Harbeck v. Pupin — 64 N.Y. St. Rep. 528

Majority

p. 528

Henry Harbeck, App’lt, v. Sarah Katharine Pupin et al., as Executors, etc., Resp’ts.^[1]

(Court of Appeals,

Filed February 26, 1895.)

Headnote

1. Estoppel—Equitable.

Where a party, hy conduct or words, falsely represents a state of facts, knowing or intending that the other party will or shall rely upon them as true and shape his conduct by them, he shall not thereafter be allowed to show their untruth or contradict the statement of facts, by which he induced the action of the other party.

3. Release—Partnership—Dormant partner.

The release, in this case, was so construed as not only to cover and operate upon the judgment but also the note, and to discharge all the partners other than the one excepted therein, even the dormant partner.

The principle that, where one deals with a known member of a firm so as to discharge him, the release does not operate to set free an unknown and dormant partner, does not apply, where there is an express covenant to release the dormant partner.

4. Same—Reformation.

The creditor, while holding the fruits of the release, cannot have it reformed out of existence so as to annul it utterly as a contract operative between himself and the dormant partner.

Appeal from judgment of the' general term of the supreme court in the first judicial department, entered upon an order, which affirmed a judgment in favor of defendants entered upon an order dismissing the complaint on trial at circuit.

This action was brought against the executors of the will of Frederick K. Agate, deceased, to recover a balance unpaid upon a promissory note made by the firm of W. H. Whitaker & Co. The complaint alleged that William H. Whitaker, Sanford W.

p. 529

Battershall, John E. D. Grainger and Frederick K. Agate -were the members of said firm; that on or about September 21, 1885, judgment by confession was entered upon said note against the members of said firm except Agate, and an execution issued thereon was rqjurned unsatisfied; that on March 18, 1886, said firm having been dissolved Battershall and Grainger made a separate composition with plaintiff and he executed to them a release under seal whereby he released the said Battershall and the said Grainger, and their estates and the estates of each of them, of and from all individual liability, claim, and demand whatever, for, or in respect of, the said indebtedness existing by virtue of said judgment, that being the only indebtedness or liability incurred by the said Grainger and Battershall to the plaintiff by reason of their connection with the said partnership, and in and by which release it was expressly stated and provided that the said release was made pursuant to section 1942 of the Code of Civil Procedure, and should have no greater or other effect than as by said ■act and by said release was provided. But said release contained no clause stating in terms that the said Harbeck released the -said Grainger and Battershall from all liability incurred by ^reason of their connection with the partnership.

Defendants’ answer admitted that Battershall and Grainger made a separate composition with plaintiff, and executed a release, but denied that its contents were accurately stated in the complaint and alleged that plaintiff thereby released all the members of said firm except Whitaker and thereby released defendants’ testator. It was claimed by plaintiff that Agate was a - dormant partner in the firm at the time of the execution of the note and that at the time of the execution of the * release plaintiff was ignorant of this fact.

The following is the release referred to : .

“ Whereas, the late co-partnership firm of W. H. Whitaker & 'Co., of this city, county and. state of New York, are indebted to me, the undersigned, Henry Harbeck, of the city, county and state of New York, in the sum of thirty thousand seven hundred and fifty-four and thirty-three one-hundredths dollars ($30,754.-•33), with interest from the twenty-first day of September, 1885, by virtue of a judgment recovered in the Supreme Court of the state of New York, held in and for the city and county of New York, and in an action wherein said Henry Harbeck was the plaintiff and the said late firm were defendants;

“ And whereas, such firm has been dissolved;

“ And whereas, I have agreed with the members of the said ■ late firm of W. H. Whitaker & Co., other than said W. H. Whitaker, to compound or compromise my claim on them individually, in respect of the said indebtedness to me of the said late firm ;

Now, therefore, this agreement witnesseth, that in consideration of the sum of one dollar and other good and valuable considerations to me, the said Henry Harbeck, paid by the said members of the said late firm of W. H. Whitaker & other than the

p. 530

said W. H. Whitaker, at or before the time of subscribing this release, I, the said Henry Harbeck, do hereby, according to the statute in such case made, release, acquit and forever discharge the said members of the late firm of W. H. Whitaker & Co., other than said W. H. Whitaker, and their estate or estates, and thatof each of them, of and from all individual liability, claim and demand whatsoever, for or in respect to the said indebtedness to me of the said late firm. Provided, however, that this present release is made pursuant to section 1942 of the Code of Civil Procedure, and shall have no greater or other effect than as by the said act and by this release is provided ; and shall not release or discharge said W. H. Whitaker or his estate, but shall operate to release and discharge all and every person or persons other than the said W. H. Whitaker of and from any and all liability and obligation growing out of the indebtedness aforesaid. Nothing herein contained shall affect or impair a certain agreement dated August 20, 1885, by which certain claims and demands due the firm of W. H. Whitaker & Co. were to be held in trust for the said Harbeck-; all the terms and provisions of the said agreement to remain in force notwithstanding this agreement.”

