Case ID: va_50/html/0117-01.html
Source: Caselaw Access Project
Author: {"author": "*DANIEL, J.,", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

*Sexton v. Sexton.
    July Term, 1852,
    Lewisburg.
    (Absent Samuels, J.)
    Partnership — Sale of One Partner’s Interest to the Other- -Good Faith — Case at Bar. — Two partners carry on an extensive business, embracing various subí ects, and they keep no regular set of books. One of them attends exclusively to the out door business, makes the contracts and executes notes (or the firm, of which no regular account is kept. They at length quarrel, and the inn door partner Insists upon a dissolution of the partnership, and there is a proposition to buy or sell. The out door partner, in making an estimate of the value of the partnership property for his own guidance in any proposition he may make or receive, attempts to make out a list of the debts due from the concern, and he estimates them at about one half that they turn out to be; but it does not appear that he represents them to his partner at any amount, or that his partner did or would have confided in any representation he made. After making his estimate he makes an offer to sell or buy at a specific price, and his partner agrees to buy at the price offered; and the contract is executed. Held: That under the circumstances the selling partner was bourn d to the utmost good faith on his part. He was bound not only to disclose truly any information in his possession that might be called for, but if he perceived that the purchasing partner was laboring under incorrect views in reference to the amount of the debt due by the concern, by which he might be misled Into too high an offer for the interest to be sold, it was his duty to furnish all the data he might have by which such views might be corrected and the mischief proventead; and in this case he does not appear to have violated his duty.
    This was a suit in equity instituted in November 1842, in the Circuit court of Wythe county, by John Sexton against David Sexton. The bill charged that Joseph Sexton, who resided at Wythe courthouse, died in 1829, and by his will devised his real property to his two sons, the complainant and defendant, and directed that his business, which was large, and consisted in a tannery, saddlery and shoemaking establishment, and other business connected therewith, should be carried *on, as it had been, for the next three years for the benefit of his widow who was then living. That the business was so carried on for some time, and was conducted principally by David Sexton, during which time the complainant was a minor and for the greater part of that period was residing in Alabama, where he was then learning his trade. That it was the request of their father that after the said three years had expired, the complainant and defendant should continue the business in partnership; and that they accordingly did business in partnership from 1831 to 1839.
    That from the fact that David Sexton was the eldest and had acquired a full knowledge of the business, he naturally assumed the almost exclusive control of it, which had become very extensive and connected with various other subjects, such as the purchase of cattle, butchering for the town, peddling the various articles of the estab- • lishment, such as leather, shoes and saddlery, in different parts of the country; and .that during all this time, the attention of the complainant was confined and limited to the business of the shop, and of necessity, he knew but little of the business generally. That all the money that was .from time to time collected in the establishment, was generally demanded and received at the end of each day by David Sexton, and its application never made known to the complainant. That many of the hands in , the establishment and the young men engaged in peddling were charged to keep the whole business as much a secret from the complainant as possible, that these things excited at the time the suspicion of the complainant, but he could not suppose there Was any design to defraud him. That the partnership was continued during the period aforesaid, certainly not on such terms of harmony and good feeling as would have been desirable in a partnership conducted by brothers. That in the course of the business David Sexton had, as it had *since appeared, executed his own individual note in numerous instances on contracts which it was alleged were on account of the firm; and this too after he had married and had acquired a separate property of his own, upon which he began to trade. That the longer the business was continued the more diffused it appeared to become, and consequently the complainant was less able to understand its capacity and extent. He therefore determined to make an effort to sever a connection, the business of which was so concealed from him, and which it was at least possible might involve him in inextricable difficulty, in addition to the daily indignities and insults which were lavished upon him by the said David.
    That though aware of the disadvantage under which he would labor in contracting with the said David, who was well apprised of all the liabilities of the concern, and of the debts due to it, all of which had been so cautiously concealed from the complainant, yet he resolved to make the effort, and in May 1839, propositions were interchanged between them for a sale and purchase of the entire interest of the concern. That, preparatory however to the making the propositions, complainant said to the said David, that inasmuch as the business, at least all that part of it which had been done by him exclusively, and of which the books of the concern gave no information, and of which complainant had no personal knowledge, he must give him information on the subject that complainant might know the value of the concern, as well as its capacity to produce. That as to the value of the property, real and personal, belonging to the concern, as well as the amount of debt owing of which the books gave an account, complainant did not desire any information nor did he ask any. That the said David Sexton then distinctly informed the complainant that there were 8000 dollars then owing to the concern, which cornplainant *was able to see from the books, and did see, was correct. He then distinctly informed complainant that the liabilities of the concern did not exceed 3000 dollars; he having stated that he had a list of all of them, leaving a balance in favor of the concern of 5000 dollars. That upon this information thus derived, and upon which complainant implicitly relied, the treaty for the contract commenced and was consummated.
    That complainant was anxious to purchase the property and continue the business, as according to the information given by the defendant, of which he did not then doubt, it showed large profits during its previous existence, and complainant did not conceal his wishes on the subject, but they were communicated to the defendant by their mutual friends. That he expressed his willingness to give 9000 dollars in payments such as were named, and of this the defendant was informed; and he immediately came to the complainant with a proposition, either to give or take the said sum of 9000 dollars.
