Johnstone v. Morris

This is an action on a promissory note. The complaint alleges the execution and delivery of a promissory note by defendant to plaintiff in the sum of $16,800; that $4,250 has been paid thereon; that $12,550, together with interest and attorney’s fees are due, owing and unpaid. The defendant’s answer admits the execution and delivery of the note; admits that but $4,250 has been paid thereon, and by way of defense alleges that plaintiff has in his possession approximately $15,000 belonging to this defendant, and sets up the same by way of counterclaim. The defendant also filed a cross-complaint, in which it is substantially set forth that the above note was given by defendant to plaintiff upon the dissolution of a partnership theretofore existing between the parties; that on September 30, 1923, said partnership was dissolved by the defendant purchasing the plaintiff’s interest for the sum of $26,800, $10,000 of which was paid in cash, the balance being represented by the promissory note above mentioned; that no extensive accounting was had at the time of dissolution; that during 1922 and 1923 the wife of plaintiff, Corrine Johnstone, acted as the bookkeeper of the partnership; that during that period plaintiff and his wife entered into a conspiracy to defraud the defendant by means of false entries in the account books and misappropriations of funds belonging to the partnership; that $30,000 is the approximate sum so misappropriated, of which one-half, or $15,000, belongs to this defendant by virtue of the partnership relationship. Defendant and cross-complainant prays that plaintiff take nothing by his action; that the court order an accounting to

Plaintiff, in answering the cross-complaint, denied the existence of the conspiracy and fraud; alleged that during the entire existence of the partnership from 1917 to 1923, defendant was a silent partner in the business; that neither the public nor Corrine Johnstone knew that in fact defendant was a partner¿ that Corrine Johnstone, in the honest belief that her husband was the sole owner of the business, had invested $1825 of her own money in the business and $1200 belonging to her mother; admits that in 1922 Corrine Johnstone withdrew $500 from the business, and admits that she withdrew $3,500 in 1923, but alleges that the same was done without her husband’s knowledge and consent, and in the honest belief that plaintiff, her husband, was the sole owner of the business.

Over the protest of plaintiff and at the request of the defendant the court granted a jury trial on all the issues. The jury rendered a verdict “in favor of the defendant M. E. Morris and against the plaintiff John Johnstone”, thus in effect finding that plaintiff had misappropriated $12,550 of defendant’s money, since that was the amount due on the note, and the verdict determines that plaintiff is entitled to nothing. From the judgment duly entered in accordance with the above verdict, plaintiff prosecutes this appeal.

Appellant contended in the trial court, and having been overruled there, contends on this appeal, that the cross-complaint of respondent, both by the issues raised and the relief demanded, appeals to the equity side of the court, and that on those issues a right to trial by jury does not exist. Furthermore, appellant contends that these equitable issues should first have been determined by the court without a jury. The basis of appellant’s contentions in this respect is that the cross-complaint is fundamentally based on the partnership relation, and the action is essentially no more than an action for an accounting between partners.

It is an almost, if not universally, accepted rule, that in the absence of statutory permission, an action at law as distinguished from an action in equity cannot be maintained

“Plaintiff, by affirming the sale to him, has affirmed the dissolution of the copartnership and the settlement, except as he may, if he has been defrauded, have a remedy for the fraud and deceit practiced upon him.

“If plaintiff has suffered loss in adjusting the partnership relation with defendant, through fraud or deceit of

defendant, his remedy does not lie in a partnership accounting, but in an action planted upon such fraud and deceit. . . .

“Plaintiff in this case had a right to impeach the settlement with his copartner, for the fraud and deceit alleged, if practiced upon him, but such is not the remedy he seeks. The allegations in the bill state an action for fraud and deceit in making a settlement of the partnership affairs, and plaintiff elected to have such settlement stand.”

After considering several authorities, the court concludes: “Plaintiff has an adequate remedy at law, and the learned circuit judge was right in holding that the equity court had no jurisdiction.”

The case was, therefore, transferred to the law side of the court. (See 240 Mich. 156 [ 215 N. W. 350 ] for the same case on appeal after decision by the law side of the court.)

