Case ID: ny-sup-ct_10/html/0144-01.html
Source: Caselaw Access Project
Author: {"author": "Daniels, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

JULES G. TOURNADE and another, Respondents, v. ANTON G. METHFESSEL, Impleaded, etc., Appellant.
    
      Partnership—person induced to join firm by fraud — liability of, for acts of copartners — Rescission of partnership agreement— effect of.
    
    When one is induced to become a member oí a partnership by fraud — he believing that he is to become a special partner, and be liable only for the capital advanced, but the provisions of the statute relative to special partners are not complied with — he is liable upon all contracts entered into by the firm in the ordinary and usual course of its business.
    A rescission of the partnership agreement on account of the fraud, will not discharge him from liability upon contracts entered into by the firm previous to the rescission.
    Appeal from an order sustaining a demurrer to the answer of the defendant, Methfessel. The action is brought upon a promissory note, signed by the defendants under the firm name of Hagedorn & Rohde. The defendant, Methfessel, alleged that he was induced to join the firm, by the fraudulent representations and concealments of his co-defendants, upon the express provision that his liability should be limited to the capital to be advanced by him; and that they intentionally deceived him in the matter of limiting his liability, leading him to believe that the necessary measures had been taken to effect such limitation. The answer further alleged that after the making of the note in suit, Methfessel commenced an action in the Supreme Court against the other defendants, to set aside the entire transaction because of the fraud, in which he declared his rejection and disaffirmance of it; offered to return anything he had received under his agreement; and made provision for all the creditors to come in and prove their claims. The plaintiff demurred to the answer on the ground that.it did not state facts sufficient to constitute a defense, and from an order sustaining the demurrer this appeal was taken.
    
      JuUen T. Davies and James MeUamee, for the appellant.
    Snead, Gri/rnball dc Ri/oes, for the respondents.
   Daniels, J.:

The answer shows that the defendant was induced by the fraud of the other defendants to become a member of their partnership firm. For that purpose he was to contribute, as capital, the sum of $20,000, and to receive seven per cent interest upon it, together with one-fourth of the net profits of the business, after it should be all paid in. The undemanding was that he should become a special partner, with a liability not exceeding the amount which he was required to contribute. But the provisions of the statute upon that subject were in no respect complied with; and for that reason, as he took no part in the management of the business, and was not publicly held out as a partner in it, he .became, upon the contribution of his capital, a general, dormant, or secret partner. For that purpose, the contribution of his capital, united with the right to share in the profits of the business, was sufficient. As a dormant partner, he became liable upon, and bound by, the contracts entered into -by the firm in the ordinary and usual course of its business, during the time he continued to sustain that relation to it. In the last case the chief justice, in his opinion affirming the general principles governing partnership transactions, stated that a man who shares in the profits, although his name may not be in the firm, is responsible for all the debts; and the acting partner has the power to transact the whole busine'ss of the firm, whatever that may be, and, consequently, to bind his partners in such transaction as entirely as himself.

Before the fraud was discovered, by means of which the defendant was induced to become a member of the firm, the debt in controversy was contracted on its account; and it is not denied but that it was properly within the business carried on by the firm. Afterward, the defendant discovered the fraud, and took measures to rescind the agreement under which he became one of its members. But that was too late to affect the rights of the plaintiffs, for the firm had then become liable for the payment of the debt; and that included the liability of all its members, whether known or unknown to the creditors. The effect of the purchase and receipt of the property, and the execution and delivery of the firm note for the price, rendered all its members liable from that time; and neither, by any act of his own, could afterward discharge himself without satisfaction. Unless the creditors assented to such discharge, rescinding the agreement existing between -the defendant and his partners, could not be attended" with such a result.

The case of Mason v. Connell sustains no principle exonerating the defendant; for it was held on the trial of that action, that “ if the partnership was subsisting at the time of the indebtedness of the defendants, then there is nothing in the defense; ” and that was sustained by the decision finally made in the ease by the court. In this respect it did not differ from Wood v. Conwell, which originated in a similar transaction. The charge in both was stated to be the same, and both cases were disposed of in the same way. This principle was further sustained by the cases of Rawlins v. Wickham, Henderson v. Royal British Bank, Daniell v. Same, and 2d Lindslay on Partnership.

Rescinding the agreement existing between himself and his partners, did not have the effect of discharging the defendant from liability upon the contract previously made between the firm arid the plaintiffs; he still continued bound for the performance of that obligation, although, as between themselves, his partners might be liable to indemnify him against its consequences. The effect of the rescission was necessarily limited to the persons who were parties to the. agreement rescinded. It did not, and could not, include contracts by which all of them had become bound for to third persons. The answer, therefore, contained no defense; and the order sustaining the demurrer to it should be affirmed, with costs.

Davis, P. J., and Lawbbnce, J., concurred.

Order affirmed, with costs. 
      
       Manhattan Brass Co. v. Sears, 45 N. Y., 797; Ontario Bank v. Hennessey, 48 id., 545; Kelley v. Hurlburt, 5 Cowen, 534.
     
      
       Robinson v. Wilkinson, 3 Price, 538; United States v. Binney, 5 Mason, 176, 187, 188; Winship v. Bank of U. S., 5 Peters, 539.
     
      
       Id., 561.
     
      
       1 Wharton, 881.
     
      
       Id., 388.
     
      
       2 Wharton, 542.
     
      
       Id., 563.
     
      
       1 Gifford, 355; affirmed, 3 De Gex & Jones, 304.
     
      
       7 Ellis v. Blackburn, 356.
     
      
       1 Hurlstone & Norman, 681.
     
      
       2d ed., 937, 938, 941.