Henderson v. Railroad

| Tex. | Jul 1, 1856

Wheeler, J.

The argument for the appellee questions the right of the plaintiff to maintain the action. He is a stockholder, it is said, and as such cannot sue the Company in a suit of this character. If the position were correct, it would result in the affirmance of the judgment, whatever errors may have been committed upon the trial. But the law is otherwise. A private corporation may be sued by one of its own members. This principle is established by numerous decisions, both in the English and American Courts. (5 Adol. and Ell. R. 866; 3 B. and Adol. R. 125 ; 2 Bay, 109; 3 Met, 44 ; 4 H. and Johns. 338.) In this respect, the eases of incorporated companies are entirely dissimilar to those of ordinary copartnerships, or unincorporated joint stock companies. In incorporated companies, the individual members are entirely distinct from the artificial body endowed with corporate powers. (Angell and Ames on Corp. Sec. 390.) A member of a corporation, who is a creditor, has the same right of action as any other creditor, and may .even attach the property of the company, though he may be personally liable by statute to satisfy other judgments against it. (3 Metc. 44.) The individual members of the corporation, are deemed strangers to the artificial body created by the Act of incorporation, and may maintain their rights of action against the company, of whatever nature, in the same manner as .those who are not members. The fact, that, by his contract the plaintiff was entitled to become, or was, in fact, a stockholder or member, did not deprive him of Ms right of action against the company. On general principles, it would seem not to admit of question, that one who, by. false and fraudulent representations and inducements held out to him by the company, had been deceived and misled into the making an injurious contract, by which he became a stockholder and member of the company, might maintain an action against it, to rescind the contract and dissolve the connection. To deny the right would be subversive of justice.

The plaintiff having the right to maintain the action, it becomes material to inquire whether there be error in the judgment, which has been rendered against him. The ground of error, mainly relied on, is the charge of the Court, as follows : “ To justify the jury in finding a verdict for the plaintiff on the “ ground of fraud practised by the defendant or its agents, “ they must be satisfied from the evidence, that the plaintiff was “ induced by false representations made to him by said com- “ pany, or by its agent with their knowledge and authority, to “ execute the deeds in question ; and that these repres'enta- “ tions were not only false, but that they were made with in- “ tent to deceive and defraud the plaintiff.”

The charge maintains that to render the Company responsible for the frauds practised by their agents, the false representations must have been made, 1st, with the knowledge and authority of the Company ; and 2nd, with the intent to deceive and defraud the plaintiff. That both propositions are erroneous will be apparent by, a brief reference to authorities.

Story, in his Treatise on Agency, thnaistate&dhe law, upon the subject of the liability of theprii*$w fc^l^p^e^gances, gences and torts of his agents,1 judged cases. “ It is a general doctj “'the principal is not ordinarily liat “ a criminal suit, for the acts or mis^ “indeed,he has authorized, or co-opei%t^dmtnoseaoj¡yor mis- “ deeds; yet he is held liable to third pers^slnacivil suit “ for the frauds, deceits, concealments, misrepresentations, torts, “ negligences, and other malfeasances, or misfeasances, and “ omissions of duty of his agents, in the course of his employ- “ ment, although the principal did not authorize, or justify, or “ participate in, or, indeed, know of such misconduct, or even “ forbade the acts, or disapproved of them. In all such “ the rule applies, respondeat superior ; and it is founded upon “ public policy and convenience; for in no other way could “ there be any safety to third persons in their dealing, either “ directly with the principal, or indirectly with him through “ the instrumentality of agents. In every such case, the prin- “ cipal holds out his agent, as competent and fit to be trusted ; “ and thereby, in effect, he warrants his fidelity and good “ conduct in all matters within the scope of Ms agency.” (Story on Agency, Sec. 452, 127, 135, 137.)

