
    Universal Audit Company of New York, Respondent, v. James Cameron, Appellant.
    First Department,
    November 19, 1915.
    Pleading — master and servant—agreement of employee to divide profits with employer — defenses to action by employer for breach of contract — counterclaim to recover payment induced by fraud.
    Where a defendant, employed as an auditor under a contract whereby he was to receive a stated daily wage and also a portion of the profits made by his employer from work to which he is assigned, is sued for breach of said contract of employment, it is a good partial defense to allege that defendant’s employment terminated before the completion of work for which the employer seeks to compel him to account.
    It is also a good defense to allege in substance that the plaintiff fraudulently represented to persons who desired to employ the defendant as an auditor that he was in the plaintiff’s employ, with a result that the contract for auditing was given to plaintiff with the understanding that the defendant would be assigned to do the actual work, and also fraudulently induced the plaintiff to believe that his appointment as auditor by said persons was due to the political influence of the plaintiff, by reason of which false representations the defendant made the contract to divide the profits with the plaintiff and to accept a daily wage, and that, on discovering the fraud, the defendant repudiated the contract of employment with the plaintiff.
    It is also a good defense and counterclaim to set out that, but for the false representations of the plaintiff, the defendant would have made a personal contract to conduct the audit and to ask a recovery of the portion of the profits paid to the plaintiff before the fraud was discovered. Such counterclaim, though based on fraud, arises out- of the same transaction on which the plaintiff sues.
    Scott, J., dissented; Ingraham, P. J., dissented, in part, with opinion.
    Appeal by the defendant, James interlocutory judgment of the Supreme Cameron, from an Court in favor of the plaintiff, entered in the office of the clerk of the county of .New York on the 13th day of May, 1914, sustaining, in part, a demurrer to certain defenses and counterclaims set up in the amended answer.
    
      Gerard Roberts, for the appellant.
    
      Jay E. Whiting of counsel [Avery & Whiting, attorneys], for the respondent.
   Clarke, J.:

On April 15, 1911, the defendant wrote to the plaintiff as .follows: “This letter will serve the purpose of evidencing our agreement.

“On my work where the services of the writer, James Cameron, are engaged by and for the Universal Audit Company, he shall receive the following monies: An amount equal to one-half of the fee charged by the Universal Audit Company for the said James Cameron, the minimum amount to be paid to him shall be Twenty-five ($25.00) Dollars per day and expenses outside of New York; and

“ An amount equal to one-third of the gross profit on each and every person engaged upon such work as is assigned to the said James Cameron, or upon which he is engaged for the said Universal Audit Company.

“By gross profit is meant the difference (or remainder) between the amount charged for the services of each person and the salary paid to each person by the Universal Audit Company for such service, less incidental expense for carfare which cannot be charged to client.

“ The amounts payable under paragraph one (1) shall be paid monthly.

“The amounts payable under paragraph two (2) shall be paid when recovery and payment has been had by the Universal Audit. Company from its clients upon whose work the said James Cameron is or has been engaged. .....

“This -contract.shall continue for. one year from the -date

hqreof..

“ Yours very truly)1..............
'“JAMES CAMERON.”"'

On May 6, 1911, Judge Swayze having been requested by the board of chosen freeholders of the county of Hudson in the State of New Jersey to investigate the affairs of the county and having determined to make a summary investigation, appointed Cameron to prosecute such investigation. On May 12, 1911, Cameron wrote the general manager of the plaintiff: “The attached order dated May 6th, 1911, of Francis J. Swayze, in the matter of the examination of the affairs of Hudson County is a part of the work included in our Working Agreement of previous date and is the same as if it had been given in the name of the Universal Audit Company. I shall myself see to it that the bills are presented at the conclusion of each month.” The complaint alleges that the defendant duly commenced and undertook the supervision, direction and conduct of said investigation on or about the 15th day of May, 1911, and continued to supervise, direct and conduct such investigation until October 22, 1912, at which last-mentioned date he concluded" the same, and it alleges that pursuant to the terms of said agreement expressed in the letter annexed “A” from the said date of the commencement of such investigation to and including September 30, 1911, the plaintiff furnished and supplied to the defendant the assistants, materials, supplies and other accessories necessary for the prosecution of such investigation and supplied and paid out money requisite to that end, and that the defendant during said period rendered to the plaintiff weekly reports as to the progress of such investigation and the number of hours that defendant and his said assistants were engaged for each week upon such investigation and that during said period the defendant rendered monthly bills to the said county of Hudson for the value of the services performed by the defendant and his assistants for each month thereof, that said bills were approved, and paid in full by said county and that the defendant duly accounted to the plaintiff for all moneys so received by him from said county of Hudson and that the said moneys so received from the said county of Hudson were apportioned'and divided between the plaintiff .and the defendant in."accordance with:the.terms, and.conditions expressed in said agreement., a. copy,of .'.which was. thereto attached as" “A- ” and that the plaintiff duly paid to the defendant his proportionate share of such receipts.

