Case ID: ohio-st_40/html/0190-01.html
Source: Caselaw Access Project
Author: {"author": "Granger, C. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Yeoman v. Lasley.
    1. If two or more persons agree to jointly buy a tract of land, for the purpose of jointly selling it and sharing the profit, they are partners for that transaction, and, as between themselves, hold the rights and owe the duties of that relation.
    2. If the vendor, having knowledge of such agreement between the persons negotiating for the purchase of his land, aid one of them in fraudulently inducing his associates to buy, and they, on discovering the fraud, promptly elect to rescind and tender a re-conveyance (the vendor having retained possession of the laud), a decree for rescission should bo granted.
    3. If, before the discovery of the fraud, the purchasers had sold a part of the land to a third party, and forthwith after notice of the fraud they re-purchased the part so sold, for the purpose of tendering a re-conveyance of tlie wliolo to their vendor and completing a rescission of the first contract, such re-purchase was not a ratification of the first contract, and does not estop them from claiming its rescission.
    4. To complete such rescission they must return to their vendor all that they got from him, to wit: the title to the land; but he has no concern or interest in the settlement between them and their vendee.
    5. Having elected to rescind the original contract, the defrauded purchasers arc entitled to a return of the purchase money paid by them, with interest, ordinarily, from the time of payment, hut as no expenditure ■ by them added value to the land, they cannot recover more.
    
      Error to District Court of Jackson County.
    Lasley owned 665 acres of land in a region containing a -stratum of coal of special value, but having bored for it in two places and found no trace, believed that said stratum did not underlie his farm. His near neighbor Wells had experience in exploring for coal, and selling coal lands, and had sold an adjoining farm containing said stratum at a high price. Wells suggested an attempt to sell Lasley’s land. After conference, Lasley gave to Wells two options, one offering to sell to him at $70 per acre, and the other at $85, it being agreed between them that Wells should have all the proceeds of sale in excess of $70 per acre. -The $85 option was given to “ enable Wells to sell at a higher price.” Concealing the one, Wells exhibited the other to Yeoman, Milburn, John Welch and Johnson M. Welch and representing himself as a buyer willing to take the land at $85 per acre, but unable to pay for it, asked them to join him in the venture. He assured them that the said stratum of coal underlaid the larger part of the tract and that they could realize a large profit by a re-sale to be effected by their joint efforts. He professed to be active in their interest in making such examinations as opportunity permitted, succeeded in winning their confidence, and a joint contract for the purchase was made.
    Lasley knew of Wells’ proceedings, and to aid in the deceit received from Wells, in presence of the others, his share of the cash payment and the .joint notes of all said purchasers for the deferred payments, but secretly credited.on. the notes Wells’ full proportion as if paid by him, refunded to him the cash he had paid, and paid to, or for, him so much of the remainder of the sum called for by the contract of purchase as exceeded the price of the farm at $70 per acre. The contract price was $56,525.00. The cash paid as of February 14, 1874, was $18,841.66, and the deferred payment was evidenced by notes falling due in one and two j’ears each for the same sum, with interest. As his associates understood it, Wells paid $3,140.27 cash and was to pay one-sixth of each note. As actually arranged between Lasley and Wells, the latter paid nothing, was actually paid a considerable sum by Lasley, and yet held under the contract one undivided sixth part of the land. Ignorant of the fraud, they joined with Wells in efforts to sell the land according to the original joint purpose, and did sell one half of it to a Cleveland company at an advanced price. This company paid to them $9,000, and gave notes for the deferred payments. It failed to find the coal, failed to pay its first note, and Yeoman, with his associates, brought suit. The company answered, charging fraud, which was denied by reply and the issue was ready for trial. Then Wells confessed the fraud of Lasley and himself to Welch. Yeoman, Milburn and the Welches forthwith resolved to rescind the contract with Lasley. In order to tender him the entire title they settled with the Cleveland company, which agreed to rescind its contract of purchase without asking a return of the $9,000. Prior to the discovery' of the fraud, under a subsequent agreement Lasley had conveyed the land to Yeoman in trust for himself, Milburn, Wells and the Welches; each purchaser had given his separate note to Lasley for his share of the unpaid purchase money and the joint notes were given up. Yeoman as trustee mortgaged the land to Lasley to secure said notes. Wells also gave to Lasley his notes for the share, payable by him according to the arrangement as represented by him to his associates, but Lasley had before that time given to Wells cash and notes aggregating at least $9,975. The first year’s notes remaining unpaid, Lasley sued to foreclose the mortgage and also to recover judgment on the notes.
    Immediately after the discovery of the fraud, having got back the title to the part sold to the Cleveland company, Yeoman, Milburn and the Welches offered a re-conveyance of the land to Lasley, and demanded a rescission of the contract, a surrender of their notes and a return of their money with interest. They did this by a joint answer and cross petition duly filed in the foreclosure suit, and asked the court to decree a rescission of the contract, &c. Wells separately made a like offer and demand. The Common Pleas, on trial, decided in Lasley’s favor, and on error the District Court affirmed the judgment of the Common Pleas. The case is in this court upon a petition in error filed by Yeoman et al., asking a reversal of the judgment of the District Court. A bill of exceptions taken in the Common Pleas sets out all the testimony. A temporary injunction forbids prosecution by Lasley of his suits on the notes of the Welches.
    Other facts appear in the record, but are not material in the view of the case taken by the court.
    
