CHEESECAKE FACTORY, INC. V. BAINES, 1998-NMCA-120,
125 N.M. 622, 964 P.2d 183
CHEESECAKE FACTORY, INC. d/b/a DEE'S
FOODSERVICE, a New
Mexico corporation, Plaintiff-Appellee,
vs.
JOHN R. BAINES, Defendant-Appellant.
COURT OF APPEALS OF NEW MEXICO
1998-NMCA-120, 125 N.M. 622, 964 P.2d 183
APPEAL FROM THE DISTRICT COURT OF
BERNALILLO COUNTY. Gerard W. Thomson, District Judge.
Released for Publication August 28,
1998. As Amended September 30, 1998.
DENNIS E. JONTZ, NICKAY B. MANNING,
Eastham, Johnson, Monnheimer & Jontz, P.C., Albuquerque, NM, for Appellee.
WILLIAM A. L'ESPERANCE, Albuquerque, NM,
for Appellant.
HARRIS L HARTZ, Chief Judge. WE CONCUR:
RUDY S. APODACA, Judge, BENNY E. FLORES, Judge.
{1} John R. Baines
appeals a judgment entered against him in favor of Cheesecake Factory, Inc. The
claim against Baines arose out of deliveries of goods to Triples American
Grill, an Albuquerque sports bar and restaurant owned by Triple Threat, Inc.
Cheesecake Factory contended that it did not know that the business was owned
by a corporation and that it extended credit because it believed that the
business was owned by a partnership that included Baines as a member. Applying
the New Mexico statute on partnership by estoppel, the district court entered
judgment against Baines. Baines paid the judgment and appealed. We affirm.
I. WAIVER OF RIGHT TO APPEAL
{2} First, we address
a procedural issue. Cheesecake Factory contends that Baines waived his right to
appeal by paying the judgment, because such payment constituted acquiescence in
the judgment. As movant on the issue, Cheesecake Factory has the burden of
proving waiver.
See In re T.B.,
121 N.M. 465, 467,
913 P.2d 272, 274 .
It relies on a footnote in
Richardson v. Rutherford,
109 N.M. 495,
787
P.2d 414 (1990), which states as follows:
We note that in some instances, but by no means in all
instances, satisfaction of the judgment by an appellant may operate to cut off
that party's right of appeal. The majority rule appears to be that voluntary
satisfaction of judgment renders an appeal moot. . . . In Culp v. Sandoval,
22 N.M. 71, 159 P. 956 (1916), this Court held that satisfaction of a judgment
subsequent to posting of a supersedeas bond by appellant showed that appellant
had acquiesced in the judgment and thus precluded the appeal. We concluded that
since the filing of the supersedeas bond effectively removed the possibility of
any legal compulsion on the appellant to satisfy the judgment pending appeal,
the appellant's subsequent satisfaction of the judgment was voluntary. Culp,
22 N.M. at 83, 159 P. at 960-61. We reaffirm our holding in Culp that
certain circumstances exist in which an appellant's satisfaction of the
judgment demonstrates {*624} an
acquiescence in that judgment that is inconsistent with the right of appeal.
Additionally, equities may intervene after satisfaction of the judgment,
militating against the maintenance of an appeal. However, absent proper
presentation of this issue by the parties, we decline to address this point
further.
Id. at 498 n. 2, 787 P.2d at 417 n.2.
{3} We reject the
contention of Cheesecake Factory.
Culp is distinguishable because Baines
did not file a supersedeas bond. As pointed out in the
Richardson
footnote, the court in
Culp found a voluntary acquiescence in the
judgment--and thus a waiver of the right to appeal--because the appellant paid
the full amount of the judgment even though its supersedeas bond precluded the
appellee from executing on the judgment. The language of
Culp makes
clear that absent the bond, the appellant's payment would not have been
considered voluntary, so there would have been no waiver of the right to
appeal. Our Supreme Court wrote:
We believe, from an examination of the authorities,
that the correct determination of the question depends upon whether the payment
of the judgment is under legal compulsion; that is, assuming that payment is
made prior to the issuance of execution, that such payment is regarded as
having been compulsory by reason of the right existing in the judgment creditor
to have issued execution and to have enforced payment at the time payment is
made. . . .
