Opinion
(June Term, 1845.)
1. A party to a contract, as where one partner purchases the interest of his copartner, can not have relief in equity upon the ground of a false representation by the vendor, when he had an opportunity of knowing the truth or falsehood of the representation complained of.
2. As to a mutual mistake in matters of fact, the general rule is, that an act done or a contract made under such mistake is relieved in equity.
3. But where the means of information are alike open to both parties, and when each is presumed to exercise his own judgment in regard to extrinsic matters, equity will not relieve.
4. In like manner, when the facts are equally unknown to both parties, or when each has equal and adequate means of information, or when the facts are doubtful from their own nature, in every such case, if the party has acted with good faith, a court of equity will not interpose.
5. When each party is equally innocent, and these is no concealment of facts, mistake or ignorance is no foundation for equitable interference.
This cause was set for hearing, and by consent transmitted to the Supreme Court, at the Spring Term, 1845, of WAKE Court of Equity.
W. H. Haywood for the plaintiff.
Miller and Saunders for the defendant.
The bill charges that the plaintiff, in January, 1837, entered into copartnership with the defendant and Thomas G. Whitaker, for the purpose of merchandizing [merchandising], which was to continue ten years; one-half of the capital to be advanced by the (477) defendant, and the other half in equal portions by the plaintiff and Thomas G. Whitaker; that he is entirely ignorant of mercantile matters and illiterate, and soon became uneasy and desirous to close the business, and proposed to his partners to dissolve the firm. To this proposition the defendant, Langdon, refused his assent, and persuaded the plaintiff he could not retire from the firm without a violation of duty and subjecting himself to damages, and that the firm had done a very profitable business; that the defendant was to be the acting partner, and he had accordingly managed the business of the firm, laid in their stock of goods, and contracted the debts; that, having implicit confidence in his skill and integrity, he fully believed and relied upon his statements; and that the defendant availing himself of his superior knowledge of the business of the firm, of the plaintiff's ignorance and the confidence he knew he reposed in him, persuaded him, the plaintiff, to purchase from the defendant his interest in the firm; that, to induce him to do so, he made out a statement in writing, showing a large profit, to wit, $2,900 or $3,000, and this statement he averred to be true, and the plaintiff, trusting to his assertion and believing the statement to be true, did purchase from the defendant his undivided moiety in the firm, at the price of $1,000, which he paid to the defendant. By their agreement, the plaintiff bound himself to indemnify the said Langdon against all liability on account of the debts of the firm, and the said Langdon at the same time assured the plaintiff he would correct any errors that might exist in the statement. The bill further states that the plaintiff has paid all the debts due by the firm, and that he purchased out his other copartner, Thomas G. Whitaker, upon the same terms. The bill then charges that, instead of $7,200, the amount stated in the paper-writing as being the amount of the debts due from the firm, there were near $10,000 due, all of which were contracted by the defendant Langdon, and among them one for $5,646, due the Literary Fund, and represented in the statement to be $4,000, and also several which were not entered upon the books of the firm; that the statement was erroneous in the amount of debts set forth as due the firm, as many (478) of them had been received by the defendant and the debtors not credited on the books, and that the plaintiff had been cheated into making the purchase of said Langdon, as the business was a losing one and not profitable. The bill prays that the contract, by which he purchased from the defendant his interest in the firm, may be set aside, and the defendant decreed to refund to him the $1,000 he paid him, and account with him for the assets of the firm, or that Langdon may account with him and pay him what he owes the firm, and also the debts of the firm which he collected before the sale.
The defendant admits the copartnership, and the sale by him to the complainant of his interest in the business, at the price of $1,100, and that he made a statement of the situation of the firm. He alleges that having heard that the complainant was dissatisfied, he expressed his entire willingness to dissolve the partnership, provided he should receive back the capital he had invested, namely, the sum of $1,000, with interest on it; denies that, by the articles or agreement of the parties, he was to be the active partner, but that Thomas G. Whitaker was to manage the business, and that he had nothing to do with it, for twelve months before selling to the defendant; and says that the statement, which he submitted to the plaintiff, was drawn up by the defendant, at the request of the plaintiff, and that he took it from the books and from the information of the plaintiff and Thomas G. Whitaker, and knew nothing more of the affairs of the firm, than as disclosed by the books, and nothing more than was known to the plaintiff. He did represent to the plaintiff that the firm had done a good business, and he so believed; for as far as he knew, nothing had been lost by speculation or bad debts, and the stand was known to be an excellent one, and he denies expressly, it was in his power, from the manner in which the books were kept and the entries made, to exhibit the true condition of the firm, and avers that, in making the statement, he had to rely upon information derived from the plaintiff and Whitaker, and this (479) fact fully known to the plaintiff; that as to the outstanding debts mentioned in the statement, they were put down at a gross sum, made up from the books and the information of the plaintiff and Whitaker, the acting partner, he, the defendant, having no knowledge of them.
