Mester v. Jones
| Decision Date | 30 December 1920 |
| Citation | 226 S.W. 885,286 Mo. 56 |
| Parties | CHARLES C. MESTER, Appellant, v. BRECKINRIDGE JONES et al |
| Court | Missouri Supreme Court |
Appeal from St. Louis City Circuit Court. -- Hon. Vital W. Garesche Judge.
Affirmed.
Goodbar & Tittman for appellant.
(1). Section 1889, R. S. 1909, designates, among other actions that "an action for relief on the ground of fraud" is barred in five years. The 5th subdivision reads "fifth, an action for relief on the ground of fraud, the cause of action in such case to be deemed not to have accrued, until the discovery by the aggrieved party, at any time within ten years, of the facts constituting the fraud." The petition, from all the circumstances stated, alleges facts sufficient to bring the plaintiff within the ten year exception to Section 1889. (a) The law does not require of one that he should suspect fraud. On the contrary, all transactions are presumptively honest. College v. Dockery, 241 Mo. 551, 553; Judd v. Walker, 215 Mo. 331; Snider v. McAtee, 165 Mo.App. 270; Kelley v. Peeples, 192 Mo.App. 439. (b) It is not necessary for a party to plead that he used due diligence to discover fraud, because if he had no reason to suspect fraud, he was not called upon to investigate. Judd v. Walker, 215 Mo. 332; Robertson v. Smith, 204 S.W. 413; College v. Dockery, 241 Mo. 553; Higgins v. Crouse, 147 N.Y. 411; Baker v. Lever, 67 N.Y. 308, 309. (c) Mere want of diligence without knowledge of the fraud is not sufficient to deprive a party of his legal right to rescind a fraudulent contract. Baker v. Lever, 67 N.Y. 309. (d) The law requires only that one shall exercise the care employed by an ordinarily prudent business man, and in no sense imposes the duty to exercise extraordinary diligence in investigating whether or not he has been defrauded. Snider v. McAtee, 165 Mo.App. 270; Kelley v. Peeples, 192 Mo.App. 439; Brown v. Railroad, 187 Mo.App. 111; Baker v. Lever, 67 N.Y. 308, 309. (e) The known fact of a failure of an enterprise and a subsequent foreclosure is not sufficient to raise a presumption of fraud and so put a party upon notice. Higgins v. Crouse, 147 N.Y. 411. (f) "A man to whom a particular distinct representation has been made is entitled to rely on the representation and need not make any further inquiry, although there are circumstances in the case from which an inference inconsistent with the representations might be drawn." Judd v. Walker, 215 Mo. 330-332, quoting Kerr on Fraud (2 Ed.), 40, 41, and Bigelow on Frauds, 523-525; Stonemets v. Head, 248 Mo. 262; Kottrill v. Krum, 100 Mo. 404; McGhee v. Bell, 170 Mo. 135; Leicher v. Kenney, 98 Mo.App. 405; Snider v. McAtee, 165 Mo.App. 270. (g) Only in those cases where a party owed a duty to investigate and did not, or where he had knowledge of facts sufficient to imply fraud will the law charge him with knowledge of the fraud, and in such cases, only, is it necessary to allege due diligence to bring one within the exception to the statute. Such is not the state of facts in the case at bar. Shelby County v. Bragg, 135 Mo. 291; State ex rel. v. Yates, 231 Mo. 276; Callan v. Callan, 175 Mo. 346. (2) Fraud is a subject of original equity jurisdiction and, in matters of fraud law and equity have concurrent jurisdiction and if the right asserted is a subject of original equity jurisdiction, the court will entertain it even though there may be a remedy at law. Nelson v. Betts, 21 Mo.App. 231; Steward v. Caldwell, 54 Mo. 539; Baldwin v. Davidson, 139 Mo. 126; Lime & Cement Co. v. Bank, 158 Mo. 279; Van Raalte v. Epstein, 202 Mo. 195; Hanson v. Neal, 215 Mo. 284. "In cases of fraud and deceit the plaintiff has two remedies: he can stand upon his contract and sue for the damages growing out of the fraud and deceit practiced upon him in the procurement of the contract, or he can elect to rescind the contract and sue to have the same canceled and for naught held." Ryan v. Miller, 236 Mo. 508; Brown v. Lead & Zinc Mining Co., 231 Mo. 172, 175; Hart v. Handlin, 43 Mo. 175; Gould v. Cayuga Nat. Bank, 86 N.Y. 83; Bosley v. N. M. Co. et al, 123 N.Y. 555; Vail v. Reynolds, 118 N.Y. 302. Therefore, this action, based upon fraud, for a rescission of a sale of certain bonds and the restoration to plaintiff of the consideration paid for said bonds was properly brought in equity. (3) In rescission the plaintiff need only make such a restoration as is reasonably possible under the circumstances. Sandage v. Studebaker Co., 142 Ind. 154; Sales, 35 Cyc. p. 146; Benjamin on Sales (5 Ed.), pp. 4423-4; Gould v. Cayuga Bank, 86 N.Y. 81; Doan v. Lockwood, 115 Ill. 496; McMichael v. Kilmer, 76 N.Y. 46. And when the subject-matter has become worthless he need make no tender. "The law does not require an idle ceremony." Fitz v. Bynum, 55 Cal. 461; Baker v. Lever, 67 N.Y. 308; Gould v. Cayuga Bank, 86 N.Y. 81. In the case at bar plaintiff tenders back exactly what he received -- a worthless piece of paper.