The reason for the majority rule which recognizes the
right of appeal, even though the judgment be paid without execution, is that,
the judgment debtor having the power to coerce payment, the payment by the
judgment creditor without execution is not a voluntary acquiescence in, or
recognition of, the judgment.
Culp, 22 N.M. at 83, 159 P. at 960. Although this
language could be characterized as dictum, we are content to follow it.
Involuntary payment of a judgment does not foreclose the payor's right to
appeal, and payment to avoid execution on a judgment is involuntary. We add
only a few words regarding involuntariness and the policy behind the Culp
rule.
{4} No New Mexico
statute or court rule requires a judgment debtor to file a supersedeas bond as
a condition to appealing the judgment.
Cf. Rule
1-062 NMRA 1998 (stay of
proceedings to enforce a judgment). When there is no such bond, however, the
judgment creditor can proceed to execute on the judgment. Thus, the judgment
debtor/appellant faces three options: filing a supersedeas bond, risking
execution on the judgment, or paying the judgment. The most attractive one may
be payment of the judgment. Such payment eliminates (a) the cost of a bond, (b)
the possibility of paying interest on the judgment at a rate above that at which
the appellant could borrow money to pay the judgment, and (c) a judgment lien
on the appellant's property. But the fact that payment of the judgment may be
the option most attractive to the appellant does not make that option a
voluntary one. All three options result from the compulsion of the judgment
entered against the appellant. Thus, in our view, payment of the judgment debt
when no supersedeas bond has been filed is ordinarily an
involuntary
payment. (We note, however, that a payment may be voluntary if it is the result
of a settlement agreement between the parties.
See Franzen v. Dubinok,
290 Md. 65, 427 A.2d 1002, 1005-06 (Md. 1981).)
{5} This result would
seem to us to be sound public policy. We should refrain from embracing a rule
that would discourage payment of a judgment debt pending appeal. For one thing,
such payment would eliminate economic pressure that could force an appellee to
compromise a strong case on appeal.
{6} Nor do we perceive
any purpose to be served by denying the right to appeal. Contrast the situation
in which the judgment debtor has paid the judgment voluntarily. One reason to
deny such a judgment debtor the right to appeal is that the appeal would serve
no purpose. Even if the judgment debtor prevailed on appeal, the court could
not compel the judgment creditor to return the payment. This follows from the
general rule that one who makes a voluntary payment to another has no right to
{*625} restitution.
See Restatement of
Restitution § 112 (1937). Thus, if a judgment debtor voluntarily paid the
judgment, appealed the judgment, and obtained a reversal, it would have no
cause of action in restitution to reclaim the money paid to the judgment
creditor, and the appeal would accomplish nothing except wasting time and
money.
See Franzen, 427 A.2d at 1006, 1007-08;
cf. Turner v. Mountain
Eng'g and Constr., Inc., 276 Mont. 55, 915 P.2d 799, 802-05 (Mont. 1996)
(discussing waiver of right to appeal and mootness arising from unavailability
of a remedy despite a successful appeal). When the payment of the judgment debt
is
involuntary, however, a judgment debtor who prevails on appeal has a
right to restitution of any excess amount paid.
See Culp, 22 N.M. at 83,
159 P. at 960;
Franzen, 427 A.2d at 1006; Restatement of Restitution §
74. To be sure, as a practical matter the judgment debtor may have difficulty
collecting from the appellee; but we see no reason to deprive it of the right
to appeal simply because it decides to pay the judgment and take that risk.
Cf.
Courtney v. Nathanson,
112 N.M. 524, 525,
817 P.2d 258, 259 (judgment
creditor who accepts payment on judgment waives right to appeal unless appeal
could not result in creditor's receiving less).
{7} Cheesecake Factory
points to one respect in which it may be prejudiced by Baines' payment of the
judgment. If Baines had filed a supersedeas bond, the bond ordinarily would
cover his potential liability for costs on appeal.
See Rule 1-062(D).
