165 Iowa 141 | Iowa | 1913
One branch of this case was considered on a former appeal, the opinion being found in 147 Iowa, 267, and the present case was also before us on some interlocutory orders and an opinion filed, which will be found in 149 Iowa, 367. These cases, and especially the last one, state the issues with great fullness, and reference c is made thereto for a detailed statement thereof. It is sufficient to say that after the ease went back to the'lower court for trial, the defendant bank filed a rejoinder or reply to plaintiff’s reply, in which it denied the allegations of divisions 1 and 2 of the reply, pleaded a ratification by Schussler of the matters set up by him as amounting to a discharge, and also an estoppel on his part to rely upon any of his defenses because of his election to abide by the contracts complained of, and his ratification of all the actions of the bank and its officers. The right to an accounting by Schussler was admitted, and the bank also asked for such an accounting, and for a judgment against him. The notes in controversy are for $5,000 each, bearing date December 1, 1906, and due in seven and eight months, respectively. They were made payable to the Cen
The record is very voluminous and the testimony somewhat contradictory, although as to many of the facts there is no dispute. It appears that Schussler, for many years, was a resident of Minnesota, and was there engaged in buying and selling timber and products of the forest. In the year 1904 he became acquainted with J. K. Barnes, his co-plaintiff, who was a member of the firm of Casebeer & Barnes, also doing business in the same state. Schussler had considerable business with this firm for some years prior to the year 1906, when the firm dissolved, Barnes assuming the indebtedness of his firm, and among other items, was an account due Schussler of something like $5,000. Barnes had no financial resources, but Schussler seemed to have confidence in him, and undertook to finance him in a gunstock business at Des Moines, part of the indebtedness being about $2,000, advanced
November 23, 1906. In consideration of the indorsements on two notes for $5,000.00 each, signed by J. K. Barnes and payable to the Century Savings Bank of Des Moines, Iowa, payable in seven and eight months after December 1, 1906, such indorsements made by M. H. Schussler of Floodwood, Minn. It is understood and hereby agreed by and between J. K. Barnes of Des Moines, Iowa, the Century Savings Bank of Des Moines, Iowa, and M. H. Schussler of Floodwood, Minn., that said Barnes agrees to turn over all proceeds derived from the sale of gun stocks to the U. S. government (cut from certain land purchased from the Merimac Spring Park Co. in Crawford and Phelps counties, state of Missouri) to the Century Savings Bank and said Century Savings Bank hereby agrees to apply all the moneys so received on the indebtedness of said J. K. Barnes for the purchase of the timber above referred to as follows: The first $10,000.00 so received to apply on and to pay notes given to Century Savings Bank by said J. K. Barnes dated December 1, 1906, and not indorsed by M. IT. Schussler. The balance of all moneys so received by said Century Savings Bank to apply on and to pay certain notes dated December 1,1906 and indorsed by M. IT. Schussler until said notes are fully paid. And the next $5,000.00 to be paid to M. H. Schussler to apply and to pay certain indebtedness of that amount contracted by Casebeer & Barnes with Coolidge-Schussler which indebtedness has been assumed by said Barnes. It is mutually understood and agreed by and between all parties hereto that in no event without the written consent of all parties hereto, shall any funds, coming from the sale of any gunstocks to the U. S. government cut from above mentioned lands to be used for any other purpose than to liquidate the indebtedness herein referred to. J. K. Barnes. M. TI. Schussler. Century Savings Bank. H. M. Whinery, Cashier. D. A. Byers, Witness.
This contract was drawn by Schussler, and will become important to one issue in the case. After the execution of
Whereas, the undersigned, J. K. Barnes, M. H. Schussler, and the Century Savings Bank, entered into a certain contract in writing under date of November 23d, 1906; and, Avhereas, the said Barnes, at the date of said contract had entered into a contract with the United States for the sale of gunstocks to said United States, the proceeds arising from which were to be applied as in said contract stated; and, whereas, said contract between the said Barnes and the United States has been heretofore canceled by the United States because of the failure of the said Barnes to furnish said gunstocks; and whereas, the said Century Savings Bank has been compelled to make advances to the said Barnes in order to meet expenses incurred in connection Avith the cutting of the walnut timber on the lands in said contract mentioned; and, whereas, it is now suggested by the said Schussler that he is in doubt as to whether H. M. Whinery, cashier of the said Century Savings Bank, who holds the title to said timber, as trustee for said Bank alone or as trustee for all the parties to said agreement: Now, therefore, it is hereby declared to be the true intent and meaning of the parties to said contract that H. M. Whinery has acted, is acting and shall act as trustee, not only for the said Century Savings Bank, but for the said Schussler and the said Barnes also.