Another case laying down the same rule is Crockett v. Burleson, 60 W. Va. 252 [ 6 L. R. A. (N. S.) 263 , 54 S. E. 341 ], where, after dissolution caused by one partner purchasing the other partner’s interest, the purchasing partner discovered that the seller had fraudulently represented the status of the account between them, and brought an action at law for the fraud. The sole question on appeal was whether such action could be maintained. The Supreme Court of Appeals of West Virginia held that it could, stating, among other things:

“The gravamen of the action in this case is the alleged tort — the alleged personal wrong done to one partner by another, as to which there can be no partnership relation. The late partnership is in no way concerned. It cannot be conceived that there is anything in the former partnership relation which prevents the maintenance of this action brought for damages for the alleged deceit.”

' In the fairly recent case (1929) of Wright v. Lake, 178 Ark. 1184 [ 13 S. W. (2d) 826 , at page 827], it is said in reference to this type of case:

“The contract of dissolution stands, and the partnership-relation no longer exists. The ground of action is in no way connected with the state of the partnership business, except that the defendant is alleged to have withheld from the plaintiff a part of the profits for three different years and to have converted the same to his own use. A certain

See, also, Farnsworth v. Whitney, 74 Me.. 370 ; McAuley v. Cooley, 45 Neb. 582 [ 63 N. W. 871 ]; Binney v. Delmar, (N. Y. Com. PL), 17 N. Y. Supp. 524 ; Kelly v. Delaney, 136 App. Div. 604 [ 121 N. Y. Supp. 241 ], affd. in 205 N. Y. 618 [98 N. B. 1105]; Wicks v. Lippman, 13 Nev. 499 ; annotation, 21 A. L. R. 21 , at p. 97.

The reasoning of the above cases appeals to us as. stating the proper rule. It is true that respondent herein has, among other remedies, asked for an accounting, but that relief is merely incidental as part of the proof of the. fraud. The essential nature of the action was for- fraud and deceit in the misappropriation of funds. The action was not one for an accounting. The mere fact that in determining the damages many items were involved would in no way change the nature of the action, nor would it deprive the law courts of jurisdiction. As stated in Otsego Sanitary Milk Products Co. v. Allegan, Circuit Judge, 234 Mich. 277 [ 207 N. W. 890 ]:

“The only relief sought by either party in the original ease is a money judgment or decree. It is said by one of the parties that the number of items involved approximates 3000, and by the other that the number does not exceed 50 . . . but the fact that the items are numerous does not deprive a court of law of jurisdiction.”

From the above reasoning it follows that, the action being one at law, the defendant was entitled to a jury trial.

Just as appellant has misconceived the nature of respondent’s pleading, so has he misconceived the nature of the dissolution agreement. The evidence shows that the

A somewhat analogous and equally fallacious contention is made by appellant in his contention that the alleged fraud is not a defense to an action on the note, and could not be set forth as the proper subject of a cross-complaint. Under the above facts there can be no doubt that the alleged indebtedness caused by appellant’s fraud could properly be set forth as a counterclaim under section 438 of the Code of Civil Procedure or as a cross-complaint under section 442 of the Code of Civil Procedure.

Appellant’s next assignment of error deals with the question as to the admissibility into evidence of an accountant’s summary of the books of account of the partnership. Mr. Dolge, a certified public accountant, was called as a witness by respondent. He testified that he had examined

“There can be no evidence of the contents of a writing, other than the writing itself, except in the following cases: ... 5. When the original consists of numerous accounts or other documents, which cannot be examined in court without great loss of time, and the evidence sought from them is only the general result of the whole.”

Although it is true that Mr. Dolge did not do all of the. actual checking required, we do not deem that essential to permit the summary to be introduced. He testified very clearly that his report was made from the original tags, checks and books of account, and that he had personal knowledge of the same. The tags, checks and books were all made available to appellant, and could all have been introduced into evidence, but it was to prevent such a time wasting and lengthy procedure that section 1855, subdivision 5, of the Code of Civil Procedure was passed. (See Wilson v. Alcatraz Asphalt Co., 142 Cal. 182 , 189 [ 75 Pac. 787 ]; Shields v. Rancho Buena Ventura, 187 Cal. 569 , 573 [ 203 Pac. 114 ]; Globe Manufacturing Co. v. Harvey, 185 Cal. 255 , 261 [ 196 Pac. 261 ]; Kinney v. Maryland Casualty Co., 15 Cal. App. 571 , 574 [ 115 Pac. 456 ]; McPherson v. Great Western Milling Co., 44 Cal. App. 491 , 495 [ 186 Pac. 803 ].)

