Case Name: RUDOLPH V. RUSSELL, Complainant and Appellee, v. R. A. ZANONE and JOHN H. LEE, Defendants and Appellants
Court: Tennessee Court of Appeals
Jurisdiction: Tennessee
Decision Date: 1966-02-04
Citations: 55 Tenn. App. 690
Docket Number: 
Parties: RUDOLPH V. RUSSELL, Complainant and Appellee, v. R. A. ZANONE and JOHN H. LEE, Defendants and Appellants.
Judges: Avery, P. J. (W.S.) dissents.
Reporter: Tennessee Appeals Reports
Volume: 55
Pages: 690–746

Head Matter:
RUDOLPH V. RUSSELL, Complainant and Appellee, v. R. A. ZANONE and JOHN H. LEE, Defendants and Appellants.
404 S.W.(2d) 539.
Western Section at Jackson,
February 4, 1966.
Certiorari Denied by Supreme Gourt June 6, 1966.
Gerber & Gerber, Memphis, for R. A. Zanone, appellant.
John H. Lee, pro se.
Robert L. Dobbs, Memphis, for appellee.

Opinion:
BEJACH, J.
In this cause, Judge C. S. Carney of the Tennessee Court of Appeals, Western Section, was unable to be present at the hearing, and by consent of the parties, Hon. George 0. Benton of the Madison County Bar, of Jackson, Tennessee, sat in his place.
This cause involves separate appeals by R. A. Zanone and John PI. Lee from a decree rendered against them and in favor of Rudolph V. Russell in the Chancery Court of Shelby County. In this opinion, the parties will be referred to as Russell, Zanone and Lee.
By the terms and provisions of the decree appealed from, a judgment in the sum of $1,500 was entered jointly and severally against said Zanone and Lee. Said decree also made perpetual an injunction which prohibited Zanone from taking any further steps in a suit filed by him in cause No. 204-006 in the General Sessions Court of Shelby County, Tennessee, and from levying execution on a judgment recovered in that cause December 6, 1963 against Lee and Russell in the sum of $1,200, representing $1,000 on a promissory note signed by Russell in favor of Lee, and endorsed by Lee to Zanone, plus $200.00 attorney's fee and costs of that cause. The temporary injunction thus made perpetual, and the recovery of the $1,500 judgment against Zanone and Lee were predicated on an original bill filed December 17, 1963. The final decree was entered October 21, 1964.
In Ms original bill, Russell alleges that he was fraudulently induced to sign the $1,000 note, and defrauded out of 100 shares of Dobbs Houses stock of the value of $1,500 by said Lee and Zanone. The bill charges that Zanone is not an innocent holder for value of the note. It also avers that Russell was fraudulently induced to invest in 25 per cent of the beneficial interest in the Tennessee Realty Trust, allegedly owned by defendant, John H. Lee, and represented to him as being 5,833 shares, worth $58,333.00. The bill, in specific language, alleges:
' ' Complainant is advised and believes, and upon information avers that the defendants were acting in active concert with each other in procuring and inducing him to become an investor with them to his great financial detriment. That he believes and therefore avers, that the defendant Lee and the defendant Zanone were partners in the business venture known as Tennessee Realty Trust, and as partners, the defendant, Zanone, is, together with the defendant Lee, jointly obligated to pay the $1,500 which the defendant Lee fraudulently secured from the complainant. ' '
The record discloses, and the proof is clear that on May 3,1963 Russell executed in favor of Lee a ninety day note for $1,000 and delivered to him 15 shares of Dobbs Houses stock which Lee sold to J. C. Bradford & Co. for $1,500, and that he negotiated the note to Zanone. There is considerable diversity in the testimony about the circumstances surrounding the transaction and the conditions, if any, attached to the delivery of said note and stock by Russell to Lee. This diversity of testimony will be hereinafter discussed at some length. The proof in this cause was quite voluminous, the Bill of Exceptions preserving- same consisting of fonr volumes containing a total of about 500 pages, in addition to another volume preserving the exhibits. Inasmuch, however, as in all this voluminous mass of evidence there is none sustaining the theory on which Russell predicated his cause of action, namely, that Lee and Zanone were partners in the business venture known as Tennessee Realty Trust and, as such fraudulently induced him to execute his note for $1,000 and to part with 100 shares of Dobbs Houses stock worth $1,500, that circumstance alone would be sufficient to warrant reversal of the decree recovered in this cause. Indeed, the clear preponderance of the evidence negatives the allegations of Russell's bill. So far as the record shows, neither Lee nor Zanone ever owned any stock in the Tennessee Realty Trust.