      John Welch, for plaintiffs in error.
    The facts show that Wells practised gross fraud upon his co-purchasers, and that Lasley was privy to and aided in that fraud; that but for that fraud the plaintiffs in error never would have made the contract of purchase. This makes a perfect case for rescission. Wells was the agent of the plaintiffs in error, he was their partner or joint contractor with them, and on whom they relied almost exclusively. It was his duty to act for them, yet he acted against them. He ivas both vendor and purchaser. He practised a gross fraud. The plaintiffs in error are entitled to rescission of the contract. 1 Story’s Eq., §§ 218, et seq., 308, 309, 315, 316, 220, 223, 323 ; Horton on Agency, § 245; 40 Mass., 138; Chit, on Con., 226, et uq.; 28 E. R., 453 ; Ken-on Frauds, 151, 182, 183; 71 Pa. St., 256; 3 McMurry, 232; 2 Call, 218; 4 Moak’s Notes, 753; 14 N. Y., 91; 10 Ohio, 117; 11 Id., 57; 6 Ohio St., 189; 2 E. D. Smith, 95.
    Lasley was not only privy to the fraud and kept silent, but helped to contrive and carry it out. See Kerr on Frauds, 19 F., 194, 195, and cases cited. Undell v. Atherton, 7 H. & N., 172; Banh v. Addie, L. R. 1 Sc. App., 146; Emery v. Parrott, 107 Mass., 95; 12 Ind., 364; 125 Mass., 166; 1 Starkie, 20; 3 Taunt., 274 ; 5 B. M., 98; 2 B. & B., 369; 3 Bing., 349; 17 Mass., 182; 2 Ind., 457; 6 Met., 246 ; 1 Id., 278; 7 Id., 252; 2 Smith’s L. C., 182; 8 Black, 45; 6 Ind., 23; 13'Allen, 172; 11 Met., 356; 13 Ind., 277; 85 111., 264; 24 Ohio St., 28; Kerr on Frauds, 76, 92, 98, 225; 65 N. Y., 89; 30 Id., 655; Smith v. Kay, 8 H. L., 759; 3 Parsons on Cont.,'354; 39 Mich., 557; 27 Moak’s Notes, 123; 10 H. L., 26; 24 Moak’s Notes, 774; 3 H. L., 3 Ap. Ca., 1248; 3 Kay & Johnson, 230; Bagnal v. Oarlton, 23 Eng., R., 1; (23 Moak’s Notes, '6 Ch. Div., 371, 1877;) 11E. R., 456; 21 Id., 798; 8 Id., 180; 2 Moak’s Notes, 157; Havemeyer v. Havemeyer, N. Y. (1881;) 61 Pa. St., 222.
    The bringing the suit against the Cleveland party was no waiver of the right to h-escind. 12 Yes., 358; 116 Mass., 227; lOVes., 423; 2 H. L., 99; Kerr on Frauds, 399; 2 Story’s Eq., 345; 3 Yerg., 296; 44 Penn., 9; 67 N. Y., 304; 19 Barb., 226; 2 Duer, 59; 40 Barb., 648;. 10 K Y., 218; 9 Pet., 607; 27 Wis., 135; 5 Gray, 108; 18 Moak’s Notes, 318; and cases there cited; 72 N. Y., 279; 48 Vt., 83.
    The retention of the $9,000 was not an act of ratification. It was 'simply one of the terms of the settlement of a law suit. Instead of being a ratification, the settlement was an act of disaffirmance. It was the first step, and a necessary step, preparatory to rescission. It was the disclosure of the fraud that induced us to make the settlement. How can it then be said that the act of making the settlement was an “adoption” — that it is evidence of an “intention” to abide by the contract. It is, most clearlj-, evidence of an intention to disaffirm it. The suit with the Cleveland party, and its settlement, are purely and strictly res inter alias acta. They began and ended with us and the Cleveland party. The suit was a matter with which Lasley had nothing to do,, and it is none of his business how it was settled. Whether the Cleveland party gave us $9,000 or Ave gave them $9,000, is utterly immaterial- to him, equally as it is immaterial to him who paid the costs. The settlement of the case and the rescission of the contract Avith the Cleveland party, was merely the pulling down what they and we put-up. ' We took no pay on the contract after discovery of the fraud. We merely retained what we had received.
    * An act amounting to an affirmance of a fraudulent contract must be such as either shows an intention to affirm, or works an injury to the fraudulent party, such as prevents him from being restored fully to his former rights. To say that the act of retaining the $9,000 worked an injury to Lasley is equally absurd as it is to say that it manifests an intention to abide by the contract. Had we paid the $9,000 back to the Cleveland party it would have been of no benefit to Lasley. 15 Ohio, 200; 1 Met., 557; 8 Id., 552; 3 Pick., 495; 47 Barb., 276.
    
