Court Opinion

ID: 8793087
Source: CourtListenerOpinion
Date Created: 2022-11-26 13:59:00.972432+00
Date Added: 2024-06-11T17:03:28.250141
License: Public Domain

PRITCHARD, Circuit Judge
(dissenting). It is with reluctance that I dissent from some of the conclusions of the court in this instance.
The principal allegation in the plaintiff’s complaint is to the effect that these defendants were induced to sign the notes in question by the false and fraudulent representations of Combs and McLean, as to the extent of liability they would incur by signing the same. In other words, this appears to have been the main defense relied upon by the defendants in the court below; the two first issues being as to whether the execution by the defendants of the notes sued upo-n was procured by fraud and misrepresentation, both of which were found in favor of the defendants. However, I heartily concur in the conclusion reached in the leading opinion as to this contention, which is to the effect that:
“Having every opportunity of seeing and reading the papers, the defendants signed without residing them, and they cannot now be allowed to say by parol that they intended to sign something different, and thus impeach their written contract.”
Such being the case, can the defendants, in view of the facts, avail themselves of the further plea that they were induced to execute the notes in question by reason of the false and fraudulent representations of McLean acting as the agent of J. Crouch & Son in the sale of the horse? In other words, inasmuch as the defendants retained the horse and did not rescind the contract, are they not estopped thereby *288from setting up the alleged fraudulent conduct of Crouch & Son’s agent as a defense to this action?
Crouch & Son delivered the horse in pursuance of their agreement, and the purchasers received, retained possession of, and sold the same for a valuable consideration which they retained, and now seek to repudiate the liability which they assumed when they signed the notes. They could have rescinded the contract when they discovered that the horse was not as represented, but this they failed to do.
It is well settled that, where one seeks to avoid liability under a contract on account of fraud, he must do so by rescinding the same at the earliest possible moment after the fraud is discovered. In this instance the defendants in their answer admit that they did not return the horse as required by the express provisions of the warranty.
As said by the Supreme Court in Shappiro v. Goldberg, 192 U. S. 232, 24 Sup. Ct. 259, 48 L. Ed. 419:
“It is well settled by repeated decisions of this court that, where a party desires to rescind, upon the ground of misrepresentation or fraud, he must, upon the discovery of the fraud, announce his purpose and adhere to it. If he continues to treat the property as his own, the right of rescission is gone, and the party will be held bound by the contract. * * * If he choose the latter remedy (to rescind), he must act promptly — ‘announce his purpose and adhere to it,’ and not by acts of ownership continue to assert right and title over the property as though it belonged to him.”
The same rule is announced in the following cases: Hill v. Railroad Co., 143 N. C. 539, 55 S. E. 854, 9 L. R. A. (N. S.) 606; Clements v. Insurance Co., 155 N. C. 57, 70 S. E. 1076; Masson v. Bovet, 1 Denio (N. Y.) 69, 43 Am. Dec. 653; Richardson v. Lowe, 149 Fed. 625, 79 C. C. A. 317.
It should be borne in mind that at the time the notes in question were signed J. Crouch & Son executed a guaranty in the following language:
“Nashville, Tenn., April 14, 1908.
“Guaranty on the German Imported Coach Stallion, Stepper No. 4327.
“We have this day sold the imported German Coach Stallion named Stepper, No. 4327, to the Columbia German Coach Horse Company, Columbia, N. C., and we guarantee the said stallion to be a satisfactory sure breeder, provided the said stallion keeps in as sound and healthy condition as he now is and has proper care and exercise. If the said stallion should fail to be a satisfactory sure breeder with the above treatment, then same shall be returned to us at Lafayette, Indiana, in as sound and healthy condition as he now is and in as good flesh by June 1st, 1909, and we agree thereupon to take the said stallion back and to give the said company another in his place.
“J. Crouch & Son,
“Columbia German Coach Horse Co.
“Accepted: S. M. Combs, Sect.
“Duplicate.”
This warranty or agreement was as much a part of the contract between the parties as the notes, and must be construed in connection therewith in order to determine what relief the defendants were to have in the event the horse should prove to be worthless. This agreement clearly expressed the terms of the contract in which there is provided a remedy in'case there should be a breach of the same. *289There being no other provision contained therein by which the defendants could be compensated should the horse prove to be unfit for the purpose for which he was purchased, the remedy thus afforded was exclusive.
