Case Title: Wales v. Roll

Citation: 

Docket Number: 

State: wyoming

Court: Wyoming Supreme Court

Date: 1989-02-24T00:00:00Z

Document:
Wales v. Roll1989 WY 53769 P.2d 899Case Number: 88-166Decided: 02/24/1989Supreme Court of Wyoming
RON 
WALES, D/B/A VIDEO, 
U.S.A., APPELLANT 
(DEFENDANT),

 
 
v.

 
 
ROSS M. 
ROLL AND VICKI FRANKE, A WYOMING PARTNERSHIP, D/B/A RV ENTERPRISES, 
APPELLEES (PLAINTIFFS).

 
 
Appeal from 
the District Court, CampbellCounty, Timothy J. Judson, 
J.

 
 
John C. 
Hoard, Casper, 
for appellant 
(defendant).

 
 
J. Stan 
Wolfe, Gillette, for appellees 
(plaintiffs).

 
 
Before THOMAS, URBIGKIT, MACY and GOLDEN, JJ., and 
BROWN, J., Retired.

 
 

MACY, 
Justice.

 
 

[¶1.]     This is an appeal from 
a summary judgment in a replevin action ordering appellant Ron Wales, d/b/a 
Video, U.S.A., to deliver business properties to appellees Ross M. Roll and 
Vicki Franke, d/b/a RV Enterprises, upon a finding that Roll and Franke had a 
continuing security interest notwithstanding a subsequent sale of the property 
by the debtor to Wales. 

 
 

[¶2.]     We 
affirm.

 
 

[¶3.]     Wales 
generically states his issue to be:

 
 
     Did the District Court 
err in granting Appellees' Motion For Summary Judgment because genuine issues of 
material fact existed and the Appellees were not entitled to judgment as a 
matter of law?

 
 

[¶4.]     Specifically, Wales 
questions whether it was error for the court to permit Roll and Franke to 
support their motion for summary judgment with untimely filed depositions and 
whether the acts of one partner caused Roll's and Franke's security interest to 
become unenforceable against Wales' possessory rights to business properties. 
These are questions of law, the answers to which depend upon the facts of this 
case. The material facts in this case are not in dispute.

 
 

[¶5.]     Roll and Franke were 
the two members of a partnership known as RV Enterprises which owned and 
operated a video rental agency in Gillette, Wyoming. During the month of June 1986, RV 
Enterprises listed the video business for sale with Century 21 Sun Agency of 
Gillette, Wyoming. Wales made an 
offer to purchase the business for $85,000. Roll said he would give his consent 
to sell the business for the price offered if Century 21 would accept a $2,500 
commission rather than a commission of seven percent of the selling price. 
Century 21 refused to take a lesser commission.

 
 

[¶6.]     Franke, Monte G. 
Schulte (a defendant below), and Wales reasoned that they could satisfy Roll's 
minimum cash price by structuring a sale to Schulte since they believed this 
sale would not generate an entitlement to a real estate commission. To 
facilitate this plan, Schulte entered into a written contract with RV 
Enterprises on December 31, 1986, to purchase the business for $86,850 by paying 
$50,000 in cash down and the $36,850 balance plus ten percent interest thereon 
on or before March 6, 1987. Concurrent with signing the purchase agreement, 
Schulte signed a security agreement granting RV Enterprises a security interest 
in the business assets to secure the balance of the purchase price. 
Wales provided Schulte with the down 
payment but was unable to obtain a bank loan to pay the balance of the purchase 
price.

 
 

[¶7.]     On February 23, 1987, 
Wales entered into a written 
agreement with Schulte to purchase the business for $90,000 by paying $55,000 in 
cash and thirty-six monthly payments of $1,000 each. The additional $1,000 
payment was Schulte's fee for acting as the straw man. Franke prepared this 
contract and signed it to evidence her responsibility for it. Roll first became 
aware that Franke, Schulte, and Wales had engaged in the straw man 
transaction after Schulte failed to pay the balance due under the RV 
Enterprises/Schulte contract.

