Bates v. Southgate

• Decision Date: 28 January 1941
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: CHARLES HOWARD BATES v. RAY E. SOUTHGATE & others.

308 Mass. 170

31 N.E.2d 551

CHARLES HOWARD BATES v. RAY E. SOUTHGATE & others.

Supreme Judicial Court of Massachusetts, Essex.

January 28, 1941

November 6, 1940.

Present: FIELD, C.

J., DONAHUE LUMMUS, QUA, & DOLAN, JJ.

Fraud. Contract Validity, What constitutes.

Sale, Validity What constitutes contract of sale, "Confirmation slip.

"

Evidence warranted a finding that a "confirmation slip," sent by a seller of corporate stock to and accepted by the buyer following conversations between the parties, embodied their final contract of sale; and it was immaterial that the buyer did not sign the slip.

A provision of a contract attempting to protect a party against the consequences of his own fraud inducing the contract is against public policy and is void; it is immaterial whether the fraud was "antecedent" to the contract or "entered into the making" of it.

The fact, that a "confirmation slip" embodying a contract of sale by a broker of shares of stock of a corporation stated an agreement that "in making the transaction" the seller made no representation other than to identify the security and to state the price, was no defence to an action of contract by the buyer against the seller for recovery of the price paid, brought after rescission of the contract because of material fraudulent representations relating to the business of the corporation which were made personally by the seller to the buyer and which induced the sale.

CONTRACT. Writ in the First District Court of Essex dated May 21, 1938. On removal to the Superior Court, the case was tried before Brogna, J., and a verdict was returned for the plaintiff in the sum of $7,046.

L. Wheeler, Jr. (H.

A. Reynolds with him,) for the defendants.

E. O. Proctor, for the plaintiff.

QUA, J. The plaintiff did business as an "investment broker" in Salem. The defendants as partners carried on a brokerage business in Boston under the name of Southgate and Company. In this action of contract the plaintiff seeks to recover the purchase price paid by him to the defendants for five hundred shares of stock in Victoria Gypsum Company which he bought from them and later tendered back to them for the purpose of rescission after he learned, as he contends, that he had been induced to make the purchase by a fraudulent representation on their part. The defendants rely upon a "confirmation slip," sent by the defendants to the plaintiff, at the bottom of which was printed the following: "It is agreed between broker [defendants] and customer [plaintiff]: 1. That in making this transaction, we make no representation other than to identify the security and state the price. 2. That in this transaction we are acting solely as principals and not as agents." Below this appeared the printed signature "Southgate & Co." The only point raised by the exceptions is whether the evidence justified submission of the case to the jury.

At the beginning the question arises and has been argued whether the "confirmation slip" ever became part of the contract of purchase and sale of the stock. The evidence on this point came from the testimony of the plaintiff himself. He testified to a series of telephone talks on May 6, 1937, between himself and a member of the firm of Southgate and Company wherein the parties came to terms upon the sale and purchase of five hundred shares of the gypsum stock at $12 a share. On the following day the plaintiff received the "confirmation slip" from the defendants. The plaintiff testified that he used confirmation slips in his own business; that he could have refused to pay for the stock, if he did not want to take it on the terms stated in the slip; that there "wasn't the slightest question" but that he could have cancelled the order on May 6 before he received the "confirmation slip"; that he was content to pay for the stock and to take delivery on the terms set forth in the slip, and that he did so; that he expected his own customers to go through with their deals on the terms of his confirmation slips or "call the deal off"; that he did not expect to do anything different as a customer of Southgate and Company than he would expect of his own customers; that on May 19, after he had received the confirmation slip but, as the jury could find, before he knew that the representation was false, he

"elected to go through, well knowing that the terms were that Southgate was making no representation with respect to this transaction other than to identify the security and state the price."