      Harrison, Olds f Marsh and H. A. Guthrie, also for plaintiffs in error.
    1. The acts of Lasley and Wells were fraudulent and the defendant parties are entitled to have them set aside. Lindsay Petroleum Co. v. Hurd, L. R. 5 P.' C., 243; 3 Story, 700 ; 21 Vt., 129; 23 Wend., 260.
    2. A partnership relation existed between the purchasers. Story on Part., § 75; Parson on Part., ch. IV.; HeBeshom v. Smith, 1 Esp., 29; Heyhoe v. Burge, 9 C. B., 431, 433; 4 Ohio St., 1; 1 Lindley on Part., 595.
    Every member of a firm is the agent of the partnership in the transaction of the business for which it was formed. (Lindley, Part., Vol. 1, p. 248; Harvey v. Childs f Potter, 28 Ohio St., 319.) So that Wells was an agent for himself and the plaintiffs in error from the time he made assignments to them of his apparent right to buy under the false document. Plaee v. Minster, 65 N. Y., 89, 97.
    3. It is well-settled that in making a contract requiring the exercise of judgment or discretion, a person cannot act as the agent of both parties; and where he undertakes to do so, a court of equity will avoid the contract on the application of either of the parties. N. Y. Cent. Ins. Co. v. Nat'l Pet. Co., 14 N. Y., 85, and the cases there cited.
    4. Another well-settled principle of law is by analogy also applicable. It is this: If when a party to a contract places a, known trust and confidence in the other party, and acts upon Ms opinion, any misrepresentation by the party confided in, in a material matter constituting an inducement or motive to the act of the. other party, and by which an undue advantage is taken of- him, is regarded as a fraud against which equity will, relieve; (Laidlaw v. Organ, 2 Wheat., 178, 195; Fvans v. Biehnell, 6 Yes., 174, 182; Phillips v. Luke of Buchs, 1 Vern., 227; 1 Fonb. Equity, b. 1. q. 2, s. 8;) a fortiori, will such a fraudulent abuse of a known trust and confidence as Lasley induced the plaintiffs in error to place.in Wells, be regarded, as a, fraud against which equity will relieve.
    Still another principle of law is, by analogy, applicable here, namely: A misrepresentation of. the price that a seller of land gave for it, is ground for avoiding it. (Kent v. Freehold Land Co., L. R. 4 Eq., 588; Sandford. v. Handy, 23 Wend., 260; Lindsay Petroleum Co. y. Hurd, supra:) A fortiori, & misrepresentation of the price by the seller, to enable one whom he arranges with to effect-a sale of the land, by inducing them to buy with him at such.misrepresentecband fictitious price, but no part of which such agent is to pay to the seller, is ground for avoiding such sale.
    5. The plaintiffs in error did not elect to waive the fraud and ratify the purchase of the land, see Lindsay Pet. Co. y. Hurd, L. R. 5 P. C.-, 221; Directors, ¿-e., v. Kirsh, Law R. 2 Eng, & I. App., 99; Cumberland- Coal f Iron. Co. y. Sherman, 20 Md., 117; Hopkins v. Landaker, 71 111., 449; Morse y. Boyal, 12 Yesey, jr., 371; Poggett-Y. Fmerson et al., 3 Story’s Rep., 7.00; Baker y. Lever, 6.7 N, Y., 304; Montgomery v. Pickering, 116 Mass., 227; Pierce v. Wilson, 34 Ala., 596 ; Steivart's Case, L. R. 1 Ch. App., 587 — 8 ; 4 W. Va., 571; 41 Me., 132; 64 N. Y., 169; 67 Mo., 221; 29 N. J. Eq., 311; 23 Me., 35.
    The compromise was strictly res inter alios acta. Frost y. Lowry, 15 Ohio, 200; Stevens v. Austin, 1 Met., 557.
    
