Crossen v. Murphy

• Decision Date: 31 July 1897
• Citation: 49 P. 858,31 Or. 114
• Parties: CROSSEN v. MURPHY et al.
• Court: Oregon Supreme Court

49 P. 858

31 Or. 114

CROSSEN v. MURPHY et al.

Supreme Court of Oregon

July 31, 1897

Appeal from circuit court, Baker county; Robert Eakin, Judge.

Suit by Edward E. Crossen against William Murphy and others. From a decree in plaintiff's favor, defendants appeal. Affirmed.

This is a suit to rescind a contract for the sale and delivery of a quantity of merchandise. The facts are: That on December 24 1895, plaintiff and defendant Murphy entered into an agreement by the terms of which they became equal partners in conducting a clothing and furnishing store at Baker City Or.; but, the business not proving profitable, they on April 28, 1896, entered into separate contracts with the defendant the Harrisburg Mercantile Company, a corporation, for the sale and delivery of their respective interests in the merchandise then on hand, the memorandum executed by the plaintiff stipulating that he was to transfer an undivided one-half of the stock at 90 per cent of the cost thereof, and in consideration therefor the purchaser agreed to deliver to him the promissory note of L.R. Green, O. Green, and F.E Green for $200, of J.R. Cartwright for $677, and of W.W Briggs for $77, to pay one-half of the firm debts, and the remainder of the purchase price in cash within 60 days, and also to employ plaintiff as long as there should be work for him to do, or until the balance due him was paid. That an invoice of plaintiff's interest in the stock of goods having been made, on the basis agreed upon, the value thereof, including his interest in the store fixtures, was ascertained to be $1,930.57; insurance policy, $12.47; miscellaneous items, $6.80; cash paid by the firm of Murphy & Crossen, $15; and services rendered by the plaintiff as clerk, $44.24; making a total credit of $2,009.08. That the promissory notes mentioned in the agreement having been indorsed "without recourse," and delivered to the plaintiff, he was charged on the book of the corporation with the amount of the notes, including interest, $964; one-half of the firm debts, $933.28; and cash and goods from the store, $92.55; making the total amount so charged $1,989.83, and leaving a balance due the plaintiff of $19.25, which was paid to him on June 2, 1896, and he was thereupon discharged, the corporation taking the following receipt as evidence of settlement: "Baker City, June 2, 1896. Received from H. & S. Trading Co., in full for all accounts, nineteen and 25/100 dollars. $19.25. Edward E. Crossen." That plaintiff, without the knowledge or consent of the Harrisburg Mercantile Company, erased from each of said notes the words "without recourse," and on September and October 1, 1896, upon the maturity of the Cartwright and Green notes, respectively, he caused them to be protested for nonpayment. It is alleged in the complaint: That Murphy and the defendants Stuchell and Henderson, as president and secretary, respectively, and acting as agents, of the Harrisburg Mercantile Company, entered into a conspiracy to compel plaintiff to dispose of his interest in the merchandise at a sacrifice, and to defraud the creditors of the firm of Murphy & Crossen, in pursuance of which Murphy, without plaintiff's knowledge or consent, transferred his interest in the stock of goods, and, the lease of the building occupied by them having been taken in his name, transferred that also, to the Harrisburg Mercantile Company, on obtaining which the agents thereof notified plaintiff to vacate the said building within four days; and, being unable to procure another building, he was compelled to sell, and did sell and transfer his interest in the stock of goods at a loss. That Murphy, being acquainted with Stuchell and Henderson, assured plaintiff that any statements made by them could be relied upon, and that they falsely represented to plaintiff that each of said notes was first-class bankable paper, and the makers thereof solvent and able to pay the same; and being ignorant of their financial condition, and relying upon these representations, he was induced to and did accept an assignment of these notes as security for the payment of the amount so due on the purchase of the merchandise. That such representations were false. That the said notes are wholly worthless and of no value whatever, and that the makers are, and each of them is, insolvent, which facts were well known by the said defendants. That the Harrisburg Mercantile Company, notwithstanding its agreement to that effect, had failed, neglected, and refused to pay of the firm debts, and plaintiff was being pressed by the creditors for a settlement of the same. Issue having been joined, the cause was referred, and, upon the evidence being reported, the court found therefrom that said representations were false, that the plaintiff relied thereon, and that he accepted said notes as payment in ignorance of the fact that they had been indorsed "without recourse." And the court, having further found that they were to be indorsed in such manner as to render the mercantile company liable in case the makers thereof made default in their payment, rendered a decree awarding plaintiff $964, the amount of said notes, from which the defendants appeal.

