Court Opinion

ID: 8194450
Source: CourtListenerOpinion
Date Created: 2022-09-09 23:17:36.202915+00
Date Added: 2024-06-11T16:40:43.113064
License: Public Domain

On June 23, 1924, the following opinion was filed:
Doerfler, J.
Upon a motion for rehearing by plaintiffs’ counsel it is urged that the court erred in holding that it could not award damages for the reason that in bringing this action for rescission in equity the plaintiffs had elected their remedy, and that having so elected, with full knowledge of all the facts, they must stand upon rescission; that *338the plaintiffs being in no position at the time of the commencement of the action to restore the status quo, and it being necessary in a rescission for a party asserting this remedy to act with reasonable promptness after discovering the fraud, rescission could not be decreed, and that therefore plaintiffs are remediless.
To support the holding of this court we cited Luetzke v. Roberts, 130 Wis. 97, 109 N. W. 949; Cole v. Getzinger, 96 Wis. 559, 71 N. W. 75; 1 Pomeroy, Eq. Jur. (4th ed.) p. 374, § 237, and a number of other decisions in this and other courts. In Cole v. Getzinger, supra, it is said:
“It appears to be well settled that where a court of equity obtains jurisdiction for the purpose of granting some distinctively equitable, relief, such as the specific performance of a contract or the rescission or cancellation of some instrument, and it appears from facts disclosed at 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 may, and generally will, instead of compelling the plaintiff to incur the double expense and trouble of an action at law, retain the cause, decide all the issues involved, and decree the payment of mere compensatory damages (1 Pomeroy, Eq. Jur. § 237) ; especially since by the Code the distinction between courts of law and courts of equity has been abolished. Hall v. Delaplaine, 5 Wis. 206, 213; Tenney v. State Bank, 20 Wis. 152, 161, 163, 164; Hopkins v. Gilman, 22 Wis. 476, 480; Combs v. Scott, 76 Wis. 662, 672, 45 N. W. 532; Van Rensselaer v. Van Rensselaer, 113 N. Y. 208, 21 N. E. 75.”
That the foregoing doctrine has ample support by the decisions of this court will appear from a reading of the cases cited and referred to.
The latest decision adhering to such doctrine is Luetzke v. Roberts, supra, but since such decision the rule applicable has been liberalized and broadened to such, an extent as to practically overrule the former holdings. In McLennan v. *339Church, 163 Wis. 411, 158 N. W. 73, Mr. Justice Marshall writing the decision, it is said:
“It is not the law, as seems to have been thought, . . . that-in all cases where specific performance is sought and is not obtainable because of facts known to the plaintiff when he commenced his action therefor, that the court cannot or should not grant other relief by way of compensation, even though it be such as would be a proper subject of an action at law for damages. There are decisions along that line, as Combs v. Scott, 76 Wis. 662, 45 N. W. 532; . . . but they do not indicate the limitation of the rule on the subject. It may be broadly stated thus: In case of an action having been commenced in good faith to obtain equitable relief, and it subsequently appearing that such relief cannot or ought not to be granted, but the facts disclosed by the evidence show that plaintiff has suffered a remediable wrong in the transaction forming the groundwork of the action, entitling him to be compensated by money damages, the court may and, where justice clearly requires it under the circumstances, should retain the cause and afford such relief, and make the same efficient by provisions for a recovery as in an ordinary legal action or as are appropriate to a judgment for equitable relief, as may be best suited to the circumstances of the particular case. [Citing cases.] Under our judicial system there are no distinctions between actions at law and suits in equity. We have only the civil action of the Code as an instrumentality to redress or prevent wrongs, triable with or without a jury according to whether the nature of the relief demanded is legal or equitable. There is but one court and one form of action; therefore, up to the point where the constitutional right of trial by jury would be unduly prejudiced by going further, there is no want of power to grant legal relief in an action commenced to secure equitable relief only, and the practice to grant such relief, in the interest of a speedy and economical settlement of controversy, has been so progressive that it can no longer be properly said that where the facts of a case warrant only legal relief and were known to the plaintiff when he commenced his action for equitable relief, the court will not, should not, or cannot afford the former. Though a person *340may know the facts entitling him only to legal relief when he commences his action for equitable relief, he may be excusably mistaken and invoke that judicial remedy without any design, or there being reasonable ground to suspect a design, to thereby invade his. adversary’s right of trial by jury, ánd the ends of justice can best be attained by finally terminating the litigation in the pending action. In such a case there is no want of jurisdiction to retain the cause for that purpose.” See, also, Gates v. Paul, 117 Wis. 170, 94 N. W. 55; Knauf & Tesch Co. v. Elkhart Lake S. & G. Co. 153 Wis. 306, 141 N. W. 701.
