Case Name: Julius Schuster et al., appellants, v. North American Hotel Company, appellee
Court: Nebraska Supreme Court
Jurisdiction: Nebraska
Decision Date: 1921-07-20
Citations: 106 Neb. 672
Docket Number: No. 21509
Parties: Julius Schuster et al., appellants, v. North American Hotel Company, appellee.
Judges: Heard before Morrissey, C.J., Aldrich, Day, Dean, Flansburg and Letton, JJ.
Reporter: Nebraska Reports
Volume: 106
Pages: 672–689

Head Matter:
Julius Schuster et al., appellants, v. North American Hotel Company, appellee.
Filed July 20, 1921.
No. 21509.
1. Corporations: Subscription for Stock: Unauthorized Representations by Agent. Where an Order contract for the purchase of stock in a corporation provided. “No conditions, agreements or representations,' other than those printed above, shall bind said company,” and the corporation on the faith of said order, and without knowledge of any oral promises, representations and agreements made by the agent to the purchasers, issued the stock and received payment therefor, the corporation was not bound by any such promises, representations and agreements outside of those contained in the written order.
2. Principal and Agent: Authority of Agent: Notice. A person dealing with one known to be an agent is held to the exercise of reasonable prudence, and, if an agent makes an agreement, representation or promise so unusual and unreasonable as to arouse the suspicion of a man of ordinary or average business prudence, he is put upon notice and must ascertain if actual authority has been conferred.
Appeal from the district court for Douglas county: Lee S. Estelle, Judge.
Affirmed.
Btetoart, Perry tG Btewart and Will If. Thompson cC-B'on. for appellants.
Baker tG Ready, contra.

Opinion:
Tibbets, C.
This is an action brought by plaintiffs against the defendant to recover $2,000 paid by the plaintiffs to defendant for stock in the defendant company. Trial Avas had to a jury. At the close- of plaintiffs' testimony the defendant moved for an instructed verdict and for a dismissal. The motion was sustained, and judgment Avas rendered accordingly. Plaintiffs appeal.
The petition alleges that the plaintiffs are farmers and partners in the farming business in Polk county. Nebraska; that defendant is an Iowa corporation; that on or about June 19, 1917, the defendant, by its stock-sales agents, N. E. Blair and Henry Lachnit, solicited plaintiffs to purchase stock in defendant corporation; that plaintiffs informed said agents that they had no knoAvledge of defendant's company, but knew of the .Bankers Realty Investment Company, a Nebraska company, at Omaha; that said agents informed plaintiffs that the two companies were one and the same company; that stock in defendant .company was in fact stock in' the realty company; that the defendant company, if requested, gave a contract to pay back upon a return of the stock certificate the purchase price with 6 per cent, interest thereon, at any time after two months and within ten years from the date of- such subscription, and that this Avould apply to plaintiffs; that on the 19th day of June, 1917, plaintiffs made and delivered to defendant, through its agent, a Avrittén subscription for ten shares of defendant's preferred stock, and plaintiffs paid therefor $1,000; that on the 3d day of July, 1917, plaintiffs subscribed for an additional ten shares of stock under the same understanding and agreement, as was had concerning those purchased previously, and paid therefor $1,000. Plaintiffs further allege that they were induced to sign said written subscription for stock and pay said $2,000 by reason of the said representations by defendant, through its said agents, coupled with the promise to send to plaintiffs a writing evidencing the written agreement for repayment of tin* purchase price of said stock after two months and Avithin ten years. Plaintiffs also allege that the defendant and the Bankers Realty Investment Company are separate and distinct corporations; that the statement by the agent that the. stock in the Bankers Realty Investment Company and in the-defendant company Avas the same, and that the defendant shared in the business and profits of the realty company Avas untrue; that such representations were the inducements leading them to subscribe for said stock; that they did not learn that such representations were false until about February 1, 1919, when they elected to return to defendant said stock certificates, and tendered the same to defendant and demanded of it the repayment of said $2,000, which defendant refused to accept; that plaintiff's also offered to return the sum of $46.96 received by them as dividends January 1, 1918, and pray for judgment for the sum of $2,000, with legal interest thereon from January 1, 1919.
