94 Tenn. 57 | Tenn. | 1894
Lead Opinion
Complainant, Ruohs, bought twenty-two bonds, purporting to have been issued by the town of Athens, Tenn., in aid of- the Nashville and Tellico Railroad Company, each for one thousand dollars, and paid for the same $19,800, or at the rate of ninety cents on the dollar. He afterward brought suit against the town of Athens to recover the amount then due him on said bonds, when it was held that the charter of the town of Athens was void, and its bonds, as a consequence, were invalid and void, even in his hands as a loom fide holder for value, and relief was denied him. See the case of Ruohs v. Athens, 7 Pick., 20.
The present bill is filed to hold the defendants, Third National Bank of Chattanooga, W. E. Bas-
The grounds upon which it is sought to hold the defendants liable t are guaranty, ‘ ‘express and implied,” fraudulent misrepresentations, and mutual mistake, in the sale of the bonds to Ruohs, in which it is charged the hank, as a corporation, and its officers, as individuals, participated.
Much proof was taken, and, on the hearing, the Chancellor denied complainant any relief, and dismissed his bill, from which he appealed, and has assigned errors.
There is no controversy hut that complainant is a bona fide purchaser of the bonds, for full value, and without actual notice of their invalidity; that he paid the sum of $19,800 for them, and that there is a total failure of consideration in the fact that the bonds are invalid and void.
Complainant’s view of the case is, that he was a patron of the defendant bank, kept a large amount of money on deposit in it, had the utmost confidence in its officers, and trusted largely to their representations and statements in his business matters.
He was approached by John A. Hart, the president, with an offer to sell him the twenty-two bonds, and, knowing nothing of them, he sought the advice of Plart, and inquired specially as to the solvency and validity of the bonds, and was assured by Hart that they were regular and valid, that the officers of
Complainant charges that the Harts and Baskett conspired together to mislead him; that they had already bought the bonds for seventy-two and one half cents on the dollar, and sold them to complainant for ninety cents, and this was done with the intention, afterwards consummated, to appropriate and divide the profits.
The bank filed a demurrer, and demurrers were also incorporated in the answers of the officers as individuals. The bill was amended so as .to charge, more distinctly, conspiracy on the part of the bank and its officers to defraud complainant, and that the defendants acted for the bank as well as for themselves, and that the spoils were divided between the bank and the officers.
A second demurrer was filed by the bank, set
It is insisted, with great earnestness and zeal, that the Chancellor erred in refusing to grant the relief asked against each and all of the defendants. The grounds on which complainant bases his claim to relief are, in substance:
First. — That the officers and bank guaranteed the validity and solvency of the bonds by express stipulation; and if this cannot be maintained, such guaranty will be implied from the transaction itself.
Second. — That the officers of the bank made false and fraudulent misrepresentations in regard to the bonds and their validity and, solvency, upon which complainant relied, and for which he is entitled to hold both the bank and the officers liable to the extent of the bonds, or at least the amount paid for them.
Third. — If neither of these contentions can be maintained, still complainant can hold both the bank and its officers for the full amount paid for - the bonds, on the ground of mutual mistake of - the parties in dealing with the bonds, which had no legal existence, and which proved to be utterly void.
It appears that when the bonds were issued by the town of Athens, they went into the hands of R. L. Bright, president of the railroad company, and were by him hypothecated — one half with the Eirst-
About the first -of November, 1888, while Bright was in New York, he sold the bonds to a party to him then unknown, but represented by Defendant Baskett. He had previously been negotiating for a sale of the bonds with Jno. A. Hart and Baskett. He states that he did not know the bank at all in the transaction; that the negotiations were made with Jno. A. 'Hart and Baskett, and, if the bank had any connection with it, he did not know it. He further states, however, that when he returned, a memorandum was presented to him, showing how the proceeds had been applied, and that $354.75 of the proceeds had been applied as a credit on a note he owed the bank individually, and that this amount, together with the amounts paid the Athens and Fay-etteville banks, and a commission to Baskett of $159.50 (or one per cent.), consumed the proceeds of the sale — $15,950.
He cannot account for this $354.75 transaction, except by saying that Hart and Baskett, having possession of the money, and being officers of the bank, had it credited upon his note to the bank, and he accounted' for the same to the railroad company.
