Taylor v. Thompson

62 A.D. 159, 70 N.Y.S. 997

• Court: Appellate Division of the Supreme Court of the State of New York
• Decided: July 1, 1901
• Status: Published

Opinions

O’Brien, J.:

The questions of whether the representations claimed to have been made by Culbert were those of fact or mere opinion or calculation and the extent to which they were relied upon, it is unnecessary to determine in view of the conclusion at which we have arrived.

Proceeding, therefore, to what we think is controlling upon this appeal, we find two phases of the testimony which are to be considered separately as bearing upon the plaintiff’s right to maintain this action against Culbert’s copartners for deceit. It will serve the purpose of clearness if we discuss first that which is later in point of time but which it is necessary to dispose of before we take up the "other, upon which the defendants’ liability was in effect placed by the charge of the court to the jury. The phase to which we have referred as being subsequent in time, concerns what was said and done on or about the 4th of October, 1889, when the parties all assembled at the office of the defendants’ attorney for the purpose of completing the purchase and sale. There is no claim that up to that day any of the defendants other than Culbert had made any express representations, directly or indirectly, or had authorized, assented to or known of any of Culbert’s statements. The negotiations at that time were practically complete and the terms of the purchase and sale had. been substantially agreed upon. The:plaintiff had, through an expert employed by him and with the assistance of Culbert, reached a conclusion as to what the new firm was prepared to pay for the business. It is true that upon that day a discussion arose as to whether the plaintiff should pay some capital advanced by some of the defendants and as to whether interest should be allowed, but these matters were finally adjusted and were but incidents in the main, transaction which, through the negotiations carried on by Culbert standing as the medium through whom the others acted, had been practically completed and which the parties were then present to close.

It was testified by Taylor and another witness that on. October fourth'or at a previous interview—there being a dispute as to whether the parties all came together once or twice — something was'said by the defendant John or Robert Thompson to the effect that the accounts receivable were good as gold and if desired would be guaranteed for one per cent, that the business was á good one and ought to be a paying business, and that Mr. Taylor was getting more than he was paying. The making of these statements is denied, but in view of the conflict the question of their having been made was, if they were material, clearly for the jury to determine. We doubt, however, that they were material, for apart from whether in their nature they were more than expressions of opinion, it was not asserted by the plaintiff that any reliance was placed upon them, the insistence throughout the case being that the specific representations which it is claimed were false and fraudulent and upon which he relied entirely, were those made by Culbert in the course of the negotiations. We may, therefore, dismiss this phase of the testimony with the additional remark that we doubt, if that were all' there was of the case, whether a judgment, such as was here obtained for a large amount of money for alleged deceit, could be supported.

If supported at all it must be upon the other phase of the testimony, namely, that at the beginning and during the course of the negotiations, Culbert -— who must be held to have been the agent of the defendants — made representations which were false and upon which the plaintiff relied to his damage. It was not proven that the defendants expressly authorized Culbert to make the representations, nor does it appear that they had any knowledge of what he had done in that regard; but it is insisted that by reason of his relationship as a partner, the other defendants were legally bound by hisr acts. This presents the most difficult question upon this appeal, which is to define accurately Oulbert’s relation to the parties, to both'the plaintiff and his former copartners. As a partner he was undoubtedly, with respect to all matters within the scope of the partnership, the agent of and could bind his. copartners. But how far a partner who, upon a contemplated ■ dissolution of the firm, undertakes to sell its entire business can be held to be the agent of the other partners has been a much mooted question.

It has been held in this State that “ a silent partner who did not know nor assume to know as to the truth of a statement of the condition of the firm, made by one of his copartners to a person who purchased an interest in the firm on the faith of such statement, (was) not liable for damages to such person arising from fraud in the statement.” (Chamberlin v. Prior, 1 Abb. Ct. App. Dec. 338.). And it has also been held that one partner has no authority without the consent of his" other partners to sell and transfer all the partnership property to a third person not a creditor, and thus practically terminate the partnership. (Bender v. Hemstreet, 12 Misc. Rep. 620; Macdonald v. Trojan Button-Fastener Co., 9 N. Y. Supp. 383.) The principle underlying these cases is that partners are bound by the acts of a copartner only when such acts are within the scope of the partnership, business and that the agency which exists during the life of the partnership, in what is done to further the business, does not extend to a termination of the partnership ; or, in other words, to establish a liability of partners for represent tations made by a copartner in selling out the partnership effects, the general rule as to the responsibility of partners does not apply, and to hold them all liable a separate agency must be established.