But Baines, having paid the judgment entered in district court, has provided no
security for payment of appellate costs. Cheesecake Factory may be entitled to
its attorney fees on appeal, so costs could be substantial. Nevertheless,
Cheesecake Factory is no worse off than it would have been had Baines paid
nothing. It could hardly execute on the district court judgment to obtain
reimbursement for appellate costs not yet vested or accrued. The risk to
Cheesecake Factory would have been obviated if it could have obtained a court
order requiring Baines to file security for costs on appeal. But Cheesecake
Factory did not move for an order requiring security for costs, so we need not
consider whether the district court would have the authority to enter such an
order.
{8} In short, we hold
that Cheesecake Factory has not established that Baines voluntarily paid the
judgment against him. Accordingly, Baines could properly pursue this appeal.
II. PARTNERSHIP BY ESTOPPEL
{9} Triples American
Grill was owned by a corporation, Triple Threat, Inc. Cheesecake Factory,
however, contended that it did not know that the entity to which it was
advancing credit was a corporation. It claimed that representations by Frank
Kolk, the manager of the business, caused it to believe that the sports bar was
owned by a partnership. Its theory of liability in the district court was that
Baines was a partner by estoppel and therefore liable for the debt incurred by
the sports bar. The district court agreed. We affirm because the evidence at
trial, viewed in the light most favorable to the judgment, could persuade a
rational trier of fact that Baines was a partner by estoppel.
See Clovis
Nat'l Bank v. Harmon,
102 N.M. 166, 168-69,
692 P.2d 1315, 1317-18 (1984).
{10} The New Mexico
Uniform Partnership Act contains the following provision:
A. When a person, by words spoken or written or by
conduct, represents himself, or consents to another representing him or anyone,
as a partner in an existing partnership or with one or more persons not actual
partners, he is liable to any such person to whom such representation has been
made, who has, on the faith of such representation, given credit to the actual
or apparent partnership, and if he has made such representation or consented to
its being made in a public manner he is liable to such person, whether the
representation has or has not been made or communicated to such person so
giving credit by or with the knowledge of the apparent partner making
representation or consenting to its being made.
(1) When a partnership liability results, he is liable
as though he were an actual member of the partnership.
{*626} (2) When
no partnership liability results, he is liable jointly with the other persons,
if any, so consenting to the contract or representation as to incur liability,
otherwise separately.
B. When a person has been thus represented to be a
partner in an existing partnership, or with one or more persons not actual
partners, he is an agent of the persons consenting to such representation to
bind them to the same extent and in the same manner as though he were a partner
in fact, with respect to persons who rely upon the representation. Where all
the members of the existing partnership consent to the representation, a
partnership act or obligation results; but in all other cases it is the joint
act or obligation of the person acting and the persons consenting to the
representation.
NMSA 1978, Section 54-1-16 (1947) (repealed 1997). The
language is essentially identical to Section 16 of the Uniform Partnership Act
(1914). (We should note that the Uniform Partnership Act was superseded in New
Mexico after the trial in this case. The Uniform Partnership Act (1994), which
is codified at NMSA 1978, §§ 54-1A-101 to -1005 (1996), became effective July
1, 1997.)
{11} Under this
section even though an enterprise is a corporation, a person can be treated as
a partner, and consequently exposed to personal liability for the corporation's
debts, when representations are made that the enterprise is a partnership and
the person is a partner. The representations must be made by the purported
partner or with the purported partner's consent. The section distinguishes
between representations made in a "public manner" and other
representations (which we will refer to as "private"
representations). "If the representation is privately made, it may be
taken advantage of only by persons to whom it was made; if it was publicly
made, anyone (roughly speaking) can make use of it." Alan R. Bromberg,
Crane
and Bromberg on Partnership 197 (1968) (footnotes omitted).
{12} One issue on
appeal is whether Cheesecake Factory can recover regardless of whether it
relied on representations of Baines' partnership status. When a representation
is private, the statute explicitly requires the claimant to establish that it
"has on the faith of such representation, given credit to the actual
partnership." Section 54-1-16(A). Cheesecake Factory argues that no such
reliance is necessary if the representations are made "in a public
manner."
