the other partners never received the money money or knew of its receipt (t).

2. Where a firm in the course of its business (u), receives money 2. Liability of belonging to other people, and one of the partners misin its custody applies that money whilst it is in the custody of the of business. A firm, the firm must make it good.1

firm for money

in the course

In Devaynes v. Noble, Clayton's case (2), some exchequer bills, deposited by their owner with a firm of bankers, were Clayton's case. sold by one of the partners without the owner's knowledge; the money produced by the sale was applied by the firm to its own use; and it was held to be clear that the money having been received by the partnership, the amount became a partnership debt whether all the individual partners were or were not privy to the sale.

Baring's case.

In Devaynes v. Noble, Baring's case (y), the firm was held liable for stock of its customers standing in the name of one of the partners of the firm, and wrongfully sold out by him. For the stock was standing in his name alone, in accordance with the ordinary practice of the firm; the produce of the sale of the

(8) Although solicitors who are partners are responsible for the acts of each other, the court will not exercise its summary jurisdiction against a solicitor to whom personally no blame is attributable. See Re Lawrence, 2 S. M. & G. 367: Ex parte Gould, 2 Mon. & A. 48; Dixon v. Wilkinson, 4 Drew, 614, and 4 DeG. & J. 508; and Re Ford, 8 Dowl. 684. But where a firm of solicitors are the solicitors on the record, see Norton v. Cooper, 3 Sm. & G. 375.

(t) See St. Aubyn v. Smart, ubi sup. (u) See infra, prop. 5 as to the importance of this qualification.

'The Boston fire-relief committee

stock had been received by the firm, and had thus become a partnership debt; and the firm, in the accounts rendered by it to its customer, had falsely represented the stock as still standing in the name of the partner who had sold it, and had given credit for the dividends as if the stock had still been there.

Ex parte Bid

In Ex parte Biddulph (2), trust money in the hands of a firm of bankers, was drawn out and misapplied by one of the firm, and it was held that all the partners were liable to dulph. make it good.

In Sadler v. Lee (a) the members of a banking firm were authorized jointly and severally to sell out stock standing Sadler v. Lee. in the name of a customer, and one of the partners exer

cised the *power and sold out the stock, and the firm was *305 credited with the proceeds of the sale. These were afterwards misapplied by one of the partners, and it was held that the firm was answerable for the money.

Another well-known case illustrating the same principle is Blair v. Bromley (b). These two persons were in partnership Blair v. Bromsolisitors. A client entrusted one of them with ley.

as

money to invest on mortgage, and was told by him that it had been. invested; whereas, in truth, the partner who had received the money had misapplied it. For many years the client was regularly paid interest by the solicitor who attended to the matter, and the fraud was not discovered until he became bankrupt. The other partner, who knew nothing whatever of the fraud, was nevertheless held liable to make good the money. It had been placed to the partnership account at the bankers' of the firm; the representation that it had been duly invested was within the scope of the duty of one partner with reference to the transaction in question; and it was held that the innocent partner could not divest himself of his liability by showing that he had no control over the account at the bankers', and did not in fact attend to the monetary transactions of the firm.

In De Ribeyre v. Barclay (c), the defendants were in partnership as stockbrokers, and were in the habit of receiving De Ribeyre v. monies from the friends and connections of the firm, Barclay.

(z) 3 DeG. & Sm. 587.

(a) 6 Beav. 324.

(b) 5 Ha. 542, and 2 Ph. 354. See, also, Eager v. Barnes, 31 Berv 579, a somewhat similar case.

(c) 23 Beav. 107; compare this case with Ex parte Eyre, 1 Ph. 227; Bishop v. The Countess of Jersey, 2 Drew. 143; Coomer v. Bromley, 5 DeG. & Sm. 532, noticed infra, p. 310.