Chancery practice in Tennessee requires, as a fundamental principle, that the proof must correspond with the allegations in the pleadings, and relief cannot be granted upon proof of a case substantially different from the case made in the pleadings. Gernt v. Cusack, 106 Tenn. 141, 59 S.W. 335; American Lead Pencil Co. v. Nashville, C. & St. L. Ry., 124 Tenn. 57, 134 S.W. 613, 32 L.R.A.,N.S., 323; Gibson's Suits in Chancery, 5th Ed., sec. 149 and sec. 694, note 19.
In Gernt v. Cusack, complainants sought to recover of the defendant, Cusack, a part of the proceeds of certain oil leases to which they averred they were entitled, received by Cusack as a partner of complainants, upon a sale under an option obtained by one of the complainants, and fraudulently transferred by Cusack to his wife. The answer denied the entire case stated in the bill, and Mrs. Cusack joined in a cross-bill setting up an independent title in herself. The proof sustained the answer and cross-bill. The Court of Chancery Appeals decided in favor of complainants, bnt the Supreme Court reversed and dismissed on the ground that complainants made no attack upon or claim under Mrs. Cusack's option. From the Supreme Court's opinion, written by Beard, J., we quote as follows:
"But it is said by counsel of the complainants that, without regard to pleading, the whole case was opened up in the evidence, and the court of chancery appeals, yielding to this insistence, adopted the theory that Mrs. Cusack had colluded with her husband to obtain the fruit of the Gernt option, and was therefore bound in equity to account to complainants. This leads us to the other of the rules referred to, to wit:
2. 'Allegations without proof, or proof without allegations, can never be the foundation of a decree.' King v. Rowan, 10 Heis. 675; Furman v. North, 4 Baxt. 296; Robertson v. Wilburn, 1 Lea 633; Randolph v. Merchants' Nat. Bank, 9 Lea 63; McKelden v. Gouldy, 91 Tenn. 677, 20 S.W. 231; Bradshaw v. Van Valkenburg, 97 Tenn. 316, 37 S.W. 88; Bank v. Carpenter, 97 Tenn. 437, 37 S.W. 278.
* # # # * # # *
The principle insisted upon by counsel of complainants that, 'if a stranger collusively join with a partner in a rival undertaking, the profits of the collusive or rival undertaking become partnership assets, ' is sound and well supported by authority. 1 White & Tu. Lead. Cas. Eq., 62; 2 Lind. Partn. 495; Story, Partn., secs. 174-175. But this principle cannot be successfully invoked here, because there is no averment in the original or amended bill nor admission in the answer of the Cusacks to warrant its application." Gernt v. Cusack, 106 Tenn. 150-151, 59 S.W. 337.
In American Lead Pencil Co. v. Nashville, C. & St. L. Ry., the pencil company sued the railway for loss of a carload of pencils, claiming that breach of a contract between the railway and the pencil company caused the loss. The proof failed to establish any such contract, but did establish a usage between the parties, the terms of which were substantially like those alleged by the pencil company as being set out in a contract. Recovery was denied on the ground that complainants could not recover in a, case where the bill alleged a contract, but the proof established a mere usage. Prom the Supreme Court's opinion, written by Mr. Justice Buchanan, we quote as follows:
"We cannot bring ourselves to the conclusion that a bill, which bases the complainant's right to recover upon the breach of a contract, can be sustained by proof of a usage and no proof of a contract, or by proof of a custom and no proof of a contract. A contract is created by act of the parties. It may be either expressed or implied. It may be either written or oral. It must result from a meeting of the minds of the parties in mutual assent to its terms. It must be founded on a sufficient consideration. It must be mutual, free from fraud or undue influence, not against public policy, and sufficiently definite. See Cyc., vol. 9, 241, 242, and note 1, p. 141.