The same doctrine applies in respect to the liability of incorporated companies for the acts of their agents. Unless the act of incorporation expressly prescribe the contrary, the duly authorized agents of corporations, as of natural persons, may, within the scope of their authority, not only bind them by their contracts ; but from their acts and conduct, as from the acts or conduct of the agents of natural persons, implications may be made, either for or against their constituents. And if a corporation ratifies the unauthorized act of its agent, the ratification is equal to a previous authority, as in case of natural persons. The representations, declarations, and admissions of the agent of a corporation, stand upon the same footing with those of the agent of an individual. As natural persons are liable for wrongful acts, and neglects of their servants and agents, done in the course and within the scope of their employment, so are corporations, upon the same grounds, in the same manner, and to the same extent. “ Indeed, (it is said in “ a learned treatise on corporations,) whether we consider their “ mode of appointment or of action, their powers, rights and “ liabilities, or the liabilities and rights of their constituents, “ by virtue of their acts, or contracts, we can perceive no differ- “ ence in principle or precedent, between the agents of corpor- “ ations, and those of natural persons, unless expressly made 1 ‘ by the Act of incorporation or by laws.” (Angell and Ames on Corporations, Sec. 315, 292, 304, 309, 310, 311.) The defendants, therefore, are to be held responsible for the acts and representations of their agent in the same manner as an individual would be.

And nothing is better settled, than that the fraud of an authorized agent will invalidate a contract, entered into by him on behalf of his principal, though in perpetrating the fraud, the agent acted without the knowledge or consent of the principal. (4 Term R. 39; 1 Id. 12 ; 1 Stark. R. 434: 6 Mees. and Wels. 358.) And even'though the agent has transcended his authority in making the contract, yet if the principal ratify it, and make the contract his own by availing himself of the benefit of it, he is liable in like manner as if he had personally made the contract. And if the agent has made misrepresentations, the principle is bound by them ; for he cannot ratify the contract, and avoid the responsibility of the representations, &c., which formed its basis ; but he must avoid or ratify the contract in toto . (Story on Con. Sec. 496.) This doctrine was affirmed by Judge Story in Hough v. Richardson, 3 Story, R. 689,) and I quote the language of the learned Judge as asserting a principle applicable to the facts of the present case. “ The sale, then, being made by Moulton, not as himself the. “ owner—which he was not—but as the agent of the owners, “ it follows that they are bound by his representations, made at “ the time touching the sale, as a part of the res gestae ; and as “ to the purchasers, it makes no difference whether these repre- “ sentations were made by the authority of the owners or not, “ if they were material to, and-constituted the basis of, the sale, “ and it was made by the purchaser on the faith and credit of “ these representations. Tender such circumstances, the sale is “ good in the entirety, or not good at all. The owners have no “ right to insist upon the validity of the sale independent of the “ representations. The whole must be taken together as a part u of one and the same transaction. It cannot be adopted in “ part and rejected in part. It must be taken as good for the “ whole or not at all.” (And see 1 Story R. 172; 3 Id. 129, 612.)

The Court therefore erred in charging the jury, that in order to set aside the contract, on the ground of the fraudulent representations of the agent, they must have been made with the knowledge and by authority of the Company. The representations of the agent, acting within the scope of his authority and employment, are treated as the representations of the principal himself ; and are binding upon him, whether he knew of them or not. And, as we have just seen, though he exceeded his authority in making the contract, yet, as the Company, by accepting a conveyance from the trustee and taking the benefit of the contract, have ratified and adopted his acts, and made them their own, they are liable in like manner as if they had personally done the acts. They must take them all together, and with all their consequences.

