Elmore v. McConaghy

¹ Reported in 159 P. 108. The plaintiff, A.S. Elmore, and the defendant, Hugh McConaghy, formed a copartnership as coal dealers in the year 1909. On June 30, 1913, they dissolved partnership by agreement, McConaghy buying out Elmore's interest for $2,600, paying $600 in cash, and giving twenty promissory notes for $100 each, dated August 22, 1913, bearing six per cent interest until paid, the notes maturing monthly in a series running from one to twenty months after date. After seven of these monthly notes had been paid, McConaghy refused to make further payments until a readjustment of their prior settlement should be had. Elmore brought this action to recover upon the four notes maturing eight, nine, ten and eleven months, respectively, after date. The complaint was in the ordinary form of an action on promissory notes, praying judgment for the face of the notes, with interest and reasonable attorney's fees.

The answer, by way of affirmative defense and counterclaim, set up that McConaghy, in the year 1909, was conducting a coal business as sole trader, and that he and Elmore entered into a partnership agreement by which the latter was to acquire a half interest in the business and pay for same out of such of his share of the profits as was left after the members had each drawn down $100 per month out of the proceeds of the business; that, at the time of dissolution, Elmore had not paid any portion of the purchase price of his half interest in the business; that, on June 30, 1918, McConaghy agreed to buy Elmore's interest, which, from a statement prepared by Elmore from the books of the firm, appeared to be of the value of $2,600; that McConaghy, reposing confidence in Elmore as a bookkeeper and accountant and as a partner in the business, and relying upon the correctness of the written statement, purchased his one-half interest for $2,600, paying $600 in cash and executing twenty promissory notes of $100 each for the balance; that, at the date of settlement, there was a large number of bills and accounts receivable included in the valuation which were considered worth face value, but it was agreed between the parties that, if any of said accounts were uncollectible, one-half thereof should be paid by Elmore or credited upon the notes; and that there were expenses and costs of pending partnership litigation which it was agreed should be paid share and share alike. It was further alleged that, after the dissolution, it was discovered that Elmore had drawn from the firm the sum of $1,500 in excess of the amounts accounted for and credited by him; that, during the copartnership, Elmore had full charge of the books of account and handled all the cash, and whatever knowledge McConaghy had of these matters was acquired from him; that, at the time of the dissolution, no accounting was had, but the notes were given with the understanding that a further accounting should be had and the partnership matters adjusted according to the respective rights of the parties; and that one-half of the uncollectible accounts, of the expenses of litigation, and the shortage of Elmore as shown by the books, exceeds the amount of all the notes still held by Elmore. That after the discovery of the discrepancies between the accounts and Elmore's statement on which the settlement was made, McConaghy frequently requested Elmore to meet him and adjust all matters of difference between them, which Elmore has neglected and refused to do, and that there is no way to protect the rights and adjust the differences of the parties except by a full and complete accounting covering a period of about five years; and the prayer was for an order of accounting, so that there should be a full, complete and just settlement of the differences between the parties.

The reply, after denying all the material allegations of the counterclaim, set up affirmatively that the agreement for the purchase by McConaghy of Elmore's interest was evidenced by a bill of sale, as set out in defendant's bill of particulars; that two notes had been placed in escrow as security pending settlement of five separate items (the Travis, Craib, Merriam and Turner accounts, and a suit of R.E. McConaghy v. McConaghy Elmore); that no other agreement was made between the parties at the time of the transfer of the business; that, prior to closing the transaction between them, Elmore employed an expert accountant to audit the books, but defendant refused to permit this to be done; that, subsequent to that time, settlement was made between them after a full and complete investigation and understanding of all partnership matters; that, for four years prior to the sale of his interest, Elmore was not in charge of the books, but that they were kept by bookkeepers employed by the firm; that, for more than one year last past, the partnership books were kept by one Harlow, who is now in the employ of McConaghy and who compiled all the figures at the time of the sale; that McConaghy has made no effort to collect the five items above referred to; and that the partnership was terminated by mutual consent' July 1, 1913, and that, on the 22d day of August following, a notice of dissolution was signed by both parties.

