105 F. 105 | 6th Cir. | 1900
after making the foregoing statement of the case, delivered tlie opinion of the court.
It will not be possible or profitable to go over in detail the complicated fads presented by the transcript of the record before us, and we shall chielly advert to such of the more prominent matters which involve the substantial merits of the ease, stating for the most part only those conclusions of fact which we reach from an attentive examination of the whole of the evidence. The ease resolves itself into these several questions: First, did Gen. Alger make the purchase of the lands in question, induced by false and material misrepresentations made as to the character and extent of the timber and coal on the lands, and as to the title of the vendor to the lands included within the boundaries of his deed? Second, were the efforts of complainant to verify these representations before concluding the purchase frustrated by the artifices of the vendor or his agents, so that tlie fraudulent character of the representations was concealed, and false reports by complainant’s agents thereby induced? Third, were Sheridan and his associates in the sale the agents of the vendor? Finally, does the evidence show that after knowledge of the fraud
1. In respect of the first question it may be said that before the conclusion of the sale- the complainant discovered that the timber was not nearly so abundant or valuable as had been 'represented, and we are not satisfied that he was induced to make the purchase by reason of any representations in this regard. In regard to the representations touching the title of the vendor i;o the lands sold, it is perhaps established that there is a shortage in acreage, the sale having been by the acre; but this shortage is not of so material a character, nor the fraudulent character of the representations in that respect so well- made out, as to justify a decree of rescission wholly on that account. The remedy upon the covenant of seisin and warranty will abundantly protect complainant, if pursued, against any consequence of such shortage. We may as well say here that the court below seems to have based its action wholly upon the question of fraud in respect to the representations as to the coal upon the lands, and the learned counsel upon both sides have expended their strength mainly upon.the consequences to be deduced from the representations and frauds affecting the values of the land for coal-mining purposes. The case for rescission must turn here. 'There can' be no reasonable ground to doubt but that this land was purchased mainly, if not altogether, upon the representations touching the existence of workable veins of coal, which were represented to show, in entries made by the vendor, or natural exposures, a thickness of from 4 to 11 feet. These representations were made in printed circulars and letters issued by Sheridan, Green & Co., who represented themselves as real-estate agents having the land for sale, and who addressed themselves to Gen. Alger, then and now residing at Detroit, Mich. Gen. Alger yras a man of large means, and had been ■engaged in many important business enterprises, chiefly connected with the lumber interests of his state. The time was propitious fox-attracting his attention. The mountain region of Tennessee and North Alabama was known to be rich in minerals and timber, and a curious spirit of wild speculation in such lands was then pi-evailing, which led to much ultimate disaster to many of those who came under its influence. O. J. Sheridan and his partner had been residents of Michigan, and acquainted with complainant’s speculative tendencies. Hence they addressed him, as a possible purchaser. He replied, making inquiries as to price, terms, etc. At this stage of the case another Michigan man, to some extent an acquaintance of the complainant, was utilized for the purpose of inducing a sale to him. This was one E. J. Lynn. Sheridan and Green, concluding that Lynn’s acquaintance might be of value, secretly interested him in the commissions or profits to be made in case of a sale. Lynn’s - connection with them was not at once disclosed. He was