Then, as to the proposition embraced in the charge, that, to avoid the contract, the false representations must have been made “ with the intent to deceive and defraud the plaintiff,” the Court was equally in error. 11 If a material misrepresent- “ ation be made, although it be not embodied in the contract, 11 it is considered as a constructive, or legal fraud, although it “ be made without any wilful intention to deceive, but merely “ through carelessness, mistake or ignorance ; for if a party be “ actually deceived by a misrepresentation, the practical result “ is the same, whether it were a wilful fraud or not. If, there- “ fore, a party. undertake to make a material statement, not ‘‘ knowing whether it is true or false, and thereby mislead ano- “ ther to his injury, it is no difference that he did not know that 1 the statement was false ; since, before making the affirmation, “ he should have ascertained its truth. But where this repre- “ sentation is purely accidental and without fraudulent design, “ it is not necessary to consider it to be a fraud, since if it be “ made by mistake, it would avoid the contract if it should touch “ its essence, on the ground of a want of mutual assent of the “ parties. For if a gross misrepresentation be made as to a ma- “ terial fact, it matters not whether it be treated as a construe- “ tive fraud, or as a mere mistake, the right of the party de- “ ceived to avoid it is the same.” (Story on Con. Sect. 506, and notes; Mitchell v. Zimmerman, 4 Tex. R. 75.) Judge Story, in his treatise on Equity, states the doctrine more strongly, thus: “Whether the party thus misrepresenting a “material fact, knew it to be false, or made the assertion with- “ out knowing whether it was true or false, is wholly immate- “ rial: for the affirmation of what one does not know or believe “ to be true, is equally in morals and law as unjustifiable as the “ affirmation of what is known to be positively false. And “ even if a party innocently misrepresents a material fact by mis- “ take, it is equally conclusive, for it operates a surprise and “imposition upon the other party.” (1 Story’s Eq. Juris. Sec. 193.)

The charge of the Court, therefore, was erroneous and calculated to mislead.

At the instance of the defendent, the Court further instructed the jury, “ That the time limited in the charter for begin- “ ning and completing the road, having been extended by the “Legislature, the time limited in the original charter,” &c„, “ was not of the essence of the contract, and the failure to “ complete the road or any part of it, within the time does not “discharge the party from his contract.”

The propriety of giving this instruction is, to say the least, very questionable. In so far as it implies, that an extension of time by the Legislature, could have the effect, as between the Company and third persons, of releasing the former from the obligation of their contracts, or could affect the rights of the parties to the contract in question, we cannot assent to the doctrine. If the construction of the road within some certain time was the essential inducement to the making of the contract; if that was the real intention of the contract, and the obligation which it imposed on the defendants, the extension of time by the Legislature could not have the effect to discharge the defendants from that obligation. The terms of the contract and the attendant'circumstances must be looked to, to ascertain the real intention of the parties, and how far time was regarded by them as material. We must suppose it. was within their contemplation that the road would be constructed, if not literally within the time stipulated, at least..within some reasonable time, regard being had to all the circumstances, and that that expectation was the essential inducement to the contract. It is not reasonable to suppose that the plaintiff would have made the contract, if he had not been led to believe that the road would be constructed, or at least in the process of being constructed, within the time specified, or some reasonable time thereafter. It certainly is not a reasonable supposition, that it entered into the intention or contemplation of the parties to the contract, that the time for its construction, might be extended by legislative enactment, from time to time, indefinitely. Nor can it be reasonably contended* that the failure to commence and prosecute the work within a reasonable time, if not within the time specified-, would not avoid the contract. That would be to hold a contract binding upon one party, when the obligation was not mutual. The charge of the Court was calculated to induce the belief that time was not material, when it appeared to have been the essential and sole inducement to the contract; or at least, that it was not material, so long as the Legislature might see proper to extend the time for the making of the road, when such extension of time could have no other effect than, perhaps, to enable the defendants to perform their undertaking within such reasonable time as may be supposed to. have been within the contemplation of the parties. It was going too far, to -tell the jury that, because the Legislature had given an extension of time, “ the failure to complete the road, “ or any part it within the time, does not discharge the party “ from his contract.” The instruction was calculated to mislead the jury, and was therefore- erroneous.

But the right of the plaintiff to the redress he has sought is denied ; and it is said that the charge of the Court was correct, for that the public have an interest in these enterprises, which rises above the individual rights of a single stockholder ; that the public interest forbids that one stockholder should thus discharge himself; that it was not allowable for the Court to suppose a case within the law governing individual transactions, and instruct the jury as to the law applicable to the supposed case.

There is no principle known to the law which will enable a party, individual or corporate, to claim immunity for his wrongful acts, done to the injury of another’s right, "on the ground of public interest. On the contrary, the public as well as individual interests, demand the utmost fairness and probity in the transactions, as well of corporaté bodies, as of individuals. Nor does the law recognize any such distinction, as that the ordinary rules governing the contracts of individuals do not equally apply to the case of incorporated companies. They are subject to the same liabilities and responsibilities for their acts and contracts as individuals. We know of no principle upon which they and their agents are to be deemed exempt in their dealings with others, from the ordinary obligations of morality and honesty.

