International Harvester Co. of America v. Oliver

• Decision Date: 11 November 1911
• Citation: 192 F. 59
• Court: U.S. District Court — Eastern District of Kentucky
• Parties: INTERNATIONAL HARVESTER CO. OF AMERICA v. OLIVER.

192 F. 59

INTERNATIONAL HARVESTER CO. OF AMERICA v. OLIVER.

United States Circuit Court, E.D. Kentucky.

November 11, 1911

Humphrey & Humphrey, A. M. Rutledge, Worthington & Cochran, and Pendleton, Bush & Bush, for plaintiff.

J Smith Hays, for defendant.

COCHRAN District Judge.

This cause is before me on plaintiff's demurrer to each paragraph of the defendant's answer, of which there are two. The petition consists of three paragraphs. Each one is an action on a written contract of purchase of either harvesting machinery, farm implements, farm wagons, binding twine, or other articles of merchandise on certain terms. The contract sued on in the first paragraph was made January 17 1908, that sued on in the second was made March 12, 1908, and that sued on in the third was made February 12, 1908. In each instance the purchase price was payable September 1, 1908.

In the second paragraph of the answer defendant in substance claims that he did not purchase the articles covered by the contract in suit, but that they were placed in his hands to sell for the plaintiff, as its agent, and those contracts were executed, not to embody their understanding, but to make it appear that he was a purchaser and conceal the fact that he was simply an agent. It is conceded that on their face they are contracts of sale. That they contemplate that defendant is to sell by retail to others the property covered by them and provide that his territory is limited to Winchester and vicinity, and that, as alleged in the petition, he turned over to the plaintiff promissory notes for certain of the property sold by him, and returned other portions, for which credit was given him, looks like the relation between them might have been that of principal and agent. Yet these facts are not inconsistent with the relation being that of seller and buyer, and the contracts in suit being real, and not mere pretenses.

In the first paragraph of his answer the defendant pleads as a defense to each paragraph of the petition that the contracts in suit were each 'procured by the fraud, covin, and deceit of the plaintiff, its agents and employes. ' The sole fact thereby pleaded as a defense to the action is fraud in the procurement of those contracts, and it is not more definitely pleaded than in the words quoted. The defendant's counsel argues that the paragraph presents a good defense, because it has been held by the Court of Appeals of Kentucky that, where fraud in the procurement of a contract is a good defense to suit on it, such is a good plea of the fraud, and it need not be more definitely pleaded. It has been so held in the following cases, to wit: Sharp v. White, 1 J.J.Marsh. (Ky.) 106; Ross v. Braydon, 2 Dana (Ky.) 161, 26 Am.Dec. 445; Whitehead v. Root, 2 Metc. (Ky.) 584; Evans v. Stone, 80 Ky. 78; Dowing v. Carr. 38 S.W. 1044, 18 Ky.Law Rep. 979; Ryan v. Middlesboro & Co., 106 Ky. 181, 52 S.W. 33; Craft v. Barron, 121 Ky. 133, 88 S.W. 1099. But these cases only hold that, where fraud in the procurement of a contract is a good defense to a suit on it, such a plea will do. They do not hold that it will do where such fraud is not a good defense.

Counsel for defense seems to think that fraud in the procurement of a contract is always a good defense to a suit on it. Fraud, he says, vitiates everything. This is true in a sense. It vitiates everything, if it is not condoned. If it is condoned, it does not vitiate that which it affects. And fraud in the procurement of a contract is condoned, if the party defrauded has received something under the contract, and does not, as soon as he discovers the fraud, promptly tender back to the other party what he has so received. In the case of Grymes v. Sanders, 93 U.S. 55, 23 L.Ed. 798, Mr. Justice Swayne said:

'Where a party desires to rescind upon the ground of mistake or fraud, he must, upon the discovery of the facts, at once announce his purpose, and adhere to it. If he be silent, and continue to treat the property as his own, he will be held to have waived the objection, and will be conclusively bound by the contract, as if the mistake or fraud had not occurred. He is not permitted to play fast and loose. Delay and vacillation are fatal to the right which had before subsisted.'