Usage and custom, on the other hand, in legal contemplation, differ radically in many respects from a contract. Usage is a repetition of acts, and is distinguished from custom in that usage is a fact, while custom is a law. There may be usage without custom, but there can be no custom without usage to accompany or precede it. Usage consists in the repetition of acts, and custom arises out of this repetition. Esriche Dist. Jurisprudence, quoted in Cutter v. Waddingham, 22 Mo. 206-248, and cited in Cyc. vol. 12, p. 1030, note 1.
*
It follows from the foregoing that to permit the complainant to maintain its bill based upon the breach of a contract by proof of the breach of a usage is to permit complainant to profit by a variance between its bill and its proof. The proof does not connect the defendant with the loss, if the contract was in fact nonexistent, and if there was no contract there was no breach, and so, on the proof, the defendant would stand wholly disconnected from the loss of the property.
It is a fundamental principle that the proof must correspond with the allegations in the pleadings. East Tenn., etc., R. Co. v. Collins, 85 Tenn. 227, 1 S.W. 883; East Tenn. Coal Co. v Daniel, 100 Tenn. 65, 42 S.W. 1062; East Tenn., etc., R. Co. v. Lindamood, 111 Tenn. 457, 78 S.W. 99; Foster v. Jackson, 8 Baxt. 433, 434." American Lead Pencil Co. v. Nashville, C. & St. L. Railroad, 124 Tenn. 63-65, 134 S.W. 614-615.
From G-ibson's Suits in Chancery (5th Ed.) sec. 149, we quote as follows:
"Every fact essential to the complainant's title to maintain the bill, and obtain the relief, must be stated in the bill, otherwise the defect will be fatal. For no facts are properly in issue unless charged in the bill; and of course no proofs can generally be offered of facts not in the bill; nor can relief be granted for matters not charged, although they may be apparent from evidence; for the Court pronounces its decrees secimdum allegata, et probato
Also, from G-ibson's Suits in Chancery, 5th Ed., sec. 694, note 19, (b) and (c), explaining a diagram which shows that the execution must be circumscribed by the decree, the decree circumscribed by the evidence, the evidence circumscribed by the pleadings, and the pleadings circumscribed by the procedure of the Chancery Court, we quote as follows:
"b. The next circle represents the evidence, circumscribing both the decree and the execution. If a decree is not justified by the evidence, it may be reversed by appeal, or writ of error, and may be reversed even after execution has issued by a writ of error, and on a supersedeas the execution may be stayed and annulled.
c. The circle next to the outmost represents the pleadings, circumscribing the evidence, the decree and the execution. If the evidence is not pertinent to the pleadings, or does not substantiate the pleading, on appeal or writ of error the decree will be reversed, and if an execution has issued it will be superseded and annulled. '
The facts of the instant case fall so completely within the principle established by the above quoted authorities, that we would be willing, on that ground alone, to base our reversal of the lower court's decree. But, even if the original bill had contained allegations upon which the proof adduced could rest; or even if the bill had been so amended after the proof was introduced as to make such evidence competent, we would still be of opinion that complainant, Russell, has made out no case which entitles him to an injunction against Zanone's enforcement of his judgment recovered in the General Sessions Court on the $1,000 note, or would warrant any recovery of $1,500 against Zanone and Lee. Such being our view of the case, we will now undertake to discuss the case as established by the evidence which was introduced.
This cause comes to us under the provisions of Section 27-303 T.C.A., with a presumption that the decree of the lower court is correct unless the evidence preponderates against that decree. After a careful reading of the proof in the voluminous record, however, it is our opinion that the clear preponderance of the evidence is contrary to the decree rendered. As established by that preponderance of the evidence, we think the facts of the case were substantially as hereinafter stated.
