Case Name: In re WYATT et al. In re RYAN
Court: New York Supreme Court, General Term
Jurisdiction: New York
Decision Date: 1893-06-30
Citations: 24 N.Y.S. 273
Docket Number: 
Parties: In re WYATT et al. In re RYAN.
Judges: 
Reporter: West's New York Supplement
Volume: 24
Pages: 273–276

Head Matter:
(70 Hun, 164.)
In re WYATT et al. In re RYAN.
(Supreme Court, General Term, First Department.
June 30, 1893.)
1. Partnerships—Liability op Succeeding Firm.
Where a firm hypothecates and converts goods consigned to it, and uses the proceeds thereof, a new firm, formed to succeed it, which never receives any of the goods or the money obtained therefor, and never agrees to assume the liabilities of the old firm, or to guaranty the payment of its debts, is not liable for such goods.
8. Same—Unauthorized Act op Partner.
The fact that after the formation of the new firm, a special partnership, the general partner, the member who had been in the old firm, rendered a stock account to the consignors of the old firm falsely indicating the possession by the new firm of the goods which had previously been hypothecated, would not bind the firm, or estop it from showing the real facts.
8. Same.
A person contemplating entering a firm as a special partner cannot bind the prospective firm to the payment of debts of the old firm.
4. Same—Payments.
Where acceptances given by the old firm, and which came due after the formation of the new firm, were paid by the latter, it was not entitled to credit therefor on account of its own obligations.
Appeal from special term, New York county.
Application of Thomas F. Eyan, as receiver of C. A. Wyatt & Co., for reference of disputed claims. From an order of the special term confirming the report of the referee disallowing the claim of Eawitzer & Bros., said claimants appeal.
Modified.
The following opinion was rendered by the referee, William N. Armstrong, Esq.:
For some time previous to November 1, 1888, G. A. Wyatt did business as a commission merchant under the name of O. A. Wyatt & Co. He had, however, no partner. Rawitzer Bros, had from time to time consigned goods to ¡him, the value of which, about November 1, 1888, was over' $40,000. The agreement between the consignor and consignee was that the latter should sell the goods and return the proceeds to the consignor, deducting from the sales the amount of his commissions. He had no power to make any other disposition of them than to sell and return the proceeds. It appears, however, that, instead of selling all of the goods so consigned, he hypothecated them with the firm of Linde & Co., received advances upon them, and made no mention of this fact to the consignors. The sums obtained by hypothecation he used for his own purposes, and did not remit them to the consignors. This disposition of the goods was an act of conversion. An agent intrusted with property to sell is liable for conversion if he sells and violates the orders of his principal. Comley v. Dazian, 114 N. Y. 161, 21 N. E. Rep. 135, citing Syeds v. Hay, 4 Term R. 260, where it is said that “it is conversion for one who is intrusted with the goods of another to put them into the hands of a third person, contrary to orders.” Also, Laverty v. Snethen, 68 N. Y. 522. Rawitzer Bros, neither authorized this disposition of the goods nor confirmed his acts when they were informed of them. On November 3. 3.888, Wyatt formed a partnership with Newhall, the latter becoming under me statute a special partner with $50,000 capital, and the firm name was C. A. Wyatt & Co. It continued the business of commission merchants as carried on by C. A. Wyatt, until February, 1889, when it failed, and Wyatt disappeared. Rawitzer Bros, continued to consign goods to .the new firm in the same manner as they had consigned to Wyatt before November 1, 1888, when Wyatt did business under the name of C. A. Wyatt & Co. A receiver having been ap pointed of the assets of G. A. Wyatt & Go., Rawitzer Bros, present a claim of $62,000 against the firm, which is disputed both by the receiver on behalf of the other creditors and by the special partner, Newhall, on the ground that the claim of Rawitzer Bros, is only valid to a large extent against O. A. Wyatt individually, and that the firm of G. A. Wyatt & Go. cannot be held responsible for it. It is claimed by Rawitzer Bros, that the new firm of 0. A. Wyatt & Go. assumed to pay the obligations of Wyatt contracted by him before November 1st. The receiver, on the other hand, claims that no such assumption was ever made, either in fact or in law.