The plaintiff replied to the answer, and the cause has been sent here for trial.
The statement referred to by the parties, and called the blue paper, is an exhibit in the case. It contains a list of debts due to the firm, but none of debts due by the firm. It states the situation of the firm as follows:
Value of goods, with 25 per cent on cost......... $ 3,631.07 Accounts......................................... 3,555.93 Value of store................................... 300.00 Notes............................................ 1,480.00 Judgments........................................ 845.00 Cash............................................. 500.00 ---------- $ 10,312.10 The debts are charged at the round sum........... 7,500.00 ---------- Leaving a balance of............................. $ 3,812.10
as excess of assets, above liabilities, except the stock, which was $2,000.
Thomas G. Whitaker, one of the firm, states that no entries appear upon the books in the hand-writing of Langdon after March, 1838, and that, after that time, the books were kept by him and the clerks, Langdon not having anything to do with them; that, in March, 1839, Langdon came to his house and brought with him the books of the firm, including those which had been kept by the witness and the clerks; that from the said books. Langdon, in conjunction with the witness, made the various estimates, which appear in figures on the blue paper, representing that the assets of the firm on hand amounted to $10,312.10 cents; that the indebtedness was computed at $6,000, from the memory of Langdon and the witness, the books not having entries of the debts from the firm; to which, at the suggestion of the defendant, was added in the (480) estimate $1,500; that Crowder was sent for by Langdon, and came before they got through the statement; that the $6,000 was borrowed of the literary fund, to pay off the debts due by the firm to the North for their stock of goods, and were applied to that purpose, and that he sold out his interest in the firm to the plaintiff. He says, also, that $600 was put down to cover bad debts, according to their conjectural amount; that, since the statement, it was found the debts of the firm exceeded $7,500. At the time when the estimate was made, the defendant and Langdon based their computation on what they recollected of their debts; that they spoke of the several items in the presence of the plaintiff, who seemed ignorant of the amount of indebtedness, and whose information, in relation to it, was principally derived from the defendant and Langdon; that the object of the meeting was to agree upon a dissolution of the partnership, when each proposed to sell to the other; Langdon, from the start, saying he could not take less than his capital, and interest on it; and, after various propositions he proposed to Crowder to sell to him for $1,100; Crowder took him aside and asked his opinion, he advised him to take more time and not make a contract of the kind hastily. The parties separated for the night, under the belief, as he thought, that the partnership was to be dissolved, and he prepared notices to that effect. The next morning Crowder proposed to him to join him in purchasing Langdon out, which he declined, Crowder then said he had made up his mind to take the purchase. He told Crowder he thought the statement made the day before was correct, and in that estimate the Literary Fund debt was assumed to be $5,000.
Lewis Crowder, the son of the plaintiff, stated that he was a clerk in the store the first year, and that Langdon carried on the business for the first three or four months, and directed the manner in which the books should be kept, was present at the time T. G. Whitaker was, and Langdon said, if there was any error he could rectify it.
Henry Finch stated that he was also a clerk in the (481) store, and, for the last twelve months before Langdon sold to the plaintiff, Langdon had been absent and had nothing to do with the business, and that during that time Crowder or Whitaker, one or the other, was at the store every week; that from the books he could not understand what was the amount of debts due by the firm; that he assisted in making an inventory of the goods on hand just before the dissolution; T. G. Whitaker and Langdon being present part of the time, and the two sons of the plaintiff also assisted; that he heard the defendant say he had gone over the books, and there was no error in the amount he had given Crowder in his calculations. The defendant also examined the books, and found no mistake in the list of accounts due the firm. He can not tell why the proper entries were not made on the books. During the twelve months that Langdon was absent, Crowder and Whitaker, who are brothers-in-law, were frequently together and conversed about the business of the firm and examined the books. The plaintiff, Crowder, purchased out Thomas G. Whitaker, 30 August, 1841, and he witnessed the articles.
Allen Adams testifies only as to the note to the Literary Fund. It was originally for $6,000. He was the surety, and sometimes signed in bank, and the notes were sometimes brought to him by Whitaker, once by Langdon, and sometimes by Crowder's sons; were signed by the partners individually, and renewed, he thinks, every three months, as well before as after the purchase by Crowder.