Jourdan, Rassieur & Pierce for respondents.
(1) The petition shows on its face that the cause of action which accrued in 1905, when the bonds were purchased, was barred by the Statute of Limitations of this State requiring suits of this character to be brought within five years. Sec. 1889, R. S. 1909; Shelby County v. Bragg, 135 Mo. 300; Wood v. Carpenter, 101 U.S. 141; Heisler v. Clymer, 179 Mo.App. 120; Callan v. Callan, 175 Mo. 361; State ex rel. v. Yates, 231 Mo. 276; Johnson v. United Railways, 243 Mo. 278; Higgins v. Crouse, 147 N.Y. 411; Seymour v. Seymour, 28 A.D. 495; 29 Cyc. 1114-15; St. Joseph v. Wyatt, 274 Mo. 575; Putnam County v. Johnson, 259 Mo. 73; College v. Dockery, 241 Mo. 553. (2) A suit in equity does not lie on behalf of a purchaser to set aside for fraud an executed sale of a chattel where an adequate remedy at law may be had. Levering v. Schnell, 78 Mo. 170; Stalter v. Stalter, 151 Mo.App. 66; Pocoke v. Peterson, 256 Mo. 518; Williston on Sales, sec. 647; Newham v. May, 13 Price, 749; Bosley v. N. M. Co., 123 N.Y. 550. (3) Appellant cannot maintain an action for equitable rescission, because the right to rescind a contract for fraud must be exercised promptly upon discovery; otherwise the party complaining will be deemed to have affirmed the contract and to have elected to stand on his right to sue for damages. Hallahan v. Webber, 7 App.Div. (N. Y.) 122; Shiffer v. Dietz, 83 N.Y. 300; Pryor v. Foster, 30 N.Y. 171; Cobb v. Hatfield, 46 N.Y. 533; Mayo v. Knowlton, 134 N.Y. 250; Bruce v. Davenport, 1 Abb. Ct. App. Dec. 233, 5 Abb. Prac. (N. S.) 185; Zimmele v. American Plaster Co., 1 App.Div. (N. Y.) 327; Trott v. Schmitt, 119 A.D. 474; Gamble v. Tripp, 99 Cal. 223; Patent Title Co. v. Stratton, 89 F. 174; Houston v. Cook, 153 Pa. St. 43. (4) The petition shows on its face that the bonds sought to be tendered back are no longer in existence, but were extinguished by foreclosure proceedings and merged in a general deficiency judgment in favor of all the outstanding bondholders as creditors. Cowgill v. Robberson, 75 Mo.App. 419; Wayman v. Cochrane, 35 Ill. 151.
This is an appeal from a judgment entered after a demurrer had been sustained to the petition and appellant had refused to plead further. The petition seeks rescission of a contract of purchase of eleven bonds of the United States Independent Telephone Company into which it is alleged appellant was induced to enter by false representations of persons alleged to have been acting as agents and representatives of respondents and others who are designated as "The Promoters." The petition is long. In order that the questions presented may be understood it will be necessary to incorporate a summary of its allegations.
It is alleged that the United States Independent Telephone Company (hereinafter referred to as the Independent Company) was a New Jersey corporation, which, in September, 1905, increased its capital stock to $ 50,000,000, divided into shares of $ 100 each; that, October 2, 1905, it authorized the issuance of $ 25,000,000 five-per-cent, collateral trust gold bonds to mature in twenty years, $ 17,000,000 of which were authorized to be issued immediately; that respondents and others named were the promoters and organizers of the Independent Company that Thos. W. Finucane was its president and Albert O. Ferris was the paid agent of the promoters to solicit and receive subscriptions for the bonds; that Ferner was vice-president and cashier of the Alliance Bank of Rochester, and others of the promoters were directors thereof; that the bank was employed as the agent for the issuance of bonds, receipt of moneys therefor and in other ways, and that all the promoters were known to plaintiff as men of high financial standing, and that their connection with the matter induced full credence in the representations made; that a prospectus was issued wherein it was falsely represented that $ 17,000,000 of bonds had been sold or underwritten, and that the Independent Company would have $ 5,000,000 in its treasury for corporate uses as a result thereof; that the Independent Company had acquired from the City of New York a valid franchise for the construction and operation of an independent telephone plant in that city; that the Independent Company had acquired the stock of a telephone manufacturing company, and it was falsely represented that this company was in prosperous condition and had been paying large dividends; that the report of accountants respecting the manufacturing company's condition was suppressed or misrepresented; that it was falsely represented that $ 41,303,000 of the stock of the Independent Company had been issued, and that $ 17,000,000 of the Independent Company's bonds had been sold on a cash or property basis; that $ 8,000,000 of the Independent...
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