And it is hereby further declared and agreed that all advances made or hereafter made by the said Century Savings Bank to said Barnes, or for his use and benefit, in the prosecution of the work in said original contract of November 23d,
Out of the remaining proceeds, payment shall be made of the notes mentioned in said original contract, aggregating ten thousand dollars ($10,000.00), given by the said Bames to said Century Savings Bank, and not indorsed by the said Sehussler.
Out of the remaining proceeds, payment shall next be made of the remaining notes mentioned in said contract of November 23d, 1906, executed by the said Barnes to the said Century Savings Bank and indorsed by the said Sehussler.
Out of the remaining proceeds, payment shall be made to said Sehussler of the indebtedness of five thousand dollars ($5,000.00), mentioned in said contract of November 23d, 1906, due and owing to him and arising out of prior transactions with Cascbeer and Bames, payment of which has been assumed by said Barnes, as stated in said contract, together with any and all advances or additions thereto made by the said Sehussler to the said Bames.
Upon the payment of" all of the foregoing indebtedness, then and in that case the said Whinery shall release to the said Barnes any and all interest that he may have, as trastee, in and to the timber tract, and the timber thereon mentioned in said contract of November 23d and to any remaining funds then in his possession as trustee.
And it is further understood that all actions and conduct on the part of the said H. M. Whinery in connection with the prosecution of the enterprise mentioned in said contract of November 23d, 1906, up to this date, is hereby ratified and approved.
It is understood that there is existing at this time a certain contract in writing for the sale of lumber between one Panabacker and said Barnes. It is the thought of all the parties thereto that it is expedient to procure the release from said Panabacker of said contract, providing the same can be done at ap expense of not to exceed one thousand dollars ($1,-000.00). In the event that such release is procured, then the sum paid therefor by the Century Savings Bank, if any, to the extent of one thousand dollars ($1,000.00) shall be regarded as an advance on expenses incident to the enterprise.
It is further understood that all shipments of lumber, logs, gunstocks, or other products shall be made in the name
It is further understood that the said Barnes and the said H. M. Whinery, trustee, shall keep' an accurate debit and credit account of all the transactions in connection with the enterprise in this contract mentioned, and that the said books of account shall be open to the inspection and examination of all the parties to this contract at all times.
It is further understood that in the discharge of his duties as trustee hereunder the said Whinery shall exercise all reasonable diligence, but if the said Barnes shall in any wise fail in keeping and performing all the covenants herein contained to be kept and performed upon his part, then and in that case the said H. M. Whinery trustee, shall not be held liable therefor.
In testimony thereof, witness our hands hereto affixed at Des Moines, Iowa, this 17th day of December, 1907. [Signed] J. K. Barnes. [Signed] M. H. Schussler. [Signed] H. M. Whinery, Cashier.
