Court Opinion

ID: 9722899
Source: CourtListenerOpinion
Date Created: 2023-08-26 09:54:33.541273+00
Date Added: 2024-06-11T13:00:34.628996
License: Public Domain

Thompson, J.
(dissenting) — I am convinced the majority opinions confirm a manifest failure of justice, and I cannot concur. It is shown by the record that the defendant, by false representations believed and relied upon by his inexperienced partner, obtained for himself a share of the partnership funds to which he was not entitled. So far as the record discloses there is no denial of the series of gross frauds committed by the defendant. It is true, of course, the defendant entered a plea of not guilty, and it may have been that if he had reached the point of offering evidence he would have denied some or all of the material evidence for the State. But we are dealing with the record as it stood when the verdict was directed. The effect of - the majority opinions is that, granting all the State proved was true, there was still no crime of cheating by false pretenses committed. If, then, the law must fold its hands and say that because of certain technicalities concerning joint ownership of partnership funds it can do nothing, justice will be denied. Such a situation is a reproach to the law and to the courts which administer it. Law and justice should run side by side. When they diverge so that men must say the law is the law and justice is something different, the courts should re-examine their thinking. If hidebound precedents and unrealistic *859legal fiction stand in the way of punishment of frauds such as the record shows here, they should be swept aside. No precedent, no rule of stare decisis should be allowed to prevail when reason is opposed and manifest mischief will be done by following them.
The courts are fond of saying they will look for the substance rather than for the form. I commend this rule to the majority in the case at bar. Quinn and Stanfield entered into partnership for the purpose of dealing in used automobiles. Quinn was experienced in the business; Stanfield was not. Stan-field furnished the working capital, by putting in $3500 of his own money, and by loaning Quinn an equal amount. Quinn for a time did all, or almost all, of the buying of used cars, which the partnership in turn hoped to resell. The record shows that on several occasions when he purchased cars for the firm Quinn paid for them with his own funds, but told Stanfield he had paid a larger amount. Through these misrepresentations he induced Stanfield to write cheeks on the partnership account payable to him and so obtained from Stanfield his (Stanfield’s) interest in the partnership funds so withdrawn, and procured a share of such funds considerably larger than he was entitled to receive. This is the situation which the majority says the criminal law cannot reach.
The only direct authority cited by the majority is the quotation from 35 C. J. S., False Pretenses, section 24. This statement of the law is supported by one citation in the permanent volume of 35 C. J. S., State v. Foot, 100 Mont. 33, 48 P.2d 1113. An examination of the ease shows the actual holding was there was no partnership proven. It cannot be in point. Two other eases are now cited under this note in the latest (1954) pocket part for 35 C. J. S. These cases are not referred to by the majority. They are State v. Grumbles, 100 S. C. 238, 84 S.E. 783, and State v. Simmons, 209 S. C. 531, 41 S.E.2d 217. The opinion in State v. Grumbles is short, and in regard to an indictment for “breach of trust with fraudulent intent” says only there could be no conviction if the two were partners. There is dictum in State v. Simmons which follows State v. Grumbles. Reference will be made to it at a later point. None of the three cases cited *860as authority for the flat statement of the law set out in 35 C. J. S., False Pretenses, section 24, in fact supports it.
The majority concedes there are few cases directly in point on the question at issue. In fact there are none cited to us or which research has discovered. The defendant and the several majority opinions rely upon cases holding one partner may not be convicted of embezzlement of partnership funds. The majority says'these are bottomed upon the principle that the title to partnership funds is in all of the partners, and one cannot be guilty of embezzlement of funds he owns. By analogy it is then reasoned one cannot be guilty of obtaining by false pretenses funds he already owns.
The theory of joint ownership of partnership funds is one which has its proper place in civil matters, where questions of partnership indebtedness or other dealings with third parties are involved. But it is, after all, no more than a legal fiction, and as such should not be pursued to the point of making it a cloak for gross cheats. In fact, in Iowa we have definitely held the property does not belong jointly to the individual partners, but to the partnership as a separate legal entity. “The property does not belong separately to the individual partners, but to the distinct entity.” Jensen v. Wiersma, 185 Iowa 551, 552, 170 N.W. 780, 4 A. L. R. 298. To the same effect is State v. Pierson, 204 Iowa 837, 842, 216 N.W. 43, 46, from which is quoted: “The partnership was an entity, distinct from its members. The funds deposited belonged to the partnership, and not to the director of the bank [the latter being one of the partners]. The ultimate interest in the partnership funds belonged, in greater or less part, to others than the director member. To the extent of their interest, the deposit was not that of funds belonging to him.” (Italics supplied.)
These cases negative the thought, on which the majority opinions are apparently based, that each partner has such title and interest in the partnership property that he cannot be guilty of obtaining it by false pretenses because he already owns it. The rule in Iowa is definitely established the partnership funds belong to the partnership as a separate legal entity; and State v. Pierson, supra, also enunciates the realistic principle that the funds do not belong in toto to each partner individually, but *861the “ultimate” interest of each partner may be traced, and he owns no more than whatever his actual interest may be. Nor am I willing to agree, as the majority opinions and the authorities cited seem to reason, that because the defrauded partner has a remedy in the civil law by way of an accounting suit, this is adequate redress for the commission of a criminal act, and in fact, therefore, no crime has been committed. Nor can I accede to the idea that the difficulty of proving a fraud is a cogent reason for holding the criminal law does not apply. In fact, in the instant ease, and speaking from the facts in the record, the fraud was easily proven and abundantly apparent.
