Cochrane v. Halsey

• Decision Date: 10 May 1878
• Citation: 25 Minn. 52
• Parties: HUGH COCHRANE and another <I>vs.</I> ANTHONY P. HALSEY.
• Court: Minnesota Supreme Court

Page 52

25 Minn. 52

HUGH COCHRANE and anothervs.

ANTHONY P. HALSEY.

Supreme Court of Minnesota.

May 10, 1878.

The plaintiffs Hugh Cochrane and Carson N. Cosgrove brought this action, in June, 1876, in the district court for Le Sueur county, against the defendant, for the purpose of obtaining a dissolution and winding-up of the affairs of the firm of Cochrane, Cosgrove & Halsey, composed of themselves and the defendant, and the appointment of a receiver, etc.

In their complaint, they allege that prior to and on December 9, 1875, they had been and then were copartners under the name of Cochrane & Cosgrove, as general traders, at Le Sueur, and that, on that day, a new partnership was formed between themselves and the defendant, upon the terms that the defendant should put in as capital the sum of $8,000, and be an equal partner with each of the plaintiffs; that the old business was to be continued under the new name, defendant having an one-third interest in all the assets of the firm of Cochrane & Cosgrove, but the new firm was not to

assume any of the liabilities of the old; that the defendant paid in the $8,000, as agreed, and the business went on until May 17, 1876, when, pending arrangements for a dissolution of the new firm, creditors of the old firm levied on plaintiffs' interest in the new, with the result of breaking up the business.

The complaint further states that the defendant claims that the plaintiffs deceived him as to their pecuniary condition when he entered the firm, but that in point of fact they dealt honestly with him, but were themselves mistaken as to the true market value of their real and personal property, and overestimated it, in good faith. That the debts of the old firm amount to $20,855, part of which are past due; that the value of plaintiffs' property, outside of their interest in the new firm, is $5,762.77, in which is included a balance of $3,387.77, due from the new to the old firm; that the value of the assets of the new firm is $27,194.81, and its debts amount to more than $16,200, in which is included the balance of $3,387.77, due from the new to the old firm; that plaintiffs have no other property subject to execution, nor has the defendant, except a house and lot of the value of $600; that the defendant is indebted severally to an amount exceeding $3,000, besides an indebtedness of $900, due from him to the new firm. The complaint also sets forth the origin, history and effects of the dissension between the defendant and his copartners, the plaintiffs.

The defendant, in his answer, alleges as a counterclaim that on December 9, 1875, the plaintiffs proposed to sell to defendant, who was a stranger at Le Sueur, an one-third interest in their stock in trade, and to form with him a new partnership for continuing their business of general traders at that place, for and in consideration of $8,021.18, to be paid them by defendant; and that at the time of making this proposal, and to induce defendant to accept it, they represented to him that they "had been theretofore and were then doing a good, prosperous and profitable business in said town as general traders, and that they were entirely solvent and able to pay all their debts and obligations of every nature and kind in full, and that the said sum of $8,021.18 was more than sufficient to pay and discharge all their debts and obligations in full;" and that defendant made the purchase, entered into the partnership, and paid the consideration, relying on these statements, and continued to believe them so long as the new firm continued in business, and until about May 20, 1876, during all which time the new firm did a profitable and paying business, with profits largely in excess of its expenses and losses, and that there were no material or considerable losses in the business; and that "the said representations of the plaintiffs were, at the time they were made to this defendant as aforesaid, not true, but false, and were then and there well known to said plaintiffs to be false; and that the plaintiffs were not then solvent and able to pay all their debts and obligations in full; but, on the contrary thereof, the plaintiffs then and there were wholly insolvent, and unable to pay their debts and obligations in full, and well knew that they were wholly insolvent and unable to pay their debts and obligations in full; and that the sum of $8,021.18 was not then sufficient to pay and discharge all the debts and obligations of the plaintiffs, and so the plaintiffs then and there well knew; but, on the contrary thereof, the indebtedness of the plaintiffs then and there amounted to a much greater sum than $8,021.18, to wit, to about $25,000, and so the plaintiffs then and there well knew; and that the plaintiffs made the said false representations to the defendant, as aforesaid, for the purpose and with intent of deceiving him, and inducing him to make said purchase, and to form said copartnership, and to pay over to them said money, and thereby of defrauding and injuring him; and that, by said false representations, he was deceived and induced to make said purchase," etc., and that as soon as the falsity of such representations became known to him, about May 20, 1876, he refused longer to continue the copartnership.

