Jungk v. Reed , 9 Utah 49 ( 1893 )

This is an appeal by the plaintiffs from an order overruling their motion for a new trial, and from a judgment against them on the verdict of the jury. The action was instituted upon three promissory notes, aggregating $7,000, made by defendants Reed and Cropper, and indorsed by the other defendants before the delivery to plaintiffs. The makers joined in one answer, and the indorsers joined in another. In the respective answers, failure of the consideration of the notes, and fraud in obtaining them, were alleged. It was also alleged that one Scott was a partner of both parties to the contracts hereinafter mentioned. It appears from the evidence in the record that the defendants agreed, in writing, to deliver to plaintiffs 5,000 sheep between the 1st and 10th days of July, 1890, at prices and places named, and that one Hapgood and defendant Duggins, at the instance of Reed and Cropper, guaranteed its performance. It also appears that on the 19th day of February, 1890, Cropper and Reed made another contract in writing with the plaintiffs, for the delivery of 5,000 other sheep, for the price mentioned, at the same places, between the 10th of July and the 10th day of August next thereafter, and that the performance of this contract was guaranteed by defendants Holbrook and Duggins, and that the plaintiffs paid Reed and Cropper $10,000 on the two contracts. It appears further that a contract in writing was made between plaintiffs and one Scott by which the former were to furnish the necessary funds for the execution of the contracts between them and Reed and Cropper, and to attend to and dispose of the sheep delivered on them; that Scott was to purchase and receive, and deliver them when sold; and that he was to receive one-third of the net profits. It also appears that the plaintiffs were not aware at the time the contracts were made that Scott was a partner of the defendants, and that the latter did not know of his interest with the plaintiffs, but did know that he was plaintiffs' agent in the purchase of cattle; and it appears that Holbrook or Duggins were not aware at the time the contracts were guaranteed, or later, when they indorsed the notes, that Scott was the agent of the plaintiffs, or interested with them in the contracts. It does appear that Reed and Cropper knew before they signed the notes that Scott was interested with plaintiffs in the contracts. It also appears that Scott was largely instrumental in securing the contracts, and that he represented to Reed and Cropper that he could buy the sheep to be delivered so that a profit could be realized, and that the defendants relied on him to make the purchases, the money being furnished by them. When Reed and Cropper wished to purchase they found the price of sheep higher than that for which they had contracted to sell. The defendants failed to deliver the sheep, and afterwards, in the latter part of July, 1890, the parties to the contract met to settle all matters in dispute with respect to the contracts and their breaches. It appears from the evidence that the plaintiffs had paid to Reed and Cropper on their contracts $10,000, and that plaintiffs had made contracts with other parties to resell the sheep to be delivered to them, and were compelled, in consequence of the failure of Reed and Cropper, to buy other sheep at enhanced prices, entailing a loss to them of $,6,000 which was afterwards, by agreement, reduced to $5,000, no part of which Scott paid, or undertook to pay. The plaintiffs' claim against Cropper and Reed, as agreed upon, was $15,000. This was made up solely of the $10,000 above mentioned, and the $5,000 damages. It appears from the evidence that Scott had no interest in this $15,000. The account stood upon the settlement as follows:

Amounts due plaintiffs:

Money advanced by Jungk Fabian $10,000 Agreed damage due Jungk Fabian for breach of the two contracts 5,000

Total $15,000

Amounts received by plaintiffs:

Money and checks aggregating $3,062 50 Sheep 1,075.40 Eliza Moody check 1,200.00 Hapgood note 500 00

Total $5,837.90

Notes received, and still remaining unpaid:

Three notes sued on in this action $7,000.00 Note made by Scott 600.00 Note made by D. C. Reed, G. W. Cropper, and S. W. Scott 1,500.00