J. Tredwell Richards, for app’lt; George C. Holt, for resp’ts.

The fundamental question in this case is the true construction of the release upon which the defendant relies.

We regard that release, executed by Harbeck, as broad enough to discharge Agate, assuming that the latter was a dormant partner in the debtor firm. The criticism of the appellant is very narrow and technical, and founded upon' one expression in the instrument, with an entire disregard of its manifest scope and meaning. That criticism is that the release, by its terms, only discharges the judgment and operates upon that, and does not discharge the- debt for which the judgment was confessed; and such construction is founded upon the statement in the release that the firm is indebted to Harbeck in the sum named “by virtue of a judgment,” whereby, it is claimed, the discharge granted from the said indebtedness means solely and alone that evidenced by the judgment, and, therefore, necessarily includes only the judgment debtors and excludes Agate. But the instrument, by its explicit terms, negatives that construction. It does not run toBattershall and Grainger by name and purport to release them-alone, or confine its terms or its operation to the defendants in-the judgment. It acknowledges an agreement of composition,, •not with Battershall ánd Grainger merely, but with “ the members of the firm of Whitaker & Co. other than Whitaker; language not confined to two of the judgment debtors, but ex-plicity embracing all the members of the firm with the one exception. And that agreement is declared to be, not to simply discharge a judgment against two, but, as it reads, “to compromise my claim on them individually in respect to the said indebtedness to me of the said late firm.” That must necessarily be construed to mean the entire debt of the firm, however that firm was composed or whoever might constitute its members. It then proceeds

p. 531

to release the members of the late firm other than Whitaker from liability for or in respect of the said indebtedness of the said late firm, and very conclusively fixes the intent and meaning of the parties by the further statement that it shall operate to release and discharge “ all and" every person or persons other than the said W. H. Whitaker of and from any and all liability and obligation growing out of the indebtedness aforesaid.” That was not, as is contended, a mere general clause to be restricted by a narrower and special statement preceding, for there was none of that character, but it was a further explanation of a purpose already stated, entirely consistent with it, and meant to put the meaning of the parties beyond any reasonable doubt. “Any and all liability and obligation growing out of the indebtedness aforesaid,” covered the original account, the note which expressed it, and the judgment which secured it, and from that liability, whatever its form, all persons, and every person other than Whitaker, were to be released. The creditor must have been very blind not to understand that, as the condition of receiving three thousand dollars in cash and certain specified notes, he was required to discharge, not merely two judgment debtors, but his claim against every member of the firm other than Whitaker. That he did not know that there was any other does not matter. It is not even yet certain that there was, but if there was or should be such an unknown person the release plainly covered his liability ; was intended to cover it by those who paid for it, and must have been understood to cover it by the creditor who executed it. The trouble is not that he did not understand its obvious meaning, but that he was ignorant of facts which now make it much more important than at the time he imagined it to be. The use of the words “ said ” and “ aforesaid ” are the links by which the appellant seeks to connect the whole range of the covenant with the judgment merely, because incidentally the debt is described by reference to the judgment confessed to secure it, but the terms employed pass beyond the judgment merely in two ways. They relate to the indebtedness, using that broad expression continually, and describing it as that of the late firm, and then they pass beyond the judgment debtors and embrace all the members of the late firm other than the one excepted member. It seems to me very clear that the release cannot be limited to the judgment debtors alone, but does discharge every member of the dissolved firm except-Whitaker.