Id. Accordingly, it asserts that it need prove only that
Baines made or consented to public representations of his partnership status.
As an alternative basis for affirmance, Cheesecake Factory argues that it in
fact relied on private representations of Baines' partnership status.
{13} We begin by
discussing whether the statute requires reliance on representations made in a
public manner. We determine that the prudent course on this appeal is to assume
that reliance is required. We then proceed to review whether the evidence will
support findings that (1) Baines consented to representations to Cheesecake
Factory of his partnership status and (2) Cheesecake Factory relied on such
representations.
A. Representations Made in a Public Manner
{14} Cheesecake
Factory contends that if Baines' partnership interest was represented "in
a public manner," Baines is liable to Cheesecake Factory regardless of
whether it relied on such representations. We are not persuaded.
{15} At the outset of
our discussion, we must acknowledge that strong support for Cheesecake
Factory's contention can be found in our Supreme Court's decision in
Gilbert
v. Howard,
64 N.M. 200,
326 P.2d 1085 (1958). The Court paraphrased the
statutory provision as follows:
The statutory test for partnership by estoppel
requires that (1) credit must have been extended on the basis of partnership
representations or (2) that the alleged partner must have made or consented to
representations being made in a public manner whether or not such
representations were actually communicated to the person extending credit.
{*627} Id. at 202,
326 P.2d at 1086. The Court found that the first test had not been met in that
case:
Since plaintiffs did not even know Moore existed at
the time of the leasing there could have been no reliance upon his credit and
defendant Moore is not liable under the first part of [Section 54-1-16], which
is the same as the common-law test for liability in New Mexico before the
adoption of the Uniform Partnership Act in 1947.
64 N.M. at 202-203, 326 P.2d at 1086. The opinion then
contains the passage chiefly relied upon by
However, the last part of [Section 54-1-16] reads as
follows:
. . . and if he has made such representation or
consented to its being made in a public manner he is liable to such person,
whether the representation has or has not been made or communicated to such
person so giving credit by or with the knowledge of the apparent partner making
representation or consenting to its being made.'
This section extends liability beyond the common-law
test of reliance so that when one has by his acts or his consent to the acts of
others allowed or caused the general community to believe that he is a partner
then he is such by estoppel even though this particular creditor may not have
heard the representation. This relieves the creditor of the task of proving
that he actually knew of such representation and makes the representation
itself an offense without the added factor of reliance.
Id. at 203, 326 P.2d at 1087 (ellipses in original).
In that appeal, however, the Court ruled that the representations had not been
made in a "public manner," so the defendant was not liable under the
statute. 64 N.M. at 203-04, 326 P.2d at 1087-88.
{16} Gilbert was
followed a dozen years later. In
Anderson Hay & Grain Co. v. Dunn,
81 N.M. 339,
467 P.2d 5 (1970) our Supreme Court repeated
Gilbert 's
paraphrase of the statutory test for partnership by estoppel,
id. at
341, 467 P.2d at 7, although it ruled that there was reliance in that case.
{17} Despite this
weighty authority, we are reluctant to adopt the proposition that reliance need
not be shown when representations of partnership are made publicly. If the
issue were squarely put to our Supreme Court, we believe that it would always
require reliance to establish a partner by estoppel under Section 54-1-16. The
following considerations lead us to this conclusion.
{18} First, as
partially acknowledged in
Gilbert, recognizing estoppel without reliance
would be a sharp departure from firmly grounded common-law principles. The
foundation of estoppel is that one is bound by saying or doing something upon
which another relies to his or her detriment.
See, e.g.,
Continental
Potash, Inc. v. Freeport-McMoran, Inc.,
115 N.M. 690, 697-98,
858 P.2d 66,
73-74 (1993). Why should that principle not be followed in this context? Why
should a person who did not rely on the existence of the partnership be
permitted to claim an estoppel?
{19} Of course,
statutes often change the common law, and judges would be abusing their power
if they insisted on following the common law despite contrary statutory
enactments. The point here is only that a court is well-advised to take a
second look at statutory language if an initial reading suggests a meaning that
constitutes a sharp break with long-standing principles for no apparent reason.