In the month of September previous to the formation of the new firm, Mr. Louis Rawitzer testifies that he saw Mr. Newhall, and in several conversations the latter informed him that he was about to join the firm of G. A. Wyatt & Co. with-$50,000 capital, and that he, in reply to a statement of Rawitzer that his firm had large quantities of goods in Wyatt’s hands, replied that all would be quite safe; that all was straight; they should go right along, and not lose anything; that there was a great deal of money back of the concern; that the new concern would take the old firm’s business, in the same way in which the old firm had been doing the business,—take the accounts, the merchandise, and everything; that upon the further statement of Mr. Rawitzer that his firm had consigned goods to Wyatt amounting in value to $40,000 or $50,000, Newhall replied that this would be taken care of. In addition to this evidence, it appears that Wyatt & Go., the new firm, rendered an account to Rawitzer Bros, on December 31, 1888, in which the goods consigned to Wyatt previous to November 1st appeared as goods then on hand. Neither Rawitzer Bros., nor, so far as the testimony shows, Newhall, knew at the time of this conversation in September that Wyatt had converted the goods consigned to him; nor would this conversation have taken place if either of them had been aware of Wyatt’s acts. The conversation assumed that the goods consigned by Rawitzer were properly taken care of by Wyatt, and it referred generally to what the course of business would be under the new firm. At that time the new firm had not been formed. Newhall could not bind it in any way as a firm. If the firm had then been formed, Newhall, as a special partner, could not transact any business on account of the firm, or be employed to transact business as an agent, attorney, or otherwise. Section 17, c. 414, Laws 1857. The promise which the consignors now claim is binding on the new firm was a promise by a person proposing to become thereafter a special partner in a firm that the firm would, when organized, assume the debts and obligations of a person who proposed to become the general partner of the firm. Such a promise would not bind the firm, as there was no authority to make it; and none could be given, because the firm did not exist. If it was a valid obligation, it was in the nature of a guaranty by Newhall that the new firm would assume the obligations of Wyatt, and such a promise is required to be in writing, and no writing to that effect exists. As Wyatt had already converted Rawitzer’s goods, the promise, if made, was in legal effect an agreement that the new firm would pay to Rawitzers the value of the goods converted by Wyatt. If the firm had been in existence, such a promise, made by a general partner, would not be binding on the firm, as it would not be within the scope of the partnership business, unless a sufficient consideration appeared. It is not necessary to consider the exact nature of the agreement between Rawitzer and Newhall in September, because, if one was made, as claimed by Rawitzer, it was void for want of an instrument in writing. Both parties were in ignorance of the facts as they existed at the time of the conversations, and both parties evidently assumed a condition of things which did not exist.
It is also claimed by Rawitzer Bros, that the rendering of an account to them by the new firm in December, 1888, in which the goods consigned to Wyatt, and converted by him before the new firm existed, were declared to be on hand, was in fact an agreement by the new firm to assume the payment of Wyatt’s obligations. This account (Exhibit No. 1) does not, in words, state that the firm agreed to pay these obligations. It is a statement that Wyatt & Go. are in the possession of the goods, and hold them for the account of the consignors. As Wyatt was the only general partner, it is to be presumed that he directed it to be made out and sent. It did not 'state the truth, be cause not only tlie goods consigned to him individually had been hypothecated, but those consigned to the new firm had been disposed of in the same way. He certainly could not bind the firm to assume the payment of the value of goods which he had individually converted. It was not within the scope of the partnership business. There is no proof, or otter of proof, that Newhall, as special partner, knew of the rendering of this account. If he had been a general partner, some presumption might possibly arise that he had knowledge of the act. But no such presumption would arise in the case of a special partner, who was excluded by law from any active interest in the business. Nor can the account so rendered by the firm be construed into a guaranty of Wyatt’s individual obligations. I am therefore of the opinion that the claim of Rawitzer Bros, should be disallowed, so far as it included the value of the goods consigned to Wyatt before November 1, 1888. The goods consigned to the new firm were converted by them to their own use. These were sent for sale, and the proceeds were to be remitted, less commissions and other expenses. They have not been accounted for. The firm failed to keep its contract with the consignor. A payment of $12,500 was made by them, but it does not appear whether it was in payment of consigned goods or in payment of the overcoatings. There is no presumption that it was made for the consigned goods. If it appeared that it was, the firm would then be entitled to commissions on the sales. As it does not so appear, and it does appear that the goods were illegally hypothecated, and the firm has failed to keep its agreement to sell and remit for the goods when sold, it cannot be entitled to any deduction for commissions. Gregory v. Mack, 3 Hill, 380. There is no evidence which shows from what source the $12,500 paid to Rawitzer Bros, was derived. If it was received in any way from the goods consigned to Wyatt individually before November 1, 1888, a trust might arise which' would bring the new firm to account for it as property or assets of Wyatt individually; but, as this does not appear, it is presumed that the money so paid was a part of the assets of the firm of Wyatt & Go.