      W. A. Hutchins, for defendants in error.
    Plaintiffs in error are not entitled to rescind, because of a waiver of the alleged fraud.
    
      1. —Because they derived an important benefit under the contract, which they claim in their own right, and which they in no way tender to Easley.
    This $9,000 was received after it is admitted they had full hnowledge .of tfie alleged fraud, and more than á month before they filed their answer, and for the first time asked to rescind.
    Now it must be admitted that a party cannot rescind a contract, and at the same time hold benefits derived from it, or profits growing out of it.
    Kerr on Frauds, 334, 335, 336; Addison on Contracts, §§ 311, 312; 2 Parsons on Contracts, 279; Kirby v. Harrison, 2 Ohio 'St., 326.
    2. —There have been other acts in affirmance of the contract, and of acquiescence and delay that cut off. the remedy asked.
    The option was given in December, 1873, and became binding by election to take under it February 14, 1874, and no claim for rescission was made until October 12,1876, a period of two years and eight months, and six months after Lasley had sued to collect the money.
    Parties who complain of fraud, are required to act when their suspicions are aroused, and if they have the means of ascertaining the facts, they are required to do so at once. They cannot lie by to speculate upon chances, and if they do so, or continue to deal with the property, they thereby waive the fraud. 2 Parsons on Contracts, 279; Kerr on Frauds, 299.
    But there has been no such fraud on thé part of Lasley as to justify a rescission, even if action had been taken at the proper time.
    There can be no rescission, because Lasley has not been, and cannot be placed in statu quo.
    
    That there can be no decree of rescission where the transaction cannot be rescinded in toto, and so as to restore the parties to their original position, is well settled law. In all such cases the party complaining must resort to other remedies. These parties occupy this situation towards Lasley. They purchase from his vendee, Wells, separate interests in the property, and procure a deed from Lasley conveying to each his separate interest. They also execute their separate notes 'secured by mortgage on the property, which Lasley, at their request, accepts’ in payment of the amount due from Wells to him. So that when the transactions as between Lasley and Wells, and as between Wells and the other parties are closed up they stand in this position : The title to the land is vested' in the parties through a trustee in the separate proportions of one-sixth each to Wells, Yeoman, Milburn and John Welch, and two-sixths to Johnson M. Welch, and Lasley holds the separate notes of the parties in the same proportions, secured by mortgage on the property, except as to the two Welches, who join in one .note.
    Now as far as Wells is concerned it, of course, is no.t claimed - that he has any right to rescind the contract. There is a judgment against him on his notes, and an order of sale standing in full force. By paying at any time this amount the mortgage as to him is satisfied, and he stands as owner of one-sixth, interest of the property, subject, however, to the mortgage being also a security for the-whole indebtedness.
    In any event, therefore, Wells holds a separate title to his onC-sixth interest in the property, which cannot be restored to Lasley by any decree that can be made in the case. Lasley can only obtain this interest by a sale under the mortgage. The' plaintiffs in error as we have seen are in no position to have the contract rescinded as to Wells, because they did not make him á party to their cross-petition, and asked no relief against him whatever.
    8. — These parties retained possession of this property for two years and eight months before they filed their answer and offered to rescind, and thereby prevented Lasley from making sale of it to others, and by their acts and the acts of those claiming under them, so disparaged its value as mineral property, find such a change had taken place as to the market value of such property, that a rescission of the contract would not at all restore the parties to the situation they occupied when it was made.
    