{20} A second look at
the language of Section 54-1-16 suggests that the portion of Subsection A
relating to public representations does not remove the requirement of reliance.
Consider the language of Subsection B:
When a person has been thus represented to be a
partner in an existing partnership, or with one or more persons not actual
partners, he is an agent of the persons consenting to such representation to
bind them to the same extent and in the same manner as though he were a partner
in fact, with respect to persons who rely upon the representation.
(Emphasis added). The word "thus" is a reference
back to Subsection A. Accordingly, under Subsection B even when the
representation {*628} has been made
"in a public manner," the purported partners are bound only "to
persons who rely upon the representation." It would be remarkable to
require reliance under Subsection B but not under Subsection A.
{21} Most important of
all, the best reading of Subsection A is that the fact of public representation
does not eliminate the requirement of reliance. The language regarding public
representations states: "if he has made such representation or consented
to its being made in a public manner he is liable to
such person . . .
." (Emphasis added). Who is "such person"? The obvious candidate
is the person described earlier in the sentence: a person "to whom such
representation has been made, who has, on the faith of such representation,
given credit to the actual or apparent partnership." In other words,
"such person" is one who has relied on the representation. The
purported partner is liable only to one who has relied.
{22} What, then, is
the purpose of the language relating to public representations? What follows
from a public representation that does not result from a private one? Only that
one can be a partner by estoppel, and therefore liable to one who has relied on
a representation, even though the partner by estoppel did not know of or
consent to the representation being made to the person who relied. Ordinarily,
a purported partner cannot be held liable as a partner by estoppel to someone
to whom the representation was made unless the purported partner made the
representation to the person who relied or consented to the representation
being made to that person. But if the representation of partnership is made
"in a public manner," the person claiming partnership by estoppel
need not prove that the purported partner authorized the representation to that
particular person. Not only is this a reasonable reading of the statutory
language, it makes sense as a proposition of law. One who consents to a public
announcement that he or she is a partner can expect unknown others to hear and
rely on the announcement; and holding the purported partner to the consequences
is a fair result under familiar equitable concepts.
{23} Outside of New
Mexico case law, the authorities support this interpretation. Referring to the
language regarding public representations, Professor Painter wrote:
This awkward clause is apparently little more than an
attempt to codify what may have been the law in America and what in England was
the law by statute; namely that, if there is a hold out "in a public
manner" either by the defendant or by another with the defendant's consent,
then the defendant need not consent specifically to the particular form of
holding out upon which the plaintiff has relied. Why this relatively simple
concept required such complex terminology is an enigma.
William H. Painter, Partnership by Estoppel, 16 Vand. L.
Rev. 327, 338 (1963) (hereinafter Painter). Likewise, 1 Bromberg and
Ribstein on Partnership at 2:161-162 (1998 Supp.) states:
It has been held that the portion of [Section 16 of
the Uniform Partnership Act] dealing with representations "made in a public
manner" removes the reliance requirement with respect to public
representations. But this provision appears to relate only to the purported
partner's consent to the representation to a particular plaintiff . . . rather
than to the reliance requirement, so that a public representation would not
create an estoppel as to one who does not become aware of it.
(Footnotes omitted). We note that Section 308 of the Revised
Uniform Partnership Act (adopted in New Mexico effective July 1, 1997, under
the title "Uniform Partnership Act (1994)," Section 54-1A-1202) uses
much clearer language:
If the representation, either by the purported partner
or by a person with the purported partner's consent, is made in a public
manner, the purported partner is liable to a person who relies upon the
purported partnership even if the purported partner is not aware of being held
out as a partner to the claimant.
Section 54-1A-308(a) (1997). As explained by one commentator:
[The Revised Uniform Partnership Act] has resolved any
doubts that may exist {*629} about the
necessity of a creditor to prove reliance in a public holding out case, a
problem that was created by some abstruse language in [Section 16 of the
Uniform Partnership Act] that, carelessly read, seemed to obviate the requirement
of reliance in a public holding out.
