Sash v. M'Mahon

81 Mo. App. 440 | Mo. Ct. App. | 1899

BIGGS, J.

E., Gr. and M. were partners. E. executed tbe notes of the firm in settlement of bis individual debt and a firm debt to tbe payee. This was done without tbe knowledge of G-. Are tbe notes in tbe bands of tbe payee void or voidable in toto as to Q-? This is tbe only question presented by tbe record which we need discuss. ,

Plaintiff’s evidence tended to prove tbe following facts: The defendant Gough, George P. McMahon and W. J". Earrell composed the firm of George P. McMabon and Company. The firm borrowed some money of plaintiff. At the same time Earrell was indebted to plaintiff on bis individual account, tbe exact amount not definitely shown by tbe evidence. It was not, however, in excess of $585. In settlement: of the two debts Earrell executed two firm notes to plaintiff. Tbe notes were given without the knowledge of Gough. Plaintiff brought suit on tbe notes. Gougb only was served. He denied all liability on the notes, setting up tbe foregoing facts as a defense. At tbe conclusion of plaintiff’s testimony tbe circuit court refused an instruction of non-suit. At tbe conclusion of all the testimony the court permitted tbe plaintiff to enter voluntary credits on tbe notes for $585 with interest, which plaintiff conceded was the amount of the individual debt of Earrell. The court thereupon directed a verdict for tbe plaintiff for tbe balance due on the notes, and subsequently ordered a new trial, on the ground that error was committed in refusing defendant’s instruction of non-suit. The plaintiff appealed from the order granting the new trial.

The theory of the plaintiff is that to the extent of tbe individual debt of Earrell 'the notes were without- consideration; that this presented a defense pro lanío only, and that there could be a recovery on tbe notes for the amount of tire partnership indebtedness. The plaintiff concedes that where a contract is based on a consideration which is partially illegal .the contract is void and can not be enforced. The reason for the non-enforcement of snch contracts is that the courts deem it inconsistent with public policy for the law to undertake an apportionment between a legal and an illegal consideration, for this would encourage persons to engage in illegal transactions. The contention of plaintiff is that the present case does not come within this class but is a case presenting a partial want of consideration, and that as the good can be separated from the bad, the notes will be enforced as valid firm obligations to the extent of the partnership indebtedness. We can not assent to .this. The facts do not present simply a case of a partial want or failure of consideration. As to Gough the giving of the notes by Farrell and the acceptance of them by plaintiff, were fraudulent acts. (Lincoln Nat’l Bank v. Schoen, 56 Mo. App. 160; Hickman v. Kunkle, 27 Mo. 408.) Technically speaking there was not a partial illegality of a consideration, but there was a want of consideration accompanied by an actual and intentional fraud in the execution of the notes. Now, when the plaintiff’s fraud is discovered, it insists that the law ought to separate the good in the notes from the bad, and give it the benefit of the contracts to the extent of the good. This in our opinion can not be done for two reasons: (1) The notes are tainted with an all-pervading vice; (2) to allow the plaintiff to recover anything on the notes would tend to encourage unfair dealings, whereas the law on grounds of public policy should be so administered as to discourage questionable transactions. Tó say that if the partnership actually owed plaintiff the amount represented by the balance of principal on the notes Gough would not be prejudiced by a judgment in the action, is but begging the question. It is against the policy of the law to give countenance to such transactions. But the recognition of the validity of the notes to the extent claimed would give to plaintiff an unfair advantage in that the 'notes would make for it a prima facie case, whereas Gough claims that the partnership was not indebted to plaintiff in any amount. . Ve think that our conclusions are supported by analogous cases in this state, and by the best considered decisions in other jurisdictions. •

In McDonald v. Wagner, 5 Mo. App. 56, which was a suit upon a note, it appeared that the wife of the defendant had sued him for divorce, and the wife employed the plaintiff who was a practicing lawyer, to prosecute the action. The plaintiff effected a reconciliation between the parties, and to compensate him for his services to both, the note in suit was given. The- supreme court held that as part of the note was illegal it was wholly void.

In McNichols v. Rubelman, 13 Mo. App. 515, 522, the conveyance under consideration was executed parti y to hinder and defraud creditors. The court held it to be void in ioio\ that the contract was an entire thing and could not be split up and held good in part and bad in part.

In St. Louis Coffin Company v. Rubelman, 15 Mo. App. 280, the court held that where the creditor, in addition to the taking of enough of the debtor’s goods to satisfy his claim, purchases an additional quantity for the purpose of aiding the debtor in defrauding his creditors, the whole transaction would be declared void.

