Court Opinion

ID: 8186258
Source: CourtListenerOpinion
Date Created: 2022-09-09 23:08:45.050591+00
Date Added: 2024-06-11T16:40:25.565768
License: Public Domain

Marshall, J.
There is no dispute as to the facts in this case. They were agreed upon between the parties, and the findings of the trial court are in substance in accordance therewith. The question presented is one of law and may be stated as follows: If an agent, appointed for a fixed period to receive and sell merchandise for his principal and deliver to the latter at the end of such period all goods left and pay for those sold, at the time of adjusting his accounts at the end of the period pretends to produce and exhibit a,11 goods unsold, resulting in an apparent shortage in his accounts, representing a large amount of goods which should be on hand but are not, indicating a disposition thereof and retention or use of the proceeds by such agent, and subsequently the principal takes a note with security for a portion of the shortage and thereafter discovers that such agent had property of the principal in 'a neighboring town in care of a sub-agent, of less value than the balance of goods unaccounted for in excess of the note and mortgage, and with knowledge of the facts in that regard the principal forecloses his mortgage, is he precluded thereby from reclaiming the goods so discovered after the adjustment of the accounts ?
The theory of the appellant in this case is that, if adjusting the accounts with Dowling to determine what goods should be accounted for, and taking the note and mortgage, constituted an election to treat the value of those unaccounted for as an indebtedness, such election being made on the supposition that all unsold goods had been honestly disclosed, when the contrary appeared defendant was entitled to rescind it; and that, the property discovered after the settlement being of less value than the balance of the shortage in excess of the note and mortgage, the enforcement of such mortgage did not preclude the principal from claiming such property. The theory of respondent, which seems to have been also the one adopted by the trial court, is that defendant could not claim the goods discovered after the settlement *645without totally rescinding snch settlement; that it was a necessary prerequisite to snch claim that the defendant should have returned the note and mortgage and restored the agent to the situation existing prior to the settlement, and that the enforcement of the mortgage with knowledge of the facts not only disabled defendant from rescinding the settlement, but constituted a distinct ratification of the acts which gave the agent the status of a debtor for goods unaccounted for instead of a bailee of such goods, thereby transferring the title to the goods to such agent.
The doctrine that an election once made between two inconsistent remedies is binding upon the elector is well understood. It is elementary and has often been applied by this court. Warren v. Landry, 74 Wis. 144; Crook v. First Nat. Bank, 83 Wis. 31; Bank of Lodi v. Washburn E. L. & P. Co. 98 Wis. 547; Franey v. Wauwatosa P Co. 99 Wis. 40; Wirth v. Bartell, 89 Wis. 594. Also the exception to that doctrine, that an election once made, without negligence, in ignorance of some material fact as to which the opposite party owed the duty of disclosure, may be rescinded within a reasonable time after the discovery of the* truth and before any act is done inconsistent with the exercise of that right; and further, the general doctrine that, as a prerequisite to rescission by one person to a contract on the ground of fraud, such person must restore the other party to his original situation; that the rescission must be m toto, and that the restoration must be complete as well,— are all familiar. Grant v. Law, 29 Wis. 99; Hyslip v. French, 52 Wis. 513; Friend Bros. C. Co. v. Hulbert, 98 Wis. 183. The governing idea in the authorities is that a person cannot keep the consideration received or retain to himself the advantages of a contract and at the same time repudiate it. So a contract once made or ratified with knowledge of the facts, or one avoided with such knowledge, irrevocably fixes the rights of the parties unless they mutually agree to change *646it. “ Electio semelfaeta non gooMimr regressvm.” Moller v. Tuska, 87 N. Y. 166; Pence v. Langdon, 99 U. S. 578.
To tlie foregoing doctrine there is a well-recognized exception in many jurisdictions, including this state, that where part payment has been made on a sale contract covering various articles of merchandise, the vendor may rescind the sale for fraud as to a part of the property and reclaim it without returning the amount paid on the contract if the value of the goods reclaimed does not exceed the balance due upon the entire transaction. Friend Bros. C. Co. v. Hulbert, 98 Wis. 183. There the facts were that Barney & Katzky, by false representations as to their financial situation, induced plaintiff to sell and deliver to them on credit a large amount of merchandise. Subsequently the vendees paid a considerable amount upon their purchase. Later plaintiff discovered the truth as to the vendees’ financial ability, and thereupon, without returning or offering to return the money received, the plaintiff rescinded the sale as to the goods not sold by such vendees and then in the hands of the sheriff who had levied upon the same for other creditors of the vendees, such goods being less in value than the balance due the plaintiffs, and then commenced an action of replevin against such sheriff to recover possession of such goods. The court sustained the action, holding that- the plaintiff was entitled to rescind under the circumstances, overruling the claim of the defendant that a total rescission of the contract between the vendor and vendee, and return of the money paid upon the purchase of the goods, was necessary to a reclamation of any portion of them by the vendor. It was then, and is now, well recognized that the ruling was an innovation, to some extent, on the doctrine that there must be a rescission m toto and a return of everything of value received upon the sale in order to enable a vendor of property to reclaim any part of it. The exception to the rigorous doctrine requiring total rescission and restoration *647appears to be required in order to fit situations where otherwise great injustice, would be done. Take the case stated. What reason was there in saying that the vendor should return to his insolvent, fraudulent vendee the balance received, when such vendee had parted to innocent persons with more •of the subject of the sale than sufficient to cover the entire amount of such payments,, as a condition precedent to a reclamation of the goods still within the reach of the vendor ? Such a course would have enabled the wrongdoer to make a profit by the rescission and put the person injured in a far worse plight after the rescission than before.
