Case ID: ohio-st_31/html/0060-01.html
Source: Caselaw Access Project
Author: {"author": "\n      McIlvaine, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

William Trevitt et al v. Augustin Converse et al.
    A. sale by tie assignee of an insolvent corporation, made by him in good faith, is not invalidated or affected by the fraud of a stockholder committed without the knowledge or privity of the assignee.
    Motion for leave to lile a petition in error to the District •Court of Franklin county.
    So many of the questions arising in this case as are disposed of in the opinion, will be understood from the following statement:
    The original action, which came into the district court by appeal, was brought by Augustin Converse, as assignee •of the Ohio Rent Work Company for the benefit of its •credil ors, against William Trevitt and others, to foreclose a mortgage on certain real estate executed by Trevitt to the plaintiff, to secure the payment of six several notes for the .sum of $4,342.67 each.
    By way of answer and cross-petition, Trevitt, among other things, alleged that the notes and mortgage were •executed in part payment of the sum of $48,000, the purchase money under a contract made and entered into between the parties as follows:
    “ Columbus, 0., August 17,1875.
    “ To Mr. Augustin Converse, assignee of the Ohio Bent Work Company:
    ' “Dear Sir—1 propose to purchase of you the whole property of the Ohio Bent Work Company now held by you as such •assignee, and take the same as of the date of the assignment, at forty-eight thousand dollars, payable and upon the following terms :■ I will assume the payment of the preferred stock, as heretofore issued by said company, at maturity, with the interest or dividends thereon, from the date of the acceptance of this proposition, and perform all the conditions obligatory on the Ohio Bent Work Company in its deed of trust to E. C. Sessions, and keep the insurance-thereon, and pay for the same from the date of the acceptence of this proposition; I will pay you three thousand dollars in cash, on the day you accept this proposition, five-thousand dollars and accrued interest thereon on my preferred stock; and I will pay you the balance of said forty-eight thousand dollars in six equal payments, payable as-follows: In four, eight, twelve, sixteen, twenty and twenty-four months, interest at seven per cent., to be paid on the-last of the above-named notes, from the date of the acceptance of this proposition, and will give you a mortgage on the buildings and machinery aud land heretofore owned by-said Ohio Bent Work Company, and upon twelve acres of unincumbered land owned by me, lying a short distance-east from the Agricultural College Grounds, Clinton township, Eranklin county, Ohio, as collateral security for the-payment of the purchase money of said property, which I. hereby propose to purchase. I wish to reserve the privilege of paying any part or the whole of said payments at; any time I may desire to do so before the same matures. I shall wish the three thousand dollars, proposed to be paid in cash, applied first to payment of the taxes now due and payable from said company, and balance applied, as far as. it will go, to the payment of the employes of said company, as far as you can legally do so under the statute. And as-I have heretofore agreed to take said property from the day of assignment, I agree to pay the hands for their work, and the expense of running said factory since that time, all their-said work, the proceeds thereof, and all the benefits and immunities resulting therefrom to belong to me. This proposition to be accepted on the 18th of August, 1875, and deed and' mortgage to be made out immediately.
    
    “William Trevitt,
    “Per W. J. Waters.”
    This proposition, made by Trevitt, was accepted by Converse, the assignee, August 18, 1875, and Converse, on that’ day, made the following report to the probate court:
    
      “ In the Matter of the Assignment of the Ohio Bent Work Company.
    
    “ PROBATE COURT OE ERANKLIN COUNTY, OHIO.
    “In pursuance of the former order of the court in this case, I proceeded to the manufacture of the raw material on hand of said company at the date of said assignment, and on the 17th day of August, 1875, I received a proposition from William Trevitt for the purchase of the whole property ■of the Ohio Bent Work Company, for the sum of forty-eight thousand dollars, taking the same as of the date of assignment, which proposition being the highest and best bid that I was offered, and being more than two-thirds of the appraised value of said assets and property, I sold the .same to him on the' 18th day of August, 1875, at private sale, for said sum of forty-eight thousand dollars. (The original proposition in writing is hereto annexed.) Terms of sale: Three tihousaud dollars cash in hand, and the said William Trevitt to cancel his preferred stock, with the interest to this date, as a cash payment; and said William Trevitt is to assume and pay the balance of the preferred stock of said company at maturity, and keep the insurance paid on the buildings, and perform all the obligations of said company in its deed of trust to F. C. Sessions, and pay the balance of said purchase money in six equal promissory notes of $4,342.67 each, due and payable in four, eight, twelve, sixteen, twenty and twenty-four months thereafter with seven per cent, on the last payment, said payments to be secured by mortgages upon the buildings, real ■estate and machinery so sold, and other real estate in Franklin county, Ohio.
    “Augustin Converse,
    “ Assignee of the Ohio Bent Work Company.
    