Appellant next contends that the evidence is insufficient to support the verdict in the following respects: The Dolge report covers the period from January 1, 1923, to September 30, 1923, and for that period concludes that the sum of $19,581.06 was unaccounted for. Appellant admits, in addition, that $500 was appropriated by Mrs. Johnstone in 1922. The total appropriations amount, therefore, to $20,081.06, of which one-half, or $10,040.53, belonged to each partner. Appellant contends that this is the only evidence of misappropriations to be found in the record, and that, assuming the jury believed that the entire sum had

“Conclusive proof, however, is never necessary to justify a verdict, and a general verdict will be upheld if it finds support in the evidence, adduced upon the whole case. Obviously, under the system prevailing in California, the jury are the exclusive judges of the weight of the evidence and the credibility of witnesses, and it is, as has often been observed, peculiarly within their province, when considering the evidence, to give to it whatever weight it may, in their

Appellant next contends that the evidence was insufficient to show a conspiracy to defraud respondent by appellant. Appellant correctly states that there is no direct evidence in the record showing that appellant and his wife acted in concert, all the direct evidence showing that Mrs. Johnstone was in ignorance of the partnership relationship, and was laboring under the impression that her husband owned the business, and took the money under that assumption. Moreover, both Mr. and Mrs. Johnstone testified that Mr. Johnstone had no knowledge of the misappropriations by his wife. But we do not deem it necessary in such an action to show the conspiracy to defraud by direct evidence. The jury was not bound by the direct evidence of the John-stones. The inherent probability or improbability of that testimony was a matter for them to determine from all the facts and circumstances. The evidence shows that at all times herein involved Mr. and Mrs. Johnstone were husband and wife, living together as such. They both testified that Mrs. Johnstone handled all of the finances of the family. Mr. Johnstone testified that “Mrs. Johnstone and I took charge of the financial end of the business . . . My wife had a bank account. I never saw it. I never wanted to see it”; and also testified that “Mrs. Johnstone handled all the money including our salaries.” The evidence also showed that during this period Mrs. Johnstone purchased a $1000 diamond ring, a $2,800 Packard, and started payments on a $9,500 home; that she usually carried large sums on her person, many times over $1000 in cash. It is hard to believe that under these circumstances Mr. Johnstone was or could be in ignorance of the fact that his wife was appropriating large sums of the partnership money. In cases of conspiracy to defraud it is not to be expected that direct evidence of the conspiracy can be secured, because such evidence could usually only be secured in the event one of the conspirators confessed. The jury may infer the conspiracy from all the circumstances, and if the inference is a' reasonable one it will not be disturbed on appeal. These principles have repeatedly been recognized by this

“ ‘The law recognizes the intrinsic difficulty of proving a conspiracy. The allegations with reference to conspiracy are treated as matters of inducement leading up to a more particular description of the acts from which conspiracy may be inferred. . . . The conspiracy may sometimes be inferred from the nature of the acts done, the relation of the parties, the interest of the alleged conspirators, and other circumstances. . . . ’ ”

On the same page (301) the court continued as follows: “In the present action, while plaintiff was unable to prove any formal agreement between defendants Arthur Hesse and Sidney Beach, nevertheless, there was before the court the entire transaction resulting in the consummation of a flagrant fraud upon the plaintiff, in which transaction Sidney Beach participated as an intermediary. . . . These circumstances, coupled with the further fact that defendants Sidney Beach and Arthur Hesse were not strangers, but were on more or less intimate terms, occupying the same office, were sufficient to warrant the inference drawn by the trial court that defendant Sidney Beach was a party to a conspiracy which had for its object the fraudulent conversion complained of by plaintiff.”

In Beeman v. Richardson, 185 Cal. 280 , at page 282 [ 196 Pac. 774 , 775], the rule is stated as follows:

“The point in connection with the finding as to a conspiracy is that the representations were made by the defendant, Richardson, alone, and that there is no direct evidence that the other defendants agreed that they should be made, or knew at the time that they were being made. But direct evidence of that character could hardly be had in the very nature of things, unless one of the defendants should confess, and the fact must be determined by the inference naturally and properly to be drawn from those matters which can be, and are directly proven.”

Under the evidence partially summarized, supra, the inference of joint fraud was not unreasonable, and will not be disturbed on appeal.

The next assignment of error deals with the failure of the trial court to give an instruction to the effect that a person does not necessarily lose money by faulty, bookkeep

For the foregoing reasons the judgment appealed from must be and hereby is affirmed.