Eules of law are supposed to be consistent with reason and common sense, so when a proposition is put forward which is not so consistent the presumption at once arises that it is wrong, and such presumption is not successfully met and overcome by showing authority in support of it, if, notwithstanding, the unreasonable character of such proposition yet remains. The right of rescission of a contract for fraud, though a legal right, is based on equitable principles. Therefore the requisites of its exercise should go no further than strict compliance which the dictates of good conscience requires. Eor that reason the exception to the rule of total rescission indicated has become a part of our jurisprudence. In the Friend Bros. Case the vendor could not have rescinded the sale for that part of the goods still under the control of the vendees or the person who stood in their place, and insisted on the contract as to the balance, but could, as was held, retain all payments made, applying the same on account of goods that had passed from the vendees’ possession to that of innocent parties, such payments not being in excess of the sale price of such goods, and rescind the sale as to all goods still in a situation to be reclaimed. That doctrine is well supported, as shown in the Friend Bros. Case. In Schoonmaker v. Kelly, 42 Hun, 299, it was held that a vendor need not return to his fraudulent vendee, as a condition of *648rescinding a sale, any greater part of the payments made thereon than sufficient to cover the goods on hand, less their depreciation in value. To the same effect is Toole v. First Nat. Bank, 34 Neb. 863, where it is said, in substance, that if the fraudulent vendee of goods upon which he has made partial payments before the discovery of the fraud by his vendor, sell to innocent parties a portion of such goods, such vendor upon discovering the wrong may retain sufficient of such payments to cover such portion, tender back to the guilty party the balance, and reclaim the goods still in his possession. Treating of the rights of a vendor in a similar situation, in Sisson v. Hill, 18 R. I. 212, where the vendor, having received certain notes and $50 in cash of his fraudulent vendee, and the latter having parted with some of the property before the wrong was discovered, returned the notes, retained the $50 to apply on the goods that had passed beyond its reach, and replevied the goods still in possession of the vendee, and the action was sustained, the court held that the general rule requiring a rescission in toto or not at all is not to be applied, without exception, to an executed sale contract; that it should be applied no further than is necessary to give full protection to the wrongdoer; that the law, rightly understood and administered, does not require such a rigorous application of the old doctrine of rescission in favor of the guilty party as to necessarily defeat the remedy of his victim. Schofield v. Shiffer, 156 Pa. St. 65, is to the same effect.
What reason can be assigned why the law should not allow a severance of that part of a sale contract which can stand consistent with strict justice between the parties and which cannot be rescinded and the former situation restored without prejudice to the innocent party to the advantage of the wrongdoers, from that part of the contract as to which the former situation can be completely restored consistent with full protection to the wrongdoer against ioss ? None what*649ever, in our judgment. The idea of those holding to the opposite view is that, the contract being entire, the retention of anything paid upon or any advantage under it, must be deemed necessarily to be in part fulfillment of the contract, hence an affirmance of it. The more reasonable view is that what had the semblance of a contract is not, by reason of the fraud, a contract at all, because the minds of the. parties never met in regard to it. Therefore if an injured party so elect, and retains the consideration received to the extent of the goods that cannot be reclaimed, as or on account of indemnity for the wrong, the law will treat the contract as separated into two distinct transactions, leaving that part as to which the parties cannot, without prejudice to the rights of one, be restored to their original situation, distinct from that part where such restoration can be made, and apply the rule of total rescission and return of the consideration to that part by itself.
The facts of this case bring it within the principles above discussed. Dowling committed a fraud upon defendant by not disclosing the fact that he had the binding twine on hand in store at Marxville. If defendant intended to treat the actual shortage of the agent, on account of goods not on hand, as an indebtedness, there is no circumstance indicating an intention to go further and to swell the amount by goods in possession of the agent which ought to have been disclosed to the principal and turned over. The purpose was only to include in the shortage the goods which Dowling had actually disposed of and could not therefore restore to the defendant. The note having been taken for a sum less than the shortage after deducting therefrom the value of the binding twine, upon discovering the fraud of the agent in respect to such twine defendant had a right to treat the former recognition of the shortage as an indebtedness not binding in respect, to the twine, and at the same time enforce the note and mortgage. That separated the transac*650tion in regard to the settlement into two distinct parts, and accomplished just what would have been accomplished in the first instance but for the wrongful conduct of Dowling. The settlement remained binding between the parties as to all goods actually disposed of by the agent, and was nullified as to the goods on hand which were fraudulently represented to have 'been disposed of. That part of the settlement free from fraud was wholly affirmed. That part tainted with fraud and which, without prejudice to Dowling, could stand by itself, was wholly disaffirmed. There was no restoration required as a condition of the disaffirmance, because the note and mortgage were deemed to have been received upon the account for goods that had been actually sold by the agent.
The foregoing answers the proposition stated in the opening lines of the opinion in the affirmative and contrary to the decision of the trial court, which necessitates a reversal of the judgment appealed from.
By the Court. — The judgment is reversed, and the cause remanded with directions to render judgment for the defendant in accordance with this opinion.