    That superadded to all this, there was a further fraudulent and deceptive inducement held out to the complainant by the defendant, to induce him to make what the defendant then knew to be a bad and improvident contract. That the complainant observed to the defendant that he would have it in his power, if they should trade, to oppose complainant in business and thereby render complainant’s business far less profitable, as the business at the place would not support two such establishments as they would each endeavor to keep up. To which the defendant replied that complainant need not give himself any fears on that subject, as he would promise and agree that he never would oppose complainant in business at Wythe court-house, the place where their business was carried on. And this constituted an important consideration and inducement to the purchase, which was shortly thereafter made.
    *That under the circumstances hereinbefore disclosed, the complainant, on the 9th of May 1839, entered into a contract with the defendant, for the purchase of his entire interest in the partnership concern aforesaid, at the price of 9000 dollars, to be paid in five equal annual payments of 1800 dollars; and the complainant executed to the defendant his five notes, each for said sum of 1800 dollars.
    That the complainant went on in good faith to.perform his part of the contract, and did not discover for some time the iniquitous fraud that had been practiced upon him. That he paid the first two notes which fell due. That although he had not yet ascertained certainly the extent of the liabilities of the partnership, he has ascertained that instead of. being 3000 dollars they would far exceed 5000 dollars, as he had already ascertained and adjusted debts to the amount of 5154 dollars 89 cents, and that there was probably much more to be heard of. That of very many of these debts the complainant had never heard until they were presented for payment; and some of them were the bonds of the defendant, which he alleged were given for the partnership business. And further, that the defendant had, in violation of his contract, established himself near the establishment of the complainant, in business of the like character with complainant’s, to compete with and oppose him.
    That if complainant had been apprised of the true state of the concern, which he had no earthly- means of ascertaining except through the defendant, he could not have been induced to make the contract; because his means would not have authorized him to make it; and because he would not have purchased a concern which to all appearances was not profitable.
    That a suit had been brought on the third note of 1800 dollars due the 9th of May 1842, by the defendant, and judgment had been obtained, upon which complainant had given a forthcoming bond.
    *The prayer of the bill was for an injunction to the judgment; that the contract might be set aside, the remaining two notes be decreed to be delivered up to the complainant; the amount paid by him returned with interest, and for general relief.
    David Sexton answered the bill. He exhibited a copy of Joseph Sexton’s will, and alleged that the plaintiff had greatly misrepresented its provisions; and he proceeded to point out the errors. He alleged that their father devised to them but one house, and no personal property; and that the plaintiff knew that all the real and personal estate except said house, had been acquired by them after the death of their father, and were the proceeds of the partnership business. He denied that the plaintiff did not understand the business of the partnership ; and alleged that whenever complainant applied to him in a proper manner and at a proper time for information in relation to any branch of the business under the defendant’s care, he gave him all the information in his power. He proceeded to answer in detail the various charges in the bill, denying some and explaining others. In answer to the charge of having fraudulently misrepresented the amount of the debts of the partnership, he says it is not true he informed the complainant the liabilities of the concern did not exceed 3000 dollars. That a regular set of books was not kept, and it was impossible to ascertain certainly the amount of the outstanding debts against the firm. That he hastily examined the books and papers, to ascertain as near as practicable the amount owing to the firm, and its liabilities. He does not remember whether or not the complainant requested him to give a list of the outstanding debts. That he did endeavor from his recollection to ascertain the amount of these debts, and to make a list of them. In this way he thinks he arrived at the conclusion that the outstanding notes and bonds owing by the firm ^amounted to between 3000 dollars and 4000 dollars. Open accounts were not taken into his calculation, because they were shown by the books. That he never represented the outstanding debts_ against the firm as amounting to any precise sum, because he did not know their exact amount, and because his estimate was made from memory only, as he believes was well known to the complainant. In making the estimate no interest was calculated on any of the outstanding debts. He said he had no recollection that he had ever heard that complainant would give 9000 dollars for defendant’s interest in the concern. That if he had heard it, he was not influenced by it in determining what sum he would give for complainant’s or take for his own interest. It was his opinion at the time, and still is, that the whole property of the firm was worth more than 18,000 dollars. He fixed the sum to be paid considerably less than he estimated its value, from the fact that he knew such a sum of money would be difficult to raise, and because he believed it to be just that he who should bind himself to pay such a sum of money for property ought to have a good bargain. At that time the property and debts owned and due to the firm were worth, after discharging all claims against it, more than 20,000 dollars. He denies that he ever agreed with or promised the plaintiff not to engage in the same kind of business at Wythe court-house, that they had been doing. He denies expressly that in negotiating the contract with the complainant he was guilty of any concealment or fraud, but he avers that he acted openly, fairly and honestly throughout the transaction.
    Whilst the cause was pending in the_ Circuit court, the defendant recovered judgments on the two remaining notes, which were enjoined upon the grounds stated in the bill.
    *The cause came on to be heard in April 1846, when the court held that the contract of May 9th, 1839, should not be rescinded, and, so far as the bill sought a rescission of the contract, it was dismissed. But the court held, further, that the plaintiff was entitled to relief to the extent of one moiety of the indebtedness of the partnership of D. & J. Sexton beyond the sum of 3000 dollars. And the case was referred to a commissioner to take an account of the indebtedness of the partnership on the 9th of May 1839, and report the same to the court, with any matter specially stated, deemed pertinent by himself, or required by the parties to be so stated.
    In April 1848, the commissioner returned his report, by which it appeared that the firm of D. & J. Sexton were indebted, on the 9th of May 1839, in the sum of 6236 dollars 97 cents. The commissioner also reported a special statement, at the instance of the defendant, of the value of the partnership property at the same date, which showed that after allowing for all the debts due from the partnership, the property of the concern was then worth 18,729 dollars 3 cents.
    