Again, it is said, it can hardly be predicated that an agent of so extensive a public enterprise could deceive any body by his opinions as to its completion and cost; that these are matters about which every one is presumed to be equally capable of judging. And the conclusion to be deduced, of course, is that the plaintiff was as capable as the defendants, or their agent, of judging of the truth of the representations ; consequently he ought not to have been deceived by them ; and, if' so deceived, it was his own folly, for which he is remediless.

If the defendants, or their agent, had communicated truly and fully all the facts respecting the cost and character of the work, and their means of accomplishing their undertaking, and left him to judge for himself of the probability of its completion within the time stipulated, instead of making positive statements as to what they could and would do, the argument would be entitled to more weight. But it is certainly reasonable to suppose they best knew the extent of their own means and resources, and when they undertook to give positive assurances, upon their own responsibility, we know of no reason why third persons might not trust them ; or, if deceived by them to their own injury, why redress should be denied. We cannot assent to the doctrine, that no one ought to be deceived by them, because no one ought to trust to their representations ; nor are we prepared to hold them irresponsible on any such ground as that their opinions, professions and assurances ought not to be relied on by third persons with whom they contract.

Again, it is insisted that their representations cannot be deemed fraudulent, for that they had relation to things in the future. But it is not necessary, in order to render the representions and assurances of a party, on which others have acted, binding upon him, that they should have relation to facts which had previously transpired. The representations, as to what the defendants would do, when used as inducements to others, to contract with them, became assurances and undertakings, which they were bound to fulfill. They were obligatory upon them, and must be so held, or the contract would be void- for- the want of mutuality. If such assurances were not binding, there could be no binding promise to perform an act in future.

None of the considerations suggested in. argument impair the claim and right of the plaintiff to the redress he seeks. They do not obviate the effect of the errors in the charge of the Court, or authorize us to consider them as immaterial. The charge was pertinent and material, and must have had a controling effect in its application to the facts of the case. It appeared in evidence, that, since the making of the contract, the land had appreciated more than fourfold in value. The time specified, for having the road completed, to the several points indicated, (crossings of the Guadalupe and Cíbolo,) had elapsed, and no part of it had been built; nor had there even been a beginning. There was an attempt to prove a beginning, and it was in evidence, that on the day before the charter would expire, when, as a witness stated, a demonstration had to be made to save the charter, some trifling amount of work had been commenced; there was some brush cut, and some grubbing, and perhaps a furrow or two ploughed, estimated to be worth ten dollars ; and this, instead of being at the place of beginning, was near San Antonio. But if it had been at the right place, it was not of sufficient importance to bo called a beginning of such an undertaking. The defendants are in the enjoyment of the plaintiff ’s property, without having verified any of the professions, by which they induced him to part with it; without having rendered any equivalent or consideration whatever. The plaintiff has derived none of the promised benefits to himself from the defendant’s undertaking. The contract has operated as a gross imposition and fraud upon him. Such is the state of case which the record exhibits, and it would be difficult to conceive of a stronger case for the rescission of a contract. To hold that a man may be thus deceived, imposed upon and deprived of his property, by false hopes held out to him by another, and that he shall be wholly without redress for the injury done him, would be shocking to common sense and the sense of justice. In fine, to deny the plaintiff’s right to redress upon the case which the record presents, would be, in effect, to maintain an exemption from legal responsibility, on the part of the defendants, which no body corporate, or politic, not even the State itself, can claim, in any country where private rights are respected, and law and justice administered. If the record truly presents the facts of the case, it cannot be denied, that the contract has operated a surprise, imposition, and manifest fraud on the plaintiff, which well entitle him to the redress he seeks ; that is, to have the contract rescinded, and the property conveyed under it restored to him.

We are of opinion, therefore, that the judgment be reversed and the cause remanded for a new trial.

Reversed and remanded.