271 N.W. 907 | N.D. | 1936
Lead Opinion
This is an equitable action. The defendant demurred to the complaint upon the grounds "that the court has no jurisdiction of the subject of the action" and "that the plaintiffs' complaint does not state facts sufficient to constitute a cause of action." The District Court denied an application of the plaintiffs for an injunction restraining the Nome State Bank and A.F. Fir during the pendency of the action from transferring or assigning the note and chattel mortgage described in the complaint. The plaintiffs appeal from an order sustaining the demurrer and from the order denying the injunction.
We will first consider the sufficiency of the complaint. The demurrer admits the truth of all well pleaded facts and those presumed or reasonably or necessarily inferred from the facts alleged in the complaint. Torgerson v. Minneapolis, St. P. S. Ste. M.R. Co.
"That I will accept in full and complete settlement and payment of my above claim the sum of $750.00, and that I have not, directly *328 or indirectly, made or entered into any agreement or understanding with anyone whomsoever whereby I shall receive from said debtor(s) any note, mortgage or other consideration save and except the sum last above mentioned; that when such sum has been received by me that said debtor(s) will not remain indebted to me upon any account whatsoever; that I will not, after having received such sum, attempt in any way, directly or indirectly, to collect, nor will I accept, from said debtor(s) upon and because of the above claim anything of value whatsoever."
This agreement was signed "Nome State Bank by A.F. Fir, Cashier." These false representations were made upon the instigation and with the knowledge and consent of Koslofsky. At the time of making these representations, the Nome State Bank and Fir did not intend to accept $750.00 in full and complete settlement of the claim, but intended to collect and Koslofsky intended to pay the sum due the bank in excess of the settlement. The Federal Land Bank of St. Paul and the Land Bank Commissioner (to whom the Federal Farm Mortgage Corporation is successor) knew nothing of the falsity of the representations contained in the creditor's agreement, but believed them to be true and relied upon them in making the loans to Koslofsky. The loans were completed and $750.00 was paid to the Nome State Bank on November 15, 1934. On or about that date Koslofsky executed and delivered a chattel mortgage signed by himself and his wife to the defendant Fir, dated November 15, 1934 for $1,179.50 due September 15, 1935, which covers forty-six head of cattle, fourteen horses, all the farm machinery which the mortgagors owned, and feed for the livestock. The only consideration for this instrument was the balance of the prior indebtedness from Koslofsky to the Nome State Bank. The mortgage is past due and "if enforced against said defendant Koslofsky, he will be without equipment with which to operate the land which he has mortgaged to the plaintiffs and will be unable to perform his obligations to the plaintiffs and he is thereby deterred and impeded in the performance of his obligations to the plaintiffs, to their damage." Unless restrained by the court, the defendants Fir and Nome State Bank will pursue Koslofsky and attempt to collect the note and mortgage. *329
The creditor's agreement constitutes a representation on the part of the Nome State Bank that it has not entered into any agreement or understanding whereby it would receive the note and mortgage from Koslofsky. The complaint states that this representation was false and was made with the intent to fraudulently induce the Federal Land Bank and the Land Bank Commissioner to make the loans. The complaint sets forth actual fraud as defined by § 5849, Compiled Laws, which reads as follows:
"Actual fraud within the meaning of this chapter consists in any of the following acts committed by a party to the contract, or with his connivance, with intent to deceive another party thereto or to induce him to enter into the contract:
"1. The suggestion as a fact of that which is not true by one who does not believe it to be true.
"2. The positive assertion in a manner not warranted by the information of the person making it of that which is not true, though he believes it to be true.
"3. The suppression of that which is true by one having knowledge or belief of the fact.
"4. A promise made without any intention of performing it; or,
"5. Any other act fitted to deceive."
See also Tamlyn v. Peterson,
Fraud, in order to support either a legal or equitable action, must have produced an injury. A fraud which has injured no one cannot be made the basis of an action. The complaint sets forth that the plaintiffs would not have made the loans unless the creditor's agreement had been made by the Nome State Bank. It follows that the plaintiffs would not have parted with their money by making the loans to Koslofsky and the Nome State Bank would not have benefited by receiving $750.00 in cash had it not been for the fraudulent representations. By parting with their money upon these representations, the plaintiffs have suffered an injury as the direct result of the fraud practiced upon them.
