226 F. 389 | 6th Cir. | 1915
(after stating the facts as above). The recovery below, if at all rightful, was moderate; it was $1,750. No. special instructions to the jury were requested, and no exception was reserved to the general charge. The charge as a whole is not contained in the record; a portion of it is set out in the eighteenth assignment, but counsel frankly concede that this is not well taken because of the absence of exception. It must therefore be assumed that the instructions to the jury were rightly conceived and given; and, in view of the allegations of the declaration and the tendency of the evidence, the judgment should stand, unless prejudicial error intervened under the rulings upon the demurrer or in the course of the trial.
It is'not necessary to state that fraud may be waived; this is an ancient doctrine. Upon this record it must he conceded that Egger did not vitrnd to waive either the fraud or his right of action. The correspondence admitted in evidence, as well as that ruled out, proves this. 'I'he letter accompanying the delivery of the certificates, which was wriiien in behalf of Egger three days before commencement of the suit, notified Harris of the claim that he had made misrepresentations with respect to the purchase of the stock, and of the purpose of Egger to institute action against him. Harris nevertheless accepted and retained the (ertiiicates. We have a case, then, where the seller received the purchase price in ignorance of the buyer’s fraud, and where the buyer accepted the certificates with notice of the seller’s discovery of the fraud and purpose to sue for the consequent damages. True, the seller’s delivery of the certificates was with knowledge of the fraud; but the buyer's acceptance was with knowledge of the purpose to 'hold him for the fraud. Why, in such circumstances, should the action rather than the defense be defeated by waiver? Of course, the seller might seasonably have resorted to rescission of the contract with tender of the purchase price; but the buyer here might have rejected the certificates and demanded return of the purchase price. Probably either of such courses would have resulted in litigation. It is reasonably plain, however, that the seller would have been in a worse situation after rescission of rhe contract than the buyer would after rejection of the certificates. The seller, as long as he might have held the si ock, would have been in the position of a small stockholder contending for his rights against the large stockholder, who was officially and practically in control of the company and its property. The buyer’s acceptance of the certificates, subject to notice of the proposed suit, was no doubt due to the favorable price at which he had succeeded in purchasing the stock; and if the
The case would present a totally different aspect, if it had been shown that Egger had delayed action with a view of therebjr gaining something to which he was not entitled at the time he was induced to give his assent to the sale. There is not even a pretense of this character either in testimony or claim. So, too, if Harris had meanwhile changed his position to his detriment with respect to this stock. It is not suggested that the stock declined in value, or that Harris suffered any material inconvenience, during the delay. In short, if Harris had received the certificates at the time he delivered his check, there is nothing to show that his control of the company, or his enjoyment of the shares represented by the certificates, would have been changed in the slightest degree. If Egger had delivered his certificates at tire time he received the purchase price, Harris would have been defenseless as against an action such as this; for in that event the contract of purchase and sale would obviously have been completely performed before discovery of the imposition practiced. This, however, is not of present importance, except to illustrate the narrow difference between the case supposed and the case we in fact have. Further, it is not shown that after payment of the purchase price any rights of third persons respecting either the certificates or the stock intervened to disturb the legal relations between Egger and Harris or Harris and the company. . It is to be observed, also, that while language is used in’ some cases which, when considered abstractly, would seem at first blush to warrant a decision of a case like this either way, yet, when the decisions are considered with reference to their facts respectively, we think it safe to say that the controlling principle which is intended to be applied in the determination of questions of waiver is, that the person seeking damages for fraud and deceit in respect of his own contract must, in order to succeed, not only prove the fraud, hut must himself, after discovery of the fraud, have been free from conduct which was calculated either to afford him advantage or to mislead the other party to his disadvantage under the contract.
The basis of the contention is that the title to the shares passed to Harris at the time lie paid the purchase price; and reliance is placed, first, upon the rule that where ordinary personal property is distinctly identified and sold, and the purchase price paid, title will pass without delivery (Miller v. Roger, 9 Humph. [Tenn.] 231, 237; Mayberry v. Lilly Mill Co., 112 Tenn. 566, 568, 85 S. W. 401; Hardwick v. Can Co.; 113 Tenn. 659, 674, 676, 88 S. W. 797; State v. Kelly, 123 Tenn. 556, 562, 133 S. W. 1011, 36 L. R. A. [N. S.] 171; Hatch v. Oil Co., 100 U. S. 124, 131, 25 L. Ed. 554; Briggs v. United States, 143 U. S. 346, 354, 12 Sup. Ct. 391, 36 L. Ed. 180; Sutherland v. Brace, 73 Fed. 624, 625, 19 C. C. A. 589 [C. C. A. 7th Cir.]), and, next, upon cases defining the evidential character and object of certificates of stock, and so pointing out the familiar distinction between the certificates and the stock itself (Jellenik v. Huron Copper Mining Co., 177 U. S. 1, 12, 20 Sup. Ct 559, 44 L. Ed. 647; McAllister v. Kuhn, 96 U. S. 87, 89, 24 L. Ed. 615; Merritt v. American Steel-Barge Co., 79 Fed. 228, 235, 24 C. C. A. 530 [C. C. A. 8th Cir.]; Helliwell on Stock and Stockholders, § 109, p. 185; Van Zile on Bailments and Carriers, § 246). ft should be added that by statute of Tennessee it is provided:
“The stocks in all private corporations are personal property, and subject to levy and sale as such, tile company in such case being required to make the proper entries in its stock or transfer book. * * * ” Shan. Code, § 200G.
