Court Opinion

ID: 8194449
Source: CourtListenerOpinion
Date Created: 2022-09-09 23:17:36.20006+00
Date Added: 2024-06-11T16:40:43.109298
License: Public Domain

The following opinion was filed January 15, 1924:
Doerfler, J.
Before the introduction of any evidence defendants’ counsel moved that plaintiffs be required to elect upon which cause of action they desired to rest their case. The court did not rule upon the motion but reserved its ruling, whereupon plaintiffs’ counsel made the following statement, entered upon the record:
“We elect and rely upon the cause of action for equitable rescission, if there is any election necessary.”
A similar motion was made, both at the close of plaintiffs’ evidence and at the close of defendants’ evidence, but no ruling was made by the court, the plaintiffs’ counsel, however, insisting throughout the trial that the action was one *330in equity for. rescission. Counsel for both parties on this appeal have treated this case as an action in equity for rescission. While there is nothing definite in the record to convince one' as to. the attitude of the trial court on the subject, in view of the attitude of counsel we are persuaded that the court considered the action one in equity, took the verdict of the jury as advisory and inferentially adopted the same as its findings, and added the finding above set forth, based upon the undisputed evidence in the case. We therefore conclude that the action is one'in equity, that the plaintiffs duly elected to stand upon rescission, and that having made such election they are bound thereby. Limited Inv. Asso. v. Glendale Inv. Asso. 99 Wis. 54, 74 N. W. 633; Ludington v. Patton, 111 Wis. 208, 86 N. W. 571; Pfeiffer v. Marshall, 136 Wis. 51, 116 N. W. 871; Smeesters v. Schroeder, 123 Wis. 116, 101 N. W. 363; Fox v. Wilkinson, 133 Wis. 337, 113 N. W. 669; Warren v. Landry, 74 Wis. 144, 42 N. W. 247.
The complaint, with its two causes of action, one in equity for rescission and the other at law for damages on account of fraud, attempts to invoke two inconsistent remedies, and the defendants were clearly entitled to the granting of their motions for an election.
The plaintiffs’ counsel forcibly argue in their brief and contend that the answers of the jury in the verdict on the subject of dual agency establishes fraud which entitles plaintiffs to relief for rescission as prayed for.
An agent engaged by one of the parties to aid and assist in procuring and bringing about an exchange, ordinarily cannot legally, gratuitously or for a consideration, serve the party adversely interested. “Absolute fidelity and loyalty to the interests of his principal is the first duty and the highest obligation of an agent.” Weinhagen v. Hayes, 174 Wis. 233, 178 N. W. 780, 183 N. W. 162, 187 N. W. 756; Becker v. Spalinger, 174 Wis. 443, 183 N. W. 173.
True, there are exceptions to this rule. An agent may *331serve both parties where he acts as a mere middleman and where he is not called upon to exercise any judgment or discretion in the premises. He may also act as agent for both parties for a consideration where the facts with respect to his employment are fairly and fully brought home to. each of the parties and where they consent thereto. Unless he comes within the exceptions above noted, a secret employment on his part by the adverse party constitutes the grossest fraud. The policy of this state upon the subject has been expressly declared by the provisions of sec. 4575m of the Statutes, making the act of an agent in violation of the provisions of such statutes a criminal offense, punishable by fine or imprisonment, or both. The jury found such undisclosed secret agency upon what appears to be quite conclusive evidence.
It is also well settled that where a contract was entered into as the result of a secret dual agency, the party upon whom the fraud has been practiced is entitled to rescind upon the ground of public policy even where there was no intention to cheat or defraud and notwithstanding no actual damages were suffered. 2 Mechem, Agency (2d ed.) § 2138; Black v. Miller, 71 Ill. App. 342; Empire State Ins. Co. v. Am. Cent. Ins. Co. 138 N. Y. 446, 34 N. E. 200.
It therefore follows that, unless plaintiffs in some way have precluded themselves from asserting the remedy, the relief prayed for should be granted.
We are now confronted with the proposition, advanced by defendants’ counsel, that the plaintiffs are unable to restore the status quo by restoring substantially the property received by them in the exchange. Plaintiffs, by due process of law, have been divested of all of their legal title in and to their property. The personal property on the farm was seized under, the chattel mortgage, sold, and converted into money, while the real estate was sold under foreclosure proceedings, leaving in the plaintiffs the mere equity of redemption. The question therefore logically arises, Are the *332plaintiffs under such circumstances entitled to their equitable remedy? The general rule applicable is stated in 1 Black on Rescission and Cancellation, § 1, as follows:
“To rescind a contract is not merely to terminate it but to abrogate and undo' it from the beginning; that is, not merely to release the parties from further obligation to each other in respect to the subject of the contract, but to annul the contract and restore the parties to the relative positions which they would have occupied if no such contract had ever been made. Rescission necessarily involves a repudiation of the contract and a refusal of the moving party to be further bound by it. But this, by itself, would constitute no more than a breach of the contract or a refusal of performance, while the idea of rescission involves the additional and distinguishing element of a restoration of the status quo, that is an offer by the moving party to restore all that he has received under it, with a demand for the similar restoration to him of all that he has paid or given under it, and, in effect, a mutual release of further obligations.”
