Rust v. Hauselt — 41 N.Y. Super. Ct. 467

Majority

p. 467

JOHN C. RUST, Plaintiff and Appellant, v. CHARLES HAUSELT and HENRY RANCKE, Defendants and Respondents.

Headnote

I. PARTNERSHIP.

1. Individual debt.

1. Notes, ob indorsements of the firm in payment thereof; (a) One partner has no power, without the assent of his copartner, to give to his individual creditor, in payment of an individual indebtedness due by Mm, a note drawn by Mm in the firm name, or an indorsement made by Mm in the firm name.

(1) Assent—burthen of proof as to.

(a) Creditors must, in this State, show the assent (Dobs v. Halsey, 16 J. R. p. 38).

3. Settlement by one partner with a debtor of the firm.

1. When not binding on the firm, so as to call upon the other partners to falsify it by particular allegations of mistake or fraud.

(a) Individual transactions. It is not so binding when it comprises individual transactions, wMch the parties engaged in the settlement knew should not enter into the firm , accounts.

(1) Debtor remitted in such case to his pri/me obligation.

H. PLEDGEE.

1. Cessation of rights as such.

When the proceeds of the pledge and charges against them are carried by mutual consent into general accounts with the pledgor.

HI. ASSIGNEE IN TRUST FOR BENEFIT OF THE CREDITORS OF A FIRM.

1. Accounting.

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Before Sedgwick and Speir, JJ.

Decided, June 5, 1876.

(a) Action for, by one of the partners against his copartner and the assignee.

1. Application op above principles.

Held,

1. That the assignee could- not" charge against the' proceeds of the assets of the firm, a note drawn by the defendant partner, and indorsed by him in the firm name, and by him given the assignee (before the assignment) to secure his individual debt due by him to the assignee, it not appearing that the plaintiff partners had assented thereto.

3. That notwithstanding a settlement made between tlm defendant partner and the asSignee, yet as the assignee was allowed to charge in the settlement such a note so given, he was thereby remitted to his prime obligation to account for the proceeds of the trust, and the plaintiff partner was not called on to falsify it by particular allegations and mistakes.

3. That the assignee was chargeable with the proceeds of property of the firm, which prior to the assignment he had received, and, by mutual consent, carried, with the charges thereon, into general account with the firm, although the property was originally pledged to him by one member of the firm as security for an individual indebtedness.

(1) The proceeds and charges thereon having been carried into general account with the firm before the assignment, his right as pledgee ceased, and upon the making of the assignment be became liable thereon as trustee for such proceeds.

(a) The effect is either an increase of the assets of the firm, or a diminution of its indebtedness to the assignee.

Appeal from judgment

The plaintiff and Henry' Banclte, the defendant, partners, being insolvent, made an assignment to de

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fendant Hauselt, of all the firm property, upon trust that defendant Hauselt should turn the property into money and therewith settle and pay all the debts of the firm, and, after so doing, should account for and return to said firm the balance of the property or money left remaining after settlement of the debts. The assignment contained clauses making defendant Hauselt the attorney of the firm for the purpose of the trust.

By the articles of copartnership, the plaintiff was entitled, upon a winding up of the firm business, to receive, after payment of debts, six thousand dollars before defendant Rancke should receive any proceeds.

The complaint averred that Rancke was made defendant, because he refused to be joined as plaintiff. It further averred that defendant Hauselt had refused upon demand to account, and charged that a large amount of property or money remained in his hands after settlement of the debts, and asked for an accounting and judgment for the amount remaining in defendant Hauselt’s hands, and that six thousand dollars thereof, if it should amount to so much, be paid to the plaintiff, and the remainder, if any, to the defendant Rancke,

The defendant Hauselt was a creditor of the firm. In executing his trust, he paid to the other creditors a per-centage and received an assignment of the claims. He then made up a statement of his trust, in which he charged himself with the moneys- received as proceeds of the property assigned to him, and credited himself with the moneys paid to creditors, and also with an amount specified in the statement as indebtedness to him, viz., three thousand dollars. The statement showed that the firm remained indebted to Hauselt in one thousand two hundred and thirty-one dollars and eight cents, and in the further sum of six hunched and fifty dollars, for commission in executing the

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trust. This statement he presented with the assignments of the claims to defendant Rancke, who gave him a receipt stating that it was in full payment and discharge of his trust. The plaintiff testified, and was not contradicted, that he knew nothing of this statement or discharge, and had never assented thereto.

The plaintiff on the trial endeavored to show by testimony that the firm was not indebted to Hauselt in the sum of three thousand dollars.

The defendant claimed judgment on his counterclaim in the action for the above two amounts, viz., one thousand eight hundred and eighty-one dollars and eight cents.

