Jones v. Bankers' Trust Co.

• Decision Date: 15 April 1916
• Docket Number: 442.
• Citation: 235 F. 649
• Parties: JONES et al. v. BANKERS' TRUST CO.
• Court: U.S. District Court — District of New Mexico

235 F. 649

JONES et al. v. BANKERS' TRUST CO.

No. 442.

United States District Court, D. New Mexico.

April 15, 1916

Powell & Neblett, of Silver City, N.M., for plaintiffs.

Barnes & Nicholas, of Socorro, N.M., Towne Young and Etheridge McCormick & Bromberg, all of Dallas, Tex., and James Royall of Silver City, N.M., for defendant.

POPE District Judge.

This is a suit to annul a subscription for stock in the defendant corporation on the ground of fraudulent representations by its agents in procuring the stock. The defendant's answer sets up in defense the agreement to purchase signed by the subscriber No. 1095

Amount $23,000.00

This is to certify that I hereby purchase 2,000 shares of the capital stock of the Bankers' Trust Company, for which I agree to pay twenty-three thousand and no/100 dollars.

I further agree that no statement, representation or agreement of warranty made to me by the person taking this contract shall in any way operate to cancel or annul this contract unless the same be reduced to writing and filled in on the following line:

A copy of the certificate of said stock is shown on the back hereof and forms and constitutes a part of this contract as fully as if incorporated in the body hereof.

The further consideration is that I will extend to Bankers' Trust Company the option to purchase above described stock should my stock be for sale.

Dated this 12th day of May, A.D. 1914.

Address Lordsburg, N.M.

(Signed) R. L. Jones. J. T. Jones.

Witnessed by . . ., Salesman.

The question here presented is whether the second paragraph contained in the instrument just quoted constitutes a good defense as against any representations, fraudulent or otherwise, made by the agent and not inserted in the contract. In other words, is the subscriber precluded from annulment of his contract by a provision thereof to the effect that no representation made by the agent shall accomplish an annulment unless such representation be inserted in the contract?

It is clear that, independent of this provision, fraudulent representations by the agent selling the stock would avail against the company whatever the secret limitations of power existing between the company and its agent might be. 1 Cook on Corporations (7th Ed.) Sec. 141; 2 Pomeroy's Eq Jurisprudence, Sec. 909; Garrison v. Technic Works, 55 N.J.Eq. 708, 37 A. 741, 744; Southern Ins. Co. v. Milligan, 154 Ky. 216, 157 S.W. 37.

The foregoing is true because the corporation can act only through its agents, and the acts of the agents in and about its business are the acts of the principal. Likewise the company is bound by such representations, because these are within the apparent scope of the authority of the agent selling, and because the company by accepting the fruits of the agency will not be heard to deny the authority of the agents in the use of means to secure such fruits.

The case thus far proceeds upon well-known principles of law, which, indeed, are not questioned by the company. The precise point here is whether a provision precluding for purposes of annulment any representations except as embodied in the contract constitutes such a limitation on the power of the agent as, being known to the subscriber, relieves the company for any fraudulent representations of such agent not so embodied. Attorneys for the subscriber urge that such a provision is in effect to place the subscriber in a bag and to sew him up therein. On the other hand, for the company it is said that such a provision is a perfectly proper means by which a company may be informed as to what their agents have represented, and may thus give the company the option of rejecting an offer of purchase based upon such misrepresentation, thus dealing with the matter at the start instead of later. It is said for the company that such a provision constitutes a limitation upon the power of the agent, known to the subscriber as well as to the company, and thus binding upon all.

Many of the authorities cited by the subscriber on this point do not in my judgment reach it. Thus, Southern Ins. Co. v. Milligan, 154 Ky. 216, 157 S.W. 37, was a case where, it is true, the contract provided that 'no conditions or agreements other than those printed or written herein shall be binding on the company. ' But outside of the mere mention of this in the statement of facts the case does not refer to the matter at all. The provision was not urged as a defense against the claim of misrepresentation, and the court does not refer to, or rule upon, its efficacy to that end.

