Case Name: MORGAN v. NOWLIN
Court: Michigan Supreme Court
Jurisdiction: Michigan
Decision Date: 1901-03-26
Citations: 126 Mich. 105
Docket Number: 
Parties: MORGAN v. NOWLIN.
Judges: Moore, J., concurred with Hooker, J.
Reporter: Michigan Reports
Volume: 126
Pages: 105–109

Head Matter:
MORGAN v. NOWLIN.
Sale — Action for Price — Defenses—Fraud—Waiver. '
One who purchases stock in a corporation, giving the note of a third person, indorsed by him, in payment, and holds the stock for two years without raising the claim that he was defrauded in the sale, during which time he participates actively in the affairs of the corporation, indorses several notes in renewal of the one originally given, and finally unites with the other stockholders in selling the corporate property and dividing the proceeds, of which he receives his share, must be held, in an action on the last renewal note, to have waived any defense thereto based upon the fraudulent representations of the seller.
Error to Wayne; Waite, J.
Submitted June 8, 1900.
Decided March 26, 1901.
Assumpsit by Benjamin B. Morgan against Allen L. Nowlin and James T. Hurst upon a promissory note. From a judgment for plaintiff on verdict directed by the court, defendant Nowlin brings error.
Affirmed.
J. H. Cole (Harrison Geer, of counsel), for appellant.
Maybury & Lucking, for appellee.

Opinion:
Hooker, J.
On December 31, 1894, a corporation called the Morgan Signal Company was organized. Subsequently Nowlin purchased from the plaintiff 2-12 of its stock, giving in payment therefor $400 in cash, and a note made by one Hurst for $2,000, indorsed by Nowlin. This note was renewed several times. Nowlin entered actively into the business of the company, which continued over two years. At the end of that time he united with other members of the company in a sale of the property, for which $2,000 was received. The interest on the note was paid from time to time, also $200 of the principal. An action having been brought upon the renewal note, Hurst made no defense; but Nowlin filed a plea of the general issue, accompanying it by a notice alleging that there was. fraud in the sale, in representations made which the defendant afterwards learned were false, and that "defendant has never received a dollar in profits out of said corporation, and has received no consideration whatever for the $2,400 invested by him in said corporation at the instigation of the plaintiff." Upon the trial the circuit judge directed a verdict for the plaintiff, and error is brought by defendant Nowlin.
By no stretch of imagination can this notice be called one in recoupment. It does not mention recoupment, nor is there a word indicating a claim for damages. It simply alleges that there was no consideration for the price paid for the stock. The uncontradicted testimony shows that there was a valuable consideration. The company had patents and property, and it was afterwards sold for $2,000 with the approval of Nowlin. It is manifest, therefore, that the defense of want of consideration failed.
If, as defendant claims, he was defrauded in such sale, he had his choice of two courses: He might, when he discovered the fraud, rescind the contract and tender back what he had received, and this would give him the right to sue for and recover the price paid, or successfully defend an action for the price; or he might keep the property, and sue for or recoup the damages suffered, — a resort to one or the other remedy depending upon whether he had paid for the stock or not. There is no claim that the defendant has attempted to comply with the law as to rescission. Aside from the question whether he has not voluntarily affirmed the contract, by neglecting to give notice of rescission and return the property after discovery of the fraud, he has sold the property of the company and received the money for it. One cannot retain the property or its avails, and then sue for the balance, though he may perhaps retain it and sue for or recoup the damages in a> proper proceeding. Tiff. Justice's Guide, 704, 275. Were there a notice of recoupment in this case, such a defense might be made here; but there is not, and the injustice of permitting defendant to set up the fraud as a complete defense to the note, and at the same time keep the property, is obvious. Were this case here upon a notice of recoupment, it would then become important to inquire whether the claim for damages has been waived, as it may have been. Wildey v. School District, 25 Mich. 419. But the question of damages is not in the case. Neither is rescission. And the alleged want of consideration is clearly disproved by all of the testimony.
The judgment should be affirmed.
Moore, J., concurred with Hooker, J.