Court Opinion

ID: 6545664
Source: CourtListenerOpinion
Date Created: 2022-07-19 22:19:21.67741+00
Date Added: 2024-06-11T15:55:57.584967
License: Public Domain

McCulloch, J., (after 'stating the facts.) 1. This is an action for frapd and deceit alleged to have been practiced by appellant upon appellee in the purchase of shares of corporation stock from the latter. The complaint is framed upon that theory. It is therein alleged that the defendant made false and fraudulent representations as to certain facts, and falsely and fraudulently concealed certain facts, and that plaintiff, “believing that all had been fully and fairly disclosed by defendant, agreed to sell and •did sell to defendant his stock” at the par value thereof, and that the actual value at that time was far greater than its par value, and that defendant at the time had a contract for resale of the stock at a far greater price. The undisputed evidence — the testimony of plaintiff himself — showed that plaintiff sold his stock •outright to the defendant, but plaintiff claimed that he was induced to do so by his reliance upon false representations and fraudulent concealments made by defendant. The court, in express words, so characterized the action in ■one of its instructions given at the request of the defendant, and told the jury that, “before the plaintiff would be entitled to recover, he must prove by a fair preponderance of the evidence the alleged" false representations,” that they were known by the defendant to be false, and were relied upon by plaintiff. Yet the court in other instructions allowed the case to go to the jury upon an entire different theory, i. e., that the defendant was acting as agent of the plaintiff in the sale of the stock, and had fraudulently concealed the price received for it, and failed to account to plaintiff, his principal, for the full price -received. The two theories are inconsistent with each other, and these instructions are conflicting, for, if the defendant bought the stock outright from plaintiff, he could not have then been the agent of plaintiff for the sale of the stock, and could not be held to account, in an action for damages, for the price he received on a resale of the stock, though he would be liable in such action for damages resulting from his acts of fraud and deceit, the measure of which would be the difference between the price paid to the plaintiff for his stock and the actual value thereof at the time, if the latter exceeded the former. 4 Suth. Dam. § § 1171, 1172; Potter v. Necedah Lumber Co., 105 Wis. 25. Instruction number one given by the court 'is-as follows: “If you find from the evidence in this case that the plaintiff gave to the defendant general authority to sell or dispose of his (plaintiff’s) stock along with his (defendant’s) in the Montreal Coal Company.; that thereafter defendant, while the plaintiff was absent from the State, at Battle Creek, Michigan, entered into a contract with a third party for the sale of the entire issued capital stock of said coal company at the price of approximately $33,000 for the $24,000 of said issued capital stock, and, after having made said contract, he (defendant) attempted to acquire and did acquire the stock of the plaintiff for a less sum of money than he had contracted to and did sell the same for, you will find for the plaintiff in the sum equal to the difference between what defendant paid Williams for his- (Williams’s) stock and what he (defendant) got for said stock, unless you further find from the evidence in the case that defendant, before acquiring plaintiff’s stock, explained fully ‘to plaintiff his (defendant’s) contract of sale of said stock to such third party, or that the plaintiff knew, or in the exercise of a due degree of caution ought to have known the facts in regard to the contract for the sale of the stock.” This instruction, aside from erroneously putting the case before the jury upon a theory inconsistent with the pleadings and proof, is incorrect in that it cuts off, as a matter of law, all right of the defendant to purchase the stock from plaintiff because of the fact alone of the latter having previously authorized him to sell the stock, regardless of any severance of the relation of principal and agent, and regardless of the question whether plaintiff was then, relying upon defendant Tor a full disclosure of all the facts or had the right to so rely. Even though the relation of principal and agent subsisted between the parties, they had the power to dissolve that relation.. If they did so, and the circumstances and further transactions between them were such as to absolve the quondam agent from disclosure of facts coming to his knowledge, then he could with propriety deal with the former principal without making such disclosure. These are questions of fact for trial juries, to determine, and not matters of law for the court. Upon the statement of facts made by the defendant, he had the right to have these questions passed upon by the jury, but the instruction just quoted entirely eliminated them from consideration. The fourth instruction given by the court is open to the same objection, and was erroneous. The second was ■ erroneous, because it declared the wrong measure of damages according to the rule hereinbefore announced. 2. The court gave, over the objection of the defendant, the following instructions: “The court tells you, as a matter of law, that if you find from the evidence in this case that McDonough telegraphed Williams an offer to pay for his (Williams’s) stock, and Williams received such telegraphed offer, and, before McDonough withdrew such offer, Williams telegraphed McDonough an acceptance of such offer, and you believe said offer or acceptance was not modified, then a contract was thereby made between McDonough and Williams for the sale of Williams’s stock at par to Mc-Donough, and all that occurred thereafter between McDonough and Williams, as shown by the testimony in this case, except the mere fact of the actual transfer of the stock, is immaterial to this case, and should be disregarded utterly by you, unless you believe that what occurred thereafter tends to explain the sale of stock; and the mere fact of the actual transfer is only material as showing compliance with the contract of sale into which Williams entered. The ground of appellant’s objection to this instruction is chat there was evidence tending to show that, after plaintiff sent the message from St. Eouis agreeing to sell the stock at par. he received information of the alleged fraud and deception, and. after receipt of such information, he proceeded to perform the contract, thereby waiving the alleged fraud. The question therefore arises: Can the vendor in an executory contract for the sale of corporation stock or other personal property, who has been induced by fraud and deceit to enter into the contract, and who subsequently performs the contract by delivering the property and receiving the purchase price after discovery of the fraud, maintain an action for damages for the fraud ? It seems clear to us, upon principle, that he cannot, though a search of the adjudged cases reveals a paucity of authority