 
 

[¶8.]     On July 17, 1987, RV 
Enterprises filed a complaint against Schulte and Wales, alleging the existence 
of the two contracts, the security agreements, and the default and praying that 
RV Enterprises' security interest in the property be declared superior to the 
contracts, that the property be assembled, delivered, and sold, and that 
judgment be entered against Schulte for any deficiency remaining after sale. 
Wales timely filed his answer 
alleging a plethora of affirmative defenses which included fraud on the part of 
RV Enterprises by conspiring with Schulte to induce Wales to buy the business so that they could keep 
Wales' $50,000 after Schulte 
intentionally failed to make the balloon payment pursuant to the terms of the RV 
Enterprises contract. Schulte failed to answer, and default was entered against 
him.

 
 

[¶9.]     After the action 
progressed through the court's case management schedule, the parties each filed 
a motion for summary judgment stating that they would rely upon the depositions 
of Wales, Roll, and Franke. On March 8, 
1988, the court filed its order allowing RV Enterprises to file these 
depositions. On April 26, 1988, the court also signed a similar order which was 
filed April 27, 1988.

 
 

[¶10.]  On April 26, 1988, immediately prior to 
the hearing on the cross-motions for summary judgment, Wales objected 
to the use of unfiled depositions by RV Enterprises in support of or in 
opposition to the motions. The following colloquy took place: MR. WOLFE: I have 
a motion in my file that has been filed, motion for filing discovery 
depositions, and I filed this on March 4th, which asks for the filing of the 
depositions of Wales, Franke and Roll.

 
 
THE COURT: 
You're right; that was filed.

 
 
MR. WOLFE: 
I would renew that motion at this time and present the court with copies of 
their depositions.

 
 
MR. O'NEIL: 
Your Honor, that's exactly what I was talking about.

 
 
I'm in 
receipt of a copy of that motion. I would stipulate on that to the court, but 
Rule, Uniform Rule # 302(b) says at the time of filing of the motion. If the 
court ruled on that motion later or today, that's not sufficient under the 
Uniform Rules.

 
 
THE COURT: 
Well, the court should have ruled on that earlier, and that's my fault for not 
doing that.

 
 
Are you 
claiming some sort of surprise, Mr. O'Neil, by the use of those depositions, 
noting, of course, that you used part of those depositions in your 
motion?

 
 
Because, if 
you are, we'll simply put off hearing this motion until you've had sufficient 
time to make any responses you think are appropriate and proceed at that 
time.

 
 
But I can 
see no reason why the court should not consider those depositions. The 
appropriate motion was made, and the court simply failed to rule on it through 
oversight, or whatever.

 
 
But we can 
either go ahead and use them now, or, if you don't wish to do that, we'll simply 
reset this hearing at a time so that we're in compliance, strict compliance with 
the Rules of Civil Procedure.

 
 
MR. O'NEIL: 
Well, Your Honor, I can't claim surprise in that in the motion it is mentioned 
that he's going to use the depositions in reliance.

 
 
I guess my 
problem is using the entire depositions. I'm not - really haven't been given 
notice of exactly what portions of the depositions are going to be used or the 
basis of the argument.

 
 
But I'm 
familiar with the depositions, Your Honor, all three of 
them.

 
 
THE COURT: 
Well, if you are familiar with all three of them we're simply going to proceed 
today then.

 
 
And at the 
close of this, if there is any need for you to make further response, I will 
allow you the additional time to do that.

 
 
You may 
proceed with your argument, Mr. Wolfe.

 
 

Wales and RV 
Enterprises, through their attorneys, then extensively referred to the 
depositions to support their respective motions.

 
 
On April 
27, 1988, the court filed its order granting RV Enterprises' motion for summary 
judgment and denying Wales' motion upon findings 
that:

 
 
9. In 
accordance with W.S. § 34-21-935(b), a security interest in collateral continues 
notwithstanding its sale, exchange or disposition, unless the disposition was 
authorized by the secured party.

 
 
10. There 
is no evidence of RV Enterprises authorizing Schulte to sell the subject 
property to Wales unencumbered by the security 
interest.

 
 
On May 6, 
1988, the court filed its judgment in which it incorporated by reference the 
April 27, 1988, order and in which it ordered Wales to 
assemble and deliver the business assets to RV Enterprises. It is from this 
judgment that this appeal has been taken.