    “August 18, 1875.”
    On the same day, the probate court approved and confirmed said sale to Trevitt, and ordered the assignee to execute to him a deed for the real estate so sold.
    Trevitt immediately took possession and control of the property he thus purchased, including the books, accounts, ■claims, etc., of the company, as of the date of the assignment to Converse on July 21,1875, with- all the changes that had taken place since that date by reason of the working up of material in running the factory, including the articles thus manufactured.
    On October 6,1875, Trevitt served on Converse, assignee, the- following notice:
    “ Columbus, 0., October 6,1875.
    Augustin Converse, Assignee of Ohio Bent Work Company:
    
    Dear Sir—Some days since I gave you verbal notice of the fact that there are serious errors in the schedule of appraisement of the property and assets of the Bent Work Company, upon which I purchased of you, as assignee. I have now so far completed the investigation, which I then indicated to you I was making, as to be able to say, with ■certainty that there is a deficiency in stock of lumber, etc., of •several thousand dollars, and that many of the book accounts turned over to me as good, are, in fact, not so.
    I desire now to notify you of these facts, and to ask your .attention to and investigation of the same; and it will give me pleasure to assist you in any investigation you may desire to make.
    I shall, of course, want these deficiencies made good to me, or shall insist upon the sale being set aside, and my being placed in the condition I was in before the purchase. Eor this reason I ask your immediate attention to the matter, and I will hold myself in readiness to assist you in any investigation you may wish to make.
    “ I remain, very respectfully,
    “ William Trevitt.”
    The answer and cross-petition further shows that on July 21, 1875, the Ohio Bent Work Company, a corporation, made an assignment under the -statute to Converse, for the benefit of creditors, of all its property; that Trevitt was a stockholder; that one Andrew Hamilton was also a stockholder, and, previous to the assignment, had been secretary, treasurer, and managing agent of the company; that immediately after the assignment an inventory and appraisement of all the property assigned were made by appraisers appointed by the probate court as required by tke statute; that from the date of the assignment to the-purchase by Trevitt, the assignee, carried on the business of manufacturing for the purpose of working up the stock on hand, and from and after the purchase the like business-was continued by Trevitt.
    It is further alleged that said Hamilton procured himself to be selected to assist in making the appraisement, and the duty of making the same was, by the appraisers, chiefly confided to said Hamilton and those under his employment and direction; that said appraisement was so-made, under the direction of said Hamilton, as to contain a-much larger quantity of lumber, timber, and stock finished and parity finished than in fact was owned by said corporation, as said Hamilton well knew; that the discrepancy between the stock actually on hand and the amount set forth in the inventory was of the value of $5,232.03; that the amount of debts due to the corporation and reported in said appraisement as valid and collectable was more than $1,700 in excess of the true value; that these discrepancies-were unknown to said Converse and the probate court,, and also to Trevitt; that the inventory so made was exhibited by the assignee to Trevitt for the purpose of inducing him to make the purchase; that at the time of making the purchase defendant proposed to make another inventory, but abstained from doing so at the request of Hamilton, and that the defendant was induced to make said proposition and purchase by other representations of said Hamilton as to the value and condition of the property.
    And having further averred that the conduct of Hamilton in the premises was fraudulent, and that he was deceived thereby, the defendant below prays for a rescission-of the contract, or, if that could not be done, that the-amount of his damages should be deducted from the plaintiff’s claim.
    On demurrer it was held that these facts did not constitute a valid defense or counterclaim to the action, and. judgment was entered for the plaintiff below.
    