It appeared upon the trial, that before the firm was formed, defendant Rancke was indebted individually to defendant Hauselt, in the sum of five thousand dollars. After the firm was formed, Rancke gave his individual notes, making thereon the indorsement of the firm name, without, as plaintiff testified, his knowledge or assent. Thereafter, on an accounting between defendants Hauselt and Rancke personally, wire gauze, the property of the firm, was in a manner left doubtful by the evidence, turned over to defendant Hauselt. Bills of sale were passed, but, by the books of Hauselt, from which he was examined as a witness, the value of the wire gauze was credited to the firm, in a general account. The account contained also charges against the firm, for expenses upon the wire gauze, such as duties, brokerage. This general account charged the firm with the amount due by Rancke individually, and interest. Hauselt testified that if this amount of five thousand dollars were left out of the account, there would be a balance in the favor of the firm in the sum of one thousand nine hundred and fifty dollars and thirty cents, and that he was unable to say in what way the amount of his indebtedness, viz., tliree thousand dollars, as he claimed, was made up. ■

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The judge at special term gave judgment in favor of the defendant, in the amount of his counter-claim.

The plaintiff appealed.

Dixon, Whitlock and Anderson, attorneys, and Joseph M. Dixon, of counsel, for appellants.

Sigismund Kaufmann and Mr. Sanders, of counsel for respondent, Hauselt, urged:

I. 1. The plea of non-joinder of Henry Rancke, is established. Plaintiff’s witness, and Rust says, Rancke said, “that he thought I had no claim or suit against Mr. Hauselt.”

II. The answer avers, that Hauselt had fully accounted to Rancke and Rust, and that on such accounting there was a balance found due Hauselt of one thousand eight hundred and eighty-one dollars, and eight cents. The reply is a general denial. It does not seek to impeach the accounting for covin, fraud, error or mistake. The plaintiff cannot, and did not attempt to shift Ms ground, on the tidal, from a plea of “no accounting” to one impeaching the settlement made by Ms copartner. The issue was squarely raised by the pleadings, the plaintiff went to trial with full notice of the defense, and must abide the issue he has made—“accounting” or “no accounting” (Dudley v. Scranton, 57 N. Y. 427 ). 2. But there was no fraud, error or mistake.

III. a. The wire gauze was sold to Hauselt, July 9, 1873, and October 20, 1873,—absolutely, Hauselt says. To cover advances, Rancke says. Rust says, he knew nothing of it. 5. If this sale was unauthorized by Rust, and the firm had never recogmzed Hauselt’s claim, or received any consideration for it, Rust would have two remedies. First. To disaffirm the sale and replevy the goods. Second. To demand the goods, and on refusal to sue in trover. But if he calls for the proceeds of the sale he ratifies the trans

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action and all the means by which it was carried out. He cannot lie by and wait to see which will be most advantageous. Nor can he affirm in part and repudiate in part—it must be total. The receipt of money or the benefits of a transaction is “a ratification of the agency in that respect, and an adoption of the means by which it was obtained” (Lislie v. Wiley, 47 N. Y. 652 ; Dexter v. Adams, 2 Denio, 646 , 651, Beardsley, J. See Story on Agency, §§ 239, 244, 250 ; Moss v. Rossiehead M’g. Co., 5 Hill, 139 ). The adoption of the transaction in part is an adoption of the whole (Paley on Agency, § 172; Cowing v. Southland, 3 Hill, 556 ). c. If he would rescind the transaction he must restore or offer to restore the six thousand dollars of notes made or indorsed by Rancke and Rust. He who asks equity must do equity, cl. There is no evidence that Hauselt knew that the six thousand dollar notes were made or the bills of sale of wire gauze delivered without Rust’s knowledge or consent. The burden of proof was on Rust to show it. Plaintiff called Hauselt as Ms witness ; why did he not aslc him. e. Rust says, it was agreed between himself, Rancke and Hauselt to falsely represent to their creditors that their debt of one thousand dollars to Hauselt was three thousand dollars,—so that in a settlement with their creditors Hauselt should get all of his money. If true, the agreement is void against public policy, and the parties being injpari delicto the court will leave them where it finds them (Knowlton v. Congress & Em. S. Co., 57 N. Y. 530 ; Saratoga Co. Bank v. King, 44 Id. 92). Any agreement by which one creditor (Hauselt) was to obtain an advantage over the. other creditors is void in law, and no action can be maintained upon it (Adams v. Outhouse, 45 N. Y. 321 ; Bliss v. Matteson, 45 Id. 25). But Rust’s statement is. not true.