This was entered into after a full consideration of the indebtedness of Barnes and the situation of the business generally. Matters were then resumed with another timber man in charge of the timber end of the venture and with the old and new man and Barnes in charge of the manufacturing end. Under this new agreement, the Bank advanced money until about the latter part of January, 1908, when the parties in interest all met again, some of them with their attorneys, went over the situation, and at that time a heated controversy arose over some past transactions, which will be hereinafter referred to. After this meeting, the Bank continued to make advances with Sehussler’s knowledge. At the time of this last conference all seemed to think the business could be made to pay, and they proceeded to carry it on until August of the year 1908, when Schussler came to Des Moines, and the Bank undertook to give him a statement of the entire transaction. Instead of going over it, Schussler left, and on September 4th of that year he joined with Barnes in commencing
For the purpose of getting this main issue clearly stated, we may here eliminate all of Barnes’ indebtedness to the Bank or to other persons at the time the loan of $20,000 was made, for the testimony does not support the claim that there was any other indebtedness which was concealed, save the bonus notes above referred to. As to these, the testimony shows that it was secretly agreed between the Bank cashier, "Wliinery, and Barnes, that Barnes should execute his individual bonus notes to "Whinery in the sum of approximately $5,000) $500 of which was for services rendered by Wliinery to the firm of Casebeer & Barnes, for which amount a note was executed upon the understanding that he would take up the matter of the $20,000 loan with his Bank, and before the matter was taken up with the Bank, Barnes executed four other notes of $1,000 each, the character of which will hereinafter be explained, and it is claimed that another $1,000 was to go to the Bank in addition to its interest on the $20,000, but that this was not evidenced by any note. According to one version of the transaction, these notes, amounting to $4,500 were given to Whinery, the cashier, to induce him to take up the matter of the $20,000 loan; ostensibly $500 of the amount was for services rendered the old firm of Case-
The claimed verbal agreement that the bank should have $1,000 bonus in addition to the 8 per cent, interest specified in the notes is not very clearly explained in the testimony, but Barnes said that the arrangement was that when each of the $1,000 notes was taken up, the Bank was to receive $250 in addition to the interest, making $1,000 in all. As we understand it, Barnes paid the $500 note executed by him, but he never did pay any one of the $1,000 notes or the $1,000 bonus' to the Bank, or any part thereof. On the contrary, during the trial these bonus notes were produced by the attorney for the Bank, and tendered for cancellation or for delivery to Barnes, if he desired them.
To a better understanding of the matter, we here quote from the testimony of Barnes, as follows:
Q. Beferring now to these bonus obligations of four $1,000 notes and the verbal undertakings to pay the Century Savings Bank a commission of $1,000, state whether or not in making your arrangements with Mr. Whinery, the cashier of the Century Savings Bank, he insisted on the giving of those obligations by you as a necessary condition to his extending you this loan of $20,000. A. Yes, he made it very clear to me that that was absolutely necessary if I got the loan at all. Q. Your object, then, in making these or going into this undertaking and making these notes, was in order to procure the loan of $20,000? A. Yes, sir. Q. Evidenced by the four $1,000 notes? A. Yes, sir. Q. And that advance was made, the $20,000 ? A. It was made upon the completion of arrangements for the purchase of the timber. Q. Wh.at was your reason, Mr. Barnes, for refraining from telling Mr. ■ Schussler about the existence of these four notes for $1,000 each, and of this $500 note, and of the $1,000 verbal obligation to the Century Savings Bank? A. I naturally did not care to tell him about that. Q. Wliy not? A. Well, I naturally supposed it would queer the deal if I did. Q. State, if you please, if you
The cashier, Whinery, in writing to Barnes about one of these notes said: “In reply to my letter contained in this envelope, relative to the $1,000, note, please address the letter to me personally,” and at another time wrote, “It will be quite a help to your business if this note is liquidated at this time. ’ ’
Schussler testified as follows, regarding this matter:
When we reached the bank Mr. Whinery asked me what I thought of the proposition, and I told him it looked all right to me, provided Mr. Barnes’ affairs were in the condition that he said they were, and I told him Mr. Barnes had made me a statement, and that he also told me he was doing all of his business loith the Century Savings Bank, and that he owed the Bank some money, but all of the money that he owned was protected by these shipments. Mr. Whinery said, ‘Anything Judy tells you im, the matter you can rely on.’ He said, ‘We have done business here a good while, and it has been rather extensive, and we think a lot of him, and anything he tells you im, the matter, you can just depend upon him.’ I said, ‘Then you know this is all Mr. Barnes owesV and he said, ‘It is.’ Judy was Mr. Barnes. ... In this conversation Mr. Whinery told me that the only money that Mr. Barnes owed him was for advances they had made on shipments, and that he assigned the bills of lading or invoice of these shipments to them, and they made advances on them, and that in every ease there was more than enough coming im, to take care of these notes that Bwrnes had given the Bank, growing out of the old Casebeer & Barnes business, or of the Barnes
Whinery was pot a witness for either party, but the managing officers of the Bank, each and all, testified that they had no knowledge whatever of these bonus transactions. We have heretofore set out the contract between Barnes, Schussler, and WTiinery over date December 17, 1907, and here observe that by the terms of this contract, Whinery’s connection with the Missouri venture from November 23, 1906, down to the date of the contract were each and all ratified and approved; but
In this connection, although perhaps a little out of order, we set out a contract between Panabaeker, Barnes, and Whinery, trustee, entered into on November 8,, 1907. It reads as. follows:
St. James, Mo., Nov. 8, 1907.
