Opinion
November 23, 1906.
George S. Graham, for the appellant Hoadley.
Alton B. Parker, for the appellant Leiter.
Edmund L. Mooney, for the respondents.
The plaintiffs are stockbrokers, and in April, 1902, by direction of defendant Judson, they purchased 1,000 shares of International Power Company stock for an account designated "Cyrus Field Judson, Special," at a cost of nearly $300,000, and received only part payment therefor. The stock fell rapidly in price and, Judson failing to complete the contract, the shares remaining in plaintiffs' hands were sold on account, leaving a large balance due. This action is brought to charge Hoadley and Leiter therefor on the alleged ground that they were partners with Judson in a pool formed for the purchase and sale of International Power stock, and hence are liable for his contract. This partnership was denied by them and was the principal issue litigated upon the trial.
Judson made no defense, and testified in behalf of plaintiffs that such partnership contract was in fact entered into and was in existence in March and April, 1902, and that the transaction was on account thereof, and to facts and circumstances tending to show that such relation existed at the time of the purchase. Other facts and circumstances were proved tending to corroborate this claim, as well as certain acts and declarations of Hoadley and Leiter tending to show that they deemed themselves partners with Judson in his buying and selling and manipulation of the stock. Toward the close of the manipulation Judson bought and sold many thousands of shares daily, and when the crash came by the precipitate decline of the stock on the 30th of April, he had contracts with several brokers for the purchase of a large amount of stock which he was unable to fulfill.
Against the objection of Hoadley and Leiter that the evidence was incompetent because it showed a proposed compromise of a disputed claim not accepted, the plaintiffs were permitted to prove that defendant Hoadley induced Judson to make an offer in writing to the various brokers holding claims against him on account of the transactions in the stock in question, to give his notes for them for the amounts of their several claims, together with a contract of defendant Hoadley to purchase such International Power Company stock as they held at any time within six months from date at ninety dollars per share, a price higher than then prevailed, conditioned upon the agreement not to sell such stock at less than that price within the first three months of the stipulated time, to which it was testified that Leiter agreed, and to carry out which it was proved that Hoadley executed contracts to buy, and left them with his counsel and brother to deliver in case of acceptance. The offer was denominated a "proposition for compromise," and it was stipulated that it should not be operative unless concurred in by all the parties to whom Judson was indebted. The proposition was submitted to and urged upon the plaintiffs by Hoadley's counsel, and rejected by them as well as by the other brokers who were called together for the purpose of consideration of the offer. The submission of this offer to the assembled brokers was on May 21, 1902, and the summons in this action had been served on Hoadley two days before. Leiter was named as a defendant, although service had not been made upon him. One of the plaintiffs testified that when Judson opened the account he said that Hoadley and Leiter were interested with him, and by other evidence it was proved that the defendants were consulting together as to the form and substance of the compromise offer as early as the eighth or tenth of May, before it was finally submitted, and hence all parties must have understood previous to its submission that claim was being made that the present contesting defendants were liable with Judson on his stock-purchasing contracts.
We think the offer was not, as urged by respondents, that of Judson alone, but from the facts proved it was an offer of compromise on the part of Hoadley and Leiter as well, and that receipt of evidence concerning it, over their objection and exception, was error for which the judgment must be reversed. Offers made by way of compromise of a disputed claim in an ineffectual attempt at settlement, are incompetent evidence against the party making them. ( Tennant v. Dudley, 144 N.Y. 504; Roome v. Robinson, 99 App. Div. 143.) An unqualified admission of an independent fact, as such, made, not as a part of an attempted adjustment, but during an attempt at compromise, does not come within this rule, as is pointed out in Roome v. Robinson ( supra), and respondents insist that their evidence comes within this exception. We fail to find the admission of an independent fact on the part of either Hoadley or Leiter made during the offer of compromise. The paper itself makes no admission of liability on the part of either, nor did either admit that he was liable, or that a partnership existed with Judson. The fact that Hoadley admitted he made the compromise and explained why he made it, did not cure the error. The jury could reject his explanation and accept his admission that the offer was made, and the inference which they would naturally draw would be that the defendants Hoadley and Leiter offered to settle because they were liable and because they were partners with Judson and could be made to pay. It was to prevent this improper deduction that the rule of evidence excluding unaccepted offers of compromise was created. A man against whom no legal liability exists may buy his peace, and the fact that he attempts to do so and fails ought not and does not fasten liability upon him, for proof of his unsuccessful efforts in that direction has no place on a subsequent trial. The cases of Sweet v. Henry ( 175 N.Y. 268) and Misner v. Strong (181 id. 163) are not to the contrary. In both of these cases evidence of an unaccepted offer of compromise was condemned, but the trials having been had before referees, it was concluded the incompetent evidence did no harm. The present case was tried before a jury, and the evidence being so likely to be misapplied, especially in the absence of caution by the court, harm must be presumed to have resulted from its reception.