      J. 8. Brasee and J. W. Ohey (with whom were JE. L. 8p H. C. Taylor), for Williaim Trevit and his assignee.
    1. We admit that in the present imperfect condition of' our law, the fraud of a mere stranger will not, ordinarily,, affect a seller. But Hamilton was in no sense a stranger. He was the largest stockholder in the corporation; a preferred creditor of it, being a stockholder under the act-of 1870, (67 v. 26) ; and not only a director of the corporation, but its secretary, treasui’er, and managing agent;. and Converse, in endeavoring to reap the fruits of Hamilton’s wrongful acts, makes himself and the corporation parties to the fraud. The cross-petition shows the representations were material, and relied on by Trevitt. The authorities, hereinafter cited, show that the fraud of Converse,, if it had existed, might be set up ; and no reasen is perceived why Trevitt, might set up the fraud of Converse, who was simply a trustee, and not be permitted to aver the fraud of Hamilton, whose real interest is unquestioned. The mere fact that Hamilton was not, in terms, a party to-the contract, while Converse, in form is a party, can make-no difference in reason; for, although the mere legal title >was vested in Converse by the assignment, the interest of Hamilton in the proceeds of any sale of the property, and his power to enforce the just application thereof, was-not thereby in any way impaired. Kerr on Fraud, 341;. Huguenin -v. Basely, 14 Yesey, 289, s. c. 2 Lead* Cas. Eq. pt. 2 (4th ed.), 1156, 1162, 1189 ; Scholefield v. Templer, John.. (Eng.) Ch. 155, affirmed, 4 De G. & J. 425; Adams’ Eq. 176;* Hill on Trustees, 147 ;* 1 Sug. Yend. 2; 1 Story’sEq. Jur. sec. 1932; 11 Am. L. Reg. (N. S.) 149; 11 S. & R.. 335; 2 Penn. St. (2 Barr), 105; 21 Yt. 129; 21 N. Y. 238.
    2. “ The maxim, caveat emptor, does not apply to the case-of a sale by assignees for the benefit of creditors.” Bur-rill on Assignments, (3d ed.) see. 416,; 2 Hovenden on Erauds, 35; Adayns v. Humes, 9 Watts, 305.
    3. Moreover, the doctrine does not apply where the thing sold is not delivered; as applied to any judicial sale in New Hapishire, Missouri, New York, Iowa, and some ■other states (Ereeman on Executions, sec. 54, note), it simply excludes a warranty ; and that equitable relief will be .granted in Ohio, in a case situated like this. See Hollister v. Dillon, 4 Ohio St. 205.
    4. At all events, that maxim does not apply if there has been fraud. “ If there is fraud, that will affect sales by sheriffs, as it will all other sales.” Vattier v. Lytle, 6 Ohio, 477 ; Rice v. Richardson, 2 Ala. 428; Ray v. Virgin, 12 111. 216; Able v. Chandler, 12 Texas, 88'; Williamson v. Walker, 24 Geo. 257; Bartholomew v. Warner, 32 Com. 98; Rorer on Judicial Sales, sec. 462; Herman on Executions, sec. 253 ; Story on Sales, sec. 367a; 15 111. 295 ; 43 Miss. 497; 20 Texas, 103 ; 25 Texas, (supl.) 448; 5 S. & R. 225; 6 Term, 606 ; 2 Daniel’s Ch. Pr. (4 Am. ed.) 1284; Lachlan V. Reynolds, Kay, 52; 2 Paige, 586; 1 Edward’s Ch. 577; 14 Simons, 82 ; 9 Texas, 285; 18 Maine, 418; Moorehead v. Lades, 3 Bush, 203; Hadley v. Clinton Co. Imp. Co., 13 -Ohio St. 502.
    5. Westfall v. Dung an, 14 Ohio St. 276, is relied on by ■Converse as conclusive against the last proposition. But that ease differs from this in several important particulars:
    
      a. That was an executor’s sale.
    
      b. There the fraud was perpetrated by the trustee, and not the beneficiary.
    c. Here there was a mutual mistake of the parties to the ■contract.
    
