Union Trust Co. v. Poor & Alexander, Inc.

Offutt, J., delivered the opinion of the Court. The Union Trust Company of Maryland brought this action in the Common Pleas Court of Baltimore City on two demand notes executed by the Panda Company to the Farmers’ & Merchants’ National Bank of Baltimore. One note, dated October 14th, 1929, was for $20,933.13, which has been reduced by credits to $4,832.15, the other, dated May 7th, 1930, was for $3,490, since reduced by credits to $3,069.63, and both were secured by collateral. The Panda Company was a voluntary association formed by Poor and Alexander, Incorporated, Frank M. Sweeney, Andrew J. Hundertmark, J. L. Campbell & Company, Incorporated, Louis O’Donnell, Ambrose J. Kennedy, John E. Weyer, Presley D. Bowen, and Walter W. Alexander, as an “investment trust,” to deal in securities and to risk the credit of the members within fixed limits in that adventure.

After the formation of the association, but before this action, Alexander died, and Corinne M. Alexander was appointed administratrix of his estate, and the Union Trust Company succeeded the Farmers’ & Merchants’ Bank as the owner of the notes. Demand having been made and refused for the payment of the notes, the appellant brought this action by filing against the appellees its declaration, notice to plead, and the agreement of association. The defendants, except Mrs. Alexander, who was not summoned, appeared and demurred to the declaration. Judgment on those demurrers was entered for the defendants, and from that judgment this appeal was taken.

In addition to the facts recited, appellant alleged in the declaration that A. J. Hundertmark, who executed them for the Panda Company, at the time the loans were made and the notes executed, furnished the bank a copy ⁴⁰³ of the agreement. The question in the case is whether upon those facts appellant is entitled to recover in this action against the appellees. The text of the agreement referred to in the nar. is as follows: “Be it hereby known that the men whose names appear herein, hereinafter referred to as members, have on this day agreed to the formation of an investment trust, the details and regulations of which are set forth herein and the signature of each member affixed hereto is to be considered his agreement to abide by these details and regulations: “1. The trust shall be known as the Panda Company. “2.

A business meeting will be held each day, Sunday excluded, at 12.45 P. M. at the office of Poor & Alexander, Inc. “8. Each member has an equal vote, but it is agreed that seven members shall constitute a quorum and will have the right to transact such business as may ordinarily be brought up at such meetings. In any event, a majority will rule. “4.Such securities as are purchased from time to time will be hypothecated with some bank and loans made against said securities, it being expressly understood that no member will be obligated for any amount greater than the percentage of his investment bears to the total obligation to the bank. “5. It is further agreed that upon the desire of any member to withdraw his investment he shall forego any of the accrued profits and in addition will be penalized 20% of his prevailing investment.

Said withdrawing member, in conjunction with being penalized 20%, will also be charged with his pro rata share of any loss in ⁴⁰⁴ the event securities purchased are selling for less than the amount paid for same. Further, any member desiring withdrawal of his funds must give thirty days advance notice. “6. It is agreed further that not more than 25% of the assets of the trust will be invested in the stock of any one company or corporation unless otherwise agreed to do so by all members. “7. Assignment of the interest of any one member is permissible upon the unanimous consent of all members. “8.

This is a closed trust and no new member will be accepted unless by assignment as provided for in article No. 7. “9. A. J. Hundertmark has been elected to serve in the capacity of Secretary and Treasurer and hereby given the power of attorney by those members whose signatures are affixed hereto to negotiate with the bank in the matter of loans, to sign such notes and documents as are required by the bank, to execute substitutions. No further authority from the members is necessary for A. J. Hundertmark to execute these deals; furthermore, A. J. Hundertmark is hereby given authority to buy and sell securities provided such authority is received from the members and to sign chécks of the trust along with either Frank M. Sweeney or Pressley D. Bowen, the three members mentioned representing the Executive Committee. “10. The list of the members, along with the respective amounts subscribed, is as follows: 1.

Poor and Alexander, Inc.......................$5,000.00 2. Frank M. Sweeney.................................... 500.00 3. A. J. Hundertmark.................................... 500.00 4. J. L. Campbell & Company.--------------- 500.00 5.

Louis O’Donnell................................-.......... 500.00 6. Ambrose J. Kennedy............................ 500.00 7. John E. Weyer.________________.■......................... 500.00 ⁴⁰⁵ 8. Pressley D. Bowen....................................... 500.00 9.

W. W. Alexander.......................................... 500.00 The contention of the appellant appears to be (1) that the parties to that agreement were general partners, and (2) that as general partners each was severally liable to creditors of the partnership, even though they had, to the knowledge of the creditor, by agreement limited the liability of each partner for the firm debts, because (8) such limitation applied exclusively to the relations of the partners inter sese and could not limit the several liability of each partner for a partnership debt, and that therefore (4) the defendants as members of the partnership were jointly and severally liable in this action to the plaintiff on the notes sued on. The contention of the appellees is: (1) That the rights of the partiés to this action are fixed by the agreement; (2) that the two notes were executed by an agent; (3) that the authority of the agent to execute them was limited by the agreement; (4) that the payee at the time it made the loans knew of that limitation, and is bound by it; and that (5) the plaintiff is not entitled to a general judgment against the defendants as members of a general partnership. From this statement it is apparent that the contentions of the parties are parallel rather than conflicting; that the plaintiff relies upon certain established rules and principles incident to the partnership relation to support its contention that the defendants are jointly and severally liable on the notes, while the defendants rest their defense upon the agreement and the law of agency. Assuming that the parties to the agreement had the capacity to execute it, and we know of no reason to the contrary, and that the bank knew of it, and that is conceded, and that the notes were executed for the Panda Company by an agent acting under a defined and limited authority, the extent of which was known to the bank when it accepted them, the relations between the bank and the defendants must be measured by the terms of ⁴⁰⁶ the contract rather than by the general law of partnership.

Nor is the question affected by the bank’s power to lend money on such instruments as the two notes sued on in this case, for if the agent had no authority to bind the members of the partnership severally for the whole debt, and the lender knew he had no such authority, its want of power to make such a loan as was authorized by the agreement could not possibly have expanded the agent’s authority beyond the limits of the agreement creating it, or vest in him a power expressly denied to him. Whether, therefore, the association of the persons signing the agreement constituted a general partnership, a limited partnership, a joint adventure, a Massachusett’s trust, or a syndicate, becomes wholly immaterial, and the case turns upon the construction of the contract, to ascertain the limits of the agent’s authority. The purpose of the association was apparently to risk, not cash, but the credit of the members to the extent of $9,000, to secure capital to speculate in securities. Its members contemplated that, when securities were purchasd, they would be “hypothecated with some bank and loans made against” them.

Or, in other words, that “some bank” would furnish the money to buy the securities, and that the loans which it made for that purpose would be protected in part by the securities so