In 1962 Lee commenced the promotion of two real estate projects in Memphis, Tennessee, known respectively as the Cinderella House and the Diplomat Apartments. The Cinderella House was to be an establishment for women only, and the Diplomat Apartments was to be a high rise apartment building. The Cinderella House was to be located in the King Cotton Hotel and the Diplomat Apartments on property owned by a Mr. Fortas on Adams Avenue, near Third Street. Lee had options on both the King Cotton Hotel and the Fortas property, and he had had plans and feasibility reports drawn for both projects. Lee needed help in putting together these projects, so he associated a real «state developer by the name of Marvin Spruill with him. Later, while attempting to negotiate loans on these projects, Lee and Spruill found that they needed more financial support, so they brought Russell and Zanone into the venture. Russell was a druggist and Zanone was.a jeweller. Financial statements were furnished by both Russell and Zanone for the purpose of obtaining loan commitments on tire two projects. Lee did not know Bussell before he came into these ventures, but he did know Zanone. Zanone had previously sold jewelry to Lee on credit and had loaned him money, which obligations had always been paid.
In April 1963, Spruill and Lee arranged to sell the two developments to the Tennessee Bealty Trust of Memphis in exchange for shares in the beneficial interest of that trust in the amount of $233,333.33 to each of them. The Tennessee Bealty Trust placed a value of $400,000 on the Diplomat Apartments and $300,000 on the Cinderella House. In connection with this deal, Spruill and Lee agreed to give to Bussell and Zanone 12% per cent each of the total shares that Spruill and Lee were to receive in the Tennessee Bealty Trust. At that time, Bussell was shown by literature of the Tennessee Bealty Trust to be on its advisory board. Bussell claims that the use of his name as a member of that board was unauthorized, and on June 3, 1963, which was one month after the principle transaction involved in this litigation, he wrote a letter requesting that his name be withdrawn from the Tennessee Bealty Trust's literature, claiming that it had been used without his authorization. According- to the testimony of Mr. Joe B. Bamsey, the president of the Tennessee Bealty Trust, however, Bussell had requested that he be placed on the advisory board of that trust and had furnished Bamsey a list of his activities, which list is filed as one of the exhibits in the cause. It is in Bussell's own handwriting. About the latter part of April, or first of May 1963, Lee, who had for several months been devoting all of his time to development of the two projects named, was in need of money for personal expenses, and arranged with Bussell to put up $2,500 in exchange for 25 per cent of the shares in Tennessee Bealty Trust which Lee was to receive. This was in addition to the 12% per cent to which Russell was already entitled under the arrangement previously made. It was anticipated that the value of this 25 per cent would be $58,333.33. There is a sharp conflict in the testimony as to whether this $2,500 deal was to be an outrig'ht purchase by Russell, or a loan to Lee. At any rate, on the afternoon of May 3, 1963, Lee and Russell met at Spruill's office for the purpose of concluding the transaction, in which Russell was to turn over to Lee $2,500 in exchange for the additional shares in the Tennessee Realty Trust. At that time, certain documents concerning the purchase of the two projects by the Tennessee Realty Trust and the division of shares of the trust between Lee and Spruill were presented to Russell, together with a letter from Lee to Russell in which he agreed to turn over to Russell 25 per cent of the shares in the Tennessee Realty Trust which he was to receive. According to the testimony of Lee, he had expected to receive $2,500 in cash; but, instead, Russell made out a 90 day note in the amount of $1,000, payable to the order of John Henry Lee, and turned over to him 100 shares of stock in Dobbs Houses, Inc., having a value of $1,500. Russell testified that he was to get the stock and the note back if the two projects were not put together, and claimed further that both the note and the stock were to be put up as collateral with Zanone. Spruill, on the other hand, testified differently