This view has found expression in the reports of other States. Thus in Summerlot v. Hamilton (121 Ind. 87) it was held that “ Partners are not agents for each other in transactions which relate to the formation or dissolution of the firm or concerning the disposition of the firm property to each other. The purchase by one partner of the interest of another in the firm property is not a partnership transaction.” And the case of Love v. Payne (73 Ind. 80) is thus summarized in the head note: “ B, a member of a partnership and its business manager contracted with A that, if he would buy a retiring partner’s interest and pay the balance due upon such partner’s share of the. capital stock, he should receive a certain interest in the partnership property free from all liens. Afterward all the partnership projDerty was sold upon a prior mortgage. Suit by A against the firm for breach of the contract. Held, that B had no authority to make such contract.” A case more analogous to the one at bar is that of Schwabacker v. Riddle (84 Ill. 517), in which .it was held that “ where one partner induces a stranger to purchase the interest of the other partners in a partnership business by fraudulent representations, the parties selling are not liable for such false representations unless they instigate or approve of them or the partner making such representations is acting as their agent in making the same. The mere fact of their relation as partners will not make them liable.” And in the opinion the court said: “ The selling of the interest of a partner in the property and business' of the firm is very different from conducting or operating the firm business. The sale necessarily works a dissolution of the firm, and what is sold is not what belongs to the firm but to the individual selling.” Our attention is directed also to the decision in Lindmeier v. Monahan (64 Iowa, 24), where it appeared that “defendants owned a half interest in the business of a firm, one S. owning the other half. Defendants, through the fraudulent representations of S. as to the assets and liabilities of the firm, induced plaintiff to purchase their half interest, paying a certain sum in cash' and agreeing to pay the firm’s indebtedness. The assets being much less and the liabilities much more than represented, held, that defendants were bound by the fraudulent representations made by S. as their agent whether authorized by them or not, * * * and that plaintiff was entitled to recover what he had lost by reason of the fraud and to be relieved of all obligation to perform the contract.” The court said: “ The mere fact that Studman united in the purchase cannot change the case if plaintiff was defrauded and injured thereby and defendants received benefit from the fraud. Equity will not permit frauds to be effectuated by any such expedients. * * * And if it should appear that Studman had no authority from defendants to make the fraudulent representations, the case is the same. It cannot be doubted that with the knowledge and consent of defendants, Studman took part in the negotiations leading to the purchase in the course of which the false representations were made. The object of their negotiations was the benefit of defendants by securing a purchaser. Studman will be regarded as defendants’ agent and they will be responsible for the fraud. * * * This is all of principle there is in the case.”

It will be noticed that the two latter cases are seemingly opposed in principle, but with respect to the facts here presented we think that both of them are distinguishable. Here it clearly appears that the partners understood that Culbert was endeavoring to get some one to join with him in purchasing the business, and they assented to his doing so; and we think that for the purpose of procuring a joint purchaser, though he was to unite with him in the purchase, Culbert was their agent. But we are also as strong in the view that having presented to Taylor the subject of the purchase, and the latter having agreed to join with him in it with the understanding that they were to become copartners and carry on the business as so purchased, Culbert was equally the agent of Taylor. The legal difficulty presented in reaching a conclusion in this case is due to this dual position which Culbert occupied, acting as he did, not alone as one of the principals in buying and selling, but as the agent for both the seller and the purchaser. If we consider Culbert merely in his relation as a principal, then clearly he could not deceive himself, and it is extremely doubtful if legally he could be held to have deceived the plaintiff, who was his coprincipal. But we think we must also consider him in his double capacity as agent for each.

This latter dual position demanded of Culbert that he should act in good faith and he held to fair dealing with respect to bo'; principals; and. so far as he was guilty of a breach of this • : which he owed to.each acting as the agent of the other, a liabi ¡ the extent of the injury inflicted arose as against the one who u- ■ ■ A ted from his fraudulent acts in favor of the other. Applying ; • principle, we think that the appellants having authorized Culb- 1: represent them on the sale, although with the understanding tl.. :: was to obtain a third person who was to join him in the pure■ < cannot escape liability for his wrongful act upon the theory tl was a wrong done to himself and to another, who was a coprim We cannot ignore the fact that he was the agent of the defend because to do so would be to eliminate'the position occupied by plaintiff, as an innocent third party furnishing all the money, was induced to enter upon the negotiations and to finally con .: - mate the sale as the result of statements made upon which he re f by one whom it is conceded represented the defendants.

■ Upon this branch of the case, therefore, we think that in the. ter of the sale of the business Culbert was the agent of his co" ners, and that for his fraudulent representations they are liable. - because of any express authority given to him to make them, ■ because of the relation which they held to each other and > authority given to sell the business. As already said, Oulbert’s yners made no representations, and, so far as the negotiations v they appear to have acted in good faith. Having parted with t: business, it is a seeming hardship that' they should be require return any part of the consideration. Nevertheless, we think' .' , is the necessary result and force of the application of legal pr ■ pies, provided the plaintiff can establish his right to damages ii - action such as this for deceit. In that connection, having ele'' : - not to disaffirm the sale and recover back the consideration, bu. ... affirm it, and, while holding the property l'eceived and the ben___ of the business transferred, to seek damages, he must recover, if at all, not upon the theory of a rescission as for money had and received, but for damages after affirmance, upon the theory of deceit. 'This latter, as we view it, is the theory upon which the complaint is framed, but we briefly allude to it because some slight confusion appears to have arisen upon the trial as to the exact nature of this .-action.