Undoubtedly the plaintiffs originally had. the right to pursue one of several remedies: first, they had the right to restore the original situation, rescind the contract, and recover. back the consideration parted with; second, they could offer to restore, and, by keeping such offer good, could sue in equity for a rescission of the contract and for a recovery of the consideration with which they parted; or third, they could have sued the defendants at law for the damages resulting from the fraud. Denis v. Nu-Way P. C. Co. 170 Wis. 333, 175 N. W. 95; Heckendorn v. Romadka, 138 Wis. 416, 120 N. W. 257.
We must bear in mind prominently the distinction between legal rescission and equitable rescission. In order to recover the consideration which a person parted with, on the ground of fraud, 'it is necessary as a condition precedent that the defrauded person must first either return that which he received or offer a return thereof, and if the fraud be duly established the money or property with which the defrauded party has parted may be recovered. In other words, the fraud will avoid and annul the contract; and there being, therefore, no consideration for the transaction, a recovery of the money or property parted with will be adjudged. In a legal rescission the defrauded party rescinds, and he does so by either restoring or by offering to restore the consideration received by him, and it follows as a matter of course, if the fraud be established, that he may recover the consid*341eration paid, whether it be money or property. On the other hand, the party himself does not rescind in a suit for equitable rescission. In such a case the appeal to the court is an application for the court to rescind, and the rescission does not take place until it is adjudged by the court. An action for rescission is addressed to the sound discretion of the court, and like all such matters, when passed upon by the trial court, will not be disturbed excepting for abuse of discretion. Weinhagen v. Hayes, 174 Wis. 233, 178 N. W. 780, 183 N. W. 162, 187 N. W. 756. If it is a matter of discretion with the court to decree rescission or to refuse it, then it cannot be said that a party by commencing the action actually rescinds.
In Ludington v. Patton, 111 Wis. 208 (86 N. W. 571), at p. 245 it is said:
“The doctrine that in case of a contract voidable upon the ground of fraud the injured party must totally rescind it and restore to the guilty party all that he received from him as a condition precedent to the right to recover what he parted with, is based on the rule that, by the injured party retaining what he received and suing to recover what he parted with thereafter, he occupies inconsistent and inequitable positions which the law will not permit. That is a general rule applicable to legal actions which proceed upon the theory of a precedent rescission. ... It does not apply in any arbitrary way at all to actions in equity for the rescission of contracts. In such actions the plaintiff does not proceed upon the theory of a contract already avoided on the ground of fraud, but upon the theory that the jurisdiction of equity is needed to accomplish that end and to give such incidental relief as the plaintiff may be entitled to. It is sufficient in such a case to show by the complaint a willingness to do equity. ... In Thomas v. Beals, 154 Mass. 51, 27 N. E. 1004, the court . . . said: ‘The foundation of the bill is that the rescission is not complete, and it asks the aid of the court to make it so.’ ”
It follows from what has been heretofore said that the plaintiffs in this case cannot recover the consideration with *342which they parted, for the reason that they were in no position at the time of the commencement of the action to restore to the defendants Michels and wife the property received by them. Equity is designed to do justice as far as practicable between- the parties, and it will not do an injustice even to a wrongdoer where it can be avoided.
The court made and entered the following finding, which is amply sustained by the evidence:
“Before the date when the properties in question were exchanged, it was agreed between the plaintiffs on the one part and the defendants Michels on the other part that the unpaid interest on the mortgages of $3,025 incumbering the plaintiffs’ saloon and dance-hall property should be paid by the plaintiffs up to September 28, 1921; and that the unpaid interest on the mortgages aggregating $7,000 on the Michels farm should be paid by the defendants Michels up to September 28, 1921. The plaintiffs failed to pay the interest which they agreed to pay as aforesaid, and the defendants Michels also failed to pay the interest on the mortgages of $7,000 which incumbered their farm.”