Nor can the admission of the written offer and the facts attending its presentation to the plaintiffs and the other creditors be justified on the ground that they were competent as against Judson alone. There was no issue with respect to him. The paper and these facts were not relevant to anything to be established in the action as against Judson, for there was no occasion for establishing anything as to him. He had not answered, and the action being for money only, the plaintiffs had a right to enter judgment against him by default.
Many other alleged errors are urged by appellants, but it is unnecessary to consider them in view of the new trial which we feel constrained to order for the reasons pointed out. There is a class of evidence, however, that we deem it our duty to consider for the guidance of the court upon a retrial.
The plaintiffs were permitted to prove, against the persistent objection of defendants, declarations and acts of one alleged copartner in connection with the alleged partnership business, in the absence of the other claimed partners. In the main we think this evidence was properly received. The plaintiffs proved by Judson the partnership agreement or contract. The subject is not presented solely as relating to the admission in evidence of acts and declarations of an alleged partner. The proof was not confined alone to what Judson did nor to what he declared or stated to third parties. The issue was as to the existence of a partnership, and Judson testified directly on that point. He was a competent witness to prove the fact of partnership. In treating of the nonadmissibility of evidence of acts and declarations to third parties of an alleged partner Judge Lindley says: "It need scarcely be observed that the principle now under discussion does not apply to exclude the testimony of a person deposing to the existence of a partnership between himself and another. Such testimony was not excluded even before the alteration of the law relating to the competency of witnesses and there is no pretense for excluding such testimony now." (1 Lindl. Part. [Ewell ed.] *93.) In addition, other independent circumstances, which might in the judgment of the jury have fortified Judson's testimony, were also proven.
Plaintiffs thus made prima facie proof of the existence of a partnership, and having done so, it was competent to prove the acts and declarations of the several alleged partners while engaged in the partnership business. If the partnership had been admitted, the competency of such acts and declarations would not be questioned, for each member of a firm is its general agent in relation to all the business of the firm, and can bind it in what he says and does in transacting such business. ( Union Nat. Bank v. Underhill, 102 N.Y. 340; Randall v. Knevals, 27 App. Div. 146, 150.) It not being admitted, proof of the fact that it existed became necessary. Its existence could not be proved by the admission or declarations of one that the others were partners. Such declarations are incompetent for that purpose. No rule is better settled than the one that a partnership cannot be proved by the mere declarations of a person that he is a partner, or that others are partners with him. ( Mathiasen v. Barkin, 62 App. Div. 614.) The declarations, if against his interest, may bind the person making them, but they cannot establish the fact that others are his partners. It is in the application of this rule that confusion has arisen.
Although the declarations cannot establish the partnership, yet after it has been established by proof aliunde, the declarations and acts of the prima facie partners in the management of the partnership business may be proved. Individuals who deny that the partnership relation exists are frequently sought to be charged as partners. The question of partnership then becomes an issue in the case, as well as the extent of liability if the partnership be established. The issue of partnership, and all other issues, must necessarily be determined in the one action. There can be no separate determination with regard to the partnership and a judgment entered thereon. The issue as to the existence of the partnership, and the extent of liability if the partnership exists, must all be determined on the one trial, resulting in one judgment.