The defendant further alleges that, besides the injury to his credit and in other regards, he has suffered damage, by reason of the premises, in the sum of $8.021.18, with interest thereon from December 9, 1875, and he prays that the contract of partnership and sale, between himself and the plaintiffs, be decreed to be void from the beginning; that the property of the firm be converted into money; that its just debts be ascertained and determined, and paid out of such money; and that after such debts are paid, the defendant be repaid the said sum of $8,021.18, with interest, out of the remainder of such money; and that he have a first lien thereon for such payment; and that, after these payments are made, the remainder of such money, if any, be paid to the plaintiffs; and for general relief. The allegations of the answer were put in issue by the reply.

By consent of parties the partnership was dissolved and a receiver appointed, and the action tried by a referee, whose findings of fact were in substance as follows:

For four years prior to December 7, 1875, the plaintiffs had been, and on that day were, residents of Le Sueur, and partners as general traders and dealers in agricultural implements, at that place. The defendant resided at Minneapolis, and was a stranger to Le Sueur and to plaintiffs' business there. On November 20, 1875, at Minneapolis, the plaintiff Cosgrove proposed to defendant to sell him an interest in plaintiffs' business at Le Sueur. Afterwards, and in the same month, the defendant being at Le Sueur, Cosgrove, in answer to a request of defendant, and with Cochrane's knowledge and consent, proposed to defendant that plaintiffs' stock should be invoiced at cost, with what was right for freight added; that defendant should pay one-third of this amount to plaintiffs, and thereupon become an equal one-third partner with them in their business; and Cosgrove then and there represented to defendant that plaintiffs' business was worth a bonus, and that defendant ought to pay a bonus of $4,000 or $5,000 for the privilege of purchasing such one-third interest, and that the firm of Cochrane & Cosgrove was doing a good business. These representations created a confidence in defendant as to the plaintiffs' financial standing which neither of them did anything to remove, and which continued to exist in his mind during all the negotiations. On December 7, 1875, the defendant, relying on Cosgrove's representations, and on plaintiffs' silence as to their financial standing, accepted Cosgrove's proposition, and bought an one-third interest in plaintiffs' stock and business, the price being arrived at by taking an inventory of their stock and fixtures, at the cost price, amounting to $23,063.54, and adding $1,000 for freight, making $24,063.54, one-third of which, being $8,021.18, was paid by defendant to plaintiffs, on December 9, 1875. The amount of the inventory thus agreed on by the parties as the value of the goods was more than their wholesale value at the time they were inventoried. It was agreed that the new partnership should not be liable for the debts of the old.

At the time of the proposition to defendant, and down to his purchase and payment, the firm of Cochrane & Cosgrove was insolvent, and the plaintiffs knew that it was insolvent. At no time prior to the sale to defendant did either of the plaintiffs state to the defendant the amount of their partnership indebtedness, nor offer him their books for inspection. Nothing was said by either of the plaintiffs to the defendant as to their indebtedness, financial condition, solvency or liabilities, nor did they ever represent to the defendant that the sum of $8,021.18 was more than sufficient to pay their debts. The defendant never inquired as to the amount of plaintiffs' indebtedness, nor asked to see their books, and was ignorant of their insolvency. The entire assets of the partnership, and of the partners, at the time of the sale to defendant,...