The trial judge rendered judgment for plaintiff on the four notes sued on for $400, together with interest, and $100 attorney's fees. He denied the cross-complaint for an accounting, without prejudice to any claim defendant might have by reason of the five accounts referred to as the F.F. Travis, McConaghy v. McConaghy Elmore, J.L. Craib, F.F. Merriman and Homer Turner accounts, which had been agreed upon by the parties at the time of final settlement as subject to future adjustment. From this judgment, defendant appeals.

It is our opinion that the court reached a correct conclusion upon the facts. There is no proof of fraud, overreaching, undue influence or reliance on fiduciary relations. Both parties were intelligent business men in full possession of all their faculties. The affairs of the firm were equally open to both for inspection and an investigation of the books would have disclosed the discrepancies that are now put forward as a basis for asking an accounting. Whatever fiduciary relation was imposed on the partners toward each other during the continuance of the partnership, the relation ceased when they began to negotiate between themselves as to the price to be paid by one for the other's interest. They were then dealing with each other at arm's length, in the absence of any circumstance showing that the complaining party was not suijuris, or had a right to rely upon the other., The allegation of trust in one who had been a partner is not sufficient to overthrow a solemn agreement entered into after each had bargained with the other to get the most advantage possible for himself from the agreement. The appellant asserts now that the books of account were not accurately kept and that, in consequence, he has got the worst of the bargain, and he asks the court to revise his contract. But he had equal opportunity with his partner to know the exact condition of the business when he bought out the latter, and his failure to improve the opportunity was negligence. "If both had equal facilities for investigation, relief will not be lightly granted, if at all, for mistakes arising from negligence." 2 Bates, Partnership, § 960;Quinlan v. Keiser, 66 Mo. 603; Hamilton v. Wells, 182 Ill. 144,52 N.E. 143.

It is undoubtedly true that fraud or mistake in a settlement between partners is a sufficient ground to set it aside and retake the entire account. And sometimes a partnership settlement will be opened for error for the purpose of surcharging, and for falsifying the account. But before reopening such a settlement, whether for fraud or mistake, specific acts of fraud or particular mistakes must be shown (Merriwether v. Hardeman, 51 Tex. 436); and the proof must be clear and satisfactory. Powell v. Heisler, 16 Ore. 412, 19 P. 109; Hoyt v.McLaughlin, 52 Wis. 280, 8 N.W. 889; Mahnke v. Neale, 23 W. Va. 57. McConaghy's chief ground for overthrowing the settlement is that he relied upon the inventory compiled by the bookkeeper, which had been indorsed by Elmore as correct. This is not sufficient, unless there was collusion between the bookkeeper and Elmore, and none such was shown.

"The question being whether one partner was induced to pay a certain price for the interest of his copartner by false representations of the latter, if the seller made such statements solely on information derived from a clerk of both of them, and the purchaser knew that such was the case, the falseness of such statements would not avoid the trade, if the seller correctly reported them as received from the clerk." Hunt v.Hardwick Co., 68 Ga. 100 (Syllabus). See, also, Scheuer v.Berringer, 102 Ala. 216, 14 So. 640; Little v. Little, 2 N.D. 175,49 N.W. 736; Hallock v. Streeter, 102 Fed. 193.

The appellant further contends that the trial court, after holding that the partnership settlement was binding and conclusive upon the parties, should have allowed appellant in this action the benefits expressly allowed him by the terms of that settlement. This has reference to the Travis, Craib, Merriman and Turner accounts, and the suit of R.E. McConaghy against the firm of McConaghy Elmore, concerning which it was agreed by the terms of settlement that the loss, if any, should be borne equally between appellant and respondent. There was evidence showing that appellant was entitled to certain credits on those specific items, but the court refused to enter upon the inquiry, reciting, however, that his refusal was without prejudice to the right of appellant to establish his claims in another action. We think the holding of the trial court was proper. As we read the evidence, no complete adjustment of these matters could now be had owing to their unfinished nature. The court was not required to take them up by piecemeal.

The judgment is affirmed.

MORRIS, C.J., MOUNT, ELLIS, and CHADWICK, JJ., concur.