Morgan v. Arnold

• Decision Date: 09 May 1969
• Docket Number: No. 17265,17265
• Citation: 441 S.W.2d 897
• Parties: V. E. MORGAN, Appellant, v. Jim M. ARNOLD, Appellee. . Dallas
• Court: Texas Court of Appeals

Page 897

441 S.W.2d 897

V. E. MORGAN, Appellant, v. Jim M. ARNOLD, Appellee.

No. 17265.

Court of Civil Appeals of Texas Dallas.

May 9, 1969.

Rehearing Denied May 30, 1969.

Hugh O. Mussina, Dallas, for appellant.

Jerry Lastelick, of Daugherty, Bruner, Lastelick & Anderson, Dallas for appellee.

CLAUDE WILLIAMS, Justice.

Jim M. Arnold brought this action against V. E. Morgan seeking to recover both actual and exemplary damages arising from alleged false and fraudulent representations on the part of Morgan and constituting the basis of a dissolution of partnership agreement between the two men. Arnold alleged that he and Morgan had been equal partners since 1960 in a business known as Arnold & Morgan Piano & Organ Company in Garland, Texas; that in March 1967 Morgan offered to purchase Arnold's interest in the partnership business and as a part of his offer presented to him certain financial information concerning the net worth of the partnership which was purportedly extracted from the books and records of the company. He stated that Morgan represented to him that the net worth of the partnership was $77,577.42 which meant that Arnold's interest in the partnership had a value of $38,788.71. Arnold stated that he relied solely upon the representations and statements of Morgan, together with the purported financial statements presented to him by Morgan, and agreed to sell his interest for that amount. He alleged that such statement concerning the value of the partnership interest was false; that it was known by Morgan to be false; that he relied upon such false statement to his loss and detriment; and that but for such false representations he would not have entered into the partnership dissolution agreement. He also alleged that such false representations were willfully made by Morgan with intent to injure Arnold and that as a result thereof he was entitled to not only actual damages, representing the true value of the partnership interest, less what had been paid him, but also exemplary damages.

Morgan answered with a denial of the charges against him and also filed a 'counter-suit' which was subsequently abandoned.

At the conclusion of the trial before the court and a jury a special issue verdict was returned in which it was found: (1) that before the contract of dissolution was signed Morgan represented to Arnold that the books and records of the partnership showed that the value of one-half of the net assets of the partnership was $38,778.71; (2) that such representation was false; (3) that such representation was known by Morgan to be false; (4) that such representation was made by Morgan with intent to induce Arnold to sign the contract; (5) that Arnold believed such representation when he signed the contract; (6) that Arnold relied upon such representation in signing the contract; (7) that without such representation Arnold would not have signed the contract; (8) that at the time of the dissolution of the partnership the actual value of one-half interest in the company was $51,447.96; and (9) that Morgan should pay Arnold exemplary damages in the sum of $25,000. Prior to submission of the charge to the jury the parties had entered into a stipulation agreeing to the form of Special Issue No. 8 which asked the jury to find the actual value of one-half interest in the partnership assets. It was also stipulated that if it was determined that Arnold is entitled to any recovery such recovery should be the difference between the jury's answer to Special Issue No. 8 and the amount received by Arnold for the sale of his interest in the partnership.

Based upon the verdict of the jury, together with the stipulation of the parties, the trial court rendered judgment in favor of Arnold and against Morgan in the sum of $37,659.25. This amount was arrived at by combining the sum of $12,659.25 (being the difference between the actual amount of the value of the partnership assets and the amount already received by Arnold), together with the sum of $25,000 as exemplary damages.

Since some of appellant's points of error relate to the question of 'no evidence' or 'insufficient evidence' to support the answers of the jury to some of the special issues set out above, we deem it essential and desirable to summarize briefly the material testimony presented. It would unduly lengthen this opinion to summarize all of the testimony in detail since the trial was lengthy and the statement of facts consists of 683 pages.