It is hereby agreed between the parties hereto as follows:
First. It is agreed that J. Panabaeker shall take charge of the cutting and hauling of the walnut lumber that he has purchased from J. K. Barnes, in what is known as the Spring Pa^k Co. land and in said cutting and hauling said J. Panabaeker agrees to give the said matter his personal attention and use every effort to have said lumber manufactured and hauled at the very lowest price possible and agrees to push said work as fast as possible for which services the said J. Panabaeker agrees to make no charge for his time.
Second. It is understood that in manufacturing said timber, that what are known as export logs, 19 inches and over in diameter, shall not be sawed up and that the remaining portion of said logs, shall be cut into lumber, suitable for the contract between J. K. Barnes and J. Panabaeker, except that the said J. K. Barnes may direct what portion thereof he desires to be cut into gunstoek material.
Third. It is understood that in paying for this work, a certain check receipt shall be used, payable at the bank of St. James and shall be given by the said J. Panabaeker and O. K.’d by the said J. K. Barnes before said payment is made. And said cheeks shall distinctly state for what the same is given and the same shall only be given for bills actually made in connection with the cutting and getting out of said timber. This, however, to include bills that have already been made which shall be passed upon in like manner by both of said parties and such checks as are given, for old accounts shall distinctly so state.
Fourth. It is understood that when this lumber is delivered at the railroad station, the same shall be inspected and its value determined in accordance with contract between J. Panabaeker and J. K. Barnes, which amount shall be certified to H. M. Whinery, trustee. It is further agreed that the lumber, however, shall still remain the property of H. M.
Fifth. It is further agreed that the said J. Panabaeker shall have charge of the hauling of the gunstock lumber as well as the cutting, if the said J. K. Barnes shall haul any of the said lumber with his teams or engine, he shall receive the same compensation therefor, and paid in the same manner as other haulers shall receive.
Witness our hands, this day and year first mentioned. J. Panabaeker. [Seal.] J. K. Barnes. [Seal.] H. M. Whinery, Trustee.
Such was the situation of affairs when Barnes with his attorney (one Maxey), Schussler, and Whinery met for some purpose at St. James, Mo., which was near the timber land, and Barnes’ attorney accused Whinery of having taken the bonus notes. As the testimony with reference to this meeting is vital, we here set out the substance thereof. Schussler testified:
Since the execution of the notes, Exhibits 1 and 2, and the contract, Exhibit A, I have learned that at the time they were executed Mr. Barnes had also Obligated himself to a
Q. State whether or not you have ever seen any of these so-called bonus notes or obligations. A. I saw a note for $100 that Mr. Bames said was a bonus note.
Q. Do you think you were in St. James on the Thursday following the date of the telegram? A. Well, we kept that appointment, kept the appointment all right. I met Mr. Prouty there. It ivas at that time that I learned of the tonus notes. At that time Mr. Barnes was complaining to Mr. Whinery and myself in regard to the management down there. He claimed that the men in charge were not looking after his interests, and complained to Mr. Whinery, and suggested that they have a meeting down there, and we went down to see what the situation was. Q. What did you learn the situation to be? Just tell me. A. I found they were working there. Mr. Barnes hald been running the mill, and at that time they were logging, cutting logs out of the woods. Had some logs in St. James, and I believe they said they had some logs that ivere scattered along the Merrimac river. I did not go down through the Merrimac river bottoms, in addition to St. James. At that conference I learned that Barnes had a body of logs lying felled in the Merrimac river bottom, in addition to those that had been transported to St. James. I don’t think Mr. Barnes had any credit at St. James at that .time. His credit there had been exhausted long before that. Q. You kneAV that for some time prior to that the Century Savings Bank had been advancing money to get the logs felled and get them out of the bottom, didn’t you? A. Yes, sir. Q. And for the reason Mr. Barnes had no money to pay the labor necessary to accomplish that result? A. Well, I understood Mr. Whinery had taken charge as trustee, and the Century Savings Bank was furnishing money to defray the log expenses there. They had a lot of material on hand there they proposed to sell and convert into cash to reimburse the Century Savings Bank. At that time the work was pretty well completed, and it was more a question at that time of converting material into money than it was of making further advances. Q. Do you say you did not know that the Century Savings Bank Avould make future advances to get logs yet in the bottom out and get them ready for market? A. No, I thought they would make future advances.