That on or about September 30, 1911, the defendant, in breach of the terms and conditions of said agreement expressed in said letter, notified the plaintiff that he would not further perform his said agreement with the plaintiff and refused further to perform the same, and further notified the plaintiff that he would complete such investigation solely for his own benefit and account and exclude the plaintiff from any part of the moneys to be paid therefor, and that the defendant thereupon and from said date, and wholly without cause, refused to further permit the plaintiff to furnish or provide the assistants necessary for the continued prosecution of such investigation and thereafter continued and claimed that he was continuing such investigation for his own benefit and account, with assistants engaged by the defendant independently of the plaintiff, all in breach of the terms and conditions of his said agreement with the plaintiff and against the protest of the plaintiff.

That he has received large sums of money during said period from September 30, 1911, to October 22, 1912, amounting in the aggregate to upwards of $33,500.

And it sues for $12,000, as the proportionate share of the plaintiff in and to said moneys.

The answer in paragraph 7 for a.partial defense to the cause of action alleged in the complaint alleges that the contract between plaintiff and defendant alleged in the complaint, by virtue óf which plaintiff claims, by its terms expired on April 15, 1912.

The plaintiff demurred upon the ground that the same is insufficient on the face thereof to constitute a partial defense. ■ The learned court sustained the demurrer to the partial defense upon the ground that' even though the agreement of April 15, 1911, might not be an enforcible contract in the sense that plaintiff does not by its terms-agree'to employ the defendant upon any work, and the defendant does- not agree to perform any work for the plaintiff,; yet it constituted “a working agreement,’3 which fixed the rate at which the defendant was to be paid for all work where the- services of the défendant were engaged by the plaintiff, and that where the engagement was made by the plaintiff and accepted by the defendant before the expiration bf that contract for a piece of work entire in character, thb rate of pay was fixed by the working agreement and the defendant could not after the expiration of the year claim the benefit of thé engagement and at the same time repudiate the terms upon which the engagement was made.

In my opinion whatever force and effect may be ascribed to the so-called working agreement it was specifically limited in its efficacy to one year from the date thereof. Therefore, as I view it, the partial defense was good and the demurrer thereto should have been overruled.

The first defense sets up that in December, 1910, a number of citizens of Hudson county organized a committee to investigate the building of the county court house, and that Pope, the president of the committee, visited the office of the plaintiff for the purpose of finding the defendant whom the said committee desired to engage to conduct the said investigation, and that plaintiff represented that the defendant was in the employ of the plaintiff and if the said committee would employ the plaintiff to conduct the said investigation plaintiff would assign the defendant to supervise the work, and that relying upon the said representations and believing the same to be true, the said committee did employ the plaintiff to conduct the said investigation, and that the said representations were false and untrue and were so known to the plaintiff and were made for the purpose of inducing the said committee to employ the plaintiff and for the purpose of defrauding the defendant of the profits to be made from the conduct of said investigation; and that thereafter the plaintiff stated and represented to the defendant that it had received the appointment to make such investigation through the political influence of its general manager in the State of Hew Jersey; that plaintiff made said representation for the purpose of • inducing the defendant to enter into an agreement with it to supervise said investigation- at a per diem fee; that relying upon the said representations • and believing the same to -be true, the defendant- entered into an agreement with plaintiff to- supervise said- investigation at a per-diem-, fee, -.which .-wag; .agreed upon between, .plaintiff, and' defendant, and thereafter performed the work; that the said representations were false and untrue and known to plaintiff to be so when made; that this defendant would not have entered into said agreement and would not have supervised said investigation for plaintiff if the said representation before described had not been made to him by the plaintiff, and if he had known of the fraud practiced upon him by the plaintiff in making to the ‘said committee the false representations before described; that thereafter and on the 6th of May, 1911, the defendant was designated by the Hon. Francis J. Swayze to conduct an investigation into the affairs of Hudson county; that the said justice had presided over the investigation into the building of the county court house before described and the defendant had become acquainted with him during his supervision of said investigation; that defendant believed and understood that said appointment had come to him by reason of his retainer by the plaintiff as before described to supervise the work of the said investigation, and being induced thereto by the false and fraudulent representation made to him by the plaintiff the defendant agreed that if the plaintiff would furnish him with competent assistants in such numbers and at such times as were necessary to' the conduct of the said investigation he . would divide the profits of the said work with the plaintiff on the basis of the agreement of April 15, 1911; that the defendant would not have entered into said agreement and would not have written the letter dated May 12, 1911, if the said false and fraudulent representations before described had not been made to him by the plaintiff, and if he had known of the fraud practiced upon him by the plaintiff in making to the said committee the false and fraudulent representations before described; that just prior to September 30, 1911, the defendant learned of the false and fraudulent representations made to said committee as before described, and learned of the false and fraudulent representations made to defendant by plaintiff as before described, and for the .first timé'-discovered the-fraud that -had been- practiced ■ upon' him by the' plaintiff,' and thereupon -defendant: .repudiated- .'his. agreement with plaintiff' and refused .further to- perform tlie- same, -and - so'. notified-' plaintiff.