on the precise question. Authority is not, however, entirely lacking to sustain the proposition that the fraud is waived under such circumstances. Thompson v. Libby, 36 Minn. 287; Thweatt v. McLeod, 56 Ala. 375; Gilmer v. Ware, 19 Ala. 252; Schmidt v. Mesmer, 116 Cal. 267; Western Elec. Co. v. Hart, 103 Mich. 477; Edwards v. Roberts, 7 Sm. & Mar. 544. In Thompson v. Libby, supra, Judge Mitchell, speaking for the court, says: “If the contract be executed in whole or part before the fraud is discovered, it is well settled that the purchaser need not rescind, but may retain the property, and also bring his action for damages on account of the deceit. But to allow a purchaser who has discovered the fraud while the contract is still wholly executory to go on and execute it, and then sue for the fraud, looks very much like permitting him to speculate upon the fraud of the other party. It is virtually to allow a man to recover for self-inflicted injuries. The fraud is really consummated, and the damages incurred, by the acceptance of the property and paying for it. And if this is done after the fraud is discovered, the purchaser cannot say that he sustained this damage by reason of the fraud. It seems to us that if a party discovers the fraud before he enters upon the performance of the contract, he must • decide whether he will go on under it or rescind. He cannot say it is a good contract for the purpose of authorizing him to accept, the property, but not binding on him as to the price to be paid for it.” An executory contract which has been procured by fraud is not binding upon the party against whom the fraud has been perpetrated. He may, after discovering the fraud, either perform it or rescind it; and if with knowledge of the fraud he elects to perform it, this is equivalent to his making a new contract, and to permit him under those circumstances to recover for a fraud would be to do violence to every rule upon which compensatory damages are allowed. We are aware that there are some cases which appear to hold to the contrary, but upon examination they will generally be found to be cases where the contract had been executed wholly or in part when the fraud was discovered, or where the fraudulent representations were treated as warranties, and damages awarded for breaches thereof. Whitney v. Allaire, 1 N. Y. 305; Johnson v. Culver, 116 Ind. 278; Nauman v. Oberle, 90 Mo. 666. Of course, where the representation to a purchaser amounts to a warranty of title, value or quantity, he may, without waiving the breach of the warranty, execute the contract and sue for the breach. The case of Haven v. Neal, 43 Minn. 315, is sometimes quoted as holding that performance of an executory contract after discovery of the fraud is not a waiver of the right to sue for the fraud, but in that case the contract had been partly executed when the fraud was discovered. We hold that no action can be maintained for the damages where the contract is executed after the discovery of the fraud, and the court erred in so instructing the jury and in excluding evidence tending to establish the fact that appellee knew of the alleged fraud when he consummated the sale by transfer of the stock. The court gave other instructions to the effect that plaintiff could not recover if he had information of the alleged fraud, but he qualified each by a proviso that the jury must first find that the contract of sale was modified. By this qualification the court doubtless had reference to the question whether the contract was changed from a stipulation for sale partly on credit to a sale for cash. The terms of the contract of sale were evidenced by the written letters and telegrams, and it was the duty of the court to construe the contract and declare its terms to the jury, but •.whether this change amounted to a modification of the contract or not, it was still executory until the sale was completed by the transfer of the shares of stock. 3. The court erred in excluding evidence offered by appellant tending to show the value of the corporation stock at the time of the sale. The rule hereinbefore declared as to the measure of damages rendered it competent to show the value of the property sold. If the stock was worth no more than the price received by appellant for it, then he was not damaged. 4 Suth. Dam., § § 1711, 1712; Potter v. Necedah Lumber Co., supra. 4. Appellant challenged the legal sufficiency of the evidence by a request for peremptory instruction to the jury to return a verdict in his favor, and we are now asked to dismiss the case for the same reason, instead of remanding it for a new trial. We are not prepared to say that the evidence is not sufficient to sustain ' a verdict for the plaintiff under proper instructions. It is clear from the evidence that the final transaction between the parties was a sale by plaintiff to defendant of his stock, not a sale by the defendant as agent of plaintiff, and that the defendant was not acting as plaintiff’s agent in the resale'to Bache. Therefore, as before stated,, the evidence is not sufficient to hold the defendant in damages to account as agent of the plaintiff for the amount he received for the stock in the resale to Bache. But there is evidence tending to establish a relation of trust and confidence between the parties extending up to the final consummation of the transfer of stock by plaintiff to defendant. It is therefore a question of fact for a jury to determine, under proper instructions, whether, notwithstanding the severance of the relation of principal and agent, the confidential relation continued up to the time of the sale, and, if so, whether the plaintiff, on account of that relation, relied upon the defendant to disclose information concerning the prospective resale to Bache at a higher price than the par value, and whether the defendant, knowing of such reliance, concealed the information from plaintiff or from Ball and Boone when he knew they were the trusted advisers of plaintiff, and consummated a purchase of plaintiff’s stock at par in view of a certain resale at a much higher price. These are inferences of fact which the jury could have drawn from the evidence, and we cannot say that the evidence was insufficient to warrant an inference favorable to plaintiff’s contention, so as to entitle him to a verdict. There was no evidence that the defendant misrepresented the financial condition of the company either to the plaintiff or to Messrs. Ball and Boone, or that he misrepresented the urgent attitude of the creditors of the concern, and that issue should have been withdrawn from the consideration of the jury. 5. Many exceptions were saved below to alleged misconduct of plaintiff’s counsel during the progress of the trial; but, as the cause must be reversed for the reasons already stated, we assume that the conduct complained of will not occur again in the trial anew, and we do not deem it necessary to discuss these exceptions, or to determine whether appellant was prejudiced thereby, further than to say that the remarks were improper, and should not have been indulged in. For the errors indicated the judgment is reversed, and the cause remanded for a new trial.