Viewing the charges of fraud alleged in the complaint and appearing from the evidence and barring the subject of secret agency, we find that the plaintiffs, soon after the exchange, were fully apprised thereof and had ample opportunity to discover the same. The principal on the $3,000 mortgage became due on the 15th of October, 1921, at which time the interest on such mortgage also matured, and notice thereof was received by the plaintiffs. It was also forcibly brought home to the plaintiffs that the defendants Michels would insist upon the immediate payment of the amount represented by the chattel-mortgage note, notwithstanding the six-months period provided by the note for payment; and furthermore, the personal property was seized pursuant to the insecurity clause in the mortgage, was sold, converted into money, and applied as aforesaid. In the spring of '1922 the second mortgage upon the farm was actually foreclosed by advertisement, and the legal title, subject to an equity of *333redemption, was conveyed to the purchaser. During all of this period of time the plaintiffs saw fit to abide coming events apparently without protest or complaint and without asserting any rights to rescind and without making a formal offer of rescission. In the meantime the status-quo was materially and substantially changed. Equity will not permit one to sleep upon his rights or to stand idly by while valuable property. involved in the transaction is dissipated, and then permit him to resort to the equitable remedy of rescission. Equity affords relief not to those who are negligent or indifferent but to the vigilant. Barndt v. Frederick, 78 Wis. 1, 6, 47 N. W. 6; Jacobsen v. Whitely, 138 Wis. 434, 441, 120 N. W. 285; Baker v. Becker, 153 Wis. 369, 381, 141 N. W. 304.
The doctrine is clearly and forcibly stated in 2 Black on Rescission and Cancellation, § 536, as follows:
“The true doctrine is that, after discovering the facts justifying rescission, the party is entitled to a reasonable time in which to decide upon the course he will take. But this does not mean that he will be indulged in a vacillating or hesitating course of conduct, but that he must act with such a measure of promptness as can fairly be called ‘reasonable’ with reference to all the circumstances of the particular case. Particularly he must, if possible, avoid such a delay as will make the ensuing rescission injurious to the other party or to the intervening interests of third persons. He must use reasonable diligence in ascertaining the facts which may entitle him to rescind, and must act so soon after the discovery of them as that the opposite party will not be unnecessarily prejudiced by the delay.”
As a logical deduction from the. foregoing, we hold, therefore, that the plaintiffs, in respect to the various allegations of fraud in the complaint, barring only that of secret dual agency, were guilty of laches and have voluntarily permitted themselves to be placed in a situation where valuable property rights have been lost or placed in a precarious condition so as to prevent a restoration of the status quo.
*334Are the plaintiffs under their complaint and the evidence entitled to a rescission upon the ground of the secret dual agency? It is elementary that a complaint in rescission on the ground of fraud should affirmatively allege the time when the fraud was discovered so as to place, the court in a position where it can determine whether or not the party has acted with due diligence; and it is not only necessary to allege such fact but to prove it on the trial. Plaintiffs’ counsel, in their brief, make a statement that the secret dual agency was not discovered until at or about the time of the commencement of the action. There is evidence in the case to the effect that, shortly before the action was begun, the defendant Frank Michels made .the statement that he had agreed to pay commissions to the defendant Rosenthal. There is no evidence, however, in the record to indicate when 'the plaintiffs first discovered this secret dual agency. There is therefore no affirmative showing upon which the court could properly base rescission. What has heretofore been said with respect to the promptness and celerity with which one who charges fraud must act is also applicable to this branch of the case. We cannot infer from the record that the fraud involved in the secret dual agency was not discovered until shortly before the commencement of the action. A court of equity, therefore, cannot grant rescission upon this ground, and we are not in a position to disturb the judgment of the lower court for the reason that it has exercised its judgment and because an application for the rescission of a contract is addressed to the sound discretion of a court of equity. Weinhagen v. Hayes, 174 Wis. 233, 178 N. W. 780, 183 N. W. 162, 187 N. W. 756.