M.L. Olmstead, for appellants.

T.H. Crawford, for respondent.

MOORE C.J. (after stating the facts).

It is contended by counsel for defendants that they should be placed in statu quo, as a condition precedent to the right to maintain a suit to rescind the contract, and that the complaint is fatally defective because it fails to allege a return or tender of the notes in question. A party to a contract, defrauded by the other party thereto, may avoid the terms of, and rescind, the agreement; but, if he elects to do so, he must annul it as a whole, for he cannot be permitted to treat it as a whole, for he cannot be permitted to treat it as valid in part and bad in some particulars. Perley v. Balch, 23 Pick. 283; Hoffman v. King, 70 Wis. 372, 36 N.W. 25; Higham v. Harris, 108 Ind 246, 8 N.E. 255; Coolidge v. Brigham, 1 Metc. (Mass.) 547; Bohall v. Diller, 41 Cal. 532; Purdy v. Bullard, Id. 444. "It is a general rule," says Bean, J., in Frink v. Thomas, 20 Or. 265, 25 P. 717, "that in the order to disaffirm a contract, and entitle a party to the rights resulting therefrom, the rescinding party must put the other in statu quo. He must account to the other for any money paid in part performance of the contract." The rule is universal that to entitle a party of lawful age, who is mentally responsible, to rescind a contract which he has been induced to enter into by the false or fraudulent representations or evil devices of the other party to the agreement, he must, if possible, place the defrauding party in statu quo, by restoring everything of value he may have received as a consideration for the contract, and that a negotiable promissory note executed by a stranger, though insolvent, furnishes no exception; nor can the party seeking the rescission excuse his neglect in failing to return it by showing that it was worthless, by reason of the maker's insolvency, for such an instrument may possess some value to the party who put it into circulation. Spencer v. St. Clair, 57 N.H. 9; Evans v. Gale, 21 N.H. 240; Whitcomb v. Denio, 52 Vt. 382. It has been held, however, that, if the defrauded party has accepted the vendee's own notes in consideration of the execution of a voidable contract, he is under no legal obligation to return them, as a condition precedent to the right of rescinding the agreement, but may maintain trover for the goods and chattels, the possession of which he has surrendered, without any previous demand therefor, and also defer the delivery of the notes until the trial, when they may be given up to be canceled upon the rendition of the judgment. Thurston v. Blanchard, 33 Am.Dec. 700; Ryan v. Brant, 42 Ill. 78; Nichols v. Michael, 23 N.Y. 264. The reason usually assigned for the existence of this rule is that the moment the injured party elects to rescind the contract the promissory notes in his possession, which have been given by the defrauding party, ipso facto become entirely worthless, and, having been rendered valueless by a failure of the title to the property upon the faith of which they were executed, there is no necessity for returning them; but this principle can have no application to the notes of a third person which may have been accepted as the consideration of the contract, for they are not tainted with the fraud, nor affected by the election of the defrauded party to avoid the agreement, but might be enforced against the maker, or the defrauding party may consider them of some value notwithstanding the rescission. In Sisson v. Hill (R.I.) 26 A. 196, Matteson, C.J., in discussing the right of a vendor to withhold the consideration of a contract until an action at law to rescind it had been terminated in his favor, says: "It has been held that in cases in which the vendor has received from the fraudulent vendee money as a part of the consideration, and in which he sues in trover for the recovery of pecuniary damages for the conversion of the goods obtained by the fraud, he may retain the money, and allow it to go in reduction of the damages to be recovered. Warner v. Vallily, 13 R.I. 483; Ladd v. Moore, 3 Sandf. 589. So, too, it has been held in numerous cases in which the plaintiffs have sued in trover that when the fraudulent vendee has given his note, or even the note or other obligation of a third person, as the consideration, in whole or in part, for the...