In Hamilton v. Scull, 25 Mo. 165, the supreme court held that a’ fraudulent grantor would not be heard to allege the invalidity of the transfer, for says the court “to do this would be encouraging fraud, for thereby a party would be induced to make fraudulent alienations without any concern for the consequences, confiding in the privilege the law would confer of setting them aside afterwards, if they did not answer the ends proposed by them.” This reasoning of the court is especially applicable to the facts in the present ease. If the contention of plaintiff’s counsel is the law, then their client ran no risk whatever in undertaking to defraud the other members of the firm or the creditors of the firm, for in any event he would reap an advantage. If the note should be contested he would be in a position to oast upon the non-assenting partner the burden of showing the fraud (Hickman v. Kunkel, 27 Mo. 401) and the amount of the individual debt, and should the latter succeed in doing so, the plaintiff would still recover for the amount of the alleged partnership indebtedness (with interest in excess of the legal rate), without the burden of proving the indebtedness, the note making a prima facie case for him. «

In the case of Brown v. North, 21 Mo. 528, the supremo court expressly announces the rule for which we contend. There the plaintiff was employed by one Mense to purchase a tract qf land for him and the defendant, for which he was to charge $25. The purchase was made, but before 'the deed was executed the defendant bought Mense’s interest. On a settlement between plaintiff and defendant the latter falsely 'represented that under his agreement with Mense he was entitled to receive $302 for his services, and for which he induced the defendant to execute a note. The action was upon this note, and the defense was that the note was obtained through, the aforesaid fraudulent representations of plaintiff. Upon the trial the circuit court rendered a judgment for $25, the amount agreed on between plaintiff and Mense. The plaintiff alone appealed. Concerning the matter the supreme court said: ' “The note was obtained by fraudulent representations and should not be allowed to support an action.” This case is cited by counsel for plaintiff as authority for its contention because 'the supreme court affirmed the judgment of the circuit court which was for a part of the note. It need only be remarked that ¡the defendant did not complain of the judgment, and hence it was not the province of the supreme court to interfere.

The facts in the case of King v. Faber, 22 Penn. St. 21 were similar to those we have here. It was there held that the partnership note was void as to the non-assenting partner, although it included a debt of the partnership.

So in Niver v Best, 10 Barb. 369, where a valid indebtedness was included in a note for a large sum, the court says: “It did not validate the note to include in i't $300 of honest indebtedness. On the contrary the rule of law is that where one part of an entire contract is void, the whole is void.”

In support of its contention .the defendant relies on Klein v. Keyes, 17 Mo. 326; Briscoe v. Kinealy, 8 Mo. App. 76; Koontz v. Insurance Co., 42 Mo. 126, and Trabue v. Ins. Co., 121 Mo. 75. In the Klein case the plaintiff sued the firm of Keyes & Eichelberger on a note. Eichelberger defended on the ground that the greater part of the consideration of the note was for a private debt of Keyes, of which the plaintiff had notice. Before the suit was begun and after-wards, Keyes tendered the amount due from the partnership. On the trial Keyes offered evidence tending to prove his defense, which the circuit court excluded. The supreme court held this to be error, and stated that if on a retrial the facts alleged were established, the judgment should be for plaintiff for the amount tendered. It is obvious that this case in no manner aids the plaintiff. Keyes tendered the amount of the partnership debt represented by the note, thereby acknowledging his liability thereon to that extent. lie did not seek to- invalidate the note in its entirety.

In the Briscoe case, supra, the defendant pleaded total want of consideration. The circuit court found that the consideration of the note was good for a small portion of the note, and rendered judgment therefor. As to the remainder of the consideration it appeared conclusively that it was founded upon a baseless claim, and that the defendant consented that it be included in the note to escape the importunities of plaintiff. In that case there were no false representations or actual fraud, as the defendant acted under a full knowledge of all the facts, which distinguishes 'the case from the one at bar.

Tbe Koontz and Trabne cases, supra, were actions on insurance policies covering buildings and personal property. The policies were held to be void as to the building’s by reason of breaches of warranties as to the title of the real estate. The supreme court sustained recoveries as to the personalty upon the theory that the policies virtually embraced two separate contracts, that the policy holders would have been entitled to separate policies had they demanded them, and that therefore the fraud or vice in the one contract did not affect the other. It is clear we think that these cases are not applicable to this case.

Our conclusion is that as the notes were given without the consent of Gough, they are fraudulent as to him and may be avoided by him. Therefore the order of the circuit court awarding a new trial was right. I am requested by Judge Bland to add the following:

“That after it was shown -the note was given in part for the individual debt of a member of the firm, the plaintiff’s prima facie case made by the note was gone, and it then devolved on him to remove the imputation of fraud in the inception of the note. This could not be done by showing that the consideration of the note was in part a partnership debt.”

The cause will be remanded for further proceedings.

All concur, Judge Bond in the result.