McDowell v. Joice

Mr. Justice Bailey delivered the opinion of the Court: In the opinion of the Appellate Court, a copy of which will be found in the foregoing statement, the facts necessary to a proper understanding of the case are sufficiently set forth, and as we are disposed to concur substantially with both the reasoning and the conclusions of that court, but little need be added, except by way of discussing a little more fully one or two propositions which are pressed upon our attention with especial earnestness. In their arguments here, counsel for the appellants have labored strenuously to show that, although the same persons were, to a very large extent, associates in both enterprises, the association which purchased the 160-acre tract óf land is to be regarded, both in fact and in law, as wholly distinct from the one which had previously purchased and sold the 20-acre tract, and therefore that the relations of McDowell and Gilliland to the first association can not be resorted to for the purpose of determining their duties and •obligations to the second. As these associations were unincorporated, they of course presented in each case the legal attributes of a partnership, and as under the rules applicable to partnerships, the retirement of an old member, or the admission of a new one, •operates as a technical dissolution of the old and the formation of a new firm, it can not be doubted that the two associations, considered merely in the light of the law applicable to partnerships, were, numerically distinct. But while this is so, it is apparent from the evidence, that the scheme in pursuance of which the Cook County Land Investment Association was formed, contemplated an indefinite series of transactions of the same general character, through all of which the association itself was to maintain its identity. To each purchase of land, the original associates, so far as they should choose to take part, and such others as should become associated with them, were to be parties. As the association did not see fit to become legally possessed of thq attribute of perpetual succession by becoming incorporated, its operations necessarily involved, in ease of each purchase, the formation of what was technically a distinct partnership, but that was merely incidental to the general plan upon which the association proposed to transact its business. For the purpose of determining the fiduciary relations existing between the association and its members, the association itself, through all the mutations in its membership, may be regarded, at least in equity, as an ideal entity, involving and possessing equitable rights and relations, which if not identical with, were at least analogous to, those existing betwen partners. The persons who formed the association and who were members at the time of the purchase of the first tract of land, were partners as to that transaction, and as such were incapacitated from dealing clandestinely in respect to the common enterprise for their own benefit, and if they had attempted to do so, by the well established rules applicable to partnerships, all profits thereby made by them would have enured to the benefit of the association, and they would have been compellable to account therefor. This is so elementary that it will scarcely be disputed. But they were not merely partners in that particular deal, but they were also members of the association. As such, and until the relation was terminated by some unequivocal act on their part, they were bound to act for the promotion of the common interest, and were incapable of dealing secretly, either with or for the association, for their own benefit. Doubtless, if they had announced their withdrawal from membership, or had in any way manifested their election to no longer remain members, they would have been at liberty to deal with the association as strangers. But until that was done, the relation of at least a quasi partnership, with all the legal consequences resulting from that relation, continued, and they were incapable of dealing with the association, at least without its full knowledge and consent, for their own profit. Gilliland and McDowell were both members of the association and partners in the first purchase, and instead of withdrawing from the association, or in any w'ay apprising" their associates of their intention to assume a hostile attitude, they continued to act apparently for the promotion of the common enterprise, and became subscribers in the new deal by which the 160 acre tract was purchased. Taking advantage of their position as associates, they succeeded in inducing the association to take the 160 acre tract off their hands at $24,000 in excess of what it had cost them, thus realizing from the transaction that sum as their profit. This was done by interposing Martin, a mere go-between or “man of straw” between Lewis, the owner of the land, and the association, and the profits thus realized were divided between them and Martin. That the transaction was a fraud upon the -association is, in our opinion, too plain for controversy. But it is contended that, even if that is so, the only remedy of the association was by rescission, and that, having failed to rescind, it must be deemed to have affirmed the transaction and waived the fraud. In this view we are unable to concur. McDowell and Gilliland, being members of the association, and jointly interested with the other associates in the common enterprise, they are placed in substantially the same equitable position in which partners stand who have succeeded in clandestinely realizing profits at .the expense of their firm, or agents who have in like manner realized profits at the expense of their principal. In such cases, rescission may or may not be an appropriate remedy,,as it may often happen that innocent third parties have interests in the transaction, against whom the right of rescission can not be asserted. But in such cases, the defrauded firm or principal may always have a remedy by calling upon the partner or agent to account to his firm or principal, for the profits thus wrongfully and fraudulently realized. We are of the opinion that the decree is warranted by the evidence, and the judgment of the Appellate Court affirming it will be affirmed. Judgment affirmed.