      d. Here there was an offer to rescind; and that abandonment of possession is not essential in case of fraud. ■See 2 Ala. 108; 29 lb. 393; 32 lb. 410 ; 2 Kelly 442; nor, in equity, will the fact that the parties can not be restored to their original condition, make any difference. 2 Parsons ■on .Con. 680.
    Besides, Westfall v. Dungan was not well considered: •£i. The answer, which is on the files of'this court, contains ■only this allegation as to the fraudulent representations; that the company “ held, stock (ore, etc.) on the bank, then on hand, about sufficient to equal the indebtedness of the furnace,” an interest in which was sold to the defendant, ■subject to debts. This was a mere opinion, and however ■fraudulent, afforded no ground of relief. Kerr on Éraud, 82 ; 56 New York, 83. b. Not one of the cases cited iii Westfall v. JDungan, in any way supports it as the case is reported, except 30 Miss. 151, and that it an obitur dictum., •c. The authorities cited under point 4, prove Westfall v. Dung an is wholly erroneous; and yet, we think, it is more tenable than the decision of the courts below in this case.
    6. Trevitt was not a party in the probate court, and hence, probably, could not obtain relief there. However that may be, he may have relief in this case. Howell v. Sebring, 14 N. J. Eq. 84; Coates v. Chillicothe ■ Bank, 23 Chio St. 415 ; Conway v. Duncan, 28 Ohio St. 102; Kerr ■on Fraud, 42.
    
      L. J. Criichfield, for Converse, assignee, and Sessions Trustee:
    The cross-petition does not show any right to relief on the ground of fraud.
    
      First. It does not make a case of actionable fraud as against Hamilton. This point is submitted without argument, for—
    
      Second. Even if Hamilton was guilty of actionable fraud against Trevitt, he was not in any sense the agent of Converse or the probate court. Indeed, it does not appear that Converse knew anything about Hamilton’s connection with the inventory, or his representations and advice to Trevitt. And in his answer, Trevitt distinctly exonerates Converse and the court. “ Said Converse, however, as this defendant believes, being ignorant of said discrepancies.” “ The appraisement was reported to and accepted by the said probate court, without knowledge of said discrepancies.”
    
      As to Converse, the assignee, Hamilton was and is a«. stranger, and Trevitt accepted him as his own adviser, and not as the agent of Converse.
    If Converse, the assignee, is to be answerable for the alleged fraud committed by Hamilton on Trevitt, it must be-that a vendor of property is liable for false representations' made to a purchaser by a stranger in regard to the property,, in the absence and without the knowledge of the vendor. That, certainly, is not'the law.
    
      ■Third. Trevitt’s cross-petition show’s that he had ample' opportunity to fully inform himself in regard to the property of the company, in the hands of Converse, assignee.. If he shut his eyes and relied upon Hamilton as an adviser,, and was misled, it is his own fault; and he alone must bear it, not Converse and the creditors of the corporation; Brown v. Witter, 10 Ohio, 142; 2 Parsons’ Con. 679, *681.
    The sale by Converse, assignee, to Trevitt was & judicial sale. (S. & S. 396). It was made under an order of the probate court, and was reported to and confirmed by that court.
    The maxim of “ caveat emptor ” applies to sales by administrators. Dunlap v. Robinson, 12 Ohio St. 533. It is-equally applicable to sales by assignees under an order of court. Add. on Coutr. 209; Corwin v. Benham, 2 Ohio St. 37; Westfall v. Dugan, 14 Ohio St. 276.
    
      J. W. Baldwin, L. English, and Collins § Atkinson, also-for Conserve, assignee:
    Relying upon the matters, substantially, as stated by Mr. Critchfield, and supporting their argument with the same eases, they also cited the following additional authorities : 1. That there can be no rescission, under the circumstances.. 2 Parsons on Contracts, 192, 278. 2. That this is a judicial sale, and the rule caveat emptor applies. Thompson v.. Philips, B&ld. C. C. 464; Arnold v. Smith, 5 Mason, 414; Griffith v. Bogert 18 Howard (U. S.) 158; KiUgorev. Pedant,. 1 Strobh. 18; Rorer on Sales, 7; S. & C. 709, sec. 5.
   McIlvaine, J.

