Case ID: ad_116/html/0027-01.html
Source: Caselaw Access Project
Author: {"author": "Kellogg, J.: Smith, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

William E. Douglass, Respondent, v. Sarah A. Richards and Llewellyn B. Richards, Appellants.
    Third Department,
    November 14, 1906.
    Partnership — fraudulent misrepresentation by partner and the seller of a business as to amount of purchase price — bills and notes — when promissory note procured by fraud without consideration.
    Action to recover upon a promissory note. The defendant and his copartner bought a business of the plaintiff , each of-the copartners paying $2,000 in cash' and each giving his note to the plaintiff for $1,000, it being stated to the defendant that the purchase price of the business was $6,000. As a fact, however, the plaintiff had agreed to sell the business to the defendant’s copartner for $4,000, and, pursuant to a secret agreement, returned to the defendant’s partner the $2,000 paid by him.
    
      Held, that as the actual purchase price was $4,000, the defendant having paid $2,000 in cash, had paid half the value of the business and that the promissory note for the alleged balance, was without consideration;
    That the plaintiff was chargeable with the knowledge that the defendant’s partner owed him the utmost good-faith, and having participated in a fraud upon the defendant was nut entitled to recover;
    That it was no answer to say that the actual value of the business sold was $6,000. If property worth $6,000 was sold for $4,000, the defendant had a right to share in the benefits of the bargain;
    That the plaintiff was not required to rescind the contract but could defend upon the ground that the -note being obtained by fraud was without consideration, or that the damages he sustained by said fraud were measured by the amount of the note.
    (Per Smith and Cochrane, JJ.): The defendant on discovering-the fraud could either rescind or ratify the sale and counterclaim for damages suffered. That an .offer by the defendant to return the property, although not accepted, was a sufficient .tender to enable him to defend.
    .'.Appeal by:the defendantsyBarah A--Richards and another, from a judgment of-.the> Supreme -Gourt ih.iayor¿of the-(plaintiff, entered of April, 1904,. upon the decision' of the court, rendered after a trial at. the Madison. Trial Term,.the .jury having been discharged, both . parties having requested the direction of a verdict.
    The action.was to recover upon a promissory note of $1,000 and interest, given by the defendants to the plaintiff. The plaintiff and his partner owned the Ideal Manufacturing Company and desired to sell the same. As the defendant L. B. Richards understood, it was-sold to .one Newell and himself for $6,000. He paid $2,000. by check and gave the note in suit for the remaining $1,000, and Newell gave his check for $2,000 and. his note for $1,000. Newell and Richards, it was Understood between all the parties, were to purchase and carry- On the business as' Copartners. Both Richards and Newell were present at the time of the consummation of the bargain and the delivery of the1 check and -notes. ' Immediately after, at a private interview between the plaintiff and-Newell, pursuant to & prior secret agreement with him, the plaintiff returned to NéWell his check unused, so that said Richards in fact would pay $3,000 of the purchase price and said Newell $1,000.. Newell testifies that before the sale the property was- offered to him for $4,000 ; that he induced Richards to purchase it with him and informed the plaintiff that the price should be put at $6,000 and the trade closed at that figure, and that he gave his check and it was returned to him pursuant to an understanding to that effect with the plaintiff. ■ The plaintiff admits that he did put. the price upon the property at $4,000 toi Newell, but says- he told him he might have all over $4,000 he could get, and that the. sale was really for.$6,000 With $2,000 allowed Newell for making the sale.
    
      Fred G. Dutton [M. E. Driscoll of counsel], for the appellants.
    
      J. T. Durham [Joseph D. Senn of counsel], for the respondent.
   Kellogg, J.:

It is apparent that the property was offered for sale at $4,000 and that- the sale was really made at that price, but by collusion between the plaintiff and Newell the price was fixed af$6,000 .to the defendant Richards, and lie was induced to give the note in suit ' by tlie false representations and. suppression of the facts by Newell and the plaintiff. The $2,000 cheek which the defendant Richards gave did in fact pay for the half of the business which he purchased, and by the collusion between Newell and the plaintiff the note in suit was obtained by the plaintiff without consideration. Newell owed to the defendant who was purchasing this property with him the .utmost good faith, as they were engaged as partners in a joint undertaking, and the plaintiff knew and was chargeable with knowledge of the facts, and by his active co-operation and suppression of the facts a fraud was perpetrated upon Richards. The finding of the trial judge that the sale was in fact for $6,000, and that the $2,000 was given to Newell as a commission for his services in making the sale is not sustained by the evidence. Newell could not earn any commission in the sale of the property to himself, and the testimony of the plaintiff fairly shows that the actual selling price to Newell was $4,000 and that the alleged commission was a mere pretense and subterfuge.

By the fraud practiced upon Richards by the plaintiff and Newell he was induced to give the 'note in suit. It really was without' consideration, because he had already paid one-half of the agreed' purchase price, which was all that he undertook to pay. The alleged fact that the property was worth $6,000 does not- render the fraud nor the damage any less. (20 Cyc. 141.) A party has a right t« make a good bargain and is entitled to the benefit of it. The selling price of this property was $4,000. If it was worth $6,000 the defendant had secured the benefit of $1,000 by a good bargain. He was deprived of that benefit by the fraud of the plaintiff and Newell. The case, therefore, presents the situation. where the defendant has paid all that was due from him on account of the interest he bought in the property. The note, therefore, represents nothing but the fraud, and is without consideration, -which is equivalent to saying under the circumstances that the damage which the defendant sustained by the fraud was the amount of the note. The defendant was not required to rescind the contract, as under the facts shown at the late date of the discovery of the frauda rescission was very difficult. But he had the right to- defend against the ""note upon the ground that it represented no value and was obtained from him by fraud, ór that the damage he sustained by the fraud of the plaintiff was equal to the amount of the note.

It is evident the defendant paid all that was due from him on account of the purchase. It is also evident that the plaintiff actually had o/ily the benefit of <$1,000 on account of the half sold Newell, but he loses the other $1,000 by his fraudulent participation in the attempt to defraud Richards, and, therefore, has only himself to blame for his present situation. The judgment should, therefore', be reversed upon the law and' the facts, and a new trial granted, with costs to the appellant to abide the event.

Parker, P. J., and Chester, J., concurred; Smith, J., concurred in memorandum, in which Cochrane, J., concurred.

Smith, J.

(concurring) :

I concur in the result. Richards agreed to pay $3,000 for an undivided half of the property. One of the material inducements to the purchase ivas the fraudulent representation by Newell that he was to pay $3,000 for the other undivided half. To this fraudulent representation the plaintiff was a party. By reason of such fraud defendant could, upon discovery thereof, rescind and return what he had received upon the contract, or he could elect to ratify the sale and. counterclaim for damages suffered. While the property received has not been wholly returned, an offer to return the same was duly made and declined. This was sufficient. to enable defendant to defend the note upon a rescission duly made.

Cochrane, J., concurred.

■ Judgment reversed upon law and facts and new trial1 granted, with costs to appellant to abide event.