,IY. .Hotes of Ranche and Rust and indorsements

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valid: When Ranche and Rust formed their copartnership, Ranche pnt into the firm goods which belonged to Mr. Hauselt absolutely, Tie had the legal title. By a chattel mortgage which was then due, on default in the payment of the sum secured, title to the goods became absolute in Hauselt (Judson v. Easton, 58 N. Y. 664 ). And Ranche, a member of the firm, had a right to buy the goods and give the firm’s obligation for them. He did so, and the firm received the benefit of the purchase. The schedule attached to the chattel mortgage shows the goods to be of the same hind dealt in by Ranche and Rust.

Y. To obtain a review of the evidence, plaintiff should have applied for additional findings in support of the facts he deemed established. Not having done this, the judgment must be affirmed if there be any evidence to sustain the findings of the court below (Simmons v. Richardson, 5 Hun, 177 ; Dewey v. Supervisors of Niagara, 4 Supreme Ct. 609 ; Meacham v. Burke, 54 N. Y. 219 ; Caswell v. Davis, 58 Id. 229 ). An error in law arises upon a refusal to find on request (Beck v. Sheldon, 48 N. Y. 369 ).

The learned judge on the trial, gave final effect to the accounting between the trustee defendant Hauselt, and defendant Ranche. I tahe it, he was led to this result not because the plaintiff was not entitled to open the discharge given by Ranche, but because the burden of proof being, as he considered, upon the plaintiff to give cause for opening it, he had failed to satisfy the judge’s mind by a preponderance of evidence. Indeed, the mass of plaintiff’s evidence on this point was remarhably vague, obscure and tangled. So far as the case is affected by the testimony as to the specific dealings between defendant Hauselt and the firm, the plaintiff gives no satisfactory evidence upon which an account between them

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could be made. The defendant Hauselt, however, testified to what, in absence of explanation by proof of other facts, would show that whatever were the specific dealings between him and the firm, he did not owe him three thousand dollars. He presented his own ledger, and said it showed the indebtedness. But the balance against the firm was made by charging it with a debt due by an individual partner Bancke, in the amount of five thousand dollars and interest incurred before the firm was formed. The basis for this being done, was that at a former time Bancke, to secure his individual debt, had given his own notes with the firm name, indorsed by himself. In the leading case of Dob v. Halsey, 16 Johns. 38 , Justice Spencer said that the law in this State requires ‘ ‘ the separate creditor, who has obtained the partnership paper for the private debts of one of the partners, to show the assent of the whole firm to be bound while in England the burden of avoiding the security is upon the firm. .

In the present case the circumstances were at least suspicious, and the plaintiff testified without proof or intimation to the contrary, that he never knew of the indorsement. If, then, all the statements of the account that. might be made upon the testimony for plaintiffs be disregarded it will appear that at the time the defendant Bancke gave the receipt in discharge of defendant Hauselt, the amount of indebtedness given in the accompanying statement as three thousand dollars was greater than it should be. As the testimony stands, I do not think justice can be done on this, appeal by modifying the judgment. Additional evidence may affect the merits. As to one point I am particularly in doubt. By the evidence of Bancke, it appears that in the transaction, as stated by him, of the wire gauze, a note of one thousand dollars of the firm was given up by Hauselt. The evidence

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does not show whether that was due besides the note of the firm, for one thousand dollars dated August 12, 1873.

I am of opinion, that although, as matter of evidence, the statement made by Hauselt, and the receipt thereupon by Rancke, was prima facie evidence against the firm, yet upon it appearing that the item of three thousand dollars was incorrect for the reason stated, the settlement was not such that the plaintiff was called upon to falsify it by particular allegations of mistake or fraud. It would be binding upon the plaintiff as a settlement on the ground that in it Rancke represented the firm, from his authority as partner. This authority would, however, be negatived upon proof that the settlement comprised individual transactions, which both Rancke and Hauselt knew should not enter into firm accounts. Thereupon the defendant Hauselt is held to his prime obligation to account for the proceeds of the trust property.

At the best for the defendant Hauselt, if it is granted that the proof shows that the individual indebtedness of Rancke was at one time secured by mortgage of his property, part of which was put in as his share of the capital stock of the firm, Rancke could never pay his individual debt wholly out of property of the firm, not included in the mortgage.

The transaction of the wire gauze did not remain in such a state that the rights of Hauselt were those of pledgee, and therefore that he was not responsible as pledgee under his liability as trustee. At least, the present evidence shows that the proceeds of the gauze had been taken by general consent into the account with Hauselt, before the trust was created, and the result was an increase of the assets of the firm, or a reduction of its indebtedness to Hauselt.

Under the facts of the case, I think Hiere was an

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implied promise that Hauselt should be compensated for his services in the execution of the trust.

Judgment reversed and new trial ordered.

Speir, J., concurred.

Cases cited

Judson v. Easton 58 N. Y. 664 N.Y. 1874-09-22 p. 473