He states, in a second deposition, that he knew the bank only as a collecting agent, and did not know it had any interest in the purchase, but supposed he was selling to Baskett and Hart, and possibly other parties than the bank, otherwise he would
Baskett’s testimony is that he bought the bonds for Jno. A. Hart, and the bank was not- interested in the purchase in any way or to any extent, and had nothing to do with the sale to the complainant, and received none of the profits of the sale.
It appears that Fisher, the- cashier of the Athens bank, on November 9 went to Chattanooga to get his money for the bonds held by his bank as collateral, and was told by Baskett that the bonds had been sold, but that the party buying could not complete his financial arrangements for a week; that the bank was then quite close, otherwise it would loan the purchaser the money to take up the bonds; and, thereupon, on Fisher’s suggestion that his bank did not need the money, but wanted to close the transaction, and would take a six months’ certificate of deposit, without interest, on the Chattanooga bank for the amount due it, Baskett agreed to give, and did deliver to Fisher, the bank’s certificate of deposit for the amount due him.
The bonds, as a matter of fact, were not at that date sold to complainant, and not until November 26. In the meantime, on November 21, 1888, the following letter was sent to complainant by John A. Hart, to-wit:
*64 ‘c CHATTANOOGA, TeNN., Nov. 21, 1888.
“This morning I received permission to sell the bonds I offered you at ninety cents net. If I had the money, I would prefer buying them myself. If you would loan me the money one year, at seven per cent., and take them as collateral, I would like to do so, but if not, and you still wish them, please call at the bank and I will let you have them, or, if you prefer, I will bring them over to your house. I must have a final answer Fifiday morning at 10 o’clock. Please answer.
“Yours very truly,
“JOHN A. PlART.”
Complainant states that the negotiations were made with him for sale of the bonds mostly at the banking house, and were conducted sometimes between complainant and John A. Hart, and at other times between complainant and Baskett, and again between complainant, Baskett, and John A. Hart, and once or twice, pending the negotiations, "YV. H. Hart talked with complainant about the bonds and the pending sale. The trade was finally consummated in the president’s room in the bank.
It also appears that W. H. Plart, at the instance of John A. Plart, went to Athens to investigate the bonds, and interviewed Ivins, the mayor, for information. His version is, that Ivins told him some citizens had talked about enjoining the bonds, but that all difficulty had been removed, and W. PI. Hart reported this to John A. Plart and Baskett.
A few days thereafter John A. Hart wrote to Ivins in regard to the bonds, who, instead of replying, wired John A. Hart that he would come to Chattanooga and. meet him at the Read House. They met, and Ivins says he put John A. Hart specially on his guard, that the bonds would be contested, and that he had reliable legal advice that they could be successfully resisted, and steps were about to be taken to that end.
Complainant had not bought the .bonds at that date, and of this interview and conversation he had no information until after this bill was filed. It also appears that, after the bonds had been bought by complainant, John A. Hart, upon one occasion, in a saloon, over a glass of beer, stated that he would go on record as the only man that had ever beaten Joe Ruohs, but refused to explain what he referred to.
Complainant states, generally and repeatedly, that John A. Hart and Baskett both represented to him that they had investigated, and the bonds were valid; that Hart called at his residence, and pressed him to buy; said the bonds were worth par, rep; resented that he was selling for a Louisville party, orally guaranteed the validity and solvency of the bonds, and withheld from him the information he had received from Ivins. He is emphatic that Hart
From defendant’s point of view, it appears that John A. Hart is dead, and we cannot have his testimony. W. H. Hart, Baskett, and D. E. Reese all deny emphatically that such guaranty was made, though complainant states that the guaranty was made or repeated in their presence.
The question next arises, what is the liability of the seller or assignor of such bonds, and is there any implied warranty or guaranty ?
The case is very similar to that of Otis v. Cullom, 92 U. S., p. 147. That case was this: The city of Topeka, Kansas, under two Acts of the Legislature, issued §100,000 of municipal bonds. They became the property of the Eirst National Bank of Topeka. The bank sold §18,000 of them to the plaintiff in error. The interest was defaulted and suit was brought. It was held that the bonds were void because the Legislature had no power to pass the enabling Acts. Thereupon the vendee sued the receiver of the vendor bank to recover the amount paid for the void bonds. Pleld, that the holder of the void bonds could not recover. The Supreme Court says: “Siich securities throng the channels of commerce, which they are made to seek, and where they find their market. They pass from hand to hand, like bank notes. The seller is liable ex delicto for bad faith, and ex con-tractu there is an implied warranty on his part that they belong to him, and that they are not forgeries.
