Court Opinion

ID: 6601654
Source: CourtListenerOpinion
Date Created: 2022-07-20 20:08:13.33165+00
Date Added: 2024-06-11T15:58:02.279038
License: Public Domain

Lyon, J.
The parties were partners. The defendant came *446to the conclusion that the plaintiff was defrauding Him of large sums in his management of the partnership business, and commenced an action to dissolve that relation and to wind up the business of the firm. In his verified complaint in that action, he charged that the present plaintiff had committed acts of fraud, which, if he committed them, stamp him as a swindler and cheat of the worst type. Within a few days after he commenced such action, the present defendant entered into negotiations with the plaintiff for a settlement of their partnership affairs, which negotiations, a month later, culminated in the agreement of July 2, 1873. The defendant now seeks to avoid his covenants contained ip that agreement, on the ground that he was misled to his damage by certain alleged false and fraudulent representations of the plaintiff, made while the negotiations were in progress, upon the faith of which he claims that he executed such agreement.
The defendant cannot succeed in his defense and counterclaims, unless he relied upon the representations of the plaintiff and executed the compromise agreement on the faith of them. This is an elementary principle.
It seems incredible that the defendant, could have relied upon those representations. No one who has read the complaint in the action commenced by him for a dissolution of the partnership, can believe for a moment that he could have relied upon, or been misled by, any statement which the plaintiff might have made,— that he could have been influenced by the representations of one whom he had so recently denounced under oath, as a liar and a swindler.
Again, the frauds charged in the complaint in the former action consist in the alleged embezzlement of the partnership assets by the present plaintiff, and his acts and representations having for their object to deceive the defendant and to cause him to believe that the value of such assets was greater than it really was. Without going into details, it is sufficient to say that when he commenced his action in May, 1873, he knew *447of such alleged embezzlement (if any bad been committed), and was fully informed of the fraudulent character and object of the alleged acts and representations. If he knew those facts in May, he was cognizant of them in June and July ; and if, pending the negotiations for a settlement, the plaintiff repeated such fraudulent representations, the defendant had no right to be misled by them, and cannot be heard to aver that he was so misled.
But we do not choose to rest our decision upon these considerations alone. There are other facts in the case equally fatal to the defense and counterclaims contained in the answer.
The real issues in the action for a dissolution of the copartnership were, whether the plaintiff had fraudulently appropriated to his own use a portion of the firm property, and whether he had falsified the account books of the firm, and had made false statements to conceal the fact of such conversion, and to cause the defendant to believe that the capital of the firm was larger than it really was. This was -the scope of the issues in that action. The compromise and releases of July 2d were necessarily as broad as the controversy which was thereby settled. The fraudulent representations which it is claimed the plaintiff made during the negotiations for a settlement, were of the same character, were made for the same object, and related to the same subjects, as those charged against him in the complaint in the former action. Whatever apparent differences between them may exist, all of the alleged fraudulent representations relate to the value of the capital stock of the firm. The compromise was made with reference to the averments of fraud in the complaint in the former action, and the denial thereof in the'answer, and necessarily prevents any further litigation of that issue, if such compromise was fairly ma.de and no new element of fraud intervened. See Kercheval v. Doty, where the grounds of this rule are forcibly stated by Chief Justice Dixon.
We have already seen that no new element of fraud inter*448vened in the settlement. The plaintiff merely adhei’ed to his former statements, which the defendant had denounced as false and fraudulent. Occupying towards each other a hostile position, neither yielding to the views of the other, they negotiated a settlement of all their partnership business, and executed mutual releases in respect thereto. Under such circumstances the law is that the old controversy is forever closed. The learned circuit judge would not have erred, therefore, had he directed the jury to return a verdict for the full amount of the plaintiff’s claim. As a matter of course, the defendant could not have been injured by the instructions which the court gave to the jury, even though it be conceded that the same were erroneous in some particulars. Hence it is quite unnecessary to review those instructions.
There is another view of the case which leads to the same result. A party who seeks to rescind an entire contract, because of fraud committed by the other party thereto, must return, or offer to return, whatever he has received under it. “ He cannot hold on to such part of the contract as may be desirable on his part and avoid the residue, but must rescind in toio if at all.” Per BEARDSLEY, J., in Masson v. Bovet, 1 Denio, 74. See also Shields v. Patty, 2 Sandf. S. C., 262; Hunt v. Silk, 5 East, 449; Riddle v. Gage, 37 N. H, 519; 2 Parsons on Con., 679 and notes; Comyn on Con., 48.
It is not questioned that, in an action to recover the price of goods sold, the defendant may plead thereto, as a defense or counterclaim, that he purchased the goods on the faith of fraudulent representations made by the vendor as to quality, condition, etc. Barbour v. Kilbourn, 16 Wis., 485; Craemer v. Wood, 102 Mass., 441; Sedgwick on Damages (6th ed.), 358. But this is not such a case. Ho specific price was agreed upon for the stock in trade, or for the credits of the firm or the good will of the business, but all of the covenants of both parties constitute an entire and indivisible contract. The consideration of the defendant’s covenants (the obligations of which he *449seeks to repudiate) is not only the sale to him of the plaintiff’s interest in nearly all of the assets of the firm, but the dissolution of the copartnership, the settlement and release of all claims of the plaintiff on account thereof, the discontinuance of the action to dissolve the copartnership, without costs, and the plaintiff’s covenant not to engage in the business of selling drugs and medicines within certain limits in the city of Milwaukee for the term of five years.
The testimony tends to show that soon after July 2, 1873, the defendant, through an agent, requested the plaintiff to'take back the store at $8,000; that is, to repay the $5,000 which had been paid to him by the defendant, and to cancel the defendant’s covenant to pay the $3,000, for the recovery of which this action was brought. The same proposition, with more particularity of detail, was made on the trial, and on both occasions was refused by the plaintiff. But there was no proof of any offer, and no such offer was made on the trial, to cancel the agreement of July 2, 1873, and thus relieve the plaintiff from all of his covenants therein contained, although such ah offer is averred in the answer. The defendant should have offered to cancel such agreement and to release the plaintiff from all of the obligations thereof. Not having done so, the case comes within the rule of rescission above stated, and the defense and counterclaims interposed by the defendant are not available in this action.
In the consideration of this case, we have been, and are, strongly inclined to the opinion, that, under the peculiar circumstances thereof, the only remedy of the defendant is by a proceeding in equity to set aside the agreement of July 2d for fraud, to the end that the action for a dissolution of the partnership may be revived in some form, and all of the equities of the parties in the premises may be determined by the adjudication of the court. But this proposition was not argued by the learned counsel, and we do not decide it.
By the Court — The judgment of the cirouit court is affirmed.