While Michels agreed to pay the interest up to September 28, 1921, the date of the contract, the interest became due on October 15, 1921, at which time the principal of the mortgage also became due. The plaintiffs, therefore, clearly were in default in failing to pay the interest accruing from the date of the contract to- the due date, October 15, 1921, and therefore created a situation upon which a mortgage foreclosure could be based. It also appears from the evidence that no effort whatever was made by plaintiffs to pay such interest or principal when it became due. The mortgage foreclosure therefore followed, and it cannot be said that it resulted solely from the default of the defendants Michels. Under these circumstances a restoration of the status quo was impossible. While the court, nevertheless, as is indicated in the opinion, by reason of the fraud perpetrated would be authorized to decree rescission and to order an accounting, assuming that the plaintiffs could *343prove that they did not become aware of the dual agency until at or about the time of the commencement of the action, nevertheless it is difficult to see how, under such circumstances, the equitable remedy if applied could bring about substantial justice. Under such circumstances it would appear that rescission would be impracticable. The decision of the lower court so implies, and we are also constrained to that view. Rescission, therefore, being the"] remedy sought, the action having been commenced in good faith, but the relief prayed for being impracticable, the court, having assumed jurisdiction, will retain the same for the purpose of doing justice between the parties.
The general rule is that a defrauded vendee, by way of damages, is entitled to the difference between the value of the thing as represented and the actual value. That is the rule adopted by this court. Potter v. Necedah L. Co. 105 Wis. 25, 80 N. W. 88, 81 N. W. 118; Birdsey v. Butterfield, 34 Wis. 52; Kobiter v. Albrecht, 82 Wis. 58, 51 N. W. 1124; Warner v. Benjamin, 89 Wis. 290, 62 N. W. 179.
It was also established by the jury that the prices fixed by the parties upon their respective properties were greatly exaggerated, as is usual and customary in an exchange of real estate. The jury also by the verdict have negatived any false representations on the part of the defendants with respect to the value of their property. We therefore have a case which differs from the ordinary case where the fraud consists of false representations as to value or quantity, quality or location of land. In each of the cases last referred to, the rule under our decisions is applicable and the damages can be readily fixed. In the instant case, however, the only fraud practiced consisted in the dual agency. What we have in mind is clearly expressed in a note to Stoke v. Converse (153 Iowa, 274, 133 N. W. 709), reported in 38 L. R. A. n. s. 465, 471, where it is said:
“It would seem clear that there may be false and fraudulent representations in the exchange of property, of such *344character as to render it impracticable to apply as the measure of damages the rule which in general allows the difference between the actual value and the value if the articles had been as represented.” See, also, Constant v. Lehman, 52 Kan. 227, 235, 34 Pac. 745.
This exception to the general rule substantially was adopted by the Kansas court, although the general rule there is the same as in this state. The justice of this rule is illustrated by a simple assumed transaction in Rockefeller v. Merritt (76 Fed. 909) 35 L. R. A. 633, 639:
“If A., by the false representation of a good title to a lot that is actually worth $1,000, induces B. .to give him a lot of the same value in exchange, B.’s damage must be the actual value of the lot which he conveys. If in their contract of exchange of the lots and in their deeds they estimate and recite the value of each lot at five times its actual value, that fact cannot multiply or increase the damages of B. He loses no more than the $1,000, the actual value of the lot he parts with. As long as he accepted A.’s lot in payment for his, he may be permitted to maintain that his lot paid the debt of $5,000 which he incurred to A. for the latter’s lot, because that was the contract; but the moment he brings his suit for damages, and thereby undertakes to collect the value of his lot or any part of it in money, instead of in land, he is limited to its market value and to his actual loss.”
The illustration above referred to seems to indicate that the only fair and plausible measure of damages in the instant case is to award to the plaintiffs the'difference between the equities of the parties in their respective lands, taking into consideration an adjustment of the accrued interest due upon the mortgages. .The actual difference in the valuations of the properties exchanged, as found by the jury, is $429; that is to say, that, upon such valuations so found, plaintiffs’ equities actually exceeded in value that amount over and above the equities of the Michels. In addition to that, the Michels assumed the payment of interest in the amount of $162.17 in excess of the amount assumed by the plaintiffs; *345so that would fix the total damages of the plaintiffs as of the date of the contract at $591.17, for which amount plaintiffs should have judgment against the defendants.
• The opinion in the case is therefore modified in accordance with what is herein said, and anything in contravention thereof is hereby withdrawn.
By the Court. — The judgment of the lower court is reversed, and the cause is remanded with directions to enter judgment in plaintiffs’ favor for the sum of $591.17, with interest thereon from September 28, 1921, plaintiffs to have costs both on their motion for rehearing and on the appeal.