. . . I remember being here in Des Moines, but not whether it was August 22d. It probably was. I saw a lot of papers and vouchers, but there was no statement or any
We here quote some letters written by Schussler to the Bank:
Floodwood, Minn., Apr. 11, 1908. Mr. H. M. Whinery, Des Moines, Iowa — Dear Sir: Your favor of the 7th at hand. I think the action you took in regard to sending your son James R. Whinery to St. James to look after things is a good one. Also to have the lumber scaled up so you may know just what you have got there. I was very much disappointed that you did not settle with Mr. Maher before he left, as I fully expected you to do this and see no reason why it should not be done. When I first took Mr. Maher down there with me, it was to look over the situation so that I would be personally informed in regard to it, but after he came back from St. James and I met you in Des Moines the second time, it was by your request that we kept Mr. Maher there. We needed him here and had to hire another man to take his place while he was away. If Mr. Maher was not satisfactory
Floodwood, Minn., May 19, 1908. Mr. H. M. "Whinery, Des Moines, la. — Dear Sir: Your favor of the 14th at hand and noted. I am very glad to know that as far as manufacturing at St. James that you are through, and I hope you will be able to dispose of the inch lumber which you have on hand at a good price soon, so that this matter can be closed up. I have been away from home so much lately and expect to be for the next two weeks, that I cannot tell just at present just when I can get to Des Moines as I have to take a little trip to Canada, and also may be called to Washington. If things shape themselves, however, so that I can get down there after the first of the month, I will advise you, but it looks very much as though I would not be able to get down there before the first of June. Yours truly, M. H. Schussler.
Minneapolis, Minn., June 12, 1908. Mr. H. M. Whinery, Des Moines, la. — Dear Sir: Your favor of the 9th to Flood-wood has been forwarded to me at Minneapolis. We have moved our main office to Minneapolis, and I am spending the greater part of my time here. I am going north to-night to be gone several days, and on my return I will advise you how soon I can get to Des Moines. I should, however, in the meantime, be pleased to have a statement of about how the St. James matter stands, to go over before I come to Des Moines, if you can send it to me. Yours truly, M. H. Schussler.
On September 5, 1908, the Bank wrote Schussler as follows:
Sept. 5, 1908. Mr. H. Schussler, Esq., 826 Metropolitan Bldg., Minneapolis, Minn. — Dear Sir: The inclosed original notice in the case of J. K. Barnes and M. H. Schussler v. the
To which Sehussler made this response:
Minneapolis, Minn., Sept. 7, 1908. Mr. W. G. Harvison, Pres., Century Savings Bank, Des Moines, Iowa — Dear Sir: Your favor of the 5th inclosing original notice in the case of J. K. Barnes v. Century Savings Bank, at hand. Replying to same, beg to state, some two months ago, I requested your Mr. Whinery to make up a statement showing the condition of the'J. K. Barnes matter, as conducted by Mr. Whinery as trustee, and two or three times since that time I have requested a statement, but up to the present time have received none. So that while you have made a demand on me for payment of notes which I indorsed for J. K. Barnes, yet for some reason, you evidently are keeping me in the dark regarding the exact condition of affairs. In the first place, you understand, I did not receive one cent from Mr. Barnes nor from the Century Savings Bank at any time since this deal with Mr. Whinery and Mr. Barnes was made. My only connection in the affair was that Mr. Barnes claimed that this was an opportunity for him to make some money so that he could pay me an indebtedness which Casebeer & Barnes had contracted previous to that time, and which Mr. Barnes had assumed, and at the time Mr. Barnes made this loan from your bank, there was an agreement made between Mr. Barnes, your bank and myself, that the funds derived from the operation of this timber should be used in a certain way to reduce certain indebtedness, all of which you are familiar with. At the time I was asked to make this endorsement as additional security for Mr. Barnes to get this loan, I did not understand that Mr. Barnes had given Mr, Whinery notes to the extent
Barnes gave the following version of the matters relating to Schussler’s knowledge of the bonus notes.