      Clark McDougal and C. A. Atkinson, also for defendants in error.
    There is no misrepresentation or concealment on the part of Lasley, as to the character or kind of the property, that constitutes fraud or will avoid the transaction on that ground. There is no fraud in fact. 2 Kent’s Com. (sixth ed.), 490; 2 Brown’s Chancery, 333-4, top paging (420, marginal), Fox v. Maekreth’, Turner v. Ilarvey, Jacob’s Rep., 178 • 1 Parsons on Contracts (fifth ed.), 577-8; Harris v. Tyson, 24 Penn. St., 347; Wilkinson v. Boot, Wright’s Ohio Rep., 68(3; Adams’ Equity (sixth American ed.), 363 to 369, top paging, (176 to 179 marginal) and notes; Taylor v. Meath, 26 Ohio St., 428 ; Parmelee, Adm'r v. Adolph, 28 Id., 10.
    In the next place the defendants below were not damaged. The property was at the time1 worth all they agreed to pay for it. The only trouble was that in their greed to make a speculation they overreached themselves and assumed a liability they were, after the financial crash of 1873, unable to meet. Fraud without damage does not give a cause of action. 2 Kent, 489-90; 3 Term R., 51; 2 Disney, 304; Pothill v. Walter, 3 B. & Adol., 114; Taylor v. Ashton, 11 Mees & Welsh., 401; Collins v. Hvans, 48 E. C. L., 820.
    There was no actual fraud, and the contract being- executed, the courts below did not err. Adams’' Equity, 6th American ed., 367-8 (marginal 178), citing Turner v. Harvey, Jac., 169, 178; Dykes v. Blake-, 4 B. N. C., 463';. Gribson v. D’ Fste, 2 N. C. C., .542; and Harris v. Tyson, 24 Penn. St., 369; Lord Thurlow, in Fox v. Mackreth, (2 Bro. C. C., 420); Adams’ Eq., 366 (margin 177), citing 1 Sug., V. & P., 3, 4; White v. Cuddon, 8 Cl. & F., 766;, Vernon v. Keys, 12 East., 632.
   Granger, C. J.

At least two parties are necessary to a contract.» A vendee cannot be his own vendor. So vital is this principle that the same person cannot be in one transaction, the agent of both vendor and vendee unless both know the fact and consent thereto. If a vendor secretly bribe the agent of the vendee, and induce him to deceive his principal in a matter material to the sale, the vendee’s right, on discovery of the fraud, to a rescission is undoubted.