J. Dennis Hynes, Agency, Partnership, and the LLC--In a
Nutshell at 114 (1997). Thus, we will assume for purposes of this appeal
that Cheesecake Factory had to establish reliance.
B. Consent to Being Represented as a Partner
{24} We now turn to
the two elements of Cheesecake Factory's cause of action that Baines contends
are missing. First, we address whether Baines consented to Kolk's
representation to Cheesecake Factory that he and Baines were partners in
Triples American Grill. Then we address the question of reliance. We hold that
the evidence was sufficient to prove both elements.
See Clovis Nat'l Bank,
102 N.M. at 168-69, 692 P.2d at 1317-18.
{25} Steve Mager, the
president of Cheesecake Factory, testified that before Cheesecake Factory
advanced credit to the sports bar, Kolk told him that Kolk and Baines were in a
partnership of three persons that owned the bar. Although there was no direct
evidence that Baines authorized Kolk to tell Cheesecake Factory that Baines was
a partner in the business, there was ample evidence to support an inference
that Baines consented to Kolk's making such a representation. Among that
evidence was the following: Cheesecake Factory first extended credit to the
business on February 10, 1993. On February 23, 1993, an account was opened at
Western Bank of Albuquerque in the name of "Baines: Bob DBA Triples
American Grill." (Baines was generally known in the community as
"Bob" Baines.) The signature card contains two signatures, those of
"Bob Baines, owner" and "Frank Kolk, owner." On March 3,
1993, a payroll account was opened at Western Bank in the same name. The
signatures on the signature card were "Bob Baines" and "Frank
Kolk." Baines was frequently present at the sports bar and freely entered
the business office. As a result, employees believed that Baines was a partner.
In addition, there was testimony that Baines himself had told others that
"he had a sports bar" and "was a partner" in the business.
Although these statements by Baines may have been as much as nine months after
Kolk first told Mager that Baines was a partner, they are probative of a
consistent pattern of behavior over the course of several months indicating
Baines' consent, indeed desire, to be perceived as a partner in the business.
Viewing the evidence in the light most favorable to the judgment,
see id.,
we believe that the district court could reasonably infer that Baines consented
to Kolk's representing Baines' partnership status to Cheesecake Factory.
{26} Finally, we
address the claim that Cheesecake Factory did not prove that it relied on the
purported partnership. In one respect the evidence of reliance by Cheesecake
Factory is clearly supported by the evidence. Mager and his sales manager, Don
Grosso, testified that Cheesecake Factory was willing to extend credit to the
new business only because it was a partnership. In particular, they testified
that credit would not have been extended to a new restaurant organized as a
corporation because the restaurant business is risky and it may be impossible
to collect a debt from a failed corporation. Mager testified that he had
"never gotten burnt" by a partnership and "I'm more likely to go
in looking at it from the bright side because there are partners involved and
liability runs to the individual partners."
{27} Cheesecake
Factory contends that reliance on the existence of a partnership sufficed for
creation of a partner by estoppel. It relies on
Hunter v. Croysdill, 169
Cal. App. 2d 307, 337 P.2d 174 (Cal. Ct. App. 1959). Considering language in
the California Corporations Code identical to that in Section 54-1-16(A),
Hunter
said:
Defendant takes the position that as plaintiffs did
not make exhaustive inquiries into his financial status, they could not have
relied thereon. There is no requirement {*630}
that credit be given in reliance upon the financial status of the apparent
partner, but only that the party claiming the benefit of [the California
counterpart to Section 54-1-16] relied on the existence of the partnership.
{28} The rule in
Hunter
is an attractive one for Cheesecake Factory, because the evidence of reliance
on Baines' credit is slim. Cheesecake Factory sought no financial statement from
Baines and made no credit inquiry or, apparently, any inquiry whatsoever about
Baines. Mager said simply that he was familiar with the name Baines and
associated it with the construction or automobile business. Also, Mager said
that he was told by Kolk that the partners owned the extensive sports
memorabilia on display, that one of the partners was going to arrange for
display of a pace car, and that Baines was helping to remodel the restaurant.