This statutory rule will be recognized, and where necessary enforced, by the federal courts. Jellenik v. Huron, Copper Mining Co., supra, 177 U. S. at page 13, 20 Sup. Ct. at page 563 (44 L. Ed. 647). it is settled in Tennessee that the title to- stock passes and becomes complete in the purchaser upon the assignment of the certificate, without registration or transfer on the stock book of the corporation. Smith v. Railroad, 91 Tenn. 223, 238, 18 S. W. 546, and citations, per Lurton, J.; McClung v. Colwell, 107 Tenn. 592, 600, 64 S. W. 890, 89 Am. St. Rep. 961. It was held in Parker v. Bethel Hotel Co., 96 Tenn. 252, 283, 34 S. W. 209, 216, 31 L. R. A. 706 (following the rule laid down by Judge Rowell in his work on Transfer of Stock, § 43):
“A sale or transfer of stock, to be valid, need not be in writing. The cer-1 iiic; to need not, in fact, be delivered. A transfer is perfectly good, although tile sello r of the stock never had a certificate at all, and although no certificate is issued to the transferee.”
Turning again to the amended second plea, it states that upon the delivery of the check and as part of the contract “the plaintiff [Egger] assured the defendant that the certificates so purchased would be delivered promptly.” This in substance was also shown by one witness without contradiction, as pointed out in the statement; and while it was competent for the parties to make such a provision a condition of the contract, yet this was scarcely in the form of a condition, certainly it was not a condition precedent. Since it is not shown what was contained in the court’s charge upon this subject, and the charge passed unchallenged, it is to> be presumed, as we have already said, that ap~
This conclusion is the more satisfactory for still another reason. While it must be conceded that, apart from the fraud, Egger’s consent to sell and his receipt of the purchase price involved an implied obligation on his part ultimately to deliver the certificates, it does not necessarily follow that the parties made such delivery a condition, as between themselves, to the consummation of the sale or to the immediate transfer of the equitable if not the legal ownership in the specific shares to Harris. Such a condition would have been opposed to' the only rational inference that payment and receipt of purchase price would naturally signify. Beardsley v. Beardsley, 138 U. S. 262, 266, 11 S. Ct. 318, 34 L. Ed. 928. We therefore do not find any substantial foundation upon which the claim of waiver can be justly based. Every case of this character, like every case of fraud, must be considered and disposed of upon its own special facts. In determining such cases, it is hazardous either to formulate or to apply simply general rules; it might nearly as well be attempted to- state or to rely on specific definitions of fraud.
It is earnestly insisted, however, that the present case is ruled by the decision of this court in Simon v. Goodyear Metallic Rubber Shoe Co., 105 Fed. 573, 44 C. C. A. 612, 52 L. R. A. 745. That was an action to recover damages for fraud and deceit in the procurement of a contract to acquire and furnish 250 tons of rubber waste. The inducement to enter into the contract was a representation made to Simon, the plaintiff, that certain pre-existent competition in the trade would cease. This did not happen; the competition continued, and so caused an advánce in the price of such waste. The plaintiff admitted that he learned of the appearance and activities of competitors in the market before he made his first delivery. The rubber waste was to’ be delivered in monthly installments by September 1, 1895; the contract being dated April 18th of that year. The plaintiff sought and obtained a concession in respect of deliveries until the following December 1st, and in fact failed to deliver the agreed quantity until two months later, though in that time completed his contract; he received for each monthly delivery payment at the contract price. True, he had vainly sought for some concession in quantity or advance in price, and failing in this had notified defendant that he «would carry out his contract and hold it responsible in an action for the loss he would sustain. Recovery was denied. There are several differences between that case and this. There the contract was wholly executory when plaintiff obtained knowledge of tire fraud and made his first delivery. When he accepted an extension of time for performance,
Another decision upon which counsel for Id arris especially rely is that of Kingman & Co. v. Stoddard, 85 Fed. 740, 745, 29 C. C. A. 413, 419 (C. C. A. 7th Cir.). The decision in that case was approved and in effect followed in the Simon Case, and we think the facts of tlie ca.se are so far similar to those of the Simon Case that the one as well as the other is fairly distinguishable from the instant case. One example given by Judge Jenkins in the Kingman Case states the principle underlying the distinction which we think should be applied here:
“For example, if one by tlie imposition of fraudulent practices has been induced to purchase goods, and after their receipt discovers the fraud, he may rescind, or may affirm and have his action for the deceit. But if, before deliv-ei-y of the goods, he has discovered the fraud, he may not then accept the goods, and still have an action for deceit.”