And in the case of Stuart v. Hayden, 72 F. 402, 18 C.C.A. 618, Judge Sanborn said:

'If one who is induced to make a trade or sale by fraud would rescind it, he must, immediately upon his discovery of the fraud, announce his intention so to do, and return all the consideration he has received, to the end that the parties may be put in statu quo before subsequent transactions have made such action impossible. Silence, delay, vacillation, acquiescence, or the retention and use of any of the fruits of the sale or trade that are capable of restoration for any considerable length of time after the discovery of the fraud, constitute a complete and irrevocable ratification of the transaction.'

The cases of L. & N.R.R. Co. v. McElroy, 100 Ky. 153, 37 S.W. 844, Home Benefit Society of N.Y. v. Muehl, 109 Ky. 479, 59 S.W. 520, and Western & Southern Life Ins. Co. v. Quinn, 130 Ky. 397, 113 S.W. 456, cited by the counsel for plaintiff, are applications of this principle. In the McElroy and Muehl Cases it was held that fraud in the procurement of a release of a cause of action is not a good reply to an answer setting up the release as a defense to an action to enforce the cause of action released. It is essential to allege also a tender of the amount received by plaintiff in consideration of the release. In the Quinn Case it was held that a petition seeking to cancel such a release, because same had been procured by fraud, does not state a good cause of action, unless it alleges a tender of the amount received by the plaintiff in consideration of the release. Seemingly these cases hold it sufficient if the tender is made with the reply in the one class of cases and with the petition in the other. At least, they do not emphasize the fact that the tender must be made promptly on a discovery of the fraud. The cases did not involve this feature, and hence there was no occasion to emphasize or even to refer to it. But it is certain that the tender must be made promptly on the discovery of the fraud, and no doubt the Court of Appeals will so hold in any case which presents the question for determination.

Counsel for defendant claims that these cases have no application here. The ground upon which he differentiates them is that they 'are cases brought to annul an alleged fraudulent contract, or cases where the party is, in violation of his contract, attempting to recover, and at the same time hold an advantage he has secured. ' This is a true description of these cases, but it does not differentiate them, because the difference referred to is entirely immaterial. What the defendant is seeking here to do, to adopt his language, is 'to annul' his contract of purchase-- 'to violate' it-- because it was procured by fraud, and he wants to do this and at the same time hold an advantage he secured by it; for it appears from the petition that he received the articles covered by the contract sued on, and it does not appear that he has returned or tendered back any of them, beyond what is admitted in the petition. What possible reason is there for allowing him this privilege and denying it to the plaintiffs in those cases? The particular in which or pleading by which the 'annulment' is sought or the 'violation' is attempted can make no difference. In the McElroy and Muehl Cases the 'annulment' was sought and the 'violation' was attempted by reply to the answer setting up the contract of release as a defense to the causes of action. In the Quinn Case the 'annulment' was sought and 'violation' attempted by petition; i.e., in a direct attack on the contract. In this case the 'annulment' is sought and the 'violation' is attempted by answer to an action on the contract. The cases are alike, in that an 'annulment' of the contract involved is sought and a 'violation' of it is attempted in each case without a return or tender of the advantage secured by the contract. They, therefore, agree in matter of substance, and the same law is applicable to them all.

A direct authority in support of the position that the paragraph in question is not good may be found in Story's Equity Jurisprudence, Sec. 155, where it is said:

'In cases of the alleged fraud in the sale of property, where the vendee seeks to defend against the securities at law, or to have them set aside by a court of equity on the ground of fraud, it is incumbent upon him to interpose the objection at the earliest possible moment; and if, after he discovers the existence of the facts which are claimed to constitute fraud, he continues to act under the contract, except for the mere purpose of preserving the property for the party ultimately entitled, he will be held to have affirmed the contract, with full knowledge of all the facts.'

In the cases hereinbefore referred to, in which the general plea of fraud has been held by the Court of Appeals to present a good defense to a suit on a contract, it either appeared that the defendant had received nothing under the contract, or it did not appear that he had received anything thereunder. This being so, fraud alone was a good defense. But in this case it appears from the petition that the defendant received the articles covered by the contracts in suit, and it does not appear that he has returned or tendered a return of them. It must be held, therefore, that the first paragraph of the answer is not good.

In the second paragraph of the answer, defendant pleads as a defense to each paragraph of the petition that prior to the making of the contracts in suit ...