Adam Ogilvie and Others, Appellants v. the Knox Insurance Company, Levi Sparks, and Others

• Decision Date: 01 December 1859
• Citation: 63 U.S. 380,22 How. 380,16 L.Ed. 349
• Parties: ADAM OGILVIE AND OTHERS, APPELLANTS, v. THE KNOX INSURANCE COMPANY, LEVI SPARKS, AND OTHERS
• Court: U.S. Supreme Court

63 U.S. 380

22 How. 380

16 L.Ed. 349

ADAM OGILVIE AND OTHERS, APPELLANTS, v. THE KNOX INSURANCE COMPANY, LEVI SPARKS, AND OTHERS.

December Term, 1859

THIS was an appeal from the Circuit Court of the United States for the district of Indiana.

It was a bill filed on the equity side of the court, by Ogilvie, Angle, & Co., traders in partnership in Iowa, together with twelve other persons, citizens of Missouri, Ohio, and Michigan, against the Knox Insurance Company, and against Levi Sparks and thirty-six other persons, subscribers to the capital stock of the company. Being a creditor's bill, filed by the complainants and such other creditors as might make themselves parties, thirty-two other creditors came in and made themselves parties to the suit. The bill alleged that the complainants had recovered divers judgments against the insurance company, upon which executions had issued, the return to which had been, 'no property;' that the other defendants severally subscribed for stock in the company, and were still indebted for it, payment not having been enforced by the company. The prayer of the bill was, that they might be decreed to pay their subscriptions, and that the judgments might be satisfied from the fund thus produced.

At the September rules, 1852, the bill was taken pro confesso against all the defendants; but afterwards they all (except the company) appeared, demurred, and, upon the demurrer being overruled, answered. The securities, being the subscription notes, were brought into court. Collum's answer was adopted by most of the other defendants, which answer is particularly noticed in the opinion of this court. After sundry other proceedings, not necessary to be mentioned, the court dismissed the bill, and the complainants appealed to this court.

It was argued by Mr. Gillet for the appellants, upon which side there was also a brief filed by Mr. Judah, and submitted on a printed argument by Mr. Crawford for the appellees.

The points made by the counsel for the appellants were, of course, similar in substance. The following were the fourth and fifth points of Mr. Gillet, and the third and fourth of Mr. Judah:

Mr. Gillet:

IV. The subscriptions and obligations of the defendants are not void, or voidable, even if it shall be admitted that the facts set up in their answers are true.

The defendants do not aver that the company authorized the false representations complained of, or that they approved of them after they were made. Nor do they aver that they repudiated the transaction as soon as they learned the true state of things. Nor do they state that they offered to restore things to their original condition. They set up that, on the 25th of June, 1851, more than a year afterwards, they would have nothing more to do with the company, nor would they pay their notes or bills. This was about a year after they knew of the heavy losses. In order to defeat their liability, they must connect the company with the fraud alleged. This they have wholly failed to do, both in their answers and evidence. An unauthorized falsehood, told by their agent, was no act of theirs, and they cannot be held responsible for it.

If Carnan misrepresented the condition and affairs of the company, that was a matter between him and those who subscribed on the strength of the representation. It was he, and not the company, that deceived them. The answers do not set up a legal defence to the defendant's obligations. They do not even aver that they offered to restore things to their original condition. They do not allege that they returned, or offered to return, the stock to be cancelled. Nor do they state that they asked the company to do anything at all. They kept the consideration of their obligations, and at the same time repudiated them, not because the company had deceived them, but because Carnan told them two falsehoods, as they aver. As they have presented their case by their pleadings, the defendants have no defence to their obligations.

'It (a corporation) is not, however, responsible for unauthorized or unlawful acts, even of its officers, though done colore officii. To fix the liability, it must either appear that the officers were expressly authorized to do the act, or that it was done bona fide, in pursuance of a general authority in relation to the subject of it, or that the act was adopted or ratified by the corporation.'

Angel and Ames, pp. 250, 251.

In Thayer v. Boston, (19 Pick., 516, 517,) Chief Justice Shaw used the same language.

The answers in the present case do not aver what is here required to be proved, to make the corporation liable for any supposed wrong on the part of Carnan.

V. The fact that from May, when the true amount of the Vincennes stock must have been known by the Jeffersonville stockholders, to the middle of August, no complaint was made on that account, is conclusive evidence that the defendants did not consider themselves injured by that fact.