In People v. Cravens, 79 Cal. App.2d 658, 663, 180 P.2d 453, 456, the victim was induced by false pretenses to place money in a partnership account from which the defendant then withdrew it. The California Court said: “We are not satisfied that proof that the wrongdoer afterwards converted the partnership property to his own use while the victim was still subject to the influence of his false pretenses would not constitute the crime of obtaining money or property by false pretenses.” The distinction drawn by the majority between this holding and the case at bar seems most fragile.
In any event, Jensen v. Wiersma and State v. Pierson, both supra, and other Iowa cases to the same effect seem, to destroy the basis for the majority holding, which is bottomed upon the thought of joint ownership of the property by all the partners. The majority leans heavily upon Gary v. Northwestern Mutual Aid Assn., 87 Iowa 25, 53 N.W. 1086. So far as it holds the title to the partnership property is in the partners jointly, rather than in the partnership as a separate legal entity, and that the real interest, the “ultimate” interest of each partner, cannot be traced even when realism demands it, the case is in effect overruled by Jensen v. Wiersma and State v. Pierson, both supra. It is suggested that because the Gary case was decided in 1893 and the legislature has not seen fit to change the cheating statute since that time, we must recognize its concurrence in the law as there laid down. If we grant, as courts often do, that legislatures are all-seeing and all-knowing, it still seems to me that the majority here reasons from a false premise which makes its con*862elusion unsound. If we are ,to assume the legislature was advised of the Gary case, we must also assume it knew of the later eases of Jensen v. Wiersma and State v. Pierson, both supra, and so found no necessity for legislation on its part. It is also to be noted the Gary case dealt with embezzlement, while we are here concerned with cheating, which is governed by a materially different statute.
The Iowa false pretense statute, set out by the majority, says, “If any person designedly and by false pretense * * * and with intent to defraud, obtain from another any money * * I think the majority overlooks the fact that, even under its theory of joint ownership, Quinn did obtain from Stanfield certain property. He obtained not only his own interest in the funds of the partnership, but Stanfield’s. An undivided interest in money is property. The material point is not that Quinn by his fraud secured property in which he had an undivided interest, but that he also obtained Stanfield’s interest. It would be difficult to convince Stanfield that the defendant actually obtained nothing from him. Of course, one partner may cheat another by false representations which induce the cheated to make over an undue share of the partnership assets to the cheater; and the courts should disregard any technical fiction which supports a holding that nothing can be done about it. The advisability of a realistic approach to these problems was pointed out in Chisholm v. Chisholm Construction Co., 298 Mich. 25, 30, 298 N.W. 390, 393, where the Michigan Supreme Court said: “However, in order to prevent an injustice or fraud, we do not hesitate to disregard the fictional entity of the partnership and regard the members as individuals.” If it is right to disregard the “separate entity” theory to prevent injustice, why is it not equally incumbent upon the courts to refuse to follow the “joint ownership” fiction for the same reason?
The majority opinions extend the protection of the “joint ownership” theory to wrongdoers one more step. They concede in effect there is no case in which it has been applied to cheating by false pretenses. They rely upon the analogy of the embezzlement cases. I believe the theory of these cases is unrealistic and wrong. An interesting statement, illustrative of much that, it *863seems to me, is wrong, not only with the majority holding-here but with the thinking of too many courts generally, is found in the opinion of the learned Chief Justice of South Carolina in the recent case of State v. Simmons, supra, at page 536 of 209 S. C., page 219 of 41 S.E.2d: “Under the common law, and under the accepted law of this State, a copartner in a business cannot be convicted for defrauding the partnership. * * * It may be that there is no sound reason for this principle of lam, but it has existed for time immemorial, and I see no reason in the instant case for ignoring or modifying [it].” (.Italics supplied.) I agree with the South Carolina jurist that there is no sound reason for the rule; but I cannot concur in his conclusion it should be followed because it is venerable with age. Error persisted in is none the less error. There is much to be said for the rule of stare decisis, and it may upon occasion be better to adhere to principles of doubtful soundness so that the law may be settled. But this should never be done when the rule is not only palpably in error but injustice will be done and manifest mischief sanctioned or promoted. In such cases it is far better for the law to admit its error and correct it as speedily as may be. The majority here is not only confirming an unsound rule based upon nothing more than a legal fiction, but is extending it into the field of cheating by false pretenses, where it has never before been squarely held to apply. I am not surprised that the able trial court thought himself bound by precedent; but appellate courts have a much wider latitude in correcting their previous mistakes.
The joint ownership theory — repudiated in Iowa by Jensen v. Wiersma and State v. Pierson, both supra — with its attendant unsound legal fiction that one may not steal or embezzle that which he already owns has too long protected thieves and embezzlers. The majority now extends its cloak to cheats. The time cannot be far distant when the courts will look at the partnership relation in these cases as it actually is. I had hoped this court might point the way back to reality.
If the law is to command the respect of the people as an instrument of justice, it must be vigilant to look to the substance instead of the form, and to avoid being -led astray by teehni*864calities which serve only to protect the wrongdoer and thwart the righteous. I do not agree the law is helpless to punish.
I would hold the trial court in error.
Bliss, C.J., and Garfield, J., join in this dissent.