■; -'-To-thi'& defense the-plaiptiff -demurred and-the demurrer was sustained. The same facts were also pleaded in the eighth defense as a counterclaim.

It seems to me that these Hudson county investigations were so closely connected, one with the other, so ran into each other in propinquity of time and in natural sequence, that the original fraud as alleged of plaintiff ran over into the Swayze appointment, and induced and brought about the letter of the defendant, which is the sole basis of this action; that is to say that, although having received a personal appointment, defendant regarded it as if it had been made to the plaintiff, and stated that he would act accordingly. He asserts that he was induced to do this by the fraudulent representations that had been made a short time previous thereto in regard to the investigation in the other ■ affairs of Hudson county, namely, the court house, on which he and plaintiff were engaged. In other words, that it was a part and parcel of the entire relation of plaintiff and defendant to each other and to the investigation of the county affairs. I think defendant was justified in presenting that defense, and if he can sustain his claim of fraudulent representations and that he was induced to make the contract thereby, that it is a good defense.

For a sixth defense, and by way of counterclaim, he alleges the fraudulent representations made by the plaintiff to Pope, the chairman of the Hudson county court house investigation committee, and that if it had not been for such representations he would have entered into an agreement with the committee and would have made the amount on said investigation which the plaintiff made and received as a profit thereon, amounting to the sum of $6,614.55, for which he sues.

This was demurred to- and the demurrer was sustained. The court, speaking of this, as well as the seventh defense and counterclaim, which was also demurred to, said: “Conceding that these counterclaims set forth good independent causes of action, they do not seem to me to be connected with the plaintiff’s cause of action. They are not actions in contract, but are based on fraud, and the fraud alleged refers not to the contract of employment under which the plaintiff sues, but under earlier contract, and the issues to be litigated are entirely different.”

It seems to me that all these transactions are so connected together as to permit the interposition of these counterclaims. What the defendant says is that the agreement sued on was induced by the prior fraud under which he first came into a working arrangement with the plaintiff when the court house committee went over to see it, find out where he was and employ him, and that, by the fraudulent representations then made that he was in the employ of the company, all these various arrangements under which he shared his profits and gains with the plaintiff ensued. It seems to me that they are all so connected that it is right and proper to dispose of the controversy between the parties growing out of the same transactions in one suit. Therefore, the parts of the interlocutory judgment appealed from should be reversed as indicated and the demurrer overruled, with costs to the appellant, with leave to the respondent on payment thereof to withdraw said demurrer and to reply to said counterclaims.

McLaughlin and Laughlin JJ., concurred; Scott, J., dissented on opinion of Lehman, J., below; Ingraham, P. J., dissented in part.

Ingraham, P. J.:

I concur with my brother Clarke in overruling the demurrer to the partial defense set up in paragraph 1 of the answer, but 1 think the judgment should be affirmed so far as it sustains the demurrer to the first defense, upon the ground that the facts alleged are not sufficient upon their face to justify a finding that the contract between the plaintiff and the defendant was induced by fraud. The original contract as expressed in the letter of April 15, 1911, was clearly valid, and there was no fraud which induced the defendant to execute it and under which he acted during that year, and I can see no fraudulent misrepresentations which would justify the defendant in repudiating his letter of May 12,1911, which recognized the services that he should render under the order by a justice of the Supreme Court of the State of New Jersey, in the examination of the affairs of Hudson county. Both parties acted under that letter; the plaintiff performed its obligation, and during the period in which the contract of April 15,1911, was in force, it seems to me, the defendant was bound by it. This consideration also applies to the counterclaim, the demurrer to which, I think, was also properly sustained.

My conclusion, therefore, is that the order appealed from should be reversed as to the partial defense and should be affirmed so as to sustain the demurrer to the first defense and to the counterclaim.

Judgment reversed as indicated in opinion, and demurrer overruled, with costs to appellant, with leave to respondent on payment thereof to withdraw demurrer and to reply to counterclaim. Order to be settled on notice.  