A warranty somewhat similar to the one in this case was passed upon in the case of Walters v. Akers (Ky.) 101 S. W. 1179. The court in that case, among other things, said:
“There was no mistake or fraud in the written contract of warranty entered into between Vannort and Crouch & Son, and this writing contained the entire contract between them, and by its terms each of the parties to it must abide. * * *
“Contracts containing provisions similar to this have been before this court in a number of cases, and it has uniformly been ruled that, when the parties to a contract agree upon the remedies that accrue for a breach of it, these remedies constitute the only relief in this particular that the purchaser has, and he must look to Ms contract and be governed by its stipulations.”
Also in the case of Oltmanns Bros. v. Poland, 142 S. W. 653, the Texas Court of Appeals in discussing this phase of the question said:
“2. The gist of this case is the proper construction of the warranty given by Oltmanns Bros., and appellee’s rights thereunder, as shown by the undisputed facts of this case. It is a rule of the common law in the sale of chattels that a sound price warrants a sound article; and where a purchase is made without any special warranty, if the article proves unfit for the purpose for which it was sold, the purchaser may return the same and demand a return of the purchase money, or he may keep the article and recover as damages the difference between the value of the article as represented by the implied warranty and its real value. If he seeks a rescission of the contract, he must return the article purchased. Stewart v. R. R. Co., 62 Tex. 248, 249; Milligan v. Ewing, 64 Tex. 260; Coddington v. Wells, 59 Tex. 50. ' But in the sale of personal property, as in all other transactions, the seller has a right to define his liability by a special warranty, and provide for the measure of damages or the manner of fulfilling his warranty. This was done in this case by Oltmanns Bros. The guaranty provides that, ‘if the said stallion fails to be a satisfactory and sure breeder, with the above treatment, we agree to take the said stallion back and give to said company another s * * at our barns in as sound and healthy condition as he now is, by April 1, 1908.’ ”
Also in the case of Crouch & Son v. Leake et al., 157 S. W. page 390, the Supreme Court of Arkansas, in passing upon a warranty almost identical with the one now under consideration, among other things, said:
“The written contract expressed the terms of the warranty and provided the remedy that should accrue from a breach of it, which was exclusive of any other mode of compensation and afforded the only relief to which they were entitled. Not having complied with the said condition on their part, nor shown a waiver thereof on the part of appellants, they will be held to have accepted the stallion as in all respects complying with the warranty and are bound to the payment of the balance due on the note for the purchase money Hightsmith v. Hammonds, 99 Ark. 400 [138 S. W. 685]. See, also, Walters v. Akers (Ky.) 101 S. W. 1179; Wilson v. Nichols & Shepperd Co. [139 Ky. 506] 97 S. W. 18.”
It is held by a majority of the court in this instance that the deception practiced by Combs in the procurement of the contract projects itself into the entire transaction, “attaching itself to the failure of consideration, and magnifying it into evidence of fraud; that tjhe *290evidence is clear and undisputed; that the defendants went into the purchase because of their faith in Combs as a dealer in horses, and their reliance on the representations of McLean, the agent of the sellers, and of Combs himself that he was joining in the purchase and incurring a common pecuniary risk.”
While the conduct of Combs in entering into a secret agreement with McLean was not in the least commendable, we think that when all the circumstances of this case are considered it cannot be reasonably contended that he said or did anything calculated in the slightest degree to mislead the defendants as to the character of the horse they were about to purchase. The injury these defendants sustained was due to the fact that the horse did not prove to be “a satisfactory sure breeder,” as represented by J. Crouch & Son in the written guaranty that was delivered to the defendants at the time the notes in question were signed.
The fact that Combs was willing to take a one-tenth interest in the horse in consideration of any services he might render is in itself sufficient to repel the presumption that he had any knowledge of the fact that the horse was not in all respects as represented by J. Crouch & Son.
There is nothing in the record to show that these defendants were, by the false and fraudulent representations of Combs, precluded from making such inquiries as may have been necessary to ascertain the truth as to the qualities of the horse.