The defendant, for its answer, admits that it is a corporation, and alleges that the plaintiffs have improperly joined in their petition several causes of action, and files a general denial, except as to those matters which are expressly and specifically admitted, admits all that part of the allegations of the petition relating to the purchase by the plaintiffs from the defendant of the stock in question and signed written contracts of" subscription for the same, and alleges that said written contracts were fully explained and understood by the plaintiffs before their signatures were affixed thereto. Defendant, further answering, alleges that said contracts, among other provisions, contained the following clause: "No conditions, agreements or representations, other than those printed above, shall bind the said company." Defendant denies that any misrepresentations were made as alleged in the petition. The contracts of subscription contained the following: "It is understood that said certificate of stock will be issued subject to the constitution and by-laws of the North American Hotel Company." And there is nothing in said constitution or by-laws providing for the repurchase of the said stock of said company, except as contained in article 5, section 1 of the by-laws, which was plainly and legibly printed on the reverse side of the subscription contract signed by the plaintiffs, and was plainly and legibly printed on the face of the certificates of said stock received by the plaintiffs; and, further, that no officer, servant,- agent or employee of the defendant company was authorized, instructed or permitted to malee any contract with reference to the sale of said stock, other than that as printed on the subscription contract signed by plaintiffs, and that said defendant furnished to its agent the said printed form, and that the defendant had no knowledge of any verbal agreement or representations made or entered'into by its said agents otherwise than contained in said subscription contracts. Defendant, for further answer, alleges-that approximately two years expired between the date of said subscription contracts tuid the date upon which plaintiffs claimed to this defendant that any of said misrepresentations set forth had been made, or claimed that any such oral contract set forth had been made, or that any notice thereof of any claim had been received- by the company, and that by reason thereof the plaintiffs have waived said claims and are estopped from setting up or asserting said claims, and ask that the" action be dismissed.
It will be seen that the pleadings summarized would indicate that, under the issues made, the plaintiffs are relying upon the representations as to the relation between the realty company and the defendant, and also that there was an agreement upon the part of the agents to furnish a written contract in reference to the repurchase by the defendant of the stock and the failure so to do, and the defendant is relying upon the contract, in which it is expressly set forth that the company shall not be liable for any representations not included in the contract, and also the question of estoppel.
The plaintiffs in their reply brief say: "Plaintiffs' action is not as defendant's counsel contend, an action on a contract or for damages on account of deceit in obtaining a contract, but the petition clearly shows that the plaintiffs rescinded the contract for fraud, tendered back tlm stock received from defendant, and demanded the repayment of the money received by defendant therefor." The first proposition under this statement of the plaintiffs to which we direct our attention is: Does the plaintiffs' petition bear out the statement? Second, did the representations of the agents, as shown by their evidence, bind the defendant?
As to the first proposition, the fact that plaintiffs allege in the petition that they were induced by fraud and misrepresentations to purchase the stock in question, and that they tendered .the stock back to defendant and made their tender good by bringing it into court, and by their asking that there be returned to them the purchase price thereof, is simply a rescission of the contract on the ground of fraud and misrepresentation. In the case of First Nat. Bank v. McKinney, 47 Neb. 149, it is held: "A vendor who is induced to part with possession of property through the fraud of the purchasers has his election to rescind the contract and reclaim the property sold, or to ratify the sale and pursue his ordinary remedy by an action on the contract. But such remedies are not concurrent, and by electing to pursue one with a knowledge of the facts, he waives his right to the other." This principle was adhered to in the cases of Pollock v. Smith, 49 Neb. 864; Hawver v. City of Omaha, 52 Neb. 734, and American Building & Loan Ass'n v. Rainbolt, 48 Neb. 434; We are therefore of the opinion that the action was one for rescission.