 
 
FILING 
DISCOVERY DEPOSITIONS

 
 

[¶11.]  The purpose behind the requirement for 
filing discovery documents concurrently with filing a motion for summary 
judgment1 is to afford a responding party a 
meaningful opportunity to challenge the documents submitted. Macaraeg v. 
Wilson, 749 P.2d 272 (Wyo. 1988). We recently 
held, however, in Atlas Construction Company v. Slater, 746 P.2d 352 (Wyo. 
1987), that the failure to file depositions at the time of filing a motion for 
summary judgment is not reversible error unless it affects a substantial 
right.

 
 

[¶12.]  Wales has failed to demonstrate to 
this Court how he was prejudiced by RV Enterprises' failure to timely file the 
depositions it used to support its motion for summary judgment. The record, 
however, reflects that, in addition to the court entering two orders allowing RV 
Enterprises to use the subject depositions, the court offered to vacate and 
reset the hearing if Wales was in any way surprised by 
their use. Wales not only disclaimed surprise or 
unfamiliarity, he used the same depositions to support his motion for summary 
judgment without having filed them at the time he filed his 
motion.

 
 

[¶13.]  The depositions were before the court 
when it ruled on the motion for summary judgment and, like in Atlas Construction 
Company, the failure of RV Enterprises to timely file the depositions was a 
technical imperfection which did not affect a substantial right of 
Wales and was not reversible 
error.

 
 
VALIDITY OF 
SECURED TRANSACTIONS

 
 

[¶14.]  Wyo. Stat. § 34-21-935(b) (1977) 
provides:

 
 
Except 
where this article otherwise provides, a security interest continues in 
collateral notwithstanding sale, exchange or other disposition thereof unless 
the disposition was authorized by the secured party in the security agreement or 
otherwise, and also continues in any identifiable proceeds including collections 
received by the debtor.

 
 

[¶15.]  Wales attempts to avoid the effect of 
this statute by reasoning that Franke's participation in what he characterizes 
as fraudulent transactions should cause the RV Enterprises/Schulte contract and 
security agreement to be unenforceable. We do not agree. Assuming arguendo that 
Franke's actions are either fraudulent, unlawful, or against public policy, 
there is no basis for imputing such actions to RV 
Enterprises.

 
 

[¶16.]  Wyo. Stat. § 17-13-301(b) (1977) 
provides:

 
 
An act of a 
partner which is not apparently for the carrying on of the business of the 
partnership in the usual way does not bind the partnership unless authorized by 
the other partners.

 
 
Although 
Franke was authorized to carry on the video rental business in the usual way, 
she did not have the authority to sell the business assets of RV Enterprises 
without the consent of Roll. Her conduct with Schulte in their dealings with 
Wales was "not apparently for the 
carrying on of the business of the partnership in the usual way." Thus, her 
conduct did not bind the partnership "unless authorized by the other partners." 
It is undisputed that Roll did not consent to, or have prior knowledge of, the 
sale of the business property to Wales through Schulte as a straw man, 
or otherwise. Since Roll did not authorize Franke's conduct, her conduct did not 
bind the partnership.

 
 

[¶17.]  We hold as a matter of law that it was 
not error, under the circumstances of this case, for the district court to 
permit RV Enterprises to use unfiled depositions to support its motion for 
summary judgment and that the alleged acts of Franke did not undermine RV 
Enterprises' security interest in the property sold to Schulte, notwithstanding 
the subsequent sale to Wales.

 
 

[¶18.]  AFFIRMED.

 
 
URBIGKIT, 
J., files an opinion concurring in part and dissenting in 
part.

 
 
FOOTNOTES

 
 

1 Rule 302(2) of the 
Uniform Rules for the District Courts of the State of Wyoming provides in part: 
"At the time of filing a motion for summary judgment the movant shall designate 
and file relevant portions of the discovery documents relied 
upon."

 
 
URBIGKIT, 
Justice, concurring in part and dissenting in part.

