Aaberg v. H. A. Harman Co.

• Decision Date: 12 December 1960
• Docket Number: No. 18843,18843
• Citation: 144 Colo. 579,358 P.2d 601
• Parties: H. O. AABERG, Stella R. Aaberg, individually and as Trustees for the Aaberite Trust, Plaintiffs in Error, v. H. A. HARMAN COMPANY, a Corporation, Defendant in Error.
• Court: Colorado Supreme Court

Page 601

358 P.2d 601

144 Colo. 579

H. O. AABERG, Stella R. Aaberg, individually and as Trustees for the Aaberite Trust, Plaintiffs in Error, v. H. A. HARMAN COMPANY, a Corporation, Defendant in Error.

No. 18843.

Supreme Court of Colorado, En Banc.

Dec. 12, 1960.

Rehearing Denied Jan. 30, 1961.

C. J. Berardini, Denver, Henry Blickhahn, Alamosa, for plaintiffs in error.

Dutcher & Bratton, Gunnison, Ed Roy Simmons, Mexia, Tex., for defendant in error.

DAY, Justice.

The parties are here in inverse order of their appearance in the trial court. We will refer to the plaintiffs in error as the Aabergs and to the defendant in error corporation as the Harmans because H. A. Harman, Arsona Harman and Nancy Harman, incorporators of this family company, are the actual parties in interest and assigned their claim to the corporate plaintiff below. In like manner Aabergs had operated through various entities known as Aaberite Industries, Aaberite Trust and Western Engineers Co. One of the contentions of the Aabergs is that some of these companies should have been, but were not, made parties. We dispose of this assignment of error with the observation that the entire record reveals the Aabergs personally conducted all transactions with the Harmans and used the fund involved for their own personal use. These alleged companies are wholly owned family trusts and were merely conduits through which the money flowed to the Aabergs.

The action in the trial court was founded on fraud and deceit, and although set out in separate causes of action, a summary of the complaint is: That the Harmans were inexperienced in and unfamiliar with the mining business and they relied implicitly on the Aabergs' representations to them; that the Aabergs carried on their mining operations through various purported trusts established to defraud the public, and particularly the Harmans; that the Aabergs made false and fraudulent material representations, in reliance upon which the Harmans parted with $143,000, all of which the Aabergs received and most of which they used for their own personal bills and living expenses. The complaint further avers that immediately upon learning of the false and fraudulent character of the representations made by the Aabergs, the Harmans rescinded their agreement for sale and purchase of a percentage interest in the mining operations of the Aabergs by serving a 'Notice of Rescission and Offer of Restoration' on the Aabergs, and by delivering to the Aabergs everything the Harmans had received, namely so-called equity units purporting to represent percentage interests in the Aaberg properties and operations. The complaint prayed for damages in the amount actually paid by the Harmans plus exemplary damages and execution on the bodies of H. O. and Stella Aaberg.

Trial was to a jury which returned a verdict in favor of the Harmans in the amount of $143,000, the amount invested by the Harmans. In addition the jury returned verdicts for exemplary damages in the amount of $46,804. On these verdicts final judgment was entered.

Of the seven points by the Aabergs in their summary of argument, we deem only two to merit comment. They are:

1. That the court erroneously permitted the Harmans to pursue inconsistent remedies: one in equity for rescission and the other in law for damages.

2. That the alleged misrepresentations were not of past or present existing material facts, and that both the allegations of the complaint and the proof establish the statements by the Aabergs to be merely opinions of value and of possible future development, and opinions as to possibilities of future profits.

First Question To Be Determined

When a party has fully performed a contract and thereafter on the ground of fraud and deceit rescinds the contract by the service of a 'Notice of Rescission and Offer of Restoration' and by delivering to the other party all that he has received under the terms of the agreement, and then brings suit to recover the amount paid under the contract, is such an action deemed to be one in damages for the tort?

This question is answered in the negative.

The resolution of this question does not affect the recovery by the Harmans of the amount which they paid over to the Aabergs as a result of the misrepresentations. The jury verdict and the judgment of the court amounted to restoration in full plus interest to the Harmans. The determination of whether the action is in damages, or for rescission, or neither, affects the judgment for punitive damage recovered by the Harmans. The Aabergs also contend that a determination of the nature of the action is imperative as affecting the right of the court to permit execution against the bodies of the Aabergs.

Confusion on the question whether one can rescind and have an action in damages arises over inept language to be found in two Colorado cases. In Jessey v. Butterfield, 61 Colo. 256, at page 259, 157 P. 1, at page 2, is to be found the following statement:

'The rule is that where the execution of a contract has been brought about by fraud, the wronged party has an election of remedies: (1) he may affirm the contract and sue for damages; (2) where the right to rescind has not been lost, he may rescind and sue for damages, or to recover money paid or property transferred in pursuance of the contract; (3) he may sue in equity, in a proper case, to cancel or rescind the contract, and to recover that with which he has parted, and for other equitable relief.' (Emphasis supplied.)

Also in Gibraltar Colorado Life Co. v. Brink, 113 Colo. 304, at page 306, 157 P.2d 134, at page 134, is the statement:

'When one is injured, as Brink claims to have been, two remedies are open to him, first to rescind and recover damages, second to affirm and recover for the resulting injury.'

In neither of these cases, however, was the question of rescission and damages before the court. In view of the numerous decisions in Colorado, both before and after these two cases, neither can be cited as authority for the proposition that one can have rescission and damages.

The nature of the action here is best described by the court in Wheeler v. Wilkin, 98 Colo. 568, at page 570, 58 P.2d 1223, at page 1224, where it was said:

'Upon discovery of the fraud, plaintiff had the right either to affirm the contract and sue for damages, or to rescind the contract and sue for the return of the money paid. Springhetti v. Hahnewald, 54 Colo. 383, 131 P. 266. The former would be an action in tort (deceit); the latter, an action on contract (assumpsit for money had and received). Where one has received money which...