Brown v. Norman

• Decision Date: 16 April 1888
• Citation: 65 Miss. 369,4 So. 293
• Court: Mississippi Supreme Court
• Parties: B. W. BROWN v. E. L. NORMAN

4 So. 293

65 Miss. 369

B. W. BROWN v. E. L. NORMAN

Supreme Court of Mississippi

April 16, 1888

APPEAL from the Chancery Court of Lawrence County, HON. T. B GRAHAM, Chancellor.

The case is stated in the opinion of the Court.

Demurrer overruled and decree affirmed.

R. H Thompson, for the appellant.

1. I could cite a great multitude of authorities in support of the proposition that it is an essential prerequisite to the rescision of a contract, for fraud, that the party seeking the rescision should restore, or tender to restore, whatever consideration was received by him under the contract. In other words he cannot keep the benefits and escape the burdens of his agreements, even if his consent to them was fraudulently obtained. I content myself, however, by calling the court's attention to the following cases:

Kimball v. Cunningham, 4 Mass. 502; S. C., 3 Am. Dec., 230; Perley v. Balch, 23 Pick., 283; S. C., 34 Am. Dec 56; Conner v. Henderson, 15 Mass. 319; S. C., 8 Am. Dec., 103; Bassett v. Brown, 105 Mass. 558; Morse v. Brackett, 98 Mass. 205; Kerr on Fraud, 328, 335; Benjamin on Sales, Section 452, and cases cited; Pintard v. Martin, 1 Smed. & Marshall's Ch'y, 126; Ware v. Houghton, 41 Miss. 370.

Appellee cannot hope to escape the consequences of a failure to restore Brown to the one-third interest in the store, stock of goods, choses, etc., by claiming that the consideration which passed to Norman was worthless. That Norman proved unable or unfit to successfully manage the business will not do; or even a pretence that the goods, etc., were of no value to him. They were of market value, the bill concedes, $ 5000.00.

If it be admitted that the return of that which is entirely worthless is not essential, yet the court must say by which standard this shall be determined. The case of Perley v. Balch, 23 Pick. 283, already cited, is pertinent here. It decides that a party cannot rescind a contract and yet retain any portion of the consideration. "The only exception," said Moreton, J., "is when the property is entirely worthless to both parties."

2. In the case of Ware v. Houghton, supra, and of Jagers v. Griffin, 43 Miss. 134, it is said by our own appellate court, speaking of the general rule, presently to be mentioned, that a rescision of a contract must be sought, if at all, in a reasonable time, that "the rule of diligence ought to be more stringent where the means of information are of record in the county." How much more ought diligence to be required where the means of information are in a man's own hands; on the end of his nose, so to speak?

Upon the general doctrine, that to entitle a party to rescind a contract on the ground of fraud or false representations by the other party, he must do so immediately upon discovering the fraud or false representations, and if he fails to do so, but goes on with the contract after such discovery, he thereby waives his right to rescind, and cannot be relieved from his contract. See Mr. Freeman's note, 35 Am. Dec., 600, and the authorities cited.

I contend that Norman is to be taken to have had knowledge of the mercantile business purchased by him within a very short time after his purchase; and this on the ground that wilful ignorance is the same as actual knowledge; that whatever is sufficient to put a reasonable man on inquiry is ample to charge him with notice of whatever would be developed by that inquiry if made. It is said in Hoadley v. House, 32 Vermont, 179; S. C., 76 Am. Dec., 167, that a defrauded party "could not rescind the contract, if at the time of the delivery of the article he could have discovered by the use of ordinary diligence that it was not of the kind he bargained for."

Every body understands that a defrauded party is permitted to rescind a contract and recover what he has parted with under it only upon the idea that his consent to the contract was never given to the bargain as made; or rather that his consent was obtained thereto by fraud, and that fraud vitiated the consent, and therefore there was no consent.

Now as soon as Norman discovered the fraud the parties stood in this relation: Brown had Norman's property, and Norman had in his hands the property of Brown. Norman could affirm the contract or he could rescind it. If he once elects that is the end of the matter. He cannot both rescind and affirm. If he chooses to rescind the law requires that in the exercise of that right he must do justice to his adversary. He must return his adversaries' property; if on the contrary he exercises acts of ownership over it after he has knowledge of the fraud, he thereby ratifies the trade; for he treats the property received by him as his own, when, if he is to rescind, he must treat it as his adversaries.