 
 
WAIVER OF 
NON-COMPLIANCE WITH RULES FOR SUMMARY JUDGMENT

 
 

[¶19.]  I would take a different path in analysis 
to overlook movants' error which permitted trial court consideration of 
depositions when it ruled on the motions for summary judgment. With their motion 
for summary judgment filed on March 4, 1988, appellees (Franke-Roll) cited 
reliance on their brief and "depositions of Ron Wales, Vicki Franke and Ross M. 
Roll." On the same date, they filed a Motion to Allow Filing of Discovery 
Depositions without attaching the depositions.1 Also on that same day, appellant, Ron Wales 
(Wales), filed his motion for summary 
judgment relying on a properly attached affidavit and designated portions of 
several depositions for evidentiary support. After Franke-Roll filed their 
request for authority to file the depositions, the approving court order was 
granted on March 8, 1988. However, Franke-Roll did nothing further to either 
file or present the depositions to the trial court prior to hearing. An earlier 
pretrial order had given each party the right to file a motion for summary 
judgment which also set a date for hearing of April 26, 1988. When that hearing 
convened, Franke-Roll had not filed any depositions or other documents to supply 
evidence to support their motion for summary judgment and, in fact, the 
depositions were not actually filed with the clerk's office until June 22, 1988. 
Clearly, Franke-Roll were not in compliance with our summary judgment rule, 
W.R.C.P. 56.

 
 

[¶20.]  Immediately upon commencement of this 
hearing, Wales, as respondent to the motion for summary judgment, objected to 
consideration of either the Franke-Roll motion or any rejection of his 
cross-motion for summary judgment if either would be based on a consideration of 
the then unfiled depositions. Of course, Wales 
urged the consideration of the excerpts which had been reproduced and properly 
submitted by him. Responsive to that objection as quoted in more detail in the 
majority decision, Wales was given the right to claim 
surprise and ask for a continuance:

 
 
Are you 
claiming some sort of surprise, Mr. O'Neil [attorney for Wales], 
by the use of those depositions, noting, of course, that you used part of those 
depositions in your motion?

 
 
Because, if 
you are, we'll simply put off hearing this motion until you've had sufficient 
time to make any responses you think are appropriate and proceed at that 
time.

 
 
But I can 
see no reason why the court should not consider those depositions. The 
appropriate motion was made, and the court simply failed to rule on it through 
oversight, or whatever.

 
 
But we can 
either go ahead and use them now, or, if you don't wish to do that, we'll simply 
reset this hearing at a time so that we're in compliance, strict compliance with 
the Rules of Civil Procedure.

 
 
Lacking 
either Wales' contention of surprise or a 
specific request for a continuance, the hearing continued.

 
 

[¶21.]  The majority justifies the result by 
finding an absence of prejudice to Wales to vindicate Franke-Roll's 
violation of W.R.C.P. 56 in failing to support their motion for summary judgment 
by filing evidentiary documents prior to commencement of the hearing. I do not 
find that approach persuasive, inviting or desirable to the orderly and 
effective administration of justice; simply, that view only permits 
non-compliance with this court's established rules of procedure. Contrary to the 
majority's stance, this case is not in any way similar to Atlas Const. Co. v. 
Slater, 746 P.2d 352 (Wyo. 1987), where the depositions, mutually taken, had 
been furnished to the trial court months before hearing and the only step not 
taken was physical delivery by the court to the clerk for affixation of a file 
stamp. Where the depositions have been delivered to the trial court but not 
filed in the clerk of court's office, I agree that non-filing alone should not 
be a basis for reversal if not prejudicial, but that is not the case before 
us.

 
 

[¶22.]  Conversely, I find the waiver concept of 
Matter of Estate of Obra, 749 P.2d 272 (Wyo. 1988) directly applicable as providing 
the proper inquiry that we should take here for disposition of this summary 
judgment rule violation. Counsel for Wales was given an option by the 
trial court to either request a continuance or to proceed with the late filed 
documentation. It could be a tough decision, but the trial court has to move 
litigation. Consequently, opportunity to later assert error for appellate 
purposes was waived when counsel for Wales did not request the continuance 
to protect his rights.

 
 

[¶23.]  When the majority applies prejudice 
rather than waiver, I am concerned that it sends the wrong message to the bar 
that it is acceptable to disregard court rules unless the other litigant can 
responsively establish that intangible effect called prejudice as an affirmative 
defense. There is, in the nature of things, intrinsic prejudice in permitting 
one litigant to ignore rules while requiring compliance by another. This very 
intrinsic prejudice occurred here. Non-compliance is non-compliance, and I 
cannot countenance that the actor, not the victim, should assume the 
responsibility. Utilizing a waiver analysis, an innocent litigant has a choice, 
but applying the prejudice theory, an innocent litigant is left without a 
choice.