from both Lee and Russell. He said that the stock was to be put up for collateral, and that the note was to be held for 90 days by Lee. According to the testimony of Lee, Russell suggested that he get Zanone to cash the $1,000 note, because he, Russell, was "loaded" at his bank. At any rate, Lee called Zanone, in the presence of both Spruill and Russell, and told him that he wanted to bring him the $1,000 note, endorsing it over to Mm in exchange for $1,000. TMs telephone conversation is not denied by Bussell. After the meeting on May 3, 1963, but on the same day, Lee took the Dobbs House stock to J. C. Bradford & Co. in the Sterick Building, Memphis, Tennessee to sell; whereupon a representative of J. C. Bradford & Co. called Bussell to tell him that Lee was there with the stock, undertaking to sell same. Bussell admits this telephone conversation from the representative of J. C. Bradford & Co., but he did nothing to prevent the sale of the stock by Lee. In any event, there is no proof in the record to connect Zanone in any way with the Dobbs Houses stock. So far as the record shows, Zanone did not know anything about the Dobbs Houses stock, or about the receipt and sale of same by Lee. Also, on the afternoon of May 3, 1963, Lee took the $1,000 note to Zanone and endorsed it over to him. On the record before us, Zanone must be held to be a holder in due course. Zanone testified, first, that on the afternoon of May 3, 1963, he gave to Lee $985.00 in cash, representing the amount of the note, less 90 days' discount at 6 per cent interest. This testimony was given more than a year after the occurrence of the transactions involved. It developed later, however, when the records of the Union Planters Bank were produced, that the Bussell note had been put up by Zanone as collateral for a 90 day loan for himself, out of which he cashed a check for $825.00. The bank stamp showed the loan as having been on May 8, 1963, and the $825.00 check to have been paid on May 9, 1963. After the bank records were introduced, Zanone, with his recollection refreshed, testified that on May 3,1963 he had given Lee $160.00 in cash, and then on May 7, 1963, put up the Bussell note as collateral for a 90 day note of his own at the Union Planters Bank, and cashed a check for $825.00, the proceeds of which he gave to Lee, thus making up a total of $985.00. He said that these were simultaneous transactions. Because of this discrepancy in the testimony of Zanone, the Chancellor discredited entirely the testimony of Zanone, and held that the making of the note by Zanone, the cashing of his check for $825.00, and delivery of that amount to Lee, were not simultaneous transactions. Mr. John J. Glass, of the Union Planters Bank testified, however, that all the transactions could have occurred on the afternoon of May 7, 1963 after banking hours. He said this could account for the bank stamp of May 8,1963, as same would not have been put on until the next day's business, and that the stamp showing the cashing of Zanone's check for $825.00 which appeared to be May 9, 1963, was because the Zanone account was on May 8, 1963 overdrawn, and the check was not marked paid until approved by Mr. Tratter, the officer of the bank who had charge of Zanone's account. In spite of the overdraft, however, the check was paid. Zanone's note was also paid by him.
On May 3,1963, Lee's option on the King Cotton Hotel and on the Portas property on Adams Avenue, had both expired, the Fortas property option a few days before that date, and the King Cotton option more than a month prior thereto. This circumstance is the principal ground for the Chancellor's holding that Lee and Zanone perpetrated a fraud on Russell. The record shows, however, that as late as June 24,1963, with the cooperation of both Russell and Zanone, Lee and Spruill were negotiating for renewal of these options. Lee claims that Russell knew as much about the expiration of the options as he did, and there is no proof in the record that Zanone knew anything about the date of expiration of the options. In any event, no mention of either of these options, or of the fact that same had expired,, when his note was executed, is made in Russell's bill filed in this cause. The record shows that as late as August 1963, Russell was doing-business with Lee on a friendly basis, having rented to him, at that time, a cleaning establishment.
