Joseph v. Mangos, 34201.

• Decision Date: 13 December 1921
• Docket Number: No. 34201.,34201.
• Citation: 192 Iowa 729,185 N.W. 464
• Parties: JOSEPH ET AL. v. MANGOS.
• Court: Iowa Supreme Court

192 Iowa 729

185 N.W. 464

JOSEPH ET AL.

v.MANGOS.

No. 34201.

Supreme Court of Iowa.

Dec. 13, 1921.

Appeal from Municipal Court of Waterloo.

Action at law to recover damages by reason of alleged false and fraudulent representations of the defendant inducing the execution of a written contract of purchase of defendant's one-half interest in a partnership business by copartner plaintiffs. Jury waived, and cause tried to the court. Judgment entered in favor of plaintiffs, and defendant appeals. Affirmed.W. L. Beecher, of Waterloo, for appellant.

P. E. Ritz, of Waterloo, for appellees.

DE GRAFF, J.

Plaintiffs and defendant were copartners engaged in the restaurant business at Waterloo, Iowa, under the firm name of the Merchants' Café. On the 28th day of October, 1920, the defendant entered into a written agreement with plaintiffs to sell his undivided one-half interest in said restaurant in consideration of $3,800, and plaintiffs agreed to pay the defendant therefor said sum, and to assume and pay all just debts of the business, including a chattel mortgage of $1,400 in favor of a Chicago fixture company. A bill of sale was duly executed, and plaintiffs have paid to defendant all sums which are due and payable under said contract, and have taken possession.

It is specifically pleaded that the defendant, to induce plaintiffs to enter into said written contract, falsely and fraudulently represented to the plaintiffs the following particulars: (1) That all of the debts of the said business, except the chattel mortgage and the current bills for the week of October 28th, were fully paid. (2) That the business did not owe Cole & Sweetman Electric Company, of Waterloo, any amount. (3) That the business did not owe any bills for merchandise except that of which the plaintiffs were fully informed. (4) That the National cash register in said business was fully paid for. Whereas in truth and in fact it is alleged that said statements and representations were false, and were known to be false by the defendant at the time he made them; that the plaintiffs acted and relied upon said statements, and believed said statements to be true, as they had no personal knowledge that they were not true; that, after entering into said contract, and taking possession of the property and interest so conveyed, the plaintiffs discovered that there were outstanding debts in the sum of $956.47 owing to divers persons and firms other than the debts specifically mentioned at the time of the execution of the contract. Plaintiffs ask judgment against the defendant in said sum, with interest and costs.

[1] This action is predicated on fraud. It is an action in deceit. It is not an action on a written contract, nor does plaintiffs' petition contain any allegations that any misrepresentation was made as to the recitals or contents of the written contract. Fraud is pleaded as an inducement to the execution of the written instrument, and consequently it is permissible to prove the alleged fraud without doing violence to the parol evidence rule. We must be careful to differentiate the instant case from the decisions which involve the reformation or cancellation of a written contract, and also from the decisions involving negligence of a party in failing to read a contract before attaching his signature thereto. The line of cleavage is well marked, and the legal principles governing the foregoing cases are clearly distinguishable from the case at bar. See McCormack v. Molburg, 43 Iowa, 561;McKinney v. Herrick, 66 Iowa, 414, 23 N. W. 767;Wallace v. Chicago St. P. Ry. Co., 67 Iowa, 547, 25 N. W. 772;Roundy v. Kent, 75 Iowa, 662, 37 N. W. 146;Jenkins v. Clyde Coal Co., 82 Iowa, 618, 48 N. W. 970;Reid, Murdock & Co. v. Bradley, 105 Iowa, 220, 74 N. W. 896;Shores-Mueller Co. v. Lonning, 159 Iowa, 95, 140 N. W. 197.

If material misrepresentations are made before a contract is executed the complainant may always show that he was induced thereby to enter into the contract, and that he has suffered loss and damage. This is not an attempt to impeach a written contract, and consequently it is competent to prove the fraud which it is alleged induced the other party to enter into such contract. We deem it unnecessary to cite authorities in support of this elementary proposition; but see McCormick Harvesting Machine Co. v. Williams, 99 Iowa, 601, 68 N. W. 907;Dowagiac Mfg. Co. v. Gibson, 73 Iowa, 525, 35 N. W. 603, 5 Am. St. Rep. 697;Childs v. Dobbins, 61 Iowa, 109, 15 N. W. 849;Rohrabacher v. Ware, 37 Iowa, 85.

[2] A partnership involves fiduciary relations, and no party may deceive his copartners for his benefit and their injury by false representations or concealments, and this obligation of partners to exercise the utmost good faith toward one another applies not only during the life of the partnership, but extends to their settlements and transactions from the inception of the partnership to its dissolution, as well as for the purchase or sale of a partner's share in the business. Nelson v. Matsch, 38 Utah, 122, 110 Pac. 865, Ann. Cas. 1912D, 1242;Rankin v. Kelly, 163 Ky. 463, ...