Suppose, however, after discovery of the fraud, he allows another person to deal with and treat the property as having in fact and in truth passed by the contract sought to be annulled, and sees that other persons sell the goods and deal with the property as if he was the owner, and all this, for five months, without notifying the adversary, would it not be such conduct as would place the matter beyond the question of rescision?

Without arguing further, I do insist that it is manifest from the bill in this case, that Mr. Norman lay by for the purpose of first ascertaining whether he would be able to realize a profit out of the contract. This suit was an after thought. Cunningham v. Fithian, 2 Gil. (Ill.), 650.

A. H. Longino, for the appellee.

1. It is not indispensible to all cases for a rescision that the injured party shall be placed in statu quo; but in cases where it cannot be done, the party seeking the rescision may be excused from so doing by showing sufficient excuse therefor. Jarrett v. Morton, 44 Missouri Rep., p. 275; Johnson v. Walker, 25 Arkansas, p. 196; Ellington v. King, 49 Ill., p. 449.

Again, it has been decided by the Supreme Court of New York, that the injured party is required to restore only what he has received, and has at the time, by force of the contract under his control, and that if the wrong-doer has, by his own acts, so complicated the case that full restoration cannot be made, he has but himself to blame. See Hammond v. Pennock, 61 N.Y. Reps. p. 153.

It was impossible for apppellee to restore the residue of the goods unsold after they had been seized and taken from him by the officer, and sold for the appellant's debts. There, I think, is the excuse; nor can it be said in this case that if appellee cannot restore the property received, that he should reinstate appellant out of other means. Because all the goods and assets which he received in the trade have been, under the terms of the contract between them, used in the payment of appellant's debts--in the amount of which he so fraudulently deceived appellee--and by his complication and fraud therein is not entitled to restoration or payment.

Again, I conceive that the law makes a distinction in the rule for the rescision of contracts between those procured by fraud and those of any other character, and that the former class is not governed by the general rule relied on by appellant in this case. That the rule in equity that a party seeking to set aside a contract must place, or offer to place, the opposite party in statu quo, is not applicable to a case when a deed has been obtained by fraud and without valid consideration. See Freeman et al. v. Reagan, 26 Arkansas, 373. Nor is the rule applicable in cases where the wrong-doer by his own action in the perpetration of a fraud renders it impossible for the other party to put him in statu quo. Hammond v. Pennock, 61 New York, p. 145.

2. The appellee did not lose his right to rescission by a want of diligence. Under the facts set up in the bill in this cause I think the point at issue is fully settled by the Supreme Court of New York, in the case of Baker et al. v. Lever et al. It is said that "where a vendee has been induced to purchase property by means of fraud on the part of the vendor, mere want of diligence in discovering the fraud does not deprive the vendee of his right to rescind because thereof; he owes the fraudulent vendor no duty of active vigilance, and if he acts promptly after actual discovery of the fraud, he has a perfect right to rescind. 67 N.Y. Rep., p. 304. See also on this subject, 47 N.Y. Rep., p. 562; 7 Alb. L. J., p. 137, and 1 Hun., p. 304.

A. C. McNair, on the same side.

1. Complainant was under no duty to discover the fraud, but was only required to act within a reasonable time after discovery. If he did nothing to ratify after discovery, and brought this action within a reasonable time, then he is entitled to have the contract induced by fraud rescinded. 2 Schoales & Lefra, 486; Kern v. Burnham, 28 Ala. 428; Snyder on Vendors, Vol. 1, p. 326; Doggett v. Emerson, 3 Story, C. C. 700; Wicks v. Smith, 21 Kan. 412.

2. The rule is that a court of equity will not rescind a contract unless the parties can be put in statu quo. But there are many exceptions, as when the property received by the defrauded party is absolutely worthless. Wicks v. Smith, 21 Kans., 412; Banks v. Peck, 8 Kans., (Webb.) 664; Smith v. McNair, 19 Kans., 331; Pearse v. Pettis, 47 Barb., 285.

Or where the wrong-doer has by his own acts so complicated the case that restoration is impossible. Masson v. Bovet, 43 Amer. Dec., 651; Hammond v. Pennock, 61 N.Y. 153; Guckenheimer v. Angevine, 81 N.Y. 397.

Can Brown, under the facts of this case, defend on the ground that Norman cannot return to him the goods, when the goods have been sold to pay Brown's own debts?

OPINION

COOPER, C. J.

The appellee exhibited his bill in the Chancery Court of Lawrence county, to cancel a conveyance of certain lands and...