The acts and declarations of an actual partner while engaged in the partnership business being incompetent against all other partners, and it being necessary to determine a disputed partnership in the one action, as well as to ascertain the extent of liability if the partnership exists, necessity compels another rule, which is, that when prima facie evidence of the partnership has been given, the declarations and acts of the several proven partners connected with the partnership business while it is being carried on are competent evidence against the others. ( Harris v. Wilson, 7 Wend. 57; Fogerty v. Jordan, 2 Robt. 319; Nicholls v. Dowding, 1 Stark. 65; Robins v. Warde, 111 Mass. 244; Conlan v. Mead, 172 Ill. 13; Pars. Part. [4th ed.] § 129; 1 Greenl. Ev. [15th ed.] § 177; Abb. Tr. Ev. [2d ed.] 269; 1 Rice Ev. 450.) The rule is stated by the various judges and text writers in various language, but all to like effect.
Mr. Greenleaf says: "And where it is sought to charge several as partners, an admission of the fact of partnership by one is not receivable in evidence against any of the others to prove the partnership. It is only after the partnership is shown to exist, by proof satisfactory to the judge, that the admission of one of the parties is received in order to affect the others."
Mr. Parsons uses this language: "If the partnership exists the question then is, Do the act or the words refer to the business of the partnership? If so, it binds the firm. Thus, an admission by one partner (the partnership or joint liability having been proved or admitted) of a fact bearing on the issue of a case at bar, is admissible evidence. The partnership being proved aliunde, entries of account made by one partner during the existence of the firm are admissible evidence to charge all."
The rule is stated by Mr. Abbott as follows: "After evidence of partnership and of its scope as including the affairs in question has been given, an admission or declaration made by one partner during the continuance of the partnership relation and concerning the partnership affairs during the relation, is competent against all and has the same effect as if made by all."
MORTON, J., in Robins v. Warde ( supra), says: "After a partnership is proved to exist the acts and declarations of each partner, within the scope of the partnership business, are admissible against the others. * * * The rule is the same as in other cases of agency. The agency must be proved aliunde and then the acts and declarations of the agent, within the scope of his authority, are binding upon the principal."
In Fogerty v. Jordan ( supra), MONELL, J., says: "To render the admission competent, however, it must appear by other evidence that a partnership existed at the time to which the admissions refer and in respect to which they are supposed to relate."
The rule is analogous to that in an action for conspiracy in which, after proof of the conspiracy has been given, the declarations of one conspirator may be given against his associates. ( Place v. Minster, 65 N.Y. 89.) This rule does not permit the giving in evidence of mere bald declarations to third parties in no way connected with the business of the alleged partnership as was the case in Nichols v. White ( 85 N.Y. 531) and in Whitney v. Wardell (59 Hun, 95). If Harvey v. Walker (59 Hun, 114) can be said to be to the contrary, the decision was in violation of the rule and should not be followed.
Nor is there any difficulty in the practical application of this rule. It often happens in the trial of an action that it is necessary to instruct the jury that they must first determine a particular fact before considering evidence bearing on another issue in the case, and by instructing them in a case like the present that from the evidence aliunde, the partnership relation must first be determined, before considering the evidence of the acts and declarations of the proven partners, no injustice will be done and no evidence, pertinent to one issue only, will be improperly considered as bearing upon an issue to which it does not relate.
The plaintiffs having made prima facie proof of the partnership, and legally sufficient proof of that fact to raise a fair question for the jury, the evidence of the acts and declarations of the proven partners, while engaged in the proven partnership business, came within the rule which we have stated and was competent and properly received.
The declaration of Judson to the plaintiffs when he gave his order to buy stock, that Hoadley and Leiter were partners with him, and that he was buying it for the partnership, was properly received after the prima facie proof of partnership had been given, not only because it was a communication in connection with the alleged partnership business, but as showing with whom plaintiffs contracted and to whom they gave credit. Even if there was a partnership, Judson could buy stock individually as well as for the partnership account. If the plaintiffs trusted him as an individual, being advised or knowing he was also a partner with others, they could not hold the partnership even if it existed, and the evidence was competent at least for the purpose of showing to whom credit was given. Judson's declaration that he was buying it for the partnership could not establish the partnership; but, if the partnership was established by other proof, the evidence was material at least in determining whether the plaintiffs dealt with the partnership or with Judson alone. ( Rogers v. Murray, 110 N.Y. 658.)