2. How did this imposition come about? The proof makes it most evident that A. J. Freer at some stage of the negotiations was bribed by those engaged in making the sale. Just at what stage does not clearly appear, but certainly before the bargain was concluded. The property had been listed for sale by John F. Anderson under an agreement by which the ágents were to receive all that they could obtain over $5 per acre. Subsequently, the vendor reduced his price to $4. We do not stop here to consider the contract for a sale to Sheridan, Green & Co., executed while the negotiations were pending, further than to say that the effect of that will be considered when we come to deal with the question of John F. Anderson’s responsibility, as vendor, for the representations and frauds of O. J. Sheridan and those associated with him. The property was offered by Sheridan, Green & Co. to complainant at $7 per acre. This would make a commission or profit of $44,412 for the agents. To affect the conduct and action of A. J. Freer, the agent of complainant, Sherid'an and Green and Lynn offered him one-third of the sum to be earned by the sale to Gen. Alger. This he accepted. The effort to show that he was given this interest,' not to color his reports, but as blackmail demanded by him as the price for not actively advising against the purchase, is not even color-able. The’distinction is not tangible. The fact remains that Freer was promised a share in the spoils in case a sale was made to complainant. When it was consummated he received $13,373.28 from Sheridan and associates, as the price of his services to them. Freer’s report of the measurements of the exposed coal in the old Anderson entries was the report upon which complainant acted. That report he regarded as a verification of the representations made to him by Sheridan & Co. Now, it is satisfactorily shown that his measurements included interposing strata of slate and shale. Thus, one of the entries reported as showing a 48-inch vein of coal was made up of coal 12 inches, .slate and shale 24 inohes, topped with another vein of coal of 12 inches. This interposed slate is shown to have been premeditately painted by 'a wash of coal dust and water so that a casual observer would be misled. To prevent discovery by Shipman, the bottom of the entry at the breast of the vein was deepened so as to indicate that the vein was growing thicker. This was allowed
3. How far is John F. Anderson answerable for the representations and fraudulent devices and artifices practiced upon the complainant? The defendants say that Sheridan and Green were vendees under xVnderson, and were dealing on their own account in sidling this property, and that Anderson only made the deed because he held the legal title and at their direction. This property was placed in the hands of Sheridan and Green, as real-estate agents, by John F. Anderson, December 8, 1888. Ilis agreement was to give them all they could realize over §5 per acre, as their compensation for finding a purchaser. Subsequently this was changed to all they could get over $4 per acre. December 10, 1888, Sheridan, Green & Co. prepared and
“The aggregate thickness oí the three veins of coal is about fourteen feet when opened, and they become more heavy as they are developed. Three miles in a direct line from where one of the openings has been made, the outcropping is eleven feet thick, and about four thousand acres of laud is underlaid with the vein.”
In the same letter they said:
“You will ask, ‘Why has it not. been developed long ere this?’ We reply that the owner has held it upwards of fifty years, and his pet hobby has been to develop it himself. * * * Were it not for the fact that the owner has to have the money, and that money is hard to command here, you could not purchase the land for $20 per acre.”
January 9,1889, complainant acknowledged receipt of above letter, and asked for “a legal refusal of this property,” apd, if it was as expected, he would take it. The price asked by these agents from Gen. Alger was $7 per acre. Just at this point in the negotiations, Sheridan, Green & Co. became apprehensive that their agency might be revoked or the price raised by their principal if he should discover the price they were about to obtain, and the large compensation they would thereby earn. To guard against this, they consulted counsel, and under his advice procured an option for GO days at $4 per acre, agreeing to pay one-fourth cash within that time, and give lien notes for the remainder. For this option they offered $500, and to forfeit same if they- did not make thé cash payment within GO days. Anderson accepted this proposition, and gave a title bond, obligating him to make, title to them if within 60 days they paid one-fourth of the price in cash, and to make a deed and deposit it -in escrow so soon as. a survey could be made. He further agreed, that he “would not offer the land for sale to any person whatsoever, or tell the price at which I sold, until after the sixty days have passed.” “I agree further to tell any person who may call to see me about the land, or write about it, that you have purchased it, and that I understand your price is ten dollars per acre.”