 
 
SUMMARY 
JUDGMENT DENIAL OF THE FRAUD DEFENSE

 
 

[¶24.]  In recognition of the nature of the 
parties involved in this sales transaction and the process of negotiation, 
payment and subsequent litigation, I also cannot agree with the summary judgment 
disposition of the fraud defense which arose from this business sale negotiation 
process. Franke, as the in-town managing partner, with her brother Roll, 
out-of-town, non-managing partner, undertook to sell the Gillette, Wyoming video rental 
agency, RV Enterprises. The partnership listed the business with a Gillette real 
estate agency, Century 21. The realtor then found a prospective customer, 
Wales, and proceeded with 
negotiation. Roll, as a partner, after two proposals were presented, agreed to 
the sale with Wales if a reduced commission could 
be obtained to provide a desired net price. When the realtor refused, Franke set 
about structuring a deal to cheat the realtor out of his commission by the 
introduction of a third party who was her boyfriend (the Australian), Monte G. 
Schulte, as a straw man purchaser.

 
 

[¶25.]  My instant objection to the decision of 
the majority is derived from the resulting fraud that was perpetrated on 
Wales, which was separate and 
distinct from the fraud perpetrated on the realtor. The sales documents for the 
sale to the straw man, Schulte, were obtained by Roll and then redone by Franke, 
who became the author of the instruments on resale to Wales. 
Fraud was perpetrated upon Wales as the successor buyer by the 
double layered sales terms. The first sales agreement, Franke-Roll to Schulte, 
provided for a large initial payment and a three month balloon payment for the 
substantial balance which was clearly not within Wales' 
payment capacity. This was also why the first proposal to sell to him did not 
close because of his insufficient financing and lack of credit. The second sales 
agreement, Schulte to Wales, 
was different from the first one by providing for payment of the balance of the 
purchase price on a thirty-six month amortized schedule, which could have been 
within Wales' capacity to pay. Additionally, 
security documents between Franke-Roll as the partnership and Schulte were 
executed and filed though unannounced and unknown to the innocent Wales. 
Wales was not told about the balloon 
payment provision in the first agreement, which became his burden even when not 
included in the second agreement. Consequently, even if Wales 
met his payment obligations on the second agreement, the one he had executed, 
the business deal was jeopardized since the balloon payment permitted the 
original owners to foreclose under the first sales agreement. As realistically 
could be anticipated and certainly even programmed, it did happen just that way. 
Despite whatever payment Wales made on an installment contract basis, the 
original partnership of Franke-Roll demanded a three month balloon payment 
satisfaction in full which exceeded any payment capacity of Wales.

 
 

[¶26.]  Recognition of the nature of the parties 
is intrinsic to the proper resolution in this case, and particularly so since 
disposition was made on a summary judgment basis. Roll, as brother, had 
initially funded the establishment of RV Enterprises on borrowed money to 
provide a business to be operated by his sister, Franke. Lacking profitability, 
it was later decided by the brother-sister partners to sell. Franke, as manager 
of the business, was to be the Gillette sales negotiator. During that time, she 
acquired as her boyfriend - or romantic interest, as her deposition indicates - 
Monte Schulte. Prospective buyer, Wales, had a cash settlement from a Florida worker's 
compensation injury claim. Franke set about to separate him from his cash by the 
sale of RV Enterprises and did just that. The actual existence or involvement of 
her brother as a partner was essentially undisclosed to Wales 
during the negotiation process.

 
 

[¶27.]  Since Roll had the money interest in the 
business from his bank loan debt in South 
Dakota, he was significantly involved in the sales decision but 
never in any direct contact with Wales. Roll did sign the real estate 
listing agreement and then later signed the first earnest money deposit and 
sales agreement for a sale to Wales. That earlier proposal did not 
mature since bank funding was not available to Wales 
to finance the amount required in excess of his available cash from the worker's 
compensation settlement.