Upon this evidence the jury could find, if they were not bound to find, that at the time of the telephone conversations both parties expected a confirmation slip to be delivered later as the embodiment of the bargain and regarded the slip, after its delivery and acceptance, as expressing the final terms of the contract between them. The slip stated the names of seller and buyer, the subject matter of the sale, the price, and the terms of payment as "cash transaction." It contained all the essential elements of a contract. Even though previous oral conversations would be enough in themselves to establish an oral contract the parties may, nevertheless, by mutual understanding postpone the culmination of their negotiations into a contract to the later preparation and delivery of a written instrument.

^[1] It is immaterial that the plaintiff did not sign the "confirmation slip." Thomas v. Barnes, 156 Mass. 581 , 583, 584. Glackin v. Bennett, 226 Mass. 316, 320. Gould v. Converse, 246 Mass. 185 , 188. Greaney v. McCormick, 273 Mass. 250 , 253. Williston on Contracts (Rev. Ed.) Section 90A.

On the question of fraud there was evidence that before the plaintiff bought the stock one of the defendant partners stated to the plaintiff, as an inducement to buy, that the gypsum company had received an order for forty thousand tons of gypsum to be delivered in New York at $2.66 a ton, upon which the company would derive a profit of about $1 a ton, and that the plaintiff relied upon this statement in agreeing to buy, in accepting the "confirmation slip," and in paying for the stock. There was no evidence that the defendants by any statement on their part withdrew or corrected the alleged representation, and the evidence that the plaintiff in fact still continued to rely upon it and was induced by it to accept the confirmation slip as the contract between the parties was before the jury for their consideration. The defendants denied having made any such representation, but admitted that the company had not received such an order and that they knew it had not. When taken in connection with other evidence in the case, which need not be stated, as to the history and prospects of the gypsum company, there can be no doubt that a representation as to an order for forty thousand tons at the price stated could be found to have been material as an inducement to buy the stock, and that upon the evidence just recited the verdict for the plaintiff can be sustained, unless as matter of law the provisions of the "confirmation slip" constitute a defence. Gurney v. Tenney, 197 Mass. 457 , 465. Schleifer v. Worcester North Savings Institution, 306 Mass. 226 , 228. Indeed, there has been no argument to the contrary.

The defendants point to the "confirmation slip" and urge that therein the parties have contracted that no representation, and so of course no fraudulent representation, has been made; that the plaintiff is bound by the contract and has in effect agreed to take the stock at all events, whether he has been defrauded or not. The plaintiff may urge in reply that the jury could find that in real fact there was a fraudulent representation; that he was induced by it to purchase the stock; that even if the "confirmation slip" became the embodiment of the contract or a part of the contract, he was induced to accept the slip by the same fraud by which he was induced to purchase; and that if it is the policy of the law to refuse to honor a contract procured by fraud, that policy extends to all contracts and to all parts of contracts, as much to provisions inserted by the opposite party for the purpose of escaping the consequences of his own wrong as to any other part.

In Cannon v. Burrell, 193 Mass. 534 , 536, this court refused to recognize an attempted rescission by a buyer of goods who had signed an order wherein it was stated that separate agreements with salesmen were not binding, and that the sale was "made under inducements and representations herein expressed and no others." The defendant there contended that the plaintiff's salesman had represented that "he [the salesman] would give him [the defendant] exclusive sale of said goods in Rockland and vicinity" (page 535). It will be noted that the alleged representation was promissory in character and not an express representation of existing fact, although there was evidence from which possibly an inference might have been drawn that the salesman did not intend literally to keep his promise. The court cites no Massachusetts case dealing with the effect of actual fraudulent representations upon a contract containing a clause that no representations have been made. The decision seems to have been grounded principally upon lack of authority of the salesman to vary the terms of the order (see page 536).

Colonial Development Corp. v. Bragdon, 219 Mass. 170 , was an action of contract to recover the purchase price of land sold, with a cross action for deceit. The contract contained this clause: "No agent of this company has authority . to make any reference, representation or agreement not contained in this contract and none not contained herein shall be binding upon the seller, or in any wise effect [sic] the validity of this contract or form any part...