      In December 1848, the cause came on again to be heard, when the court, adhering to the opinion previously expressed, that the plaintiff was entitled to relief to the extent of one-half of the debts of the partnership above 3000 dollars, which was. the sum of 1618 dollars 48% cents, perpetuated the injunction as to that sum, and dissolved it as to the remainder. David Sexton thereupon applied to this court for an appeal, which was allowed.
    The material evidence in the cause is stated in the opinion of the, court.
    Floyd and Sheffey, for the appellant.
    B. R. Johnston, for the appellee.
    
      
      Partnership -Sale of One Partner’s Interest to the Other — Good Faith. — For the proposition that, where one partner sells bis interest to the other partner, the utmost good faith is required, see the principal case cited and approved in Tennant v. Dunlop, 97 Va. 244, 33 S. E. Rep. 620.
    
   *DANIEL, J.,

delivered the opinion of the court.

The court is of opinion that the Circuit court did not err in dismissing the bill of the appellee, so far as it sought a rescission of the contract of the 9th May 1839, in the bill and proceedings mentioned. But the court is also further of opinion that the Circuit court erred in holding that the appellee was entitled to relief to the extent of his portion of the indebtedness of the partnership concern of David and John Sexton beyond the sum of 3000 dollars, and in perpetuating the injunction, granted to prevent the appellant from collecting the amount of his judgment at law recovered by him against the appellee for 1800 dollars, with interest from the 9th of May 1842, as to the sum of 1618 dollars and 48% cents, the half of such excess reported by the commissioner ; this court being of opinion that the pleadings and proofs furnish no grounds for relief to the appellee to any extent whatever. The main allegations on which the relief prayed for was sought, were that the appellant represented to the appellee that the liabilities of the concern did not exceed 3000 dollars, when he in fact knew that they greatly exceeded the sum of 5000 dollars; and that he promised and agreed never to oppose the appellee in business at Wytheville. The last allegation is explicitly denied in the answer, and no proof whatever is to be found in the record to support it; and it therefore becomes unnecessary to consider whether, if proved, it would have furnished any ground for the relief sought. With respect to the first allegation, the appellant in his answer denies that he represented to the appellee that the liabilities of the concern did not exceed 3000 dollars. He states that a regular set of books was not kept, and that it was impossible to ascertain certainly the amount of the outstanding debts against the firm. That when engaged in the negotiation which led to the contract of the 9th May *1839, he hastily examined the books and papers to ascertain as near as practicable the amount owing to the firm and its liabilities; that he does not remember whether the appellee requested him to give him a list of the outstanding debts or not; that he did endeavor from his recollection to ascertain the amount of debts outstanding against the firm, and to make a list of them. In this way he thinks he arrived at the conclusion that the outstanding notes and bonds owing by the firm amounted to between 3000 dollars and 4000 dollars; that open accounts were not taken into his calculation, because they were shown by the books; that he never represented the outstanding debts against the firm as amounting to any precise sum, because he did not know their exact amount, and because his estimate was made from memory only, as he believes was well known to the appellee.

