Administrator of Smith v. Smith

The opinion of the court was delivered by Poland, J. The evidence of the defendant, as stated in the exceptions, legally tended to prove that Gardner G. Smith had the general charge and oversight of the business of the ñrm, and especially of its finances, and that he had full means of ascertaining and knowing their financial condition. It also tended to prove that the defendant, from his not having been a member of the firm from its commencement, from his general inexperience in business, the fact that the general superintendence was taken by Gardner G. Smith, and especially from his absence for a time from the St. Albans establishment, had not the same knowledge or means of knowledge of the true financial condition of the firm, that was [143] possessed by Gardner G. Smith. It also tended to prove that the whole examination and calculation for the purpose of ascertaining the state of their partnership affairs, preparatory to the new arrangement and new firm, created January 8,1847, was made by Gardner G., and that the defendant made no examination whatever, but relied entirely upon the calculations and representations of Gardner G. upon that subject, and so informed him at the time. That Gardner G. Smith represented that he had made a full and accurate examination and calculation of all their partnership affairs,' and that after making all proper allowance for all losses and bad debts, the firm had made a clear profit of about ten thousand dollars. That the defendant believed and relied upon such representations, and was thereby induced to give the note in question for another sixteenth share in the partnership property, in addition to the three-sixteenths he already owned. At the same time suitable conveyances were executed to constitute the defendant and the other partners each an equal owner of one-fourth part of all the partnership property, real and personal. The defendant’s evidence also tended to prove that at the time these representations were made, and this note executed, the firm was wholly insolvent, and instead of their having assets to the extent of ten thousand dollars, they had not enough to pay their debts by about that same amount. The defendant also offered to prove that G. G. Smith, when he made the said representations to induce the defendant to give the note, made them knowing them to be false, and with the intent to deceive and defraud the defendant. This evidence appears to have been excluded by the county court. Now, whether the jury -would have found the facts which the defendant’s evidence tended to prove, or whether the defendant could have proved what he offered, we have no means of knowing or any occasion to inquire. As the case was taken from the jury by the county court, we are to treat the case as if the defendant had sufficiently proved all the facts that his evidence tended to prove, and that he could prove all that his offer of proof contained. In this view it appears to us that, beyond all question, the note when given did not bind the defendant — that the note was wholly without any legal consideration to sustain it, and that it was obtained [144] by suck fraudulent and deceitful representations as to make it entirely invalid. These facts too, if proved, went to the entire consideration of the note, and even beyond, so that the cases cited of a partial failure of consideration or a deceit that only reached to a part of the consideration of a note, do not apply. But the plaintiff claims that even if the defendant was not bound by the note when given, or if he might have rescinded the contract at the time or within a reasonable time after, that he did not do so, but that on the contrary he, by his subsequent conduct, affirmed and ratified the contract, and so made the note binding upon him. It appears from the case that on the 8th of January, 1847, when this note was given, that a new partner was introduced into the firm; that all the partners became interested as owners in the property and assets of the former partnershq:>, and that each of the old partners owned a different interest from what he owned before. The new firm went on with the business in an active and extensive manner, and the assets and property received from the old firm was immediately commingled with the acquisitions and business of the new firm, and this business continued to the death of Gardner G. Smith, in April, 1850. The defendant’s evidence tended to prove that he remained wholly ignorant of the true condition of the firm when said note was given, until about a year after said note was given, when, from his increased acquaintance with the affairs and business, he began to learn it, but that he was not fully informed of the true state of affairs till afterwards, sometime in 1848. Upon this state of facts was the defendant bound to rescind the contract and disaffirm the whole arrangement, when he discovered that he had been defrauded ; and did his failure to do so make the note binding upon him ? It is doubtless true that in cases where the purchaser of property gives a note for the price, and subsequently ascertains that he has been defrauded in the sale, if the property is of any value and he ascertains the fraud in season to enable him to do so, he must rescind the contract by returning the property, and he cannot retain the property and at the same time refuse to pay the note. But at the time when the defendant, as he claimed, discovered that [145] he had been defrauded into giving this note, the state of affairs was such that it was impossible to rescind the contract and restore either of the parties to their former condition and rights. The state of the effects and property of the firm had made it entirely impracticable. So too the fact that the other partners had acquired interests in it, precluded any such rescinding or restoration. But we think, considering the position of the parties and the nature and position of the interest or property, the defendant could never have been called on to make any offer to rescind, in order to enable him to avoid the note. The note was given to purchase a share of Gardner G. Smith’s interest in the partnership, the defendant being already a partner. What interest has a partner in the partnership property and effects? Each partner has a right, after the partnership is closed and the partnership liabilities extinguished, to have his proper share of the effects and funds. All the partnership property is liable, primarily, for the partnership debts, and each partner has an equity to have the partnership effects applied for that purpose before any division can be made among the partners. The case, as the defendant made it, showed that the whole patnership effects were insufficient to pay the debts. The defendant, as well as Gardner G. and the other partners, was liable for all those debts, and he might well require all the property to be applied to pay them. If any portion of the property and effects went from him into the hands of Gardner G., it was equally holden to be applied for the same purpose, and so was all the property irrespective of what their interests were as between themselves. The note was given for an interest which did not exist in fact, and could not, therefore, be restored by any disaffirmance. For these reasons we think the evidence should have been submitted to the jury upon the evidence given, and such as the defendant offered, which was excluded, and the judgment of the county court is, therefore, reversed, and the case remanded to the county court for trial.