The contention of defendants is that these agreements operated as a revocation of the former relation of agency, and that thereafter Sheridan, Green & Co. were acting for themselves, as the equitable owners of the land, and were no longer the agents of John F. Anderson for its sale. Conceding, for the purpose of the case, that a bona fide sale, by title bond, would operate as a revocation of any former relation of agency, as between the principal and his agent, such revocation would not be effectual as to third persons who continued to deal with knowledge of the original agency, and without knowledge of its revocation. The revocation of an agency does not take effect, as to third persons, until made known to them. “Persons who deal with an agent before notice of the recall of his powers are not affected by the recall.” Hatch v. Coddington, 95 U. S. 48, 56, 24 L. Ed. 339, 341; Johnson v. Christian, 128 U. S. 374, 381, 9
4. Has the complainant, with knowledge of the fraud perpetrated upon him, elected to abide by the transaction notwithstanding the fraud? The deed was executed March 21, 1889. The complainant discovered the thinness of the coal veins, and the consequent worthlessness of - the property for coal-mining purposes, as early as. the summer of 1889. His deferred purchase-money notes matured in 1890, 1891, and 1892, and were paid as they matured. This bill was not filed until August, 1894, — something more than five years after the transaction. Ho statute of limitations has barred the suit, and none has been relied upon. The defense is that by the retention of the property, and the payment of the deferred purchase-money notes, the complainant has elected to hold onto his bargain. To avoid the prima facie effect of this delay in seeking rescission, the bill, in substance; avers that in purchasing the property complainant was misled and deceived by the reports of his agent, A. J. Freer, as to the coal deposits, and that he did not discover the corruption of this agent until the spring of 1894, and that he then caused this bill to be filed. The defendants deny this, and aver that he made the discovery of Freer’s bribery shortly after he bought the property. Upon this issue a great mass of evidence has been submitted and upon this issue the result must turn. To prove knowledge and an election to stand by the bargain, defendants have relied, among other things, upon a letter from Gen. Alger, of March 21, 1889, to Sheridan, Green & Co., in which he said that he was “in receipt of a letter from your place informing me that the coal on the land I have purchased is not a regular vein, but is simply in pockets; that it has been proven so; and that it is notoriously known as béing not a regular vein of coal, and that is the reason why it has never been worked. Of course, if I have been 'salted5 in this way, I do not care to increase my investments there, but will let it stand and get out of it what I can.55 Complainant had not purchased this property alone, nor chiefly, upon the representations of the vendor and his agents. He had undertaken to verify their representations by an investigation. Freer pre
Evidence of declarations of an agent as to the past transactions of his principal are inadmissible, as mere hearsay. Goetz v. Bank, 119 U. S. 551, 7 Sup. Ct. 318, 30 L. Ed. 515. But it is said that at some time Gen. Alger did learn from Shipman the fact of Freer’s bribery. This he admits in his second deposition. But when was this? The complainant in 1893 employed Col. John Atkinson to investigate his title and bring suit to obtain a rescission, upon the ground that the vendor had knowingly and fraudulently included lands in Ms deed to which lie had no title, or, failing rescission, to obtain relief upon the covenants of the deed. For the purpose of starting such a suit, the firm of Marks, Fitzpatrick & Lynch, lawyers, in Franklin county, Tenn., were retained by Gol. Atkinson. The deed did not show a sale by the acre. To ascertain the facts in this respect, Judge Moon, at Chattanooga, was consulted, as probably having knowledge. He advised counsel of the suit between Hheridan and Green, and that they should examine that record. This was done in April, 1894. Freer’s want of fidelity was then disclosed, and a synopsis of the evidence was prepared and submitted to Ex-Gov. Blierwood, the local agent for complainant. This was May 11, 1894. This document was placed in the hands of Ool. Atkinson by Sherwood, and communicated to Gen. Alger by Col. Atkinson. Col. Atkinson testified that this was the first information which reached Mm of Freer’s treachery, and that when he commu; nica ted it to Gen. Alger the latter refused to credit it, until a photograph copy of Freer’s receipt, filed in the case of Sheridan v. Green, was shown him, and that thereupon this bill was filed so soon as it could be prepared. Much comment has been made upon the vague
In the case of Mining Co. v. Watrous, 9 C. C. A. 415, 61 Fed. 163, 186, we had occasion to consider the kind of knowledge which is necessary to put a vendee to an election. We then said:
“When a purchaser acquires knowledge that he has been defrauded, he has ^n election of legal remedies. He may keep the property and sue for damages, or repudiate the contract and demand rescission. These remedies are not concurrent, hut inconsistent, and the adoption of one of necessity excludes the-other. The rule is well settled in equity that after knowledge of the fraud the party must, -within reasonable time, make an election as to whether he will affirm the trade, notwithstanding the fraud, or offer to restore the property- and demand the return of his purchase money. If, after the knowledge of the-*119 facts which entitle him to rescind, he deal with the property as owner, it is evidence of acquiescence, and an affirmance of the contract.”
