Richardson v. Lowe

• Decision Date: 23 October 1906
• Docket Number: 2,242.
• Citation: 149 F. 625
• Parties: RICHARDSON et al. v. LOWE et al.
• Court: U.S. Court of Appeals — Eighth Circuit

149 F. 625

RICHARDSON et al. v. LOWE et al.

No. 2,242.

United States Court of Appeals, Eighth Circuit.

October 23, 1906

Charles S. Thomas and William H. Bryant (William P. Malburn, and Don M. Dickinson, on the brief), for appellants.

Charles J. Hughes, Jr., and O. L. Dines (E. E. Whitted, on the brief), for appellees.

Before SANBORN, HOOK, and ADAMS, Circuit Judges.

ADAMS Circuit Judge, after stating the case as above, .

The defendants, Mrs. Richardson and her son Arthur, were residents of Erie county, N.Y., and on the death of the husband and father, some 10 years before the events of this suit, became possessed of a large estate which enabled them to make transactions of their own, and which required of them the exercise of business sagacity and management. The mother was co-trustee with one Lindsay in the active management of her late husband's estate and had had considerable experience in mining deals in Wyoming and Colorado. The son was in the prime of young manhood, 23 years of age, and had dealt in mines in Colorado, Wyoming, and Michigan. They both appear by the record to have been fairly sensible and prudent persons. The complainants, Lowe and Dines, were the owners of the Topeka Group of mines, and resided in Denver, Colo. Lowe had the chief management and control of the transaction which resulted in the sale of the mines to the defendants.

The alleged fraudulent and false representations mainly relied upon by defendants to secure a rescission of the contract of sale are: (1) the pretension that Lowe was obliged to undergo a dangerous and possibly fatal surgical operation which induced him to sell a mine of wonderful richness below its actual value; (2) the pretension that certain parties denominated the 'Boston Parties' were clamoring for the property at the same price he was offering it to defendants; (3) the representations that the mines were of great richness and value as disclosed in certain engineers' reports submitted to defendants to induce them to make the purchase; (4) the representations that the mines were of great value and that the ore in sight was extensive and valuable as stated by Lowe and his agents orally to the defendants. As further ground for rescission it is claimed that there was a suppression of information concerning the expenses of operating the mines and that Lowe corrupted one Townsend while he was acting as the agent or associate of defendants in the purchase by offering and finally paying to him a commission to bring about the sale.

The questions whether the representations specified were made or whether if made they were material or of that sort upon which defendants might rely or whether they were in fact false or whether information was suppressed or whether Townsend was corrupted all received much attention in proof and argument and might afford interesting subjects for discussion, but in the view we take of the question of waiver of the fraud by failure to exercise due diligence to rescind, those questions, so far as the rescission of the contract is concerned, do not require consideration at our hands, and we accordingly refrain from so doing and proceed to a consideration of the evidence relating to the time when defendants acquired knowledge of the alleged falsity of the representations and reports concerning the character and value of the mines and the other alleged fraudulent conduct of Lowe. The proof discloses that defendants took possession of the mines with Townsend acting as their superintendent or general manager immediately on the consummation of the purchase, October 27, 1899; that they found soon after taking possession that the rich free gold which had been represented to be in a stope known as the Klondike stope was not there that as early as December, 1899, they suspected that Townsend had received a commission from Lowe; that some time in January, 1900, they believed the reports and statements concerning the character and value of the mines upon which they claim to have relied in making the purchase were untrue. On February 24, 1900, according to the averments of the cross-bill and amended cross-bill of Arthur Richardson he and his mother had ascertained the fraudulent character of the transaction and rescinded the contract; he avers 'that they have never from that time to this acknowledged in any way, shape or form that said note was binding upon them, but they have repudiated the entire transaction and they now repudiate the same. ' On that day Townsend was discharged as superintendent and one Nichols substituted in his place. On May 12, 1900, this foreclosure suit was instituted. On July 2, 1900, both Arthur Richardson and Mrs. Richardson filed answers and cross-bills for relief on the ground of fraud. On November 28, 1900, Arthur filed an amended cross-bill and on a later date Mrs. Richardson filed a like amended cross-bill. From the foregoing we conclude that defendants discovered the fraud, if any there was, as early as February, 1900. Upon such discovery their rights and duties became clear. They had two remedies, one was to rescind the contract by reason of the fraud and the other to affirm the contract notwithstanding the fraud. If they proposed to rescind, their duty was to assert that right promptly, unconditionally and unevasively, otherwise the affirmation of the contract, notwithstanding the fraud, would follow.