As was said by the Supreme Court in Landreth v. Schevenel, 102 Tenn. 486, 493, 52 S.W. 148, 149, "It is a settled rule that the right to rescind a contract for fraud must be exercised immediately upon its discovery, and that any delay in doing so, and the continued employment, use, and occupation of property received under a contract, will be deemed an election to confirm it." In the instant case, Russell did not file suit until December 17, 1963, and if he felt that he had been defrauded he must have known that fact, certainly not later than June 24, 1963. His bill alleges that he did not know that Zanone held the note until he was about to be sued on same. As pointed out above, this contention is inconsistent with the telephone call from Spruill's office on May 3, 1963, made by Lee to Zanone in Russell's presence, which conversation is not denied by Russell. Furthermore, every fact alleged by Russell in the instant case, or undertaken to be proved, could have been set up and proved, if true, as a defense to Zanone's suit on the note in the General Sessions Court. The Chancellor attaches great importance to the documents delivered by Lee to Russell at the meeting on May 3,1963; but, however much importance these documents might have as between Russell and Lee, they do not concern Zanone, and there is not a line of proof in the record to show that Zanone had any knowledge of same. The Chancellor considered Zanone as a discredited witness. We do not agree that this conclusion on the part of the learned Chancellor was correct; but, even if true, and if Zanone's testimony be disregarded entirely, Russell has completely failed to carry the burden of proof required in fraud cases. In the case of Williams v. Spinks, 7 Tenn.App. 488, 494, Judge Owen, speaking for this Court said:
£<On the sufficiency of evidence to establish fraud, it has been stated that the evidence must be clear and satisfactory. Some authorities hold that it must be clear, cogent and convincing or strong and decisive. The general rule is that the evidence to be sufficient to establish fraud should prove a state of facts which is not fairly or reasonable reconcilable with fair dealing and honesty of purpose, and which would lead a reasonable man to the conclusion that fraud in fact existed. ' '
In the case of Bevins v. Livesay, 32 Tenn. App. 1, 221 S.W.2d 106, Presiding Judge McAmis of this Court, said:
'£ The general principles applicable to cases of fraudulent representation are well settled. Fraud is never presumed; and where it is alleged the facts sustaining it must be clearly made out. The representation must be in regard to a material fact, must be false and must be acted upon the party in ignorance of its falsity, and with a reasonable belief that it was true." Bevins v. Livesay, 32 Tenn.App. 7-8, 221 S.W.2d 109.
In Bilbrey v. Smith, 25 Tenn.App. 446, 450, 158 S.W.2d 735, Howell, J., speaking for this Court, Middle Section, said:
££ Fraud must not only be alleged but must be proven and there are many cases upon this subject. In the case of Williams v. Spinks, reported in 7 Tenn.App. at page 488, the Court said:
'Fraud is never presumed, it must be clearly proved, the burden of proof is on the complainant and the law is, 'in all cases, except those involving transactions between persons occupying fiduciary or confidential relations with, each other where the right to relief is based upon the alleged commission of the fraud, the presumption is in favor of the fairness of the transaction and the innocence of the person accused, and the burden of proof is upon the party asserting the fraud to establish the same.' Ency. of Ev., Yol. 6, p. 6.
On the sufficiency of evidence to establish fraud, it has been stated that the evidence must be clear and satisfactory. Some authorities hold that it must be clear, cogent and convincing or strong and decisive. The general rule is that the evidence to be sufficient to establish fraud should prove a state of facts which is not fairly or reasonable reconcilable with fair dealing and honesty of purpose, and which would lead a reasonable man to the conclusion that fraud in fact existed. R.C.L., Vol. 12, Sec. 183." Bilbrey v. Smith, 25 Tenn.App. 450, 158 S.W.2d 737.
Our conclusion is that, both because complainant Russell's proof is wholly inconsistent with the allegations of his bill for injunction, and, also, because, even if that discrepancy be overlooked, he has failed to make out against defendants Zanone and Lee any case of fraud which entines him to the relief granted by the Chancellor, the decree of the Chancellor must be reversed and complainant Russell's bill against both Zanone and Lee be dismissed. The dismissal of Russell's bill entitles Zanone, as is stated in Gibson's Suits in Chancery (5th Ed.) sec. 908, and required by sec. 23-1909 T.C.A., to a decree against Russell and the U. S. Fidelity and Guaranty Company, his surety on the injunction bond filed in this cause, for $1,200, the amount of the judgment rendered on December 6, 1963 in Cause No. 204-006, in General Sessions Court of Shelby County, Tennessee, together with interest thereon at 6 per cent per annum from December 6, 1963, plus the costs of that cause and the costs of the instant case. Such decree will he entered in this Court.
Avery, P. J. (W.S.) dissents.
George O. Benton, Special Judge, concurs.