{29} Mager's failure
to obtain a credit check on Baines limits the extent to which Cheesecake
Factory could reasonably rely on Baines to cover debts incurred by the sports
bar. But that does not mean that Cheesecake Factory could not reasonably rely
at all on the fact that Baines was a partner. As indicated by Mager's
testimony, the very fact of a person's being a partner provides some comfort
for creditors. One whose personal assets are at risk in a business venture can
be expected to take a particular interest in having the enterprise run properly
and paying its bills out of business revenue. Moreover, the evidence at trial,
although marginal, would support the inference that Mager reasonably believed
Baines to be the proprietor of an established business. At least two rational
inferences can be drawn from that fact. First, as proprietor of an established
business, Baines would have expertise that could be helpful in the financial
affairs of the sports bar. Second, even if Mager could not be confident that
Baines could pay very large debts, he could expect Baines to be financially
responsible. Cheesecake Factory's dealings with the sports bar would not be
likely to lead to huge debts. We note that the principal amount owed on open
account in this case was slightly more than $ 20,000. Although this is not an
insignificant amount, even one without great wealth--and probably most owners
of established businesses--could be expected to pay off a substantial portion
of the sum. Thus, the evidence at trial would support a rational inference that
Cheesecake Factory reasonably relied on Baines' being a partner.
{30} One possible
reaction to this analysis is that it proves too much. By the above reasoning
the trier of fact could almost always find reasonable reliance. That may be
true. But that is not necessarily contrary to the rationale of the statute. The
nature of the reliance required to establish partnership by estoppel has been
little explored by courts or commentators.
See Painter,
supra, 16
Vand. L. Rev. at 334. As previously noted, California has ruled that the creditor
need rely only on the existence of the partnership.
See Hunter, 337 P.2d
at 179. Perhaps this ruling reflects the realization that once the creditor
relies on the existence of the partnership, the creditor will be relying to
some extent on each of the partners. On that basis we might be inclined to
adopt the California rule. In our view, however, faithfulness to the statutory
language requires us to leave open the possibility in any particular case that
there was no reliance on a particular person's being a member of the
partnership. We find the words of Professor Painter to be persuasive. In
discussing whether a plaintiff should be required to prove that it would not
have extended credit but for the representation of partnership, he wrote as
follows:
Where the plaintiff has not previously dealt with the
firm, it seems unduly burdensome to impose upon him the rigors of a
"but-for" test, since this complicates the problems of proof to the
point that recovery is unusually difficult. This seems to be a reasonable view;
in most instances where the plaintiff is aware of the holding out and, being so
aware, extends credit to what he supposes is a partnership, he will be
motivated at least in part by an assumption, albeit a vague one, that
the defendant is financially responsible and that his credit stands back of
that of the firm. Hence there should be at least a presumption of reliance on
the defendant's {*631} financial
responsibility, subject to possible rebuttal by a showing of complete
indifference on the part of the plaintiff to the representation.
Painter, supra, 16 Vand. L. Rev. at 335 (footnotes
omitted) (emphasis added). See Allen Dewey, Partnerships--Partnership
by Estoppel--Proof of Reliance by Creditor Dealing with Persons in Belief of
Partnership, 56 Mich. L. Rev. 139 (1957).
{31} In sum, the test
for reliance is not whether it would have been good business practice to
advance credit relying solely on Baines' being a partner. Many factors may go
into the decision whether to advance credit. The only question is whether it
was reasonable for one of the factors to be that Baines was a partner. Although
it may be tempting to rule against a creditor who apparently has not engaged in
the wisest business practices, it must be realized that the partner by estoppel
is the "victim" only of misrepresentations that he himself
authorized. This is a close case, but we hold that the evidence of reliance is
sufficient to sustain the judgment.
See Clovis Nat'l Bank, 102 N.M. at
168-69, 692 P.2d at 1317-18 (standard of review on appeal).
{32} For the above
reasons, we affirm the judgment below. We award Cheesecake Factory attorney
fees of $ 3,000.00 and its costs on appeal.
HARRIS L HARTZ, Chief Judge