The court below submitted an issue as to whether the Merchants’ National Bank was an innocent purchaser before maturity for value and without notice of the two notes referred to as Exhibits A and B, and in response to this issue the jury answered in the affirmative. The court also submitted an issue as to whether the plaintiff was a purchaser for value of these notes, and to this issue the jury responded in the negative. Then there was an issue submitted as to whether the plaintiff was an innocent purchaser for value and without notice of the note referred to as Exhibit C (this note having been purchased from J. Crouch & Son according to the testimony of the plaintiff before maturity for value and without notice), and the jury responded in the negative as to this issue.
Even if the defendants were not estopped from interposing the plea of fraud to plaintiff’s right of recovery, and were able to establish such plea, nevertheless the court below should have instructed the jury that the plaintiff was entitled to recover on the first two notes in question, inasmuch as the jury found that the Merchants’ National Bank was an innocent purchaser before maturity for value and without notice of these notes. The jury having found that the bank was an innocent purchaser before maturity for value and without notice, it follows as a matter of law that the plaintiff, to whom these notes were transferred, was also an innocent purchaser, standing as he did in the shoes of the bank, invested with all the rights that the bank would have had, had it retained these notes and instituted suit upon the same. In other words, the plaintiff having purchased the notes of the bank under these circumstances, he would be entitled to re*291cover, notwithstanding the fact that at the time of the purchase he may have had knowledge of the fraud in connection with the original transaction.
Under the decisions of the Supreme Court of North Carolina it has been held that the appellate court in the exercise of its discretion may in granting a new trial determine whether the trial in the court below should be restricted to one or more of the issues passed upon by the jury, in the first instance. In a personal injury suit (Tillett v. Railway, 115 N. C. 663, 20 S. E. 480), the court in disposing of the case said:
“The findings upon the third and fourth issues must therefore be set aside and a new trial granted as to the questions involved in those two, leaving the verdict upon the other issues undisturbed.”
Also in the case of Nathan v. Railway, 118 N. C. 1070, 24 S. E. 511, the court said:
“In the case of Tillett v. Kailroad, supra, the ruling in the same ease when formerly before the court on appeal (115 N. C. 662, 20 S. E. 480) was reaffirmed, and it was held, as in many cases previously decided, to be within the sound discretion of the appellate court to determine whether a new trial should be restricted to one or more or all of the issues passed upon hv the jury. Cites Holmes v. Godwin, 69 N. C. 467; s. c., 71 N. C. 309; Buran v. Railroad, 84 N. C. 201, 102; Bomg v. Railroad, 91 N. C. 199; Lindley v. Railroad, 88 N. C. 547.”
Therefore, in the exercise of a sound discretion, this court should, in my opinion, hold that the third issue should not be disturbed, and when the case is sent back for a new trial the lower court should be directed to enier judgment in favor of the plaintiff for the amount of the two notes in question.
It would be a needless waste of time to have the jury again pass upon these questions, inasmuch as the evidence offered in the court below to the effect that the bank was an innocent purchaser was un-coni radieted. However, it is insisted in the principal opinion that Hickman, in the purchase of the first two notes, was acting as the agent of J. Crouch & Son. A careful examination of the record fails to disclose any evidence from which it might be inferred that in the purchase of these two notes from the bank the plaintiff was only acting as a “dummy” or as the agent of Crouch & Son. There is certainly nothing in the pleadings that would have justified the submission of an issue of this character, nor could the jury have considered this theory in view of the pleadings and the issues based thereon. In other words, in order to enable the defendants to avail themselves of the defense suggested in the principal opinion, it would be necessary to amend the pleadings so as to set up an entirely new and distinct defense to this action, which I think should not be done in a case like this where the issues have been fairly submitted under the pleadings, and the defendants have had an opportunity to present what they originally conceived to be their defense to this action.
Were it not for the fact, as I have stated, that the defendants are estopped from setting up the plea that they were induced to sign the notes in question by the false and fraudulent representations of Mc-Uean, and it therefore becomes immaterial as to whether the plaintiff *292was or was not. an innocent purchaser for value without notice of these notes, I would be inclined to concur with the majority of the court in holding that there is sufficient evidence to justify the jury in finding as they did in response to the fourth issue that the plaintiff was not an innocent purchaser of the note referred to in the fifth issue.