The evidence is explicit and clear, that in April, 1850, Ryan made out a statement, truly showing the condition of the company, and that it had some $25,000 or $26,000 of surplus on hand, and of course showed that there was no $40,000 of Eastern exchange. It also showed the amount of stock, because it was the same statement shown to Savitz and Hughs in August, and Savitz swears that he then noticed that the whole stock of the company amounted to only $97,000. Now, it appears that Carnan took this statement to Jeffersonville in May, 1850, and there showed it. He states that he never showed any other statement to them there; the stockholders then knew that $75,000 had not been subscribed at Vincennes. He swears he told them that he was sorry that they had taken $67,000, because it was a good deal more than had been taken at Vincennes, and he proposed to go and increase the stock at the latter place. But the Jeffersonville subscribers objected, because they wanted the smallest possible amount of stock to spread the anticipated dividend over. They then knew the facts as well as they ever did, and did not object, as they would have done, if they had thought themselves injured by the smallness of the Vincennes subscription. Not even a hint of complaint escaped the Jeffersonville subscribers until the middle of August, and then no formal objection made, nor for a very long time. They would not have been thus silent, if they had been really wronged.

Mr. Judah:

III. But further, admitting the charge of fraud to be proven, and that defendants relied on the representations, the defendants cannot protect themselves by it. It is too late.

When a party has the right to rescind, repudiate, on the ground of fraud, 'he must do so at once, on discovering the fraud.'

2 Parsons Cont., 278.

At the earliest moment after he has knowledge of the fraud.

Masson v. Burt, 1 Denio, 69.

2 Parsons Cont, 278, note S.

Any delay is a waiver, and mere lapse of time may be conclusive.

2 Parsons Cont., 279.

The party must act promptly, and rescind in toto.

Wheaton v. Baker, 14 Bart., 594.

Mann v. Worral, 16 Bart., 221.

But these men had the statement, called paper Z, on 4th May, 1850, and yet, up to the 4th June, increased their subscriptions $10,500, as appears by the dates of the securities, bill, and answers; and these men had the report of their committee, and the statement called W, in August or September, 1850—full knowledge of all the facts. And yet, between the 28th of September and 4th of October, these men, and amongst them Cullom, on his own stock, renewed their securities on 225 shares and $22,500. This whole defence is an afterthought.

IV. If these defendants might set up this fraud against the company, or their co-stockholders, they cannot set it up against the creditors of the company.

Suppose A, by fraud, induces B to become his partner in the firm of A & Co.; that A, in the name of A & Co., purchases goods for the firm on credit, and that, before payment is made, or even due, B discovers the fraud, and immediately rescinds for the sufficient fraud, what will be the effect on the sellers of the goods, creditors of the firm?

In such case, who will suffer? Nay, who should suffer? The rule is, that when one of two innocent parties must suffer by the fraud of a third party, he of the two who afforded the means, or gave the credit, must bear the loss.

Story on Agency, sec. 127, pp. 142, 143, and note 1.

Story's Eq. Jur., secs. 384, 385, 386, 387, 388.

Hiorns v. Holtom, 13 Eng. L. and E., 596.

So long as a man is a partner or a stockholder, however innocently, as relates to third and also innocent parties, he should suffer the consequences.

These men represented two-thirds of the capital; they had their names in the firm as stockholders, directors, officers.

Only some of the arguments of the counsel for the appellees can be given, and those are selected which are replies to the arguments upon the other side.

The plaintiffs have objected, that if Carnan did practice this fraud upon the defendants, it was his own wrong only; the insurance company did not authorize it, nor ought she to be affected by it. It is true she had the alternative to reject or adopt the unauthorized acts of her agent. If she had rejected them, there would have been no contract between her and the defendants. But she chose to adopt them, and therefore she took them tainted as they were.

Chit. Con., 679; 2 Par. Con., 276, and n.(a); 1 Story Eq., Jur., sec. 256.

Doggett v. Emerson, 3 Story, 735.

Atwood v. Small, 6 Cl. and Fin., 448.

Mason v. Crosby, 1 Woodb. and M., 342.

Jeffrey v. Bigelow, 13 Wend., 518.

Swatara R. R. Co. v. Brune, 6 Gill, 41.

Crump v. U. S. Mining Co., 7 Gratt., 352.

But the plaintiffs contend, that if the fraud has been ever so strongly proved, and it has not been waived, and might be a good defence in a suit brought by the insurance company, yet it is no defence against them. They claim to have a peculiar equity.

Yet their complaint alleges...