George H. Evarts v. Angus J. Beaton
| Decision Date | 02 February 1943 |
| Parties | GEORGE H. EVARTS ET AL. v. ANGUS J. BEATON |
| Court | Vermont Supreme Court |
January Term, 1943.
Rescission Before Tort Action for Conversion. Entire Contracts.
1. When a contract is procured by fraud, it is voidable only, not void.
2. When property is transferred under a voidable contract, title and right of possession vest in the transferee. McCrillis v Allen, 57 Vt. 505, overruled.
3. When a contract is induced by fraud, the defrauded party may divest the other of title to any property delivered by rescinding, but such rescission must be accompanied by redelivery or tender of anything received under the contract and must take place within a reasonable time after discovering the fraud.
4. A tort action for conversion of the proceeds of a note obtained under a fraudulent contract may not be maintained unless preceded by a rescission of the contract by the defrauded party.
5. When a contract is entire, if the defrauded party wishes to rescind, he must do so in toto; he may not affirm as to part and repudiate the unfavorable part.
TORT for conversion of proceeds of a note. Trial by jury, Addison County Court, December Term, 1941, Cushing, J., presiding. Verdict and judgment for the plaintiffs.
Judgment reversed and judgment for the defendant to recover his costs.
Arthur L. Graves, Reginald B. McShane and Frederick G Mehlman for defendant.
Lawrence & O'Brien for plaintiffs.
Present MOULTON, C. J., SHERBURNE, BUTTLES, STURTEVANT and JEFFORDS, JJ.
In July, 1934, George H. Evarts met the defendant who was a cattle dealer. The purpose of the meeting was to look at some cattle which the defendant said he owned. As a result of this meeting twelve cows were selected which Evarts agreed to buy of the defendant. Six of these cows were Jerseys and the others were Guernseys. The defendant asked $ 90.00 each for the Guernseys and $ 70.00 each for the Jerseys. Evarts gave the defendant the plaintiffs' note for $ 950.00 as payment for the 12 cows. This note was payable to the order of the Caledonia National Bank of Danville. The plaintiff also executed and delivered a conditional sale note in a like amount to the defendant for the cows but this note apparently plays no part in the issue raised in the case. The next day Evarts obtained the six Jerseys and a few weeks later he went for the Guernseys but did not get them from the defendant at that, or any other time. It appeared that the Guernseys were not owned by the defendant and the owner would not part with them until he was paid in cash which the defendant either could not or would not furnish. The plaintiffs never received any other cows or anything of value in place of the Guernseys although Evarts made more than one attempt to secure the cattle. Several months after the original transaction took place Evarts proposed to the defendant that a new note be made out for the six Jersey cows, the amount to be arrived at by deducting from the original bank note the value of the Guernseys. The defendant would not agree to this and proposed that he give the plaintiffs six other cows in place of the Guernseys but the cows offered were not satisfactory to Evarts and this offer was declined. That was the last talk between Evarts and the defendant before this suit was brought by writ dated January 25, 1941.
The defendant discounted the bank note at the bank on which it was drawn receiving $ 449.50 in cash which he used to purchase the Jersey cows above referred to. The bank applied the balance of the amount of the note on direct and indirect obligations of Beaton to the bank. The plaintiffs paid their bank note and have demanded a return of the money from the defendant which demand has not been complied with.
This action was brought for the alleged conversion of the sum of money representing the value of the Guernsey cows. The only ground relied upon as a basis for holding the defendant liable for such conversion was that he had obtained this money by fraud on the plaintiffs through false representation as to his rights of ownership in and to the Guernseys. The defense was a general denial coupled with several special pleas including the statute of limitations. Trial was had by jury with a resulting verdict and judgment for the plaintiffs. The case is here on defendant's exceptions.
At the close of the plaintiffs' case the defendant moved for a directed verdict. The motion contained several grounds only two of which need be considered. The first of such grounds was that there is no evidence of any offer or attempt by the plaintiffs to rescind the contract between them and the defendant. The second was that upon all the evidence in the case the contract between the parties as represented by the notes given is an entire contract. The motion was denied and at the close of all the evidence was renewed and again denied with exceptions to the defendant on all the grounds stated.
It is clear that the plaintiffs delivered the bank note to the defendant as a fulfillment of their part of the contract which the parties had entered into. If we assume there was fraud on the part of the defendant in its procurement, the contract so induced was voidable only, not void. Collins v. Estate of Collins, 104 Vt. 506, 513, 162 A. 361; Loverin v. Wedge, 102 Vt. 138, 141, 146 A. 248. Being voidable merely, the defendant by virtue of the contract obtained title to, and right of possession of the note and the proceeds of the same. Union Stock Yard & T. Co. v. Mallory, etc., 157 Ill. 554, 41 N.E. 888, 48 Am St Rep 341; Doane v. Lockwood 115 Ill. 490, 4 N.E. 500. See also Restatement of Contracts, sec. 475, comment b. This, in effect, is the holding in the Loverin case.
The plaintiffs rely on McCrillis v. Allen, 57 Vt. 505, as authority for the claim that no title or property rights in or to the bank note passed to the defendant by virtue of the contract. An examination of this case discloses a holding substantially as claimed by the plaintiffs. In the Loverin case we expressly overruled a holding in Hodgeden v. Hubbard, 18 Vt. 504, 46 Am Dec 167, similar to that contained in the McCrillis case. Consequently the holding in the latter case in so far as it conflicts with what is stated to be the law in the Loverin case was likewise overruled by that case.
Inasmuch as the title which the defendant received to the bank note was voidable, the plaintiffs had the right upon discovery of the fraud to divest the defendant of it by rescinding the voidable contract from whence such title was derived. Loverin v. Wedge, supra; Land Finance Corp. v. Sherwin Electric Co., 102 Vt. 73, 81, 146 A. 72, 75 A.L.R. 1025; but this right of rescission could only be exercised by restoring or offering to restore what they had received under the contract, i.e. the six Jersey cows. Loverin v. Wedge, supra; Ward v. Marvin, 78 Vt. 141, 143, 62 A. 46; Norton v. Gleason, 61 Vt. 474, 478, 18 A. 45; Whitcomb v. Denio, 52 Vt. 382, 390; Downer v. Smith, 32 Vt. 1, 7, 76 Am Dec 148. See also Restatement of Contracts sec. 480. It is stated that this right of rescission must be exercised within a reasonable time after the discovery of the fraud. Ward v. Marvin, supra; Whitcomb v. Denio, supra. In the present case it must be taken that the claimed fraud was discovered by the plaintiffs within a few weeks after the making of the contract. There is no evidence nor claim made, that since such discovery any restoration of the cows or offer to restore has been made. As far as it appears from the evidence, the Jerseys are still in the possession of the plaintiffs. Consequently there has been no rescission.
It is obvious that rescission was a necessary condition precedent to the bringing of this action for until the defendant had been divested of his rights in and to the bank note and the proceeds thereof such rights would constitute an effective bar to this...
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