Willis Whitaker states that the parties met at his house as he understood, to consummate the trade between the plaintiff and the defendant. The former asked if they, Langdon and Whitaker, had brought the paper containing the calculations, and was answered they had not, as they did not consider it necessary. The plaintiff then asked if the calculations were correct, and was answered that they were substantially so, with some intimation from them, that from the data they had to go upon, there might be some small errors. He understood Crowder was to give Langdon $1,100 for his interest, and the agreement was drawn up by Whitaker at the request of the other partners, but not signed (482) until the next morning. Crowder is an illiterate man, can read and write a little, but knows nothing of bookkeeping. Nothing was said about correcting any errors, and Crowder observed he supposed he was to have the goods at the New York cost, to which Langdon out of the firm, and has heard him say in the same conversations, he wished to get out himself, as he felt much uneasiness and anxiety, as to Langdon's connection with the firm, stating that he could not bring Langdon to a settlement, nor could he understand how he was managing the business of the firm.
Among the exhibits in the case, are the statement made by Langdon and called the blue paper, the articles of agreement between the plaintiff and the defendant, and the articles between the plaintiff and Thomas G. Whitaker.
The plaintiff places his claim to relief on two grounds: First. That Langdon, the defendant, availing himself of the confidence which he knew the plaintiff reposed in his skill and integrity, and taking advantage of his ignorance, induced him to believe that the paper called the blue paper contained a correct estimate of the debts due from the firm and those due to it; whereas, the former turned out to be much larger than expected, and that the defendant knew such to be the fact, and that many of the debts represented as due the firm had been received before that time by Langdon himself. And, secondly, that if Langdon did not know the extent of the debts due from the firm, yet it was a mutual ignorance of matters of fact, entitling the plaintiff to have the agreement rescinded. We think that upon neither ground is the plaintiff entitled to relief. His allegation that Langdon availed himself of the confidence he knew he reposed in him, is repelled by the evidence in the case. To Samuel Whitaker, his own witness, he, at different times, stated "he had (483) much uneasiness and anxiety as to Langdon's connection with the firm, that he could not bring him to a settlement, nor could he understand how he was managing his business." Whatever confidence therefore he might have had in the defendant, when the partnership was formed, he had lost it before the arrangement was made; he evidently had his fears excited, and was put upon his guard by them. Nor is there anything in the case to show us that any fraud was practiced by Langdon. The books have been submitted to our inspection; Mr. Langdon is represented as a good accountant, and that he presented the mode in which the books should be kept. If they were left in the manner directed by him, they furnish little evidence of any knowledge on the subject. But it is shown by the evidence, that for the twelve months next proceeding the sale to the plaintiff, the defendant had been absent and had nothing to do with the management of the business. The statement contained in the blue paper was drawn up by him, from the books, as testified by Thomas G. Whitaker, the other partner, and from information furnished by him and the plaintiff. In making that statement, the debts of the firm were stated by Langdon at $6,000, and so ignorant were the parties of the true situation of the business, that $1,500, were, at the suggestion of Whitaker, added on to the amount of the indebtedness of the firm, at a rough guess, and $600 for bad debts. This was all done in the presence of the plaintiff, Crowder. It has turned out that $1,500 was not a sufficiently large allowance, but that the debts were nearly $10,000. The plaintiff, though not skilled in bookkeeping, and though an illiterate man, certainly had capacity sufficient to see that none of them knew the extent of the indebtedness of the firm; and that he was incurring great risque. With this knowledge, such is his anxiety to get rid of Langdon as a partner, that, contrary to the advice of Whitaker, upon whom, as a connection and as a partner, he might surely rely, he would make his purchase. When Langdon first proposed to sell out to the plaintiff, Whitaker, upon his (484) advice being asked, "advised him to take more time and not to make a contract of that kind in haste." The next morning the plaintiff proposed to him to join in the purchase, which he declined when the plaintiff said he had made up his mind to make the purchase. We can not then say that Langdon was, in the transaction, guilty of any fraud, or that he used any deception or artifice to induce the plaintiff to make the purchase. But it is argued, if there be no actual fraud, there was implied fraud, that when a person makes a false representation through mistake, when he might have informed himself, he shall be bound. Without going into an examination of the cases, to which our attention has been drawn, we do not think this case comes within the principle. Here the defendant is in fact guilty of no misrepresentation. He had nothing to do with the business for twelve months, and had been absent from the place where it was carried on. The books give him no information; are silent on the subject; neither can his copartners or clerks, one of whom is the plaintiff's son, assist him; at a venture he puts down the debts of the firm at $6,000; the acting partner tells him that will not answer, add $1,500 more: this is done, and in the presence of the plaintiff, who has all the time been living in the neighborhood of the store, was there every week or two, who had free access to the books, and frequent conversations with Whitaker, the acting partner, and his friend and near relation. The sum of $7,500, as being the amount of the indebtedness of the firm, is no where proved to have been asserted by the plaintiff, and when the plaintiff asks Whitaker and Langdon if the statement of the amount of the debt is correct, he is answered, "according to the data they had to go upon it was substantially so." There is then in fact no representation as to their amount. It was a mere matter of opinion, or a fact, equally open to the inquiries of both parties, both possessing equal means of information, and upon which, it is evident from the testimony of Samuel Whitaker, the plaintiff did not rely upon the opinion of Langdon, nor do we perceive in the facts proved any effort on his part to mislead the plaintiff, for the misrepresentation may as well be by deed or acts, as by words, (485) by artifices as well as by positive assertion. 3 Bl. C. 165. 2 Kent. Com. 484. 2 Story Eq., 201-2. We do not say the fact is not so, but that there is no evidence to prove it. But before the principle can be brought to bear upon Langdon. It is necessary to show, according to the case of Pearson v. Morgan, 2 Brow. C. C. 354, that he might have had notice of the truth or falsehood of the statement. To what source of information could Langdon have applied to get this notice? Did he not apply to that, from which alone he could now derive it? There is no written memorandum of the debts within his reach, and those, who ought to have known, were as ignorant as himself. The principle then does not apply to him. One remarkable feature in this case is, that the plaintiff, who claims to get rid of his contract with Langdon, because the debts were so much larger than the blue paper represents them, purchases out his copartner, Thomas G. Whitaker, on 30 August, 1841, upon precisely the same terms. The purchase from Langdon was made 27 March, 1839, one year and four months before the purchase is made from Whitaker. Yet he gives Whitaker the amount of his capital, and guarantees him from all liability to pay the debts of the firm. If the plaintiff has made a hard bargain or a bad one, we can not relieve him. It appears to us, that so far from being anxious to get out of mercantile business, he had an uncommon desire to get into it. He goes into the firm, owning the one-fourth of the stock, and winds up by purchasing the whole. Neither upon the ground of mutual error, is the plaintiff entitled to relief. It was speculation on both parts. The plaintiff did not know the amount of the outstanding debts, nor did the defendant. The latter agrees, if the plaintiff will give him a certain sum, he will sell his interest in the firm. Suppose, instead of the deficiency found to exist, there had proved to be a large profit beyond that stated in the blue paper, could the defendant have been heard to say the contract must be rescinded; the profits have turned out much larger than he expected? The general rule unquestionably is, that an act done or a contract made under a (486) mistake or ignorance of a material fact, is relievable in equity. 1 Story Eq., 155. But where the means of information are alike open to both parties, and when each is presumed to exercise his own judgment in regard to extrinsic matters, equity will not relieve. The policy of the law is to administer relief to the vigilant, and to put all parties to the exercise of a proper diligence. In like manner, where the fact is equally unknown to both parties, or where each has equal and adequate means of information, or when the fact is doubtful from its own nature, in any such case, if the party has acted with entire good faith, a court of equity will not interpose. 1 Fonb. Eq. B. 1, Ch. 2, sec. 7, n. v. 1 Pow. on Con., 200. 1 Mad. C. Pr., 62, 4. 1 Story Eq., 163. Where each party is equally correct and there is no concealment of facts, mistake or ignorance is no foundation for equitable interference. We have said, there is no ground to allege fraud against the defendant. Here the fact of the extent of the indebtedness of the firm was unknown to the parties; it was, from the circumstances of this case, doubtful in its extent, and each party had equal means of information. The rule of caveat emptor must apply. If, however, we were satisfied that the plaintiff acted upon the statement contained in the blue paper, as the known and declared basis on which he contracted, we should be inclined to grant him relief. But it is not as manifest, he did not, or rather he did not act upon it, as containing the ascertained facts of the case. He could have done so, because he was present and saw and knew upon what data it was framed, and that its statements were the result of vague surmises of all parties. Further, that he did not rely on it is shown from the fact that he asked the advice of Whitaker what he should do. The paper, if correct, showed a clear profit of near three thousand dollars; if, therefore, he wished to purchase, and relied upon the paper, he would have needed the advice of no one, and further, when he consummated the contract, he did so, in the absence of the paper, after having called for it.
Another ground of relief claimed by the plaintiff is, that the defendant agreed to correct all errors. There (487) is no evidence to us of any errors in the contract. The defendant intended to sell his interest in the firm; the plaintiff to buy that interest, whether it was much or little.
PER CURIAM. BILL DISMISSED WITH COSTS.
Cited: Capehart v. Mhoon, 58 N.C. 180; Wilson v. Land Co., 77 N.C. 452; Day v. Day, 84 N.C. 411; McMinn v. Patton, 92 N.C. 375; White v. R. R., 110 N.C. 460.