On February 1, 1908, I first informed Mr. Schussler that I had given these four notes of $1,000 to which I have testified. That was at St. James, Mo., in the back office of the St. James Bank. Q. You were present at St. James, Mo., at the time when Mr. Whinery and Mr. Schussler and Mr. Gerhart and Mr. Maxey were there? A. Yes, sir. This was February 1, 1908. It was on that occasion that I first informed Mr. Schussler as to the existence of these so-called bonus obligations.
On cross-examination he said:
As stated before, it was February 1, 1908, that I told Mr. Schussler all about this bonus transaction. It was during the interview at St. James. I told him practically what I have testified to here. I told him that at the time the loan was made to me, Mr. Whinery refused to go ahead with it
Schussler also testified:
On January 24, 1908, he wrote the following letter:
Floodwood, Minn., Jan. 24, 1908. Mr. H. M. Whinery, Des Moines, la. — Dear Sir: Your favor of the 22d at hand and noted. I am very sorry that Mr. Maher and Mr. Barnes do not seem to be able to agree on the running of the gunstocb factory, and I realize the fact that Mr. Maher may be somewhat incompetent to run this without the co-operation of Mr. Barnes and I was in hopes that Mr. Barnes would look at this matter in the proper light, that is, that your taking entire charge of this operation was to protect his interest as well as yours and our own. Now, I know Mr. Maher so well, and he has worked under my directions for so long that I know that he is a very level-headed man, and I am convinced that he would not take the stand that he does, unless there were excellent reasons for it. You understand Mr. Maher has no interest in that operation whatever except to protect our mutual interest while Mr. Barnes has. In thinking the matter over and weighing all the facts in the matter, I do not think that Mr. Barnes is entitled to a great deal of consideration so far as his word is concerned. As stated to you before, Mr. Barnes has made so many promises to me, and as yet he has failed to carry out one single promise, and this certainly does not speak well for him. Furthermore, Mr.
This is substantially the testimony relied upon, pro and eon, on the absolute defense pleaded by Schussler, save it is shown that the Bank continued to advance money for the benefit of the enterprise after February 1st, when Schussler discovered the bonus notes, and down to the time the matter proved a failure and Barnes and Schussler brought their action.
In connection with the facts, many legal propositions are argued, to some of which we now refer.
But we doubt if this rule is applicable here. In making the loan, and in all matters properly referable thereto, including the representations made to the guarantor, Schussler, the cashier was acting for the Bank, and if he undertook to state Barnes’ liabilities, it was his duty to do so correctly; and, if he failed in this, his act was the act of the Bank, on the theory that where one of two innocent parties must suffer from the wrongs of a third person, he who placed the wrongdoer in a position to do the wrong must suffer the consequences of his act. This last is a short statement of a rule frequently applied in equity, and we think should govern here. Stowe v. U. S., 19 Wall. 13 (22 L. Ed. 144); Martin v. Webb, 110 U. S. 7 (3 Sup. Ct. 428, 28 L. Ed. 49); State ex rel. Carroll v. Bank, 139 Iowa, 338; Simon v. Brown, 38 Mich. 552; Wolfe v. Pugh, 101 Ind. 293; Dewing v. Hutton, 48 W. Va. 576 (37 S. E. 670).
The rule has been succinctly stated in Grymes v. Sanders, 93 U. S. 55 (23 L. Ed. 798) as follows:
This rule has many times been followed by this court. See Rawson v. Harger, 48 Iowa, 269; Evans v. Montgomery, 50 Iowa, 325; Giltner v. Rayl, 93 Iowa, 16; Moore v. Howe, 115 Iowa, 62; German Bank v. Des Moines Bank, 122 Iowa, 737; State Bank v. Brown, 142 Iowa, 190.