 
 

[¶28.]  Lacking bank financing, a second proposal 
was floated between the parties which did not net Roll's demand for cash after 
payment of the real estate commission. Franke then, in conjunction with Schulte, 
set about cheating the realtor out of the commission by a straw man sale so that 
the initial cash payment desired by her brother, Roll, would be achieved. It is 
undisputed that fraud was perpetrated by Schulte and Franke, not only on the 
realtor but also on Wales, 
which occasions my dissent in analysis of the resulting summary judgment granted 
against Wales as the buyer. The question at 
issue is the responsibility of a brother-sister partnership for the fraud 
committed upon Wales as the buyer of the business 
when committed by the sister/partner, and the brother/partner essentially got 
the proceeds.2 

 
 

[¶29.]  Related to the question presented is the 
structure of this litigation which in itself was surprising in that Wales 
did not counterclaim and only filed an affirmative defense. This litigation 
initiated by Franke-Roll, a Wyoming partnership, d/b/a RV Enterprises against 
Schulte and Wales prayed for preliminary non-transfer injunction and replevin of 
the business inventory chattel assets which, in this instance, was essentially 
the business. This lawsuit was to accommodate recovery for Franke-Roll of the 
balloon payment balance on the first sales agreement made between the 
partnership and straw man, Schulte. In answer, Wales 
pleaded as an affirmative defense that he had been defrauded in his payment of 
$55,000 cash as a deposit to make the sale. Schulte had picked up around $5,000 
cash for his "availability," and then shortly thereafter, broke off his 
relationship with Franke and departed for Florida or parts otherwise unknown. He was 
served in the replevin action and defaulted. Perhaps for this reason, or others 
undisclosed, a cross-claim against him by Wales 
was also not made.3

 
 

[¶30.]  I have no problem in the citation of the 
majority to W.S. 17-13-301(b), but consider that the statute does not reach nor 
contemplate these facts where the partnership and the partner realized the 
benefit of the fraud in the sale of the business, whether disclosed or not. 
Although this case is far from carefully pleaded in issue development, I discern 
that other provisions of the Uniform Partnership Act, now found in Wyoming statutes, should 
be applied.

 
 
An 
admission or representation made by any partner concerning partnership affairs 
within the scope of his authority as conferred by this act [§§ 17-13-101 through 
17-13-615] is evidence against the partnership.

 
 
W.S. 
17-13-303 (emphasis added).

 
 
Notice to 
any partner of any matter relating to partnership affairs, and the knowledge of 
the partner acting in the particular matter, acquired while a partner or then 
present to his mind, and the knowledge of any other partner who reasonably could 
and should have communicated it to the acting partner, operate as notice to or 
knowledge of the partnership, except in the case of a fraud on the partnership 
committed by or with the consent of that partner.

 
 
W.S. 
17-13-304.

 
 
Where, by 
any wrongful act or omission of any partner acting in the ordinary course of the 
business of the partnership, or with the authority of his copartners, loss or 
injury is caused to any person, not being a partner in the partnership, or any 
penalty is incurred, the partnership is liable therefor to the same extent as 
the partner so acting or omitting to act.

 
 
W.S. 
17-13-305.

 
 

[¶31.]  As a result of the long-standing common 
law standards that predate codification and the Uniform Partnership Act, the 
principle evolved that I describe as 
benefit-responsibility.

 
 
The 
imposition of civil liability on an innocent partner for the fraud of his 
copartner is especially applicable where the innocent partner receives the 
fruits of the fraudulent conduct. A false representation by one partner, by 
means of which property is obtained by the firm, will in law be imputed to the 
other partners to the extent of holding them liable for the debt, where the 
property remains identifiable, and the claimant can follow it into the hands of 
the partnership and recover it.

 
 
59A 
Am.Jur.2d Partnership § 670 at 570 (1987) (footnotes omitted). Recognition of 
the rationale implicit in this principle occurred in one Wyoming case, Douglas 
Reservoirs Water Users Association v. Maurer & Garst, 398 P.2d 74 (Wyo. 
1965), where the subject of partnership or partner responsibility for a 
partner's illegal action (theft) was questioned. However, the disconnected 
service escape from partnership liability found in Douglas Reservoirs Water 
Users Association, 398 P.2d  at 78, has no application here where we have the 
sale of the partnership assets, in which endeavor the fraud was committed and 
where also the partnership and the other partner received the gathered 
fruit.