Gypsum Co. v. Shields, 106 S.W. 734, a case in one of the Texas Courts of Civil Appeals, and thus not in a court of last resort, dealt with a contract containing the following:

'It is agreed that this written order and printed terms hereon constitute the entire contract, * * * and there are no verbal statements or agreements varying the terms.'

It was held in that case that evidence of fraudulent representations by which the purchaser was induced to sign the writing, and not tending to vary the terms thereof, was admissible in defense. This is manifestly not authority, since it dealt with a situation entirely unlike the present one. The contract dealt with in the Shields Case was practically an embodiment of the principle that all antecedent oral agreements are merged into the written instrument, and cannot be received to vary the terms thereof. The representations sought to be proved in that case did not vary the terms, but were simply inducements to sign. They were thus not excluded by the terms of the contract. The Shields Case went to the Supreme Court of Texas (101 Tex. 473, 108 S.W. 1165); but that court affirmed the decision purely upon the question of fact as to whether the proof of fraud was sufficient to sustain the verdict, and without in the slightest degree considering the question here involved. That the Supreme Court did not rule upon this in the Shields Case is expressly recognized in Commonwealth Co. v. Bomar (Tex. Civ. App.) 169 S.W. 1060, 1063, a case much relied on by the subscriber, and to be now considered.

Commonwealth Co. v. Bomar, just cited, was likewise a decision by the Court of Civil Appeals. In that case the contract contained the following stipulation:

'No conditions, representations or agreements other than those printed herein, shall be binding on the Commonwealth Organization Company or the Commonwealth Bonding & Casualty Insurance Company.'

The bonding company contended that because of this provision evidence as to representations by the company's agent was not admissible. The Court of Civil Appeals held, however, against this view, basing its decision upon the Shields Case, supra, which, as we have seen, is not at all in point.

In Commonwealth Co. v. Cator, 175 S.W. 1074, 1077, a decision also by the Court of Civil Appeals of Texas, the point here made was involved, and the court dismissed it with the following comment:

'Though the subscription contract stipulates that no conditions, representations, or agreements, other than those printed therein, shall be binding, still evidence of the alleged representations by McDonald was admissible to show fraud in the inception of the contract. The effect of this evidence was not to vary or contradict the terms of the written instrument. United States Gypsum Co. v. Shields (Tex. Civ. App.) 106 S.W. 724; Id., 101 Tex. 473, 108 S.W. 1165.'

The cases cited, however, in the foregoing quotation, are, as we have seen, not authoritative. Further, the assignment made in the Cator Case to the effect that the evidence tended to vary or contradict the terms of the written instrument was, as the court held, clearly untenable, since the representations did not contradict the terms of the instrument, but simply constituted inducements to its execution. The question raised here as to the binding effect of the contract against representations not embodied therein was not raised in the Cator Case, and that case is therefore not authority here.

The same Court of Civil Appeals considered this question in Commonwealth Co. v. Barrington, 180 S.W. 936, 938, where it is said:

'It is urged that the representations made before the contract in question was executed were inadmissible because it varied the terms of the contract. The contract has a clause: 'No conditions, representations or agreements other than those printed herein shall be binding * * * on the Commonwealth Bonding & Accident Insurance Company.'

'It is insisted by appellant that appellee should not have been permitted to prove any other agreement or promise than those contained in the contract itself for the reason that the recitals in the contract that there were 'no conditions, representations or agreements other than these' contained therein. We were first inclined to believe the proposition presented by appellant to be sound, but under the authority of U.S. Gypsum Co. v. Shields (Tex. Civ. App.) 106 S.W. 725, and affirmed by the Supreme Court, 101 Tex. 473, 108 S.W. 1165, in which a like provision was contained in an order, in which it was held such provision did not preclude proof of fraudulent representations inducing the contract, and that such proof did not vary the terms of the contract. This case induces us to conclude otherwise. We might note, however, that the grounds set up to avoid the contract in that case were facts outside the contract and did not purport to be part of the promise or agreement, but were only representations that certain contractors would use the material being sold in the construction of government buildings; and it further appears that the cement ordered by the dealer was for the purpose of sale, and in that particular that case is distinguishable from this.'

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