Can a court of equity, notwithstanding its inability to grant equitable relief in this case, award damages to the plaintiffs ? It has heretofore been shown that an action for damages on the ground of fraud and an action for rescission constitute inconsistent remedies and that an election to pur*335sue the one extinguishes the other, and having elected to stand upon a rescission a court cannot award damages unless upon the trial the situation is presented which was unknown to the plaintiffs before the commencement of the action but which developed during the course of the trial which makes rescission impracticable. It is true, in cases where in the course of the trial it is made to appear that the defendants have. conveyed their, property to an innocent purchaser, a court of equity having taken jurisdiction of the action will retain such jurisdiction for all purposes and will award damages.
The general rule is also stated as follows: If a person in good faith brings an action in equity, alleging facts sufficient to constitute a good cause of action within some recognized principles of equity jurisprudence, and by his proofs establishes a state of facts entitling him to some relief by way of damages or otherwise, though failing to prove some fact essential to the relief sought, the court will not dismiss the bill and thereby render further litigation necessary, but will retain it and render such judgment as will do complete justice between the parties. Franey v. Warner, 96 Wis. 222, 71 N. W. 81; Maloney v. Warner, 96 Wis. 238, 71 N. W. 1119; Cole v. Getzinger, 96 Wis. 559, 71 N. W. 75.
The rule, as applicable to this case, however, is properly set forth in 1 Pomeroy, Eq. Jur. (4th ed.) p. 374, § 237, as follows:
“If a court of equity obtains jurisdiction of a suit for the purpose of granting some distinctively equitable relief, such, for example, as the specific performance of a contract, or the rescission or cancellation of some instrument, and it appears from facts disclosed on the hearing, but not known to the plaintiff when he brought his suit, that the special relief prayed for has become impracticable, and the plaintiff is entitled to the only alternative relief possible of damages, the court then may, and generally will, instead'of compelling the plaintiff to incur the double expense and *336trouble of an action at law, retain the cause, decide all the issues involved, and decree the payment of mere compensatory damages.”
This rule is cited with approval in Luetzke v. Roberts, 130 Wis. 97, 109 N. W. 949; Cole v. Getzinger, 96 Wis. 559, 71 N. W. 75. See, also, Johnson v. Carter, 143 Iowa, 95, 120 N. W. 320; Van Dusen v. Bigelow, 13 N. Dak. 277, 100 N. W. 723; Muskingum Co. Comm'rs v. State, 78 Ohio St. 287, 85 N. E. 562.
The reason for the rule as set forth .in Pomeroy is apparent. This rule is, applicable to actions which are in their nature purely equitable and where the remedies are essentially inconsistent, and therefore differs from actions where the equitable and the legal remedies are concurrent. If that were not so, the rule requiring an election of inconsistent remedies would lose its force and would be a mere sham. One must always be impressed .and bear foremost in mind the doctrine, well established in our jurisprudence, that an election to pursue one of two inconsistent remedies practically extinguishes the other. If a plaintiff in equity can pray for rescission in a case of this kind and thereupon can recover damages, then it cannot be true that where he declares rescission he annuls the contract and where he declares for damages he affirms the contract. The rule is modified in cases where it develops in the course of a trial that the defendant has created a situation where rescission has become impracticable because he has conveyed or disposed of the property, upon the ground that a court of equity in such case can afford relief on account of a mistake of fact, and on the further ground that the impracticability to decree rescission results from defendant’s own voluntary act. The 'plaintiffs herein commenced this equitable action with full knowledge of all of the facts, including that of the secret ,cluaj agency, and upon the trial nothing developed which in any way can be deemed to have taken the plaintiffs by sur*337prise. They have deliberately assumed this position, not in ignorance of but with full knowledge of all of the facts. Under such circumstances, we believe that a court of equity cannot award damages in the face of the generally accepted doctrine that one who elects one of two inconsistent remedies must stand and fall by his decision and accept the results.
We regret the position we are thus obliged to take, especially in view of the fact, as has already been heretofore indicated, that the defendants were guilty of an act of fraud criminal in its nature, because the defendant Rosen-thal, as the agent of the plaintiffs, grossly neglected his obligation to act for and advise properly the plaintiffs of their rights and liabilities, and particularly because, knowing all of the facts, he permitted the plaintiffs to execute this chattel mortgage with knowledge, as .we assume he had, that they could be placed in an absolutely helpless condition by an immediate foreclosure of the chattel mortgage resting upon the only property which they possessed on earth out of which they could realize their only means of subsistence, and because, bearing in mind this secret dual agency and the bribery committed by the defendants Michels, it explains fully the neglect and the failure on the part of Rosenthal, the agent, to perform his primary duty, which was loyalty to his clients.
By the Court. — Judgment affirmed.
The appellants moved for a rehearing.