 
 

[¶32.]  The benefit-responsibility principle has 
a strong and firm history as anchored in an 1885 decision of the United States 
Supreme Court, Strang v. Bradner, 114 U.S. 555, 561, 5 S. Ct. 1038, 1041, 29 L. Ed. 248 (1885), where it is stated:

 
 
The only 
other question to be determined is, whether the defendants, John B. Holland and 
Joseph Holland, can be held liable for the false and fraudulent representations 
of their partner, it being conceded that they were not made by their direction 
nor with their knowledge. Whether this action be regarded as one to recover 
damages for the deceit practised upon the plaintiffs, or as one to recover the 
amount of a debt created by fraud upon the part of Strang, we are of opinion 
that his fraud is to be imputed, for the purposes of the action, to all the 
members of his firm. The transaction between him and the plaintiffs is to be 
deemed a partnership transaction, because, in addition to his representation 
that the notes were for the benefit of his firm, he had, by virtue of his agency 
for the partnership, and as between the firm and those dealing with it in good 
faith, authority to negotiate for promissory notes and other securities for its 
use. Each partner was the agent and representative of the firm with reference to 
all business within the scope of the partnership. And if, in the conduct of 
partnership business, and with reference thereto, one partner makes false or 
fraudulent misrepresentations of fact to the injury of innocent persons who deal 
with him as representing the firm, and without notice of any limitations upon 
his general authority, his partners cannot escape pecuniary responsibility 
therefor upon the ground that such misrepresentations were made without their 
knowledge. This is especially so when, as in the case before us, the partners, 
who were not themselves guilty of wrong, received and appropriated the fruits of 
the fraudulent conduct of their associate in business. [Emphasis 
added.]

 
 

[¶33.]  A real estate transaction of similar 
rapport is found in Gannon, Goulding & Thies v. Hausaman, 42 Okla. 41, 140 P. 407, 410 (1914) (quoting Stanhope v. Swafford, 80 Iowa 45, 45 N.W. 403 (1890) 
and 14 A. & E. Ency. L. (2d Ed.) 156, respectively), where that court 
specified:

 
 
"Where one 
partner, while acting for the firm, makes an exchange of lands by means of false 
representations, the other partner is liable for the fraud, though he personally 
takes no part in the transaction, and is ignorant of the fraud." * * * "One is 
also responsible for the fraud of a person who has assumed to act for him 
without authority, if he ratifies his act by accepting the benefit of it or 
otherwise."

 
 

[¶34.]  A considerable volume of cases can be 
found in general reference to this subject in 6 Uniform Partnership Act (U.L.A.) 
§ 13 (1969) as relating to the model code sections. For example, the fruit or 
benefit of the fraudulent conduct was dispositive for decision in Carolina 
Bagging Co. v. Byrd, 185 N.C. 136, 116 S.E. 90 (1923). Partnership property sale 
fraud was similarly presented in Siebold v. Berdine, 61 Cal. App. 158, 214 P. 655 
(1923). See also Griffin v. Bergeda, 152 
Tenn. 512, 279 S.W. 385 (1926). Succinctly stated in A. Sam & Sons Produce Co. v. Campese, 
14 A.D.2d 487, 217 N.Y.S.2d 275, 277 (1961), "[f]raud by one partner whereby 
money or property is gained by the partnership renders all partners civilly 
liable despite a discharge in bankruptcy."

 
 

[¶35.]  Another example is Zemelman v. Boston 
Ins. Co., 84 Cal. Rptr. 206, 207, 4 Cal. App. 3d 15 (1970) (quoting from Stewart v. 
Levy, 36 Cal. 159, 165 (1868)) involving an insurance proceeds claim. That court 
related:

 
 
"All the 
partners will be bound by the fraud of one of the partners in contracts relating 
to the partnership made with innocent third parties. That is to say, all are 
responsible for the injury occasioned by the fraud, * * * whether they were 
cognizant of the fraud or not. The rule is the same as it is in respect to the 
responsibility of the principal for the fraud of his agent, while acting within 
the scope of his authority; and, indeed, a partner becomes liable for the fraud 
of his co-partner, because of the relation each bears to the other of agent in 
the partnership business."