Persons may be partners in a single transaction as well as in a business. In either case their rights and duties, as between themselves, are the same. Neither, without the knowledge and consent of his partners, can act as agent for a third party in a contract with the firm. All have a right to share in all that each one knows material to the transaction in which they are partners. Each has a right to expect that his co-partners will act for and not against the joint interest in all affairs of the firm. If a third party corrupts one of them so that he plays the part of a stool pigeon to beguile hjs fellows into a contract damaging to their interests, and thejr, on discovery, elect to rescind it, and ask aid of a court of equity, it will unhesitatingly compel the fraudulent contractor to restore, all that he received from the defrauded parties. Fraud is ever assuming new forms. But, happily, equity principles are so capable of varied application, that our courts are able to furnish relief against cheats of the newest invention. The act of Lasley in giving the two options to Wells needs no interpreter. Its purpose was to enable Wells to deceive persons whom, as he told Lasley, he desired to induce to form a partnership with him in the purchase and sale of the farm. The contract of purchase, when written, was notice to Lasley that such partnership had been formed. He knew substantially what Wells had represented about the land to his co-purchasers. He in their presence acted as if Wells was really the active partner of Yeoman and the others, but, in secret, he paid Wells as his own agent in effecting the sale. So great was his interest and zeal in concealing Wells’ real position from the others, that instead of contenting himself with taking Wells’ notes for his share of the first and second year’s payments, and then privately returning them to Wells (as he could easily have done), he gave Wells his (Lasley’s) own notes for similar amounts, which Wells sold to others to whom Lasley made payment. This in effect was paying to Wells the difference between the price of the land at $70 and at $85 per acre before Lasley had been paid his share of the price. It was consistent with the theory of the plaintiffs in error, and inconsistent with Lasley’s claims. It was treating Wells as Lasley’s agent entitled to his commission as soon as he had effected the sale. These acts, like the giving of the two options, tell their own story. They can have but one meaning. Hence Lasley’s testimony that he did not intend to deceive; — nor that the $70 option should be kept secret; —and that the secret credit and refunding, and the exchange of notes with Wells, were not intended to conceal Wells’ real position in the matter, was manifestly false. The fraud was successful. Yeoman, Milbur'n and the Welches were induced to believe that the valuable stratum of coal underlaid the larger part of the land and in that belief to join in the purchase. It matters not what name we give to the part played by Wells. Lasley knowingly aided him in playing that part for the purpose of fraudulently inducing the other parties to buy, and accomplished his purpose. Lasley, by counsel, claims that the settlement with the Cleveland Comjjany was either a ratification of the purchase from him, or estops Yeoman and his associates from asking a rescission. Neither claim is valid. Before they could demand of Lasley a return of their money an offer by them to reconvey the entire title to the land was necessary. This could not be effectively made until the rights of the Cleveland Company in the lands were extinguished. Hence to obtain a reconveyance, or relinquishment, of those rights was the first step in the direction of a rescission of the contract with Lasley, and did not tend at, all in the direction of a ratification of that contract.

Lasley did nothing, and had no right to do anything, because of the adjustment with the Cleveland Company that could work an estoppel against the purchasers from him. He- could have no possible concern with that adjustment unless in an inquiry of damages under a suit by his purchasers to recover for his fraud, when, perhaps, the pi'ofit, if any, realized by them from this transaction with the Cleveland Company could be computed as a credit item to him lessening the amount of damages that they could recover’.

. On Lasley’s behalf it is urged that a decree for Yeoman et al., leaving in their hands the $9,000 paid by the Cleveland Company, would be so contrary to equitable principles that it should be denied. A statement of the facts, as shown by this record, sufficiently shows that this claim is. unsound.

Unless Yeoman et al. had by fraud induced the Cleveland Company to buy, that company was indebted to them in the sum of over $25,000. Yeoman et al. surrendered all claim to this indebtedness and assxxmed the cost and risk of litigation with Lasley. The bixrden was on the Cleveland Company to prove such fraud as would defeat their vendors in the suit then ready for trial. Knowing what evidence was at their command, the company offered to surrender the land and the $9,000, ixx order to make a sure escape from all danger of a judgment against them for more than $25,000, and their offer was accepted. The company could not have availed itself of the fraud of Lasley and Wells in the sale to Yeoman et al. But by the arrangement actually made it received a benefit equal to the difference between the actual valúe of 333 acres of land unsuitable for their use and the $25,000. The settlement was substantially a re-sale of their half of the land at over $75 per acre. The contract of settlement was made by parties fully competent to take care of themselves and we have no evidence that any deceit was used ixx securing the consent of either party.

Be that as it may, a fraudulent vendor will not be permitted to show that his vendees have committed a fraud upon some third party. If they have done no wrong to him he cannot rightfully complain.

Wells’ complicity in the fraud is urged as good reason for refusing a decree of rescission. But equity will not refuse to aid his innocent co-purchasers because of a fraud committed on them by him. If their rights cannot be secured without to some extent relieving him, the innocent, must not suffer.

We reverse the judgments of the district court and common pleas .and render a decree for Yeoman, Milburn, John Welch and Johnson M. Welch rescinding the contract with Lasley, directing them and Wells to reconvey the land to Lasley, upon a return by him to them of the purchase money (paid by them) with interest from the time or times when paid; enjoining Lasley’s suits against all except Wells;— placing all costs on Lasley and providing for proper orders of sale or for executions to enforce payment by him.