Scheftel v. Hays, 295.

• Decision Date: 30 October 1893
• Docket Number: 295.
• Citation: 58 F. 457
• Parties: SCHEFTEL v. HAYS.
• Court: U.S. Court of Appeals — Eighth Circuit

58 F. 457

SCHEFTEL v. HAYS.

No. 295.

United States Court of Appeals, Eighth Circuit.

October 30, 1893

J. D Houston and W. H. Boone, for appellant.

R. R Vermilion and Kos Harris, for appellee.

Before CALDWELL and SANBORN, Circuit Judges, and THAYER, District Judge.

SANBORN Circuit Judge.

This is an appeal from a decree dismissing a bill brought by Adolph Scheftel, the appellant, to rescind a contract of purchase of 320 acres of land from the appellee, Leopold Hays, and to recover the purchase money, $27,200. The purchase was made April 19, 1887. The land purchased was 320 acres eight miles southeast of the city of Wichita, in the state of Kansas. The appellant was a leather dealer in New York city, and was accustomed to dealing in stocks and bonds of corporations and other property. The appellee was a dealer in leather at Wichita, and a customer of the appellant. In the autumn of 1886 the appellant had purchased 40 acres of land a few miles distant from the city of Wichita for $200 an acre, at the suggestion of the appellee, under an agreement with him that he should have 45 per cent. of the profit, and should bear 45 per cent. of the loss, resulting from the purchase and resale of the tract. This tract had been sold again for $400 an acre before the purchase of this 320 acres was made. In the years 1886 and 1887 there was an era of wild speculation in lots and lands in and around Wichita, and their price was not measured by their intrinsic value, but by the height of the speculative fever that possessed the purchasers.

March 5, 1887, the appellee purchased the land in suit of one W. J Brown, through the latter's agents, Hardy Solomon & Co., for $50 an acre, but he obtained and recorded a deed to himself which recited a consideration of $75 an acre. About April 19, 1887, the appellee told the appellant that he had paid $75 an acre for this land; that it was within five miles of the center of the city of Wichita, when it was in fact eight miles distant from that point, and that it was very cheap at $85 an acre, and thereby induced him to purchase it at that price, under an agreement that the appellee should have one-third of the profits, and bear one-third of the losses, resulting to the appellant from the purchase. At some time before May 3, 1887, the appellant was informed by a Mr. Lambert, who was a brother-in-law of the appellee, that the latter had paid but $50 an acre for this land, and that he was a big scamp, a scoundrel, and a cheat. Mr. Scheftel immediately investigated the transaction, and had the land appraised by several parties, all of whom reported before June 7, 1887, that this land was hardly worth $50 an acre. The appellant and his confidential clerk wrote three letters to the appellee in May and June, 1887, in which they informed him that Mr. Scheftel had been told that he (Hays) had paid but $50 an acre for the land, and that Mr. Scheftel had had the appraisals we have mentioned made, and that he would claim to recover the difference between the $50 and the $75 an acre for the misrepresentation if the information he had received proved correct. June 16, 1887, the appellee wrote a letter to Mr. Scheftel in which he reiterated the statement that he paid $75 an acre for the land, and inclosed a false certificate to that effect, which he had procured from W. J. Brown, his vendor. About the same time he caused Mr. Solomon, the agent who sold the property to him, to write to the appellant that the record correctly disclosed the transaction. The appellant testified that these letters removed his suspicions, and that thereafter, until shortly before this suit was commenced, he believed that the appellee had told him the truth. He admitted, however, that in a conversation with the agent, Solomon, in the fall of 1888, he tried to find out from him what Mr. Hays paid for this land, and that Solomon refused to tell him, because he said he intended to run for mayor of Wichita, and did not want to make enemies. Solomon himself testified that the appellant told him in a conversation in October, 1887, that Hays had defrauded him; that he had found out that the land was seven or eight miles from Wichita, and that Hays paid only $50 an acre for it. A Mr. Levy also testified that the appellant made the same statements to him in a conversation in January, 1888. From 1887 until the commencement of the suit the appellant leased this land, received the rents from it, and paid various liens upon it as they became due, to the amount of several thousand dollars. Meanwhile the fever of speculation at Wichita gradually subsided. In 1887 and 1888 prices remained unchanged, but there were few sales. On November 13, 1890, the market value of this land had receded to that of ordinary farm land, about $25 an acre. There was no sale for city lots, and no speculative value to lands about the city of Wichita, and the appellant then brought his suit to rescind his contract of purchase.

The glaring fraud perpetrated on the appellant gave him the right the moment he discovered it to rescind this purchase. There was, however, no obligation upon him to exercise that right. He had the option to reconvey the land, and recover his purchase money, or to retain the property and affirm the contract. Justly and wisely the law gives him his choice, but at the same time it imposes on him the duty of making his election speedily. It not only imposes this duty, but it compels its performance. If he elects to rescind, it demands that he shall return the property he has obtained, and give notice of his election promptly upon the discovery of the fraud, to the end that the parties may be placed in statu quo. Nor can he avoid an election by delay or inaction, for silence and acquiescence are fatal to the right to rescind. They are an election to ratify the contract.

There are no cases in which the effect of the application of this principle is more salutary than in those involving speculative investments. A court of equity rescinds a fraudulent contract, on the ground that it can work no injustice to place both parties in the situation in which they were before the contract was made. Where the value of property is largely speculative and subject to rapid changes, this can only be perfectly done soon after the sale is perfected. If the fraud is discovered while the value of the property remains substantially as it was when the sale was made, a rescission of the contract then is just and equitable. But if the purchaser waits for years after he discovers the fraud, and until the property has greatly depreciated in value, and then first seeks rescission, he asks the court to burden his vendor with an unnecessary loss caused by his own inaction. Thus, in the case before us, in May, 1887, when the appellant discovered the fraud of which he complains, the land in dispute might undoubtedly have been readily sold for $50, perhaps for $75 an acre. If he had then given notice of his election to reconvey the land, and sought a return of his money, the appellee might have sold the land, and have repaid the purchase money without serious loss. But in 1890, after three years of depreciation, the land could not have been sold for more than 50 per cent. of its market value in 1887, and a rescission then made must entail upon the appellee a loss of thousands of dollars that is the direct result of the appellant's delay.

Nor is the reason for this delay difficult to divine. Under date of June 6, 1887, the appellant notified Mr. Hays that, if the report that he had bought the property for $50 instead of $75 an acre was correct, he would certainly claim the difference $25 an acre, from him. Evidently he did not then intend to rescind this contract, but to affirm it, and trust to the law for his damages, because he undoubtedly then thought...