Arnold had founded the business in 1955 which consisted mainly in the sale and refinishing of used pianos. Arnold brought Morgan into the business as an equal partner in the early part of 1960. The partnership was known as Arnold & Morgan Piano & Organ Company and the business grew in volume until several different departments were established. Arnold's responsibilities in the partnership consisted of purchasing, selling, refinishing and managing the service department. Morgan's responsibilities consisted generally in managing the office and exercising general supervision over the bookkeeping and accounting of the firm. Several employees worked under Morgan's direction and supervision in keeping the books and records. Arnold had very little knowledge or information concerning the bookkeeping methods of the partnership and also of the income tax returns and other reports prepared for the partnership. He relied upon Morgan for proper preparation of such returns and reports.

Some personal difficulties had arisen between the parties and about the middle of March 1967, Morgan approached Arnold and offered to purchase his interest in the partnership. It was agreed between the partners at that time that the basis of the sale would be the book value of the partnership assets with each partner receiving 50 per cent of such value. At the time of this discussion Arnold was not apprised of the partnership's profits for the preceding year (1966) and did not have any idea of the book value of his interest in such company. The negotiations for the sale began on Saturday, March 18, 1967 and continued the next day at Arnold's home. A tentative agreement was reached and an attorney was requested to prepare the final papers. On March 22, 1967 Morgan delivered to Arnold the articles of dissolution and also the financial schedules which had been prepared by one Mary Ferguson, an employee of the partnership, who had prepared the schedules in accordance with instructions given her by Morgan. These financial schedules reflected the one-half interest of the partnership as being $38,788.71. Arnold testified that Morgan represented to him at that time that this amount was a true and correct value of one-half interest in the partnership assets. Arnold testified that he made no independent investigation to determine the correctness of the figures as reflected by the statements presented to him by Morgan and further that he did not test the accuracy of the accounts payable or notes payable or any other items contained in the schedules. He said that he reposed complete confidence in Mary Ferguson and in Morgan. Arnold testified that he received from Morgan the sum of $38,788.71 and executed the articles of dissolution of partnership based solely upon the representations made by Morgan. He testified that he would not have signed the articles of dissolution had he known that the schedules were incorrect.

Subsequently, about March 29, 1967, the accounting firm of Peat, Marwick & Mitchell, who prepared the final partnership tax return, forwarded such tax return to the two partners. When Arnold received his copy of the return he observed that it reflected the book value of his interest to be $64,488.52 and not the sum of $38,788.71 as had been represented by Morgan. This disclosure led Arnold to institute these proceedings.

Morgan disclaimed any knowledge of any discrepancy between figures shown on the schedules used as a basis for the dissolution of the partnership and the figures revealed by the partnership income tax return, stating that he had nothing to do with the preparation of such schedules and did not even verify the liabilities that he assumed. Morgan further testified that he at no time checked to see if there was a discrepancy, even after Arnold claimed that there was one, and further said that 'he couldn't care less about the Peat, Marwick and Mitchell figures.'

Mary Ferguson testified that she was directly supervised by Morgan; that she prepared the schedules in accordance with instructions given her by Morgan; and admitted that all of the partnership expenses were not included in the books as of March 31, 1967. The jury heard expert accounting witnesses testify that the omission of such expenses from the final return overstated the net income of the partnership to the extent of such expenses and this would cause Arnold to report and pay income tax on an overstated income figure.

Several expert accounting witnesses were produced by Morgan who attempted to reconstruct the books and records in accordance with generally accepted accounting principles. The testimony of these witnesses reveals that there was an increase in the partnership's net worth of $5,378.49 and this included an arbitrary reduction of $15,000. A voluminous amount of accounting testimony was produced before the jury and, without detailing such evidence, it is sufficient to state that neither the experts for appellee or appellant found that the statements delivered by Morgan to Arnold as a basis for the sale were correct.

The record reveals that since the partnership was dissolved Morgan has continued to operate the business; that his two sons succeeded to the partnership interest of Arnold; and that Mary Ferguson continues to be an employee of Morgan with a substantial increase in salary, as well as bonus.

OPINION

In his first point of error appellant Morgan contends that the trial court erred in permitting the introduction into evidence of ...