In the Moore case it was said:
A party to an agreement induced by fraud or deceit is held to the duty of electing either to execute or rescind the contract at the time of discovering the wrong, or within a reasonable time thereafter. Rawson v. Harger, 48 Iowa, 269. Sometimes this question as to what is a reasonable time is for the jury, but we have no hesitancy in saying, as a matter of law, that the retention of a retail stock of goods, and sale therefrom in the ordinary course of business, and appropriating the proceeds thereof, for nearly four months after acquiring knowledge of the alleged fraud, will preclude a subsequent rescission of the contract. Such treatment of the property is an unequivocal election to accept the goods and carry out the contract. Taking any benefit or changing the condition of the property bought after learning of the fraud has been adjudged a waiver of the right to rescind. Cobb v. Hatfield,
In the Germm Savings Bank case this language was used:
A party defrauded must be diligent. The means of knowledge are equivalent to knowledge. A clew which, if followed up diligently, would lead to a discovery, in law is equivalent to'a discovery — equivalent to knowledge. Norris v. Haggin (C. C.) 28 Fed. 275; Wood v. Carpenter, 101 U. S. 139 (25 L. Ed. 807); New Albany v. Burke, 11 Wall. 107 (20 L. Ed. 155). ‘A party seeking relief on the ground of fraud must aver and show that he used diligence to detect it, and, if he had the means of discovery in his power, he will be held to have known it.’ Buckner v. Calcote, 28 Miss. 432. The principle is so elementary that possibly the citation of authorities is unnecessary. The rule that a party must rescind within a reasonable time after the discovery of the fraud is equally well established. Stetson v. Northern Investment Co., 104 Iowa, 393; Moore v. Howe, 115 Iowa, 62; United States Stock Co. v. Railway, 34 Ohio St. 450 (32 Am. Rep. 380); Veasey v. Graham, 17 Ga. 99 (63 Am. Dec. 228).
Again the court, in State Bank v. Brown, observed:
It is an universal rule that, where one is induced to purchase property hy fraud and deceit, he must, within a reasonable time after discovering the fraud, rescind the contract, and place the other party in statu qua. In other words, he has an election, after discovering the fraud or after the means of knowledge are at hand, to treat the contract as valid or to rescind, and, if he fails to act promptly and to rescind, he will be held to have waived his right to do so. Moore v. Howe, 115 Iowa, 62; Bank v. Bank, 122 Iowa, 737; Stetson v. Investment Co., 104 Iowa, 393, and cases cited.
At the threshold of the case, we are met with the express ratification of all preceding transactions made in the
Schussler claims that one sale of gunstocks, amounting to $3,000, should have been credited on his obligations. It seems that the amount of the proceeds from this sale was first applied on an indebtedness of Casebeer & Barnes, and that the Bank had the right to apply it in this manner. Aside from this, under the original contract, the Bank was authorized to apply it upon the unsecured notes held by it.
The Bank is sought to be charged with another sale made to Smith & Son. This was not a sale to the government, and the Bank did not, in fact, receive the money. It was used by Barnes in the conduct of the business, and to meet the expenses thereof. At any rate, the Bank had the right to apply the proceeds thus received to the unsecured notes held by it. Moreover, this and other transactions were ratified by Schussler after being fully informed thereof.
A car load of gunstocks was shipped to the government under a renewal contract, and the net proceeds therefrom amounted to $2,994.80. Part of this was originally credited to the Casebeer & Barnes indebtedness to the Bank, but was afterward replaced by money arising out of the collaterals held by the Bank, and the entire amount was finally used in meeting operating expenses. Even if this amount should
Without further adverting to the matters occurring prior to December 17th, we are constrained to hold that Schussler ratified all these transactions, and that, if he did not, neither Whinery nor the Bank received anything more than that to which they were entitled; that considerable of the proceeds arising from sales of gunstock was .used, in payment of the current expenses of the enterprise, and that no part of the fund specially pledged by the original agreement was diverted from its proper channel.
III. The observations made in the last preceding paragraph disposes of the cross-appeal by the Bank. Schussler practically abandoned his proceedings after the accounting by the Bank for transactions occurring after December 17th, and the Bank had no proper pleading of its own, as against Schussler and Barnes, which would entitle it to an accounting.
Moreover, its action for an accounting if it had any, was against the trustee, Whinery, unless it appeared that some of the other beneficiaries received more than they were entitled to, and there is neither pleading nor proof to that effect. It was not entitled to an accounting, and it does not claim that Schussler received any funds to which he was not entitled.
On the whole record, we are constrained to believe that practically all the parties thought that by continuing the venture it could be made to pay all of Barnes’ indebtedness to each of them, but, like many other plans of men, they went awry, and did not prove as profitable in practice as upon paper, and because of miscalculation, all must suffer. Schussler was evidently deceived by Whinery, but after that, on
The ease has received most careful consideration at our hands, with the result that the judgment and decree must on both appeals be, and it is — Affirmed.