No sound distinction can be slated between the effect of receiving purchased goods and that of receiving purchase price, before discovery of ihe fraud; and when, as here, the purchase price is so received, and the diing sold is at the same time practically parted with, the case is stronger than the one stated in the first of the twO' examples just quoted. Counsel are not in dispute concerning the rule, as under the welt settled trend of decision they could not be, that where a contract induced by fraud has been executed before discovery, the defrauded parly has the right of election either to rescind or affirm; and that where lie elects to, affirm lie loses his right of rescission because of inconsistency of the two remedies (Mudsill Min. Co. v. Walrous, 61 Fed. 163, 186, 9 C. C. A. 415 [C. C. A. 6th Cir.]; Alger v. Keith, 105 Fed. 105, 118, 44 C. C. A. 371 [C. C. A. 6th Cir.]), though he may retain the thing lie has received and also maintain an action for the fraud and deceit (Benjamin on Sales [7th Ed.] p. 486, and citations). If then the sale now under consideration should upon this record be
In Cain v. Dickenson, 60 N. H. 371, 372, which was an action for deceit in the purchase of hay, a note had been received in payment and subsequent demand made thereon. Upon receiving partial payment, the seller stated that he would not take it if it should prevent his arresting defendant for obtaining the hay under false representations. It was held:
“The part payment of the note did not condone the fraud; it only mitigated the damages to the extent of the payment. But if part payment might under any circumstances have that effect, it could not here, for the plaintiff at the time stated that he did not waive his right to damages for the fraud.”
The right so to, avoid waiver is recognized in People v. Stephens, 71 N. Y. 527, 554. Furthermore, and apart from the effect of Egger’s notice, the right of election of remedies before mentioned is not in all instances dependent upon whether the contract has been fully executed or performed. The rule extends to instances of partial execution or performance. As Judge Mitchell, who was an unusually safe interpreter of the law, said in Thompson v. Libby, 36 Minn. 287, 289, 31 N. W. 52, 53, while denying recovery for deceit in respect of a contract of sale where the transaction was wholly executory when the fraud was discovered:
“If the contract be executed in whole or in part before the fraud is discovered, it is well settled that the purchaser need not rescind, but may retain the property and also bring his action for damages on account of the deceit.”
We understand this rule to be recognized and stated in the opinion in the Kingman Case, supra, 85 Fed. 745, 29 C. C. A. 420.
See, also, Mallory v. Leach, 35 Vt. 156, 168, 169, 82 Am. Dec. 625; Pryor v. Foster, 130 N. Y. 171, 175, 177, 29 N. E. 123, reviewing
We are the more content to apply the rule o£ partial execution here, because of the relations of the parties and of the consequent disadvantage to which Egger would have been subjected if he had chosen to rescind the contract. We have alluded to this before, and the facts are too plain to require elaboration of this feature of the case. It is said that the court is in died asked to make a new,contract for the parties. The case, however, is not different in this respect from wliat it would have been if the certificates had been delivered simultaneously with the receipt of payment. In that event, as we have already stated, there could have been no question of the right of recovery. To sanction recovery for fraud and deceit certainly is not to make a contract.
Some of the assignments are practically withdrawn, and our consideration of those not expressly passed upon fails to disclose reversible error.
The judgment must he affirmed, with costs,
We are confirmed in this by the comments appearing later in the opinion (85 Fed. at pages 747 to 749, 29 C. C. A. 420 to 422), upon People v. Stephens, 71 N. Y. 527, Parker v. Marquis, 64 Mo. 38, and Whitney v. Allaire, 4 Denio, 554; for the effort was to show that in Parker v. Marquis the subject of the sale had been delivered to and received by the defendant in ignorance of the fraud', saying further: “We need not stop to inquire whether that case was rightly decided, for it is not the case of one receiving property with knowledge of fraud;” and that in Whitney v. Allaire, the lessee took possession of the leasehold premises with knowledge of the false representation — that is, at a time when the contract was wholly executory. The two cases, therefore, point the distinction between a partially executed contract and a purely executory contract before discovery of the fraud. We have seen that the Kingman C ase, like the Simon Case, possessed distinct elements of affirmance during the course of performance, which were designed to benefit the defrauded party, but nothing of this sort occurred in the instant case; and, further, it is not to