It will be noticed, on reference to the .-statement of the case, that the contract between Converse and Trevitt, of August 18, 1875, was for the sale of the whole property of the Ohio Bent Work Company, then held by the assignee, to be taken however as of the date of the :assignment, to-wit: July 21, 1875. That the property did not then exist as it was at the date of the assignment, was well known to both parties. This knowledge may, perhaps, have influenced the terms of the agreement; but, whether or not, it is clear that the parties negotiated for the .property as it then existed in the hands of the assignee, .and not as it was a month previous, as per inventory. That Trevitt received the whole property of the Ohio Bent Work •Company as it then existed in the hands of the vendor, is not disputed. In this respect, therefore, the terms of the -contract have been fully realized by the purchaser. The complaint of Trevitt, however, is not that he purchased more property than was delivered; nor yet simply, that he believed, at the time of purchase, there was more property than in fact existed; but his complaint is that he was induced by fraud to so believe to his injury.

It must be observed also, that the fraud complained of is not alleged to have been committed by Converse, the vendor. It is conceded that Converse was not guilty of •either a false repsesentation or a fraudulent concealment. The fraud complained of is alleged to have been committed by one Hamilton, who was a stockholder in the corporation whose assets the vendor was administering under an assignment for the benefit of its creditors. There is no .allegation of employment, agency, conspiracy, or knowledge of fraud on the part of the vendor, made in the case.

The main question, therefore, we think, is, Can the fraud of Hamilton be imputed to Converse ?

Counsel for plaiutiff in error have expended much labor in combatting the doctrine laid down in Westfall v. Dungan, 14 Ohio St. 276, that damages for fraud committed by an executor in the sale of the testator’s property must be asserted .against the executor personally, and can not be set up by way of defense, recoupment or counter-claim in an action brought by the executor, as such, to recover the purchase-money. •

No doubt, executors and assignees in insolvency should' be governed by the same rule, but, until it is determined that Hamilton’s fraud can be charged to Converse, the rule in Westfall’s case is a matter of no concern in this case.

On this question, counsel are content to say: “The fraud was perpetrated by a beneficiary, a pai'ty in interest, Of course, the fact that Converse was innocent is no answer to-our claim.” And the authorities cited do not control the-question.

The fact that Hamilton was a stockholder in the as■signor, invested him with no right to control the assets assigned; and having no right or power to control, he stood' as a stranger to the transaction. The case is similar to a decedent’s estate, and surely no one would claim that thebona fieles of a sale by an administrator could be impeached for a fraudulent representation or concealment by an heir or creditor made without the authority or knowledge of the administrator.

Converse neither solicited nor accepted the aid of Hamilton in his negotiations, and by enforcing the contract he-neither adopts nor ratifies his fraud. On the other hand, Trevitt acted upon the fraudulent suggestion of Hamilton,, and his remedy, if he has any, must be asserted against Hamilton.

We have examined all the cases cited by counsel for plaintiff in error on this point, without finding any support to their claim.

It is true, in some cases, as well as in some text-books,, we find very broad language, to the effect that “ even an innocent person can not avail himself of an advantage obtained by the fraud of another,” but we find no authority for the doctrine that an innocent party to a contract, supported by a consideration moving from himself, shall be deprived of its advantages, because of the fraud of another,, with whom he is not in privity.

The rule stated by the reporter in the syllabus of the first case cited by counsel, Scholefield v. Templar, Johns. Eng. Ch. 155, afterward reported, on affirmance, in 4 De Gex &. Jones, 429, is undoubtedly based on correct principle, ancl no decided case, that we have found goes any further in support of the claim of plaintiff' in error. The rule is thus, stated: “A person, though innocent, can not avail himself of any advantage obtained by the fraud'of another, unless, there is some consideration moving from himself.” The-case was one where a creditor, who was pressing his claim, was induced by the principal debtor and his surety to accept from the principal debtor a worthless mortgage, which the principal knew to be worthless, but the surety and the-creditor did not. In consideration of the supposed security of the mortgage, the surety was released. It was held that the surety could not avail himself of the release. There-was no consideration moving from the surety.

Huguenin v. Basely, 14 Vesey, Jr., 289, was a case, where-a person, by undue influence, obtained a voluntary settlement upon himself, his wife and children. It was held that the estates of the wife and children could not be protected on the ground that they were innocent parties.

The principle decided in these cases, as in others cited,, is that an innocent person, who does not stand upon a valuable consideration moving from himself, can not assert a benefit obtained through the fraud of another.

But such is not the case before us. The consideration for the promise of Trevitt moved from Converse, the innocent promisee. This fact is the answer to the claim of plaintiff in error.

Motion overruled.