It appears that the parties were not on speaking terms at the time of the negotiation which led to the contract of dissolution, and had not been for some time previous. They had no personal interview pending the negotiation; and Richardson, who mediated as a friend in bringing about an adjustment, is the only witness who speaks positively in reference to any representation made by either party touching the subjects of the'contract. He states that he was frequently in the room of the appellant whilst he was making out his estimates for a proposition to buy or sell; that he (the appellant) estimated the value of the whole interest of the concern at about 18,000 dollars ; and that he represented the debt due by the firm as being between 2000 dollars and 3000 dollars; and the debt due to the firm as being between 8000 dollars and 9000 dollars. It is to be observed that Richardson, though examined twice, does not in either of his depositions state that this representation was made for the information of the appellee, or that it *was in fact ever communicated to him; and if his testimony in this respect is to be regarded as directly contradicting so much of the answer of the appellant as denies that he represented to the appellee that the debts due by the concern did not exceed the sum of 3000 dollars, it must be also further observed that this testimony stands unsupported by the other proofs in the record. It is in proof that no regular set of books was kept, and that the appellant, when urged by the appellee either to sell out his own interest or to purchase that of the appellee, desired to defer the negotiation ; expressed a wish that the firm should continue in existence for a brief period longer, in order that the state of its affairs might be better ascertained, and each party the better enabled to arrive at a correct estimate of the value of the subjects to be bought and sold; and that he did not finally consent to enter upon the negotiation until hastened by a threat on the part of the appellee that he would file a bill for bringing the concern to a close, if he did not come to some conclusion at once; and that he then proceeded to estimate the value of the subjects of the treaty and to make the proposals, either to buy or sell, which resulted in the purchase of his interest by the appellee. It is true that Etler states that he held a conversation with the appellant a few days after the sale, in which the appellant stated that he had offered and was willing to take or give the sum of 9000 dollars for the half of the concern ; that a great deal of money was due to the firm; between 7000 dollars and 8000 dollars; and that the debt due by the firm did not exceed 3000 dollars. It is also true that Ryder states that the appellant, in a conversation with him a day or two after the contract of dissolution was entered into, told the witness that there were 8000 dollars due the concern, and that he thought there was not more than 3000 dollars due from the concern ; and that on his (the *witness) remarking that the appellee could never pay him in this world, the appellant replied that he did not see how he could help it, as there was about 5000 dollars due to the concern after paying the debts. Neither of these witnesses, however, disclose any admission on the part of the appellant that he had made any representation to the appellee in relation to the amount of debt due by the concern; and their testimony does not conflict with the idea, that any statements, made by the appellant to Richardson in reference to the amount of the indebtedness of the concern, were mere expressions of opinion or conjectural estimates hastily made from memory and without any design that they should be understood by Richardson as representations of the state of the outstanding debt, based on precise information. We therefore concur with the judge of the Circuit court in the belief expressed in his written opinion, that the record does not furnish the proof of any fraududent representations made by the appellant in reference to the subject of controversy. We feel justified in going a step further and expressing the belief that the pleadings and proofs fail to disclose the practice of any dissimulation or the sort to any- artifice on the part of the appellant to entice the appellee into the contract, or to mislead him as to the probable value of any matter that was the subject of their negotiation. As most if not all of the debts due by the concern were contracted by the appellant, and no regular books had been kept to which the appellee could resort for information as to their precise amount, we concede that the position of the appellant called for the exercise of the utmost good faith on his part. He was bound not only to disclose truly any information in his possession that might be called for, but if he perceived that the appellee was laboring under incorrect views in reference to the amount of the debt due by the concern, by *'which he might be misled into too high an offer for the interest to be sold, it was his duty to furnish all the data he might have, by which such views might be corrected and the mischief prevented. We do not, however, discover in the case the proof of any effort on the part of the appellant to abuse the confidence of the appellee, or to avail himself of any unfair advantage. We do not perceive that he has withheld any information called for, or that he has knowingly acquiesced in any mistaken views or estimates on the part of the appellee by which he might be ensnared into self deception and loss.