Passing, however, from the liability arising from Culbert’s legal relation to the appellants, it is certain in law that it was within their power to limit the extent that he could bind them by notice brought home to the plaintiff. In other words, it was entirely competent for the appellants to serve notice on the plaintiff at any stage of the negotiations up to the time of the actual sale that they would not be bound by any statements or representations as to value made by Culbert or anybody else. If the plaintiff before the sale had notice from them that he must examine for himself and be governed by the rule of caveat emptor, then he could not, by afterwards claiming that misrepresentations had been made by Culbert, recover damages for his mis-statements. If the testimony of the appellants be accepted, that is just what they did. One of them testified that at the interview on the day when the sale was consummated something was said as to the condition of the business, and he said to the plaintiff : “ Mr. Taylor, I want you to understand that, so far as our side is concerned, we know nothing about the value of this business, the assets or anything else ; our dealing has been with Mr. Culbert; he has gone through the books and examined the stock, and I suppose he knows what he is buying. I want that distinctly understood.” And his testimony on the first trial was that he said, “ Mr. Taylor, I want you to understand one thing. That I recite here we know nothing whatever about the assets of this concern, we have made — our negotiations have been with Mr. Culbert, and he has gone over this whole affair, and I presume he knows what he is buying. We do not know whether there is $108,000 or $8,000 in the assets of this concern, nor does it make any difference to us; our agreement is with Mr. Culbert. It is all understood, and we came here to settle it.”

After such a statement, the plaintiff having, as it appears, had full opportunity to examine the books and make himself personally familiar with the value of the assets, could not close the transaction and thereafter seek redress for damages sustained, relying on the representations of Culbert, for here, if the testimony is to be credited, was a direct notice, which in effect brought home to plaintiff that the other defendants had not authorized Culbert nor any one else to make representations, and that they did not know nor were they concerned with what was the condition of the business or the value of its assets, and that aey were treating Culbert, who, .more than any one else, was familiar with the business, as a purchaser, and were dealing with him at arm’s length, being willing, regardless of the condition or value of the assets of the firm, to sell at the price to be agreed upon. The benefit of this testimony was entirely lost to the defendants by the refusal of the learned trial judge to charge the request which they made and which was as follows : “ If you believe that the plaintiff was fully apprised by the defendants that they had no knowledge and took no responsibility as to the value of the interests sold and that the plaintiff made no objection thereto, then your verdict must be for the defendants. In other words, if you believe that the testimony of Mr. Curtis and the other three witnesses as to the statement made by Robert II. Thompson is substantially correct, then your verdict must be for the defendants.”

Having pointed out the importance which in our view this testimony had as bearing upon the liability of the defendants, the error committed in refusing to charge the request is of such a substantial character and so injuriqus to defendants as to require the reversal of this judgment and a new trial. It is insisted, however, that the exception to the refusal to charge was not properly taken, and In this connection reliance is placed upon what was said in Henderson v. Bartlett (32 App. Div. 441), that “ an exception to a charge requires that the alleged erroneous portion be specifically pointed out and the exception thereto taken, in order that the appellate tribunal may fairly see what the point sought to be presented is. * * * If the court seeks to give an exception to a party it must do it in language equally clear, and a mere statement by the court that (I understand counsel to except to my failure to charge all the requests not charged and to all modifications of requests,’ does not present any question; nor does it relieve a party from pointing out with reasonable certainty the particular wherein the ruling dr the charge is excepted to. . The court upon appeal is practically unable to spell out the point thus sought to be raised.”

In the case at bar- the defendants presented" certain requests in writing, which the court took up, and after stating'that it declined' to charge the first request, and then disposing: of the second, third and fourth requests said, on coming to the "fifth''request: “I will here state — and.it will "save some little time,' perhaps — that to each request of the defendants, which I refuse to charge, an exception may be entered.” And, at the end of the case and after all the requests on both sides had been passed upon, the counsel for the defendants said to the court, “1 understand each of us have an exception to the charges of the requests of the other side ? ” and the court answered, “Yes.” This case, therefore, is clearly distinguishable from the one upon which the respondent relies, because in that case the exception was a general one, whereas here specific requests in writing were presented to the court and read to the jury, some of which were refused, and to which refusal the court itself said that an exception should be noted. , There was no doubt, therefore, as to the specific propositions which the defendants sought to have charged, nor as to their attitude in excepting to the court’s refusal to charge specifically, nor is there any doubt of the court’s attitude in directing an exception to be noted to the specific proposition presented by the defendants and refused.

We think, therefore, that the exception here was properly taken.

It follows that the judgment must be reversed and a new trial granted, with costs to the appellants to abide the event.

Hatch, J., concurred1 McLaughlin and Laughlin, JJ., concurred in result.