The case is one of magnitude, necessarily occupying much time in its trial. It is with the hope of relieving the retrial of some of its burdens that we have gone beyond giving out reasons for reversing the judgment, and have elaborated the rule respecting a large class of evidence pertinent to the action. The voluminous record has been carefully examined, but our view being that a new trial was a necessity, we have purposely refrained from commenting upon the facts at length and have referred only to such as related to the question of law involved.
The judgment and order should be reversed and a new trial granted, with costs to the appellants to abide the event.
PATTERSON and LAUGHLIN, JJ., concurred.
I concur in the opinion of Mr. Justice HOUGHTON except in so far as he holds that the declarations of Judson that the appellants were his partners in the purchase of the stock referred to were admissible in evidence. The fact that Judson employed the plaintiffs to purchase the stock of the International Power Company, upon which a loss was sustained, and to charge the same to the account of "Cyrus Field Judson, Special," and that they made such purchase and sustained the loss claimed, was not disputed at the trial. The real and substantially the only question litigated was whether the appellants were partners of Judson in such transaction, and they were entitled to have this issue determined upon competent evidence.
Mr. Justice HOUGHTON in his opinion concedes that the declarations of Judson, would be incompetent to determine this issue, but he says prima facie evidence having been given that such partnership existed, then such declarations became admissible; in other words, because Judson testified that the appellants were his partners, that thereupon his declarations, not made in the presence or with the knowledge of the alleged partners or either of them, became admissible. But admissible for what purpose? Obviously, either to corroborate the testimony of Judson that the partnership existed or else to establish the partnership. It is unnecessary to cite authorities to establish the proposition that the testimony of a witness cannot be corroborated by his unsworn declarations, made without the knowledge or consent of the person against whom they are sought to be used. This is elementary. That the declarations of one party that another is his partner is no evidence whatever, except as against the one making the same, to establish such partnership where such declarations are not made in the presence or with the knowledge of the alleged partner, is established by numerous authorities, among which the following may be read with interest: McPherson v. Rathbone (7 Wend. 216); Thorn v. Smith (21 id. 365); Whitney v. Ferris (10 Johns. 66); Kirby v. Hewitt (26 Barb. 607); Whitney v. Wardell (59 Hun, 95); Harvey v. Walker (Id. 114); Uhler v. Browning ( 28 N.J.L. 79); Degan v. Singer ( 41 Ill. 28); Gardner v. Northwestern Mfg. Co. (52 id. 367); Bishop v. Georgeson (60 id. 484); Robins v. Warde ( 111 Mass. 244); McNeilan's Estate (167 Penn. St. 473); Armstrong v. Potter ( 103 Mich. 409) ; Bundy v. Bruce ( 61 Vt. 619); Cowan v. Kinney ( 33 Ohio St. 422); Butte Hardware Co. v. Wallace ( 59 Conn. 336); Dutton v. Woodman (9 Cush. 255), and in addition see Vanderhurst, Sanborn Co. v. De Witt (20 L.R.A. 595), and cases cited in note.
The rule which excludes such declarations, and the reason upon which it is based, is well stated by BIGELOW, J., in Dutton v. Woodman ( supra), as follows: "The authority of Thurston and of I.F. Woodman to bind E.W. Woodman by their statements and declarations, depended entirely upon the existence of the copartnership. Until that was proved, E.W. Woodman was not shown to have had any connection with either of them; and as that was the very point in controversy before the jury, to be determined by their verdict, evidence which could be admissible only upon the assumption of the existence of the copartnership was clearly incompetent when offered to prove the fact upon which its competency depended."
Here, as already indicated, substantially the only issue was whether Hoadley and Leiter were partners of Judson in the transaction referred to in the complaint. Judson's declarations to establish that fact were incompetent and should have been excluded. Objection was seasonably made to their admission in evidence and at the close of the plaintiff's case an appropriate motion was made to strike out such evidence, which was denied and an exception taken. The case was sent to the jury with instructions that they must determine whether such partnership existed from all the evidence in the case. In admitting this class of evidence the trial court erred, and for such error there must also be a new trial.
CLARKE, J., concurred.
Judgment and order reversed, new trial ordered, costs to appellants to abide event. Order filed.