Opinion
Argued June 14, 1886
Decided October 5, 1886
John Van Voorhis for appellants. Wm. W. Niles for appellants. Edward W. Paige for respondent. Henry Brodhead for respondent.
There are, possibly, some facts in the mass of testimony taken in this case which admit of an inference that the settlement assailed was fraudulent and collusive as against the plaintiff. The proofs have not impressed us with the soundness of that conclusion; but the question is essentially one of fact, and, in the face of the finding of the referee, and its approval by the General Term, we can only reverse upon the ground that there was absolutely no evidence of fraud. We hesitate to do that for the reason that certain incidents were proved, which, standing alone, would tend to show collusion between all the other parties to injure and impair the rights of Sweet; and while they seem to us fairly explained, the adequacy of the explanation has not struck all minds alike.
But, conceding the fraud, and waiving the difficulty that the false estimates, if they were such, originated in the act and influence of the railroad company, which has been dismissed from the case, it is quite clear that such fraud was against Sweet alone and furnishes a cause of action to him only and not to his firm. His four partners who made the settlement with Payson, Canda Co. had competent authority for that purpose, which bound the firm. The terms of their partnership agreement distributed among the partners the work to be done, assigning to Sweet, who was an engineer, the duty of "conducting" the financial settlements, and to his associates the work of grading. Such an agreement ought not to be construed as abrogating or dividing the general partnership authority, and making one absolute dictator over four as to the finances of the firm, unless such an intention is quite clearly and distinctly developed. The agreement strikes us as not so intended. It did not forbid or prohibit the exercise of authority or the right to participate on either hand. In many firms the business is necessarily divided into departments, which single partners specially control, but not to the absolute exclusion of the others, or so as to abrogate utterly their partnership authority. This agreement seems to us fairly of that character, and gave to Sweet a leadership or controlling influence in financial questions, while he did his duty in exercising it, but did not strip his associates of their general partnership rights. But Sweet did not perform that duty. He went away to attend to other business of his own, and left a letter directing Fleming to settle. He had no power to make such a substitution. When he surrendered his own control, it went back to the firm and remained there, since he could not take up and abandon his duty at his pleasure. The settlement made by the four partners, therefore, bound the firm. They lawfully represented it, and as to them there was neither fraud nor mistake. They allege neither, but deny both; and it follows that Payson, Canda Co. were bound to pay the firm only the amount required by the settlement actually made.
Yet in spite of that, it was possible for Sweet's partners and the other defendants to make by collusion a settlement valid as between them, but fraudulent as to him; and that is the fraud charged and the fraud proved, if there be any. Sweet may recover, not the debt due to the firm, for that is discharged, but damages for the fraud practiced upon him in the process. This is his individual right, and the resultant damages can only be measured by his individual loss, and that loss, if it exist at all, must necessarily be and can only be a diminution of his partnership share produced by a collusive waste of partnership assets.
But he has not proved any such loss. It cannot be known until a settlement of the partnership accounts what loss has resulted from the fraud. Payson, Canda Co. are not bound to pay Sweet's firm, or Sweet's partners, any thing. Primarily the action is by Sweet against his copartners for a partnership settlement, in which he charges them with the willful and fraudulent waste of a valuable claim, and holds the debtors responsible also by reason of their collusive participation. That is the sole theory upon which the action can be maintained. To Sweet's partners and to his firm nothing is due from Payson, Canda Co., and they can be compelled to pay only what is needed to perfect Sweet's rights as disclosed by an honest settlement. He has a right, notwithstanding the settlement actually made, to be placed in the position he would have been in if the full debt had been honestly paid to his copartners, and he had received his aliquot share of the assets thus increased, after payment of the firm debts. When that is done he has obtained full justice and all to which he is entitled. But as the case stands, his recovery may prove to be much too large or much too small. No final settlement of the firm accounts has been had, and every effort to prove their exact condition was prevented by the rulings upon the trial. It may turn out that, even after charging the four partners with the entire amount of the disputed asset, Sweet has already had his full share and is entitled only to judgment confirming him in its possession. In that event Payson, Canda Co. would have nothing to pay. If it should appear that the firm debts are all paid, or if not, that the four partners are so solvent and able to pay their proportions as to permit that subject to be disregarded, and that Sweet has already had from the firm property in excess a sum equal to one-quarter of the disputed claim, then the sole relief necessary to his protection is a judgment confirming him in the possession of what he has received. His partners claim that to be the truth; that he took in advance and over and above his share all that this asset would produce, and having got it already has no claim to be paid it a second time. On the other hand, that claim of the four partners may prove to be untrue, and it may further appear that large debts are outstanding, for which Sweet is liable, and, at least, if his partners are insolvent and unable to pay and all the other firm property is exhausted, he may require from Payson, Canda Co. a sum sufficient to restore the solvency of the firm, and secure him his share of the surplus, even if it took much more than the sum he has already recovered. In other words, whatever loss of Sweet on a final adjustment of the partnership accounts can be traced to the waste of the disputed asset by his partners in collusion with Payson, Canda Co. must be made good to Sweet out of it. But when that is done, full justice is rendered, and he is entitled to no more. The arbitrary award of one-quarter of the claim was, therefore, erroneous, since no sufficient facts are found to justify it.
There were cross-appeals from the judgment of the General Term. The plaintiff appealed from so much of it as reduced his original recovery, and the defendants because it permitted a recovery at all. The conclusion we have reached determines both appeals.
The judgment should be reversed, and a new trial granted, costs to abide event.
All concur.
Judgment reversed.