Total $9,100.00

This shows that the plaintiffs received back from the defendants Reed and Cropper $4,162 less than they advanced to them. The three notes sued on were given by Reed and Cropper for money due the plaintiffs from them. No part of it was due Scott. This the plaintiffs and Scott and the defendants Reed and Cropper agreed upon. The notes were signed: "D. C. Reed. G. W. Cropper." The firm name is not signed, and Scott's name does not appear. They evidently were intended to be the individual notes of the parties whose names were signed to them. An individual note of Scott to Reed and Cropper for $600 was taken by plaintiffs in the settlement from Reed and Cropper. This it appears the plaintiffs regarded as equal to any profits that might be due Scott on sheep that were delivered to the value of $1,075.40. In the settlement the individual note of Reed and Cropper, indorsed by Scott, for $1,500, was taken by the plaintiffs. It sufficiently appears from the evidence that the understanding of the parties was that the notes sued on were the individual promises of Reed and Cropper to the plaintiffs, and that Scott was not responsible for them, and had no interest in them. They are not promises by one firm to another having a common member. They are simply promissory notes of Reed and Cropper to Jungk and Fabian, indorsed by Holbrook and Duggins. They were so treated and declared on by the plaintiffs, and the defendants, in failing to plead the non-joinder of Scott, admitted them to be such. Referring to the rule that forbids a suit by one firm against another firm, having a partner common to both, Bates says: "The principle does not apply to a note or promise made by one firm to a person who is a partner in another firm having a common member with the debtor firm, but such promise is enforcable by the payee." 2 Bates, Partn. § 901. Conceding Scott was a partner of Jungk and Fabian, and also of Reed and Cropper, a suit at law may be maintained upon the notes given by Reed and Cropper individually or jointly to Jungk and Fabian alone. Moore v. Gano, 12 Ohio, 301;Mahan v. Sherman, 7 Blackf. 378; Morris v. Hillery, 7 How. (Miss.) 66;Herriott v. Kersey, 69 Iowa, 111; 28 N. W. Rep. 468; National Bank v.Bank of Commerce, 94 Ill. 271.

Defendants' counsel insist that the notes sued on were voidable because plaintiffs did not make known to them Scott's interest with the plaintiffs in the profits of the contracts, and because they were ignorant of it at the time the contracts were made. It is not enough that the defendants were ignorant of the fact at the time of making the contracts. If they knew of it at the time of making the notes they could not rely on the fact as a defense to them; and, though Reed and Cropper were ignorant of such interest, they could not set it up as a defense, so far as the action was for money received from plaintiffs, and not returned or credited. The evidence shows that Reed and Cropper knew of Scott's interest with the plaintiffs in the profits at the time the notes were executed. As to Holbrook and Duggins the case is different. The jury were authorized to find from the evidence that they were, at the time the notes were indorsed, ignorant of Scott's interest with the plaintiffs. The indorsement of the notes by Holbrook and Duggins was, in effect, a continuation of their undertaking as guarantors of the contracts by the other defendants to deliver the sheep.

This brings us to the question, was the fact of Scott's interest with the plaintiffs in the profits of the contracts material, and did its existence increase the risk of the sureties? They had a right to presume that the contract which they undertook Reed and Cropper should perform had been negotiated by parties interested in obtaining the highest price obtainable by fair means. If not negotiated by such a person or persons, it was important that they should know it. And they had a right to expect that the parties whom they undertook should perform the contracts would be interested in executing them, not only so as to prevent loss, but so as to obtain a profit; that such performance would not be left to a man whose interest would be equal with the seller and the purchaser. And if they were to be performed by a man actuated by such motives, that was a material and important fact for such sureties to know. The risk of the guarantors would be increased by intrusting the performance of the contract to a party whose interest would be equally with both parties. Human motives prompt human actions, and among the strongest is self-interest. "Any concealment of material facts, or any express or implied misrepresentation of such facts, or any undue advantage taken of the surety by the creditor, either by surprise, or by withholding proper information, will undoubtedly furnish a sufficient ground to invalidate the contract." 1 Story, Eq. Jur. 334. It follows that the evidence authorized a verdict for the defendants Holbrook and Duggins, and required a verdict against the defendants Reed and Cropper. There is no rule of law that will permit the latter to retain the $4,162 paid them by the plaintiffs, and which the evidence shows they have not paid back, or received credit for. Nor will the law authorize them to avoid the notes sued on because Scott was interested with the plaintiffs in the profits of the contracts, if any should be realized, because the evidence clearly establishes that they knew of such interest when they signed the notes. Under section 3340, 2 Comp. Laws Utah 1888, a verdict might have been found, and a judgment entered, against the makers of the notes, and for the other two defendants. A verdict for the makers of the notes was so clearly wrong as to authorize the inference that the jury was misstaken as to facts, or misled by the charge of the court.

The plaintiffs assign as error a paragraph of the charge of the court, as follows: "If at the time these contracts were made, Scott was a partner on both sides, the contracts were void, unless it was fully known by all the partners, and. these sureties would not be liable on the contracts they indorsed unless they knew, also, that Scott was a partner on both sides." While the contracts might have been voidable as to the makers and guarantors if they did not know of such partnership, they were not void, and if the makers or guarantors, after they learned the fact, executed the notes in settlement of the damages claimed by the plaintiffs, that would be a waiver of the right to avoid them. It would be a ratification of them.

While other portions of the charge may have been misleading to the jury, we do not deem it necessary to consider this record further, as we are clearly of the opinion that the judgment of the court below must be reversed, and a new trial granted, for the reasons pointed out. The judgment is reversed, and the court below is directed to grant a new trial.

MINER, J., and BARTCH, J., concurred.