In cases of fraud, courts of law and equity generally have concurrent jurisdiction. Comp. Laws 1913, § 7349; 12 R.C.L. 404; Story, Eq. Jur. 14th ed. § 260; Fred Macey Co. v. Macey, 143 Mich. *330
138, 106 N.W. 722, 5 L.R.A.(N.S.) 1036. A person who has been induced by fraudulent representations to enter upon a contract, has two legal remedies open to him. He may rescind the contract and sue to recover the consideration parted with, or he may retain what he has received under the contract and bring an action for damages for injuries sustained by reason of fraud. Sonnesyn v. Akin,
In this case the plaintiffs have an election of equitable remedies. They have elected to compel the fraudulent parties to make good their representations by an action in the nature of specific performance. They stand upon the contract which was fraudulently induced and seek to compel the defendants, at least in a measure, to carry out the promise upon which the Federal Land Bank and Land Bank Commissioner were induced to rely. Equity has jurisdiction to grant such relief and to render it completely effective. Pom. Eq. Jur 4th ed. *331
§ 899, and note 1. "Fraud is one of the recognized subjects of equity jurisprudence, and courts of equity will relieve against fraud affecting substantial rights in whatever form it may appear." Geiger v. Merle,
The defendants Fir and the Nome State Bank have accepted, and Koslofsky has executed, a note and chattel mortgage covering an indebtedness which the defendants represented to be fully paid and cancelled. If these instruments which are founded upon the original fraud, are injurious to the plaintiffs' rights under the contract upon which it has elected to stand, they should and will be cancelled by a court of equity. An injured party may compel a fraudulent party to make good his fraudulent representations. Pom. Eq. Jur. 4th ed. § 899. This is especially true if the fraudulent party does or is about to do further injury to the defrauded party. Tompson v. National Bank,
The injury which the plaintiffs may sustain from the note and chattel mortgage is not capable of measurement in specific damages, but that does not prevent a court of equity from granting appropriate relief, rather it tends to establish the necessity for equitable relief. Pom. Spec. Perf. of Contr. §§ 15 and 34; Caramini v. Tegulias,
The jurisdiction of an equity court to direct the cancellation of instruments generally is well recognized, and in the absence of an adequate *332 legal remedy may be used to protect legal as well as equitable rights. Such relief is not confined to the parties to the instrument sought to be cancelled, but may be obtained at the instance of one not a party to the instrument whose legal or equitable rights are affected thereby. 4 R.C.L. 487.
The defendants argue that the note is past due and non-negotiable and that a court of equity will not entertain an action for the surrender and cancellation of non-negotiable instruments. They cite Cable v. United States L. Ins. Co.
The note and chattel mortgage were executed as part of a fraud, in furtherance of its perpetration and in violation of the agreement whereby Koslofsky was released from a part of his debt in order that the loans might be obtained. An agreement which involves the perpetration of a fraud upon a third person is unenforcible. Williston, Contr. § 1738. The note and chattel mortgage are tainted with fraud and are promises in direct violation of the creditor's agreement. They are unenforcible. Federal Land Bank v. Blackshear Bank,
The situation presented by the complaint is this. The plaintiffs seek the surrender and cancellation of a note and chattel mortgage which were executed pursuant to a fraudulent understanding between the mortgagor and mortgagees whereby the plaintiffs were injured in being induced to make a loan which they would not have otherwise made. The note and chattel mortgage constitute promises on the *333 part of Koslofsky to further violate the agreement under which the loan was obtained. His compliance with these promises or their enforcement by the defendant Fir will injure the plaintiffs by deterring and impeding Koslofsky in the performance of his obligations to the plaintiffs. Since the note and chattel mortgage are unenforcible, neither the Nome State Bank nor A.F. Fir will suffer any injustice by their cancellation, but such cancellation will afford relief against injury to the plaintiffs. This situation appeals directly to the remedial powers of a court of equity. The complaint states a cause of action in equity and the demurrer should be overruled.
The plaintiffs further contend that the court erred in dissolving the temporary injunction and denying the plaintiffs application for an injunction pending the trial of this action. "The granting or refusal of a temporary injunction is a matter largely in the discretion of the trial court, and its order will not be disturbed except in case of a clear abuse of discretion." Sand v. Peterson,
Under § 7529, Compiled Laws of North Dakota for 1913, par. 2, "when during the litigation, it shall appear that the defendant is doing, or threatens, or is about to do, or procuring or suffering some act to be done in violation of the plaintiff's rights respecting the subject of the action and tending to render the judgment ineffectual, a temporary injunction may be granted to restrain such act." The plaintiffs ask for an order restraining defendants Fir and Nome State Bank during the pendency of this action from assigning or transferring the note and chattel mortgage and as grounds therefor state that they "anticipate and fear" that these defendants will make such transfer or assignment. Such a showing is not sufficient under the statute. The trial court did not err in denying such injunction.
The order sustaining the demurrer is reversed. The order denying the injunction is affirmed.
BURKE, Ch. J., and CHRISTIANSON, BURR, and NUESSLE, JJ., concur. *334
Addendum
A rehearing was granted and the case reargued. We have again considered the record and briefs and we adhere to our former opinion. Counsel for plaintiffs has emphasized both in the briefs and oral argument the fact that the plaintiffs are instrumentalities of the United States. By bringing this action the plaintiffs appeal to the equitable powers of the courts of this state. The transaction, whence springs the plaintiff's right to relief, is essentially private in character. It is a loan of money to a private individual secured by mortgages upon his private property. We have, therefore, applied equitable principles and have determined that the plaintiffs are entitled to equitable relief without regard to the status of the plaintiffs as instrumentalities of the Federal Government. Equity bears upon the transactions of such instrumentalities with the same gravity as upon those of private citizens.
CHRISTIANSON, Ch. J., and BURR, NUESSLE, and BURKE, JJ., concur.