The doctrine of Otis v. Cullom is recognized, and the case approved, in First National Bank v. Oldham, 6 Lea, 718-128.
The same doctrine is recognized and applied by this Court where a note was given for worthless ‘‘Mississippi cotton money.” Gowen v. Shute, 4 Bax., 57.
And, again, contracts based upon illegally issued Bank of Tennessee money were upheld by this Court. Crockett v. Alexander, 5 Heis., 106.
S0‘, transactions had with Confederate money, after it was worthless, were sustained. Cross v. Sells, 1 Heis., 83; Mathews v. Thompson, 2 Heis., 588.
So, payment in worthless bank bills was held binding, and operated as a satisfaction of the debt. Scruggs v. Gass, 8 Yer., 175. In this case, Judge Catron, in delivering the opinion of the
So, where a party assigned a note for land (void on its face for usury) without recourse, held, in the absence of fraud and deceit, that there was no implied warranty or right to recover upon the original consideration. Walker v. Clark, 2 Leg. R., 42.
A different rule prevails in many cases, in regard to such securities as these, from the rule governing the transfer of private bills and notes, and the distinction and reason for it is clearly pointed out in Tiedeman on Commercial Paper, Sec. 244, pages 404, 405.
We are of opinion complainant cannot hold the defendants liable on the idea of an implied warramty or guaranty of the validity or solvency of the bonds.
Can the defendants be held liable on the grounds of fraudulent misrepresentations or mutual mistake ? It is proper to keep in view in this case that the
We are thoroughly satisfied in this case that misrepresentations and false statements were made to the complainant in the course of these negotiations by John A. Hart; that false impressions as to the desirability of the bonds and their value were made by said John A. Hart; and that the conduct of Baskett and W. H. Hart, especially the former, was calculated to, and did, mislead the complainant in deciding upon the desirability of the bonds.
The complainant was induced to believe that the bonds were the property of a party in Louisville, and that Hart and Baskett were simply trying to place them, and had no interest in them except a 'small commission, when, at the very time, Hart, through Baskett, had already bargained for the bonds at seventy-two and one half cents, and, without paying for them himself, was negotiating to sell them at ninety cents to complainant, with a view of appropriating the profits to the use of himself, Baskett, and W. H. Hart, which he afterward did, and Baskett and W. IT. Hart connived at, and aided, so far as opportunity offered, in carrying this scheme into effect.
In doing so, Jno. A. Hart, principally, and Bas-kett and W. ‘ H. Hart, in a subordinate manner, made representations as to the desirability of the bonds, and their value, which were not warranted by
There can be no doubt but that the two Harts and Baskett co-operated in the transactions which resulted in the sale of the bonds, and were, to some extent, if not equally, concerned in the representations made. We are satisfied that the bank, as a bank, was not a party to the transaction or the misrepresentations, but it is apparent that the Harts and BasRett were using the credit and funds of the bank, and their connection with it, to further their individual scheme to effect the sale, and divide the profits' among themselves, which they did, the bank receiving no part of it, not even the commissions.
The certificate of deposit given to Fisher, the cashier of the bank at Athens, was wholly unwarranted, and did not represent an actual deposit of money in bank, and was not a real bank transaction, but a simulated one, in order ■ to obtain credit, and carry the bonds for Jno. A. Hart until the individ
We see no tenable ground on which complainant can hold the bank in any event or for any reason.
Very serious obstacles arise in the way of complainant in holding the officers liable as individuals. The first is complainant’s persistent statement that he dealt with the bank, and not with the individuals, and that the bank is liable to him because the individuals acted for the hank. Another is the fact that, after ascertaining the trouble with the_ bonds, he saw proper to hold on to them and attempt to enforce them against the maker for their full face value, instead of returning them to the defendants and seeking to hold them liable for the price paid.
Tiedeman, in his work on sales, lays down the rule of law in such cases as follows: “It is also, necessary that the defrauded party should do nothing, after the discovery of the fraud, which would in any way admit the existence and validity of the contract. Such an admission, if clear, will operate as a bar
Here, however, is a case in egpdty where promptness and diligence are far more essential and material. Donaldson v. Farwell, 93 U. S., 631; Grymes v. Sanders, 93 U. S., 55; Johnston v. Standard M. Co., 148 U. S., 366; Knuckolls v. Lea, 10 Hum., 577.