We now come to the vital proposition arising in this case: Were the misrepresentations made by the agent binding upon the defendant? The uncontradicted evidence was that the defendant had no knowledge of such misrepresentations having been made for some considerable-time after the transactions between the plaintiffs and the defendant were concluded. The crucial test is, did the agent exceed his authority in making- such statements, and did the plaintiffs have such knoAvledge as Avould indicate that the agent was not authorized or empoAvered by the principal to make them. On the face of the subsmption contracts appears the follOAving: "No conditions, agreements or representations, other than those printed above, shall bind the said company. This Avas notice to the signers. The order Avas to the North American Hotel Company, in large print. The certificates of stock were,also from the hotel company. Plaintiffs state that they did not read all of the order, but took Blake's word for a considerable part of Avhat it contained. Their negligence could not be attributed to the defendant. The defendant had given all the notice it could give. If plaintiffs had done what the ordinarily prudent business man would and should have done, they would have read the contract, and their failure so to do was at their OAvn peril. The case of Kaley v. Northwestern Mutual Life Ins. Co., 102 Neb. 135, bears directly upon the proposition arising as to the powers of the agent. This court held in that case: "An agent of a life insurance company, the limitation of whose power is set forth in tire application for insurance, which limitation is expressly called to the attention of the applicant, cannot vary the terms of the policy by an estimate of results of the policy attached by him thereto." Another very recent case, that of Omaha Alfalfa Milling Co. v. Pinkham, 105 Neb. 20, sustained the same proposition, and it was held in that case that, where the party entering into the contract is informed of the limitation of the agent, if the agent exceeds those limitations, the contract will not be binding upon his principal. This is only in line with former decisions of this court, as in the case of Wilson v. Beardsley, 20 Neb. 419, and Gregory v. Lamb, 16 Neb. 205. And it is in accord with holdings of courts of last resort in nearly all of the states that have acted upon that question. Holt Mfg. Co. v. Odenrider, 61 Wash. 555; Bybee v. Embree-McLean Carriage Co., 135 S. W. (Tex. Civ. App.) 203; 21 R. C. L. 909, sec. 85. In fact, we find no cases holding, under the conditions as they exist in the instant one, contrary to those cited above.
Counsel for.plaintiffs cite us to a number of decisions where representations made, being fraudulent, would vitiate a .contract, but that is not the question at issue here. The question at issue is whether the misrepresentations and fraud were binding upon the defendant, and hi nearly all, if not all, of the cases cited by counsel the cori'.troversy was between the parties themselves or with agents with general, and not limited, powers. In the instant case, if our conclusion be correct, there were no misrepresentations made of any character that would bind the defendant, as it was expressly provided that any representations should not be binding upon the defendant except those contained in the contract. And some of the cases heretofore cited are conclusive upon' that question. We have been cited by counsel for plaintiffs to the case of Griffin v. Bankers Realty Investment Co., 105 Neb, 419. That case arose, not upon the representations.of an agent, but the representations made by the party itself, and it is therein stated: "Defendant cannot be heard to say that the sale is valid as far as the contract for purchase of stock is concerned and void so far as repurchase is concerned, since the entire contract is one and indivisible.'' That does not apply in the instant case. The contract for purchase was the written contract. The agreement: for a contract to repurchase was an unauthorized contract between agent and .plaintiff, just as much so as it would be for a contract between the. two parties concerning an entirely different and separate matter, as the defendant had no knowledge whatever of the representations at that time.
We are compelled to come to the conclusion that the district court was right in sustaining the motion of defendant and rendering judgment for a dismissal, and we recommend that its judgment be affirmed.
Pee Curiam. For the reasons stated in the foregoing opinion, the judgment of the district court is affirmed, and the opinion is adopted by and made the opinion of the court.
Affirmed.