Holcomb & Hoke Mfg. Co. of Indianapolis, Ind. v. Jones
| Decision Date | 09 September 1924 |
| Docket Number | 11-961. |
| Parties | HOLCOMB & HOKE MFG. CO. OF INDIANAPOLIS, IND., v. JONES. |
| Court | Oklahoma Supreme Court |
Syllabus by the Court.
A party who, by fraud, has been induced to enter into a contract has upon discovery thereof, a choice of two classes of remedy, to wit, rescission or affirmance.
A party attempting to rescind a contract must comply with the statutes by offering to restore, or by restoring, everything which is of value to him or the adverse party which he has received under the contract. His failure to do so is fatal to his cause of action.
A purchaser of chattels who has been induced to enter into a contract by the fraud of his seller is not confined to the remedy of rescission. He may affirm the contract and sue for damages, but he cannot both affirm and disaffirm.
It is a settled rule in this jurisdiction that the measure of damages to a purchaser for fraud of his seller in inducing him to enter into a contract is the difference between the actual value of the property sold and the value it would have had if the representations were true.
A defrauded party cannot treat an alleged fraudulent representation as terms of a contract. Such representations constitute only grounds for avoiding liability under the contract, and cannot be a covenant of the instrument itself.
Any act of a defrauded party which recognizes the binding force of a contract, the execution of which was induced by fraud of the other party, constitutes an affirmance of the contract, and waives the right of rescission on account of fraud, but does not necessarily waive the right to recover damages for fraud.
The rule that affirmance of a contract, with knowledge of fraud does not bar an action for damages, is subject to the limitation that the defrauded party, after discovering the fraud, must stand toward the other party at arm's length and must not make any new agreements or engagements respecting it. If he does so, he condones and waives the fraud.
When a party, by fraud, has been induced to enter into a contract and said contract remains wholly executory when such defrauded party discovers the fraud, a part performance of same thereafter by the defrauded party waives and condones the fraud, and this the court will determine upon admitted facts as a matter of law. But when such contract has already been partly or wholly executed by the defrauded party before his discovery of the fraud, it is a question of fact to be determined by the jury, under proper instructions, whether the acts of the defrauded party thereafter done amount to a waiver or condonation of the fraud. However, where the acts of the defrauded party after the discovery of the fraud in relation to a contract already partly executed are such that the minds of all reasonable men must agree as to his intentions, the determinaiton of that question may be made by the court.
Appeal from District Court, Osage County; Preston A. Shinn, Judge.
Action by Holcomb & Hoke Manufacturing Company of Indianapolis, Ind., against Clyde Jones. From a judgment for defendant, plaintiff appeals. Reversed and remanded.
Defrauded party cannot treat alleged fraudulent representations as terms of a contract; such representations constitute only grounds for avoiding a liability under the contract, and cannot be a covenant of the instrument itself.
M. L. Holcombe, of Pawhuska, and G. K. Sutherland, of Hominy, for plaintiff in error.
P. Cleveland Gardner, of Gastonia, N. C., and McDonald & Spence, of Pawhuska, for defendant in error.
Plaintiff in error, as plaintiff, commenced this action against the defendant in error, as defendant, in the district court of Osage county upon a certain promissory note dated July 26, 1917, in the sum of $535, with interest at the rate of 6 per cent. per annum from date, the principal being due in biweekly installments of $20.50. The parties will be referred to as they appeared in the trial court. The case went to trial upon the issues joined by plaintiff's petition, the defendant's amended answer and cross-petition, and plaintiff's reply consisting of a general denial. Briefly, defendant contends that by fraud and deceit on the part of the plaintiff's agent he was induced to enter into a contract on or about April 5, 1917, for the purchase of a certain pop-corn machine; that the note sued on was a part of that written contract, and he now seeks relief from these alleged fraudulent acts; but neither the amended answer nor the cross-petition discloses any consistent theory on the part of the defendant. He does not assert that he elects to rescind the sale, nor does he offer to make restoration of the machine, yet he asks for the return of that portion of the purchase price paid by him on the machine. He does not express an intention to abide the terms of the contract and recover damages, although he retains the machine and asks a money judgment.
According to the defendant's pleading and testimony, the plaintiff's agent represented that he would sell no similar machine in the town of Hominy, but notwithstanding that representation, the plaintiff did make another sale on the same day--whether before or after the contract with the defendant is not shown by the evidence. The evidence merely establishes a broken promise on the part of the plaintiff's agent, without proof of bad faith on the part of the agent or his principal at the time the promise was made. This is not such fraud as will vitiate the contract. As the case may be tried again, we should pass upon the other questions of law certain to arise in a new trial.
The defendant says that the town of Hominy was too small to support two pop-corn machines. At the trial he attempted to prove loss of the profits which he would have received from the operation of the machine without competition; but he had not alleged loss of profits as an element of damage in his cross-bill. The court, permitting the defendant to retain the machine, instructed the jury that, in event it found in favor of defendant, it should assess his recovery of damages in the amount paid by the plaintiff on the purchase price of the machine and the freight paid by him for the shipment, which aggregated, according to defendant's testimony, $212. The jury so did, and the court rendered judgment accordingly. The various inconsistencies appearing in the pleadings, evidence, and the court's instructions undoubtedly resulted from the apparent conflict in the decision of courts of last resort defining the rights, remedies, and damages available to a party who claims to have been induced by fraud to execute a contract. Some of the propositions discussed herein were not presented by counsel for either side, and, had the case been tried upon a consistent theory, and were there less conflict in the authorities, perhaps some of these propositions would not have been involved. It is only by a process of elimination that we reach a final conclusion on the rights of the parties. Moreover, the importance of establishing some practical and definite rules by which litigants, the bar, and the courts may be governed in similar cases demands an independent study of the subject. Since defendant's pleadings and evidence contain some of the elements of every remedy allowed him and at the same time omit a material portion of each, we feel constrained to discuss at length the defects under each theory.
The plaintiff objected to the introduction of any evidence under the amended answer and cross-petition, demurred to the evidence of the defendant, moved the court for a directed verdict, filed a motion for judgment notwithstanding the verdict, and filed a motion for new trial, all of which were overruled and exceptions duly taken. The plaintiff brings the case here on appeal. The overruling of these motions are among the assignments of error.
This court has heretofore sufficiently adjudged that one who has been defrauded has, upon discovery thereof, a choice of two classes of remedies, to wit, rescission or affirmance. See Howe v. Martin, 23 Okl. 561, 102 P. 128, 138 Am. St. Rep. 840; Wesley v. Diamond, 26 Okl. 170, 109 P. 524; Werline v. Aldred, 57 Okl. 391, 157 P. 305, 158 P. 893; Crouch & Son v. Huber, 87 Okl. 83, 209 P. 764; Byers v. Brisley, 81 Okl. 215, 198 P. 90; Burke v. Smith, 57 Okl. 196, 157 P. 51.
Section 5079, Comp. Okl. Stat. 1921, defines the duties incumbent upon a party attempting to rescind a contract as follows:
This language is clear and definite. In view of this statute we have in a number of cases held that a failure to plead restoration or offer restoration is a fatal defect in the complaint of the party attempting to rescind. The statute controls, whether an action in rescission be legal or equitable. See Herron v. Harbour, 57 Okl. 71, 155 P. 506; Carson v. Walker, 57 Okl. 182, 156 P. 1172.
The only instances in which we excuse failure to restore arise when the sufficiency of the petition was not attacked and the evidence on the trial supplied the defect in the pleading; or when, according to the pleading or evidence, it is shown that whatever was...
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