In that case, as in this, the vendee at an early day learned that he had made a prodigiously- bad bargain, and that things were not as had been represented. In that case, as in this, the property had been bought after an investigation which seemed to verify the representations of the seller. In that case the agent of the buyer took his own samples from places of his own selection in the silver mine which was the subject of the sale, and the property was bought upon the result of an analysis of the samples thus taken. The mines soon proved worthless. But no right of rescission arose unless the samples had been “salted” by the vendor so as to make them nonrepresentative of the ores of the mines. Until evidence that the samples had been tampered with by the vendors could be secured, there was no ground for filing a bill for rescission. We said:
“Without evidence that his samples had been tampered with by defendants, he had no knowledge of facts entitling him to rescission. Knowledge of their guilty complicity in the intrusion of metallic silver was and is the knowledge upon which the option of rescission arose.”
We also said:
“Neither rumors nor suspicions required an election. Either would demand diligence in effort to discover the troth, for, after facts are known, calculated to excite suspicion, laches would be imputed if there was negligence in inquiry.”
This is the law applicable to the case in hand. Knowledge that the investigation undertaken by complainant had been thwarted by the fraudulent artifices of the vendor was the knowledge upon which the option of rescission arose. It is not made clearly to appear just at what stage of the negotiations Freer was corrupted. Most likely it occurred between his two visits to the property. It is not impossible that on his first inspection of the old openings upon the property he was deceived by the painted slate, and ignorantly measured a stratum of slate or shale with two thin veins of coal, one above and one below the shale. It is also possible that his corruption came about through his own initiative after the first inspection and after his first report to Gen. Alger. But all of this is immaterial if before the conclusion of the purchase he was given an interest which was in conflict with his duty to Gen. Alger. One thing is clear: He was bought before bis second inspection of the property. Whether he then discovered the artifice by which his former investigation had been thwarted, if in fact he had ever been deceived, is not vital. He might have done so if his fidelity had not been in the meantime shaken. Gen. Alger was thereby deprived of the vigilant observations of an honest agent, and through confidence in him the discoveries which might have come from a thorough investigation by Shipman, who was an expert, were in all probability completely thwarted. In such a situation the right of rescission arose when it was discovered that the inspection and investigation which complainant undertook to make, and upon which he relied, had been frustrated by bribery and other fraudulent schemes adopted to make such investigation worthless. That he did not discover the facts
5. We now come to the question of the liability of the defendant John W. Gonce. One of the tracts of land included in the deal of John F. Anderson to the complainant was a body of between 1,000 and 5,000 acres, known as the “Gray Grant.” This tract in 1888 was owned by John F. Anderson, John W. Gonce, and others, as tenants in common. For the purpose of partition it was sold under a decree of the chancery court for Franklin county, and bought by John W. Gonce, to whom the sale was confirmed. At the sale there was an agreement betw’een Gonce and Anderson that the latter might share in the purchase to the extent of one-fourth, upon paying that proportion of the cash payment required by the decree of sale, and of each of the deferred purchase-money notes to be executed by Gonce. John F. Anderson was the grandfather of John W. Gonce, and they were near neighbors. Anderson neglected to avail himself of his right to join in the purchase, but claimed to be the equitable owner of a one-fourth interest in this land, subject to the payment of one-fourth of the price which Gonce was to pay, and for which Anderson was bound as Gonce’s surety upon his purchase-money notes. When Anderson listed his own lands for sale with Sheridan, Green & Co., he probably included this Gray tract, though this is not clear. January 11, 1889, when he gave to Sheridan, Green & Co. the option contract before mentioned, he included this Gray tract in the description of those lands which he obligated himself to sell to them if they should exercise the option of buying. John W. Gonce denies that he ever authorized his grandfather to thus list his interest in this land with Sheridan, Green & Co., or that he ever authorized its inclusion in the option contract or title bond given them; and there is no evidence whatever justifying us in finding that either act was done by any arrangement, agreement, or .understanding between them. Some time after this had been done,
The decree of the circuit court must he affirmed so far as it refused relief against John W. Gonce, but reversed so far as it denied the relief of rescission. The costs of appeal will he divided between complainant and the executrix of John F. Anderson, the latter paying three-fourths of the whole. The case will he remanded for further proceedings not inconsistent with this opinion, when the costs below may be taxed as the court shall adjudge.