In Grymes v. Sanders, 93 U.S. 55, 62, 23 L.Ed. 798, the Supreme Court by Mr. Justice Swayne stated the rule thus:

'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.'

In Shappiro v. Goldberg, 192 U.S. 232, 24 Sup.Ct. 259, 48 L.Ed. 419, the Supreme Court by Mr. Justice Day says:

'It is well settled by repeated decisions of this court that where a party desires to rescind upon the ground of misrepresentation or fraud, he must upon the discovery of the fraud announce his purpose and adhere to it (citing Grymes v. Sanders). If he continues to treat the property as his own the right of rescission is gone, and the party will be held bound by the contract. * * * If he choose the latter remedy (rescission) he must act promptly-- announce his purpose and adhere to it, and not by acts of ownership continue to assert right and title over the property as though it belonged to him.'

This court, in Burnes v. Burnes, 70 C.C.A. 357, 137 F. 781, and Burk v. Johnson (C.C.A.) 146 F. 209, citing many authorities in support, announced the same doctrine. These, without citing other well-known cases to the same point, sufficiently affirm the proposition that defendants upon discovering complainants' fraud had an instant duty to perform. If they would repudiate the contract by reason of that fraud they should thereafter have treated the property as they would have done the property of complainants found in their possession and not as their own property. How did defendants' conduct square with this well-settled rule of law? They employed Nichols to succeed Townsend as superintendent and general manager of the mine, and notwithstanding they claimed to have rescinded the contract on that day, they authorized him to do the best he could with the mines, and to work them to the best advantage. Nichols remained as superintendent until November, 1899, and says in his testimony that he worked the mines to the best advantage. The proof shows no substantial change in mining operations after the alleged rescission. Nichols kept right on with development work, practically as Townsend had done, drifting, cross-cutting, stoping, upraising, breaking down, and shipping ore and selling the same until November, when he resigned and was succeeded by one Beals, who, under Arthur Richardson's direction, drove levels and did other development work until December, 1901. In May and June after the alleged rescission Nichols leased to numerous miners various parts of the mine for operation on shares, and so far as we can discover from the voluminous record before us the mines were worked both for development and producing purposes in the spirit of the instructions given Nichols when he succeeded Townsend as superintendent. In that part of appellants' brief where counsel discuss the value of the mine they well sum up the character of the operations after the time appellants discovered the alleged fraud and after the alleged rescission as follows:

'In February, 1900, he (Townsend) was summarily removed as manager and his connection with the appellants was thereby permanently ended. One John Nichols, an old experienced and competent miner was installed as manager in his stead, who, for months thereafter, and until October, 1900, vainly sought to locate and exploit the marvelous bodies of ore recounted in the reports of Mr. Lowe's experts and by his own representations.'

The exploitation and operation of the mines as shown by the record not only after the admitted knowledge of the fraud but after the defendants had pleaded it as a ground of rescission of the contract of purchase are totally inconsistent with the right of rescission. They evince a continued ownership and interest in the mines rather than a repudiation of the contract and a holding of the mines for the benefit of the vendors, and afford conclusive evidence that the vendees waived the fraud and affirmed the contract of purchase. Counsel for the vendees seek to avoid this result by...