Counsel for the receiver claim that the value of the goods which are charged to him by Rawitzer Bros, is to be fixed by the prices which they brought at auction when sold under pledge. This is not the rule in fixing damages. Moreover, Wyatt & Go. violated their contract in disposing of the goods, so that they were sold at auction. They were consigned with limitation as to price. If Wyatt & Co. believed that the prices were excessive, they should have notified their consignors. Neither they nor their legal representative, the receiver, can now claim that the consignors are entitled to a less sum than the prices fixed because their consignors violated their contract.
Argued before VAN" BRUNT, P. J., and FOLLETT and BARRETT, JJ.
Hcrwitz & Hershfield, (Otto Horwitz, of counsel,) for appellants.
Durnin & Hendricks, for respondent Ryan.
Kellogg, Rose & Smith, for respondent Newhall.

Opinion:
BARRETT, J.
But little need be added to the opinion of the learned referee in this matter. Upon the main question his findings of fact are justified by the evidence, and his conclusions of law are properly deducible from the facts so found. We think it clear that the claim made by Rawitzer & Bros, against the special partnership is not sustained. A discussion of the abstract question when, and under what circumstances, a new firm organized as the successor of an existing firm will be held liable for the debts of its predecessor would be quite unprofitable; for upon the facts there is no basis for the application of any known rule of law under which the present claiin could possibly be sustained. The referee has found that neither the new firm nor the new partner ever agreed to assume the liabilities of the old, or to guaranty the payment of its debts; that the goods which the claimants had consigned to the old firm never came into the possession of the new; that such goods were hypothecated by the old firm, and thus converted; and that none of the moneys which were received by the old firm upon such hypothecation ever came into the possession of the new. These facts are conclusive against the present claim, in any view of the law. The claimants rely mainly upon the fact that, after the formation óf the new firm, a stock account was rendered to them, indicating the possession by the new firm of the very goods which had been previously hypothecated. This, however, was nothing more than a false and unauthorized statement made by the general partner without the knowledge of the special partner. The firm was certainly not bound thereby. 2ior was it estopped from showing the real fact, which was that the goods were not in its possession, and never had been. Some loose declarations of the special partner, Mr. ¡Newhall, made prior to the formation of the new firm, were also given in evidence, but they were far from constituting a contract or agreement, even individually, to guaranty or become responsible for the debts of the old firm. They could have no binding effect upon the new firm, which was then only in contemplation. Mr. ¡Newhall could not then contract on its behalf, and he did not profess to do so. Upon the main question the order is clearly right, and should be affirmed.
We think, however, that the learned referee erred in deciding that the new firm paid to the claimants the sum of $12,500, for which it should have credit. Without going over the figures and testimony in extenso, we think it apparent that the learned referee was misled by the fact that five acceptances which were given by the old firm, but which fell due after -the formation of the new, were paid by the new. These acceptances were the obligations of the old firm, and not of the new. Their payment, therefore, was a payment pro tanto of the debt of the old firm, and was not a payment made by the new on account of its own obligations and conceded indebtedness. We think Mr. Horwitz has clearly and ably demonstrated this in his fourth point. But we do not agree with Mr. Horwitz's analysis of the referee's twenty-fifth finding, and we find nothing in the evidence nor in the finding itself to justify his criticism thereupon. The report should be modified by finding that Rawitzer & Bros, have proved their claim, against the assets in the hands of the receiver to the amount of $28,229.41, and, as so modified, it should be affirmed, without costs. All concur.