 
 

[¶36.]  Since this decision is rooted in summary 
judgment, the burden is on the partnership and partners to deny apparent 
authority of the fraudulent conduct. Cook v. Brundidge, Fountain, Elliott & 
Churchill, 533 S.W.2d 751 (Tex. 1976). In this case, partner/Franke 
committed fraud on the buyer/Wales of partnership property so that the 
partnership and other partner, Roll, received the monetary benefit. 
Unquestionably, as reflected in this record, the sale was authorized by each 
partner and undertaken in the partnership interest.

 
 

[¶37.]  I would reverse the countervailing 
summary judgment which leaves all the benefits of the fraud with the defrauding 
parties. The case should be tried on its merits to determine whether Wales 
has a proper defense to the repossession of the business assets which he 
purchased on the basis of the fraud committed on him by the partnership in 
arranging the sale.

 
 
FOOTNOTES

 
 

1 It appears that 
attachment of the depositions or other discovery material to a motion when 
originally presented might deter some of the problems now found in this case. 
Some of these same concerns were posed in Matter of Estate of Obra, 749 P.2d 272 
(Wyo. 1988) and Atlas Const. Co. v. Slater, 746 P.2d 352 (Wyo. 
1987). If the motion to file is denied, which almost never would occur, the 
clerk could arrange to return the documents to the litigants as is now done with 
exhibits and like material when the case is no longer pending. The original 
non-filing process in Wyoming courts is the product of the space 
limitation in the clerks of court offices who convinced the district courts to 
adopt Rule 302 of the Uniform Rules for the District Courts, which 
states:

 
 
Discovery documents 
shall not be filed except:

 
 
(1) At the time of 
filing of a motion to compel discovery or a motion for protective orders, the 
moving party shall file relevant portions of the documents upon which the motion 
is based.

 
 
(2) At the time of 
filing a motion for summary judgment the movant shall designate and file 
relevant portions of the discovery documents relied upon. The opponents of a 
summary judgment motion shall designate and file relevant discovery documents 
within the time allowed by Rule 56, W.R.C.P.

 
 
(3) A notice of 
discovery proceedings may be filed to demonstrate substantial and bona fide 
action of record toward disposition to avoid dismissal for lack of 
prosecution.

 
 
The validity of a rule 
denying right to regularly or promptly file discovery motions and resulting 
documentation has never been considered by this court. However, the explicit 
notice requirement of Rule 302 and W.R.C.P. 56, which reoccurs here, has been 
given significant consideration in Torrey v. Twiford, 713 P.2d 1160 (Wyo. 1986); 
Hickey v. Burnett, 707 P.2d 741 (Wyo. 1985); and Kimbley v. City of Green River, 
642 P.2d 443 (Wyo. 1982).

 
 

2 I do not recognize 
any actionable claim in Wales' theory that the fraud 
committed on the realtor extinguishes sales agreement liability. 
Wales was a knowledgeable 
participant and that fraud certainly would not absolve the relationships between 
Wales and Franke-Roll in the result 
achieved. The fraud perpetrated on Wales was the layered sales agreement 
whereby the straw man, Schulte, paid less and agreed to an unattainable balloon 
payment arrangement with filed chattel security exposure. In the second 
agreement as prepared by Franke-Roll, Wales signed a more favorable 
agreement with the less favorable terms of the prior agreement undisclosed to 
him. It is in this fraudulent document preparation and presentation that the 
partnership responsibility issue is derived. Can a partner and a partnership 
profit from what a partner fraudulently acquires in a business sale, even if the 
specific details of the perpetration of the fraud may only have been known to 
the managing partner?

 
 

3 It is not exactly 
clear from the record, but most if not all of the money which was paid by 
Wales, except for $5,000 which was 
retained by Schulte, was delivered to and used by Roll for his business debt 
reduction. Shortly after the sale, the romantic relationship between Franke and 
Schulte broke up. Franke had something in the nature of a nervous breakdown, and 
this litigation followed as an effort by Roll to repossess the video 
merchandising business. It is my perception that the real issue of the case in 
view of the clear fraud perpetrated on Wales is whether the partnership is bound to the 
better terms of the second sales agreement as layered upon the first Schulte 
agreement for enticing Wales into parting with his money and 
entering into the business purchase. In other words, is the fraudulently 
inserted balloon payment provision enforceable under these circumstances in 
favor of a partner who may not have participated in the fraud, but received its 
benefits?