But the appellant next changes his position and assails the release for fraud. I am not sure that he has left himself the right to assume that attitude. In his complaint he sets up the release as forming no obstruction to his remedy. He does not allege it to be fraudulent., He does not ask any relief against it. He seeks neither to reform it nor to rescind it. On the contrary he assumes its validity and plants himself upon its construction. Possibly he might have omitted all reference to it and left himself free to fight it on any ground when it appeared as a matter of defense. But he did not choose to do that, and, by the form of his pleading, admits the validity of the release, but claims that it failed to cover

p. 532

the _ liability of the dormant (partner. He now seeks to change position without any amendment of his pleading, and after more or less misleading his adversary. And, even at the close of the evidence, when a motion is made for a nonsuit, he does not ask to go to the jury on any question of fraud. He was not bound to ask it, I grant, but his omission indicates that he had not yet changed the issue raised by his pleading. Yet the evidence on which he relies is in the case, though taken under the defendants’ objection, and it would be at least a narrow and perhaps a doubtful conclusion to dispose of it as a matter of pleading, except in so far as the questions raised are consistent with the assumed validity of the instrument. For I do not understand now that the appellant claims to rescind for fraud. It is difficult to see how he could do so in view of the fact that he retains the fruits of his arrangement and is holding on to the money of Agate, knowing it to be his, and which was paid for the very release assailed; but it is sufficient to say that the point in the appellant’s brief which goes upon a rescission for fraud was formally withdrawn on the argument, and leaves open only the questions of estoppel and of reformation.

I can see no ground for estoppel. The claim in that direction is only a disguised form of the abandoned effort to rescind, for what is asked is that, on the ground of fraud, the instrument shall not have its legal construction as to Agate, or in substance and effect to annul and rescind the discharge as against him. Calling it estoppel does not modify its character as rescission. And since the instrument is to stand and is not to be rescinded as between the litigating parties, the office of an estoppel must necessarily be to prevent the defendants from putting the intended and legal construction upon the instrument. But the form and shape of the release was the work of Agate through his attorney, Root. Neither at that time made any representation at all. Six months before Root, for the purposes of a confession of judgment, had given the names of the firm, not mentioning Agate. There is not a particle of proof that Root at that time represented anybody but three known partners or had the least authority from Agate, or knew of a single fact which would tend to make the latter liable as a partner. Root told the truth as he understood it, but, at all events, never represented Agate or had any authority to represent him until the date of the release. It was then, for the first time, that Root acted for Agate or by his authority as a matter of fact, and an estoppel for fraud which shuts out the truth in the interest of justice should not be based upon some constructive authority having no foundation in fact. Indeed, I think the suggestion of an estoppel is entirely inapplicable to the situation. The doctrine I understand to be that where a party, by conduct or words represents one state of facts, knowing or intending that the. other party will or shall rely upon them as true, and shape his conduct by them, which representations are untrue, the party making them shall not thereafter be allowed to show their untruth or contradict the statement of fact by which he induced the action of the other . party. Now, the representation here, stated in its broadest possible form, was that Agate was not a member of the firm. An

p. 533

estoppel would simply prevent a denial of that assertion and compel Agate to adhere to it. But he is not seeking to prove the contrary. He adheres to it still. He proves nothing inconsistent with it, for the release itself, legally construed, involves neither an admission nor assertion by Agate that he was a member. It guards against such an assertion by others and shuts off from litigation a denial of the truth of the representations by making such denial useless.

Nor is there furnished by the facts any ground for what is called a reformation of the instrument. This again is a disguised effort to rescind the release, wholly and utterly, as between Harbeck and Agate. There is not even a claim that there is a single word in it which both parties did not understand and entirely and fully agree should be there. It expresses the agreement as at the time actually made. The real trouble is not that it does not contain the actual contract made, but that the plaintiff might not have made it if he had inquired about the facts and been tala the truth. Are-formation can only be permitted in any case by a decree in equity. There is no pleading to justify it—no such relief asked for—and the attitude of the plaintiff does not admit of it.- On the witness stand he says, “ I have never offered to pay back the $3,000 paid me on taking this release. I hang on to that of course. * * * I hang on to those four notes. * * * I will collect those notes if I can.” And yet, holding the fruits of the agreement, and refusing their surrender, he seeks to reform it out of existence, to annul it entirely as a contract operative between himself and Agate. There is no basis for any such reformation.

There is a further proposition suggested. Authorities are cited to the purport that where one deals with a known member of a firm, so as to discharge him, the release does not operate to set free an unknown and dormant partner. The case specifically relied on is that of Robinson v. Wilkinson (3 Price Exch. 538).

What it holds is applicable only to a case where no release actually discharging the dormant partner has been executed, but his discharge is claimed under the common-law rule that a discharge of one is a discharge of all. That was the legal inference from the act and, possibly, was not invariably drawn in behalf of a dormant or unknown partner. But here the discharge comes not from a legal inference, which may be restrained or modified, but from an express covenant to release the dormant partner. The question is not one of inference from ambiguous acts, but of an actual contract for a discharge.

It is unnecessary to discuss other questions argued, and the judgment should be affirmed, with costs.

All concur.

Judgment affirmed.