The bill, it is true, charges that pending the negotiation the appellee had frequently expressed his strong desire to purchase the interest of the concern, and continue the business, and also his willingness to give 9000 dollars for the moiety belonging to the appellant; that information of this state of things was communicated to the appellant, and that in consequence of it he made the proposition, either to buy or sell, at the price of 9000 dollars. The charge, though not made in terms, is thus inferentially suggested, that the appellant in making the proposition was in fact governed by the belief that 9000 dollars was the fair value of the interest, and by an honest desire either to give or take that amount for it, but by the belief that the appellee was acting under too high an estimate of the real value of the subject, in which he would probably be confirmed by such a proposition, and thus misled into an improvident bargain. In reference to this charge, it is sufficient to say that the answer expressly denies it, and that there is nothing in the testimony tending in the slightest degree to impeach the candor or sincerity of the appellant in making, the proposition.

The judge of the Circuit court, whilst he acquits the appellant of all moral fraud in the transaction, yet *holds him liable, on the ground that he has made mistaken representations about matters of business, the subject of the contract in relation to which he had information not possessed by the appellee; that the appellee has been misled by the representations, and consequently injured, and that the appellant is responsible for the consequences. The responsibility in some form and to some extent could not be denied, if the facts upon which it is based by the judge were admitted to be true. Neither of the facts, in our opinion however, appear in the case. We have already expressed our belief that the appellant made no representation as to any specific amount of debt as due by the concern ; and we have no satisfactory data by which to arrive at a conclusion as to the amount which the appellee believed to exist at the time of entering into the contract; whilst all the proofs and circumstances go to negative the idea that the appellee based his views of the value of the interest purchased on any representation of the debts and liabilities of the concern which may have been reported to him as coming from the appellant. Instead of reposing confidence in the supposed superior knowledge of the appellant as to the extent of the debt due by the firm, it is in proof that the appellee greatly distrusted his partner, and regarded his conduct and statements with the utmost suspicion.

What estimates he made with a view to entering into the contract, or upon what data they were based, we are not informed by the evidence. He knew the value of the real estate; he was possessed of full information in respect to that branch of the business which had been conducted by himself; and had, doubtless, a general knowledge and memory of the purchases which had been made for the firm. He knew, however, that there were no books furnishing precise information as to the extent of the indebtedness of the *firm, and his feelings of distrust and suspicion towards the other contracting party stood in the way of his relying on any statements which might come from him in relation to the matter. If he did not mean therefore to enter upon a contract of hazard, ordinary prudence would have required that he should postpone a settlement or adjustment till more accurate information as to the true condition and value of the different subjects to be treated about could be obtained. Yet we find him rejecting the proposal to defer for a while the conclusion of the bargain, thus discarding the only means of avoiding all risque, and hurrying the negotiation to a close. He cannot complain that he is held to have contemplated the hazard he might encounter, and to have intended to incur and abide by it. If under these circumstances his anticipations of profit have not been- fully realized, we can not recognize the equity that would visit his disappointment on the other contracting party who pleaded for further time; and when it was denied, still left it to the election of the other party, either to give or take the price at which the interest was contracted for. The extent to which the value of the subject was to be affected by the outstanding debt was with each of the parties a matter of doubt and speculation, and neither can rightfully complain if the other acted with good faith. We can discover no want of it on the part of the appellant. We do not see that he has either said or done, or improperly omitted to say or do, anything whereby the appellee might be deceived and injured. We find in the case no ground on which the relief asked, or any relief in equity, can be properly based. And we come to this conclusion with the less reluctance, inasmuch as it is not made apparent that the appellee, even after allowing for the disappointment occasioned by the outstanding debt turning out to be larger than

he anticipated, has made a hard bargain. *Be this as it may, however, we do not perceive that the bargain

was in any respect unfair, and know of no rule in equity by which the appellee can be relieved against its consequences. We think the injunction t'o the judgment on. the note falling due on. the 9th May 1842, ought to have been dissolved in whole with damages, and the bill dismissed with costs, &c. Decree accordingly.

Decree reversed, injunction dissolved, and bill dismissed.