Mr. Pomeroy states the rule as follows: “All these considerations as to. the nature of misrepresentations require great punctuality and promptness of action by the deceived party upon his discovery of the fraud. The person who has been misled is required, as soon as he learns the truth, with all-reasonable diligence, to disaffirm the contract, or abandon the transaction, and give the other party an opportunity of rescinding it and of restoring both of them to their original position. tie is not allowed to go on and derive all possible benefits from the transaction, and then claim to be relieved from his own obligations by a rescission or a refusal to perform on his own part. If, after discovering the untruth of the representations, he conducts himself, with reference to the transaction, as though it were still subsisting and binding, he thereby waives all benefit of, and relief from, the misrepresenta-
Another difficulty is that the invalidity of the bonds being • the cause of the loss, and that not having been ascertained and determined when the representations were made, or even at that time suspected, so far as this record discloses, the parties could not have intended to guard against and cover this defect by their representations. At that time it cannot be held that the parties knew the bonds to be illegal and invalid, and falsely represented to the contrary. Nor can their representations, as made in this record, be held to go to the extent that the bonds were valid, but only that, so far as known or believed, they were valid and authorized. To hold that- the parties meant that the bonds could not be invalidated for any reason, would be, in effect, to hold them as guarantors of the bonds, and, as before stated, we cannot so hold under this record. Mere statements in regard to the validity of the bonds involved not questions of fact, but of legal opinion, and the statements, if made, cannot be considered as anything more than expressions of opinion, inasmuch as the fact of validity was not then ascertained and determined.
Much of this reasoning applies to the contention made, that the complainant is entitled to recover because of mutual mistake between the parties. A
This principle might, with the same consistency, have been invoked in the case of 'Otis v. Oullom, or any of the other cases cited, as in this case, and could as well be invoked in any case in which a bond has been or may be held void. After all, the question involved is not one of fact, and any mistake between these parties was not a mistake of fact, but of legal opinion.
We think there is no reversible error in the rulings of the Chancellor upon evidence, and do not' deem it important to pass, in detail, upon them.
The conclusion is, that there is no error in the decree of the Chancellor, and it is affirmed, with costs.
Rehearing
PETITION TO REHEAR.
A petition to rehear in this case urges that at least the estate of John A. Hart should be held liable, not only for the misrepresentations made by him to complainant, but also because he suppressed the conmersation between himself and Ivins in regard to the bonds at the Read House.
A practical difficulty is encountered, at the very threshold of this contention, in the fact that there is no evidence that any false representations were made to complainant by John A. Plart, or any facts were withheld from him by John A. Hart. This arises out of the fact that complainant’s testimony is the only testimony on this point, and it was by
The testimony of Ivins as to what occurred between himself and John A. Hart at the Read Blouse is contradictory to other statements made by him to W. H. Hart, and indefinite in its character, and somewhat contradictory in itself.
It does not appear that he told Hart the bonds were invalid for any particular reason, certainly not for the reason for which they were declared invalid afterward, but simply that they would be contested and probably successfully resisted.
The real ground .of their invalidity was not then divulged, or even known, so far as this record shows, and Ivins’ statement, at best, was only an opinion as to the probable result of a future contest.
It is by no means clear when this conversation took place. Presumably, it was before the bonds were bought by John A. Hart, and this view is sustained by the testimony of W. H. Hart and of Ivins. It is not probable that, after that transaction had been made, John A. Hart would have interested himself in any further investigations of the bonds. It is evident that the communications actually made by Ivins, whatever they were as a matter of fact, did not deter Hart from buying the bonds, and from this fact, as well as Ivins’ statement made but a few days before to W. H. Hart that the bonds were valid, we are constrained to believe that Ivins did not communicate any existing fact to John A.
Both W. H. Hart and Baskett prove emphatically that, -when John A. Hart bought the bonds, neither he nor they, nor anyone .else, so far as they could ascertain, had any suspicion' or question of their validity.
The fact that John A. Hart bought the bonds at seventy-two and one half cents, ■ and sold them to complainant for ninety cents, is a fact developed in the record, but this is not urged as a ground of relief.
We see no reason to modify the opinion heretofore expressed, and the petition to rehear is dismissed.