"This suit is brought to set aside a transaction whereby Raymond Tams sold certain securities owned by him and with the proceeds purchased stock of the defendant Paramount Investment Company as the result (it is alleged) of misrepresentations of fact made to him by defendant Abrams as agent of the other defendants. The principal defenses are denials that some of the representations were made; denials that any of the representations made were untrue; denials of the alleged agency; and denials of responsibility for any of the misrepresentations made, notwithstanding the existence of agency.
"Proven or admitted facts are that defendant Paramount Company, a corporation engaged in the business of purchasing realty at tax sales, determined upon a new issue of 300,000 shares of common stock of $5 per share par value, and entered into a contract with one Ramos (which was immediately taken over by defendant Ramos Company), whereby Ramos was to sell the stock to the public for Paramount, at par and to receive a commission therefor, of $1 per share, from Paramount, and was to employ salesmen to make such sales.
"As one of such salesmen Ramos employed defendant Abrams, who solicited Tams to purchase the stock, and succeeded in inducing him to sell certain securities which he then owned and invest the proceeds in the stock—3,801 shares thereof for $19,005. Tams at the time was, and had been for some two years previous, ill and confined to the house by a serious heart condition and unable to work; the sole income he had for the suport of himself and his wife and daughter was the income from the securities he had.
"The misrepresentations alleged to have been made by Abrams are five:
"a. That all the money received by Paramount from the sale of this common stock was to be used for the purchase of tax liens, except that after 270,000 shares were sold $243,900 of preferred stock was to be redeemed.
"b. That Abrams' father had invested his life savings in this common stock.
"c. That Abrams' wife had purchased 600 shares, or $600 worth, thereof.
"d. That a bank cashier in Trenton had purchased 1,500 shares, or $1,500 worth, thereof.
"e. That this common stock was redeemable on demand at the office of Ramos.
"Concededly, none of these representations (if made) was true. The making of the representations and the reliance thereon leading to the purchase by Tams, is credibly testified to by Mrs. Tams and the daughter; Tams himself died during the pendency of the suit. Abrams denies, to a greater or less extent (some of his denials were simply that he could not recall having made such statements), the making of any of these statements except the first; but the utter lack of credibility to be accorded his testimony is patent from his manner and appearance on the stand, the nature and character of his testimony as a whole, and his own nature and character as disclosed thereby. One of many instances may be mentioned as illustrative and illuminating. He denied telling the Tams' that his father had invested in the stock, and explained that what he did tell them was 'if I would take my father's life savings I would feel perfectly safe in investing them in the Paramount stock;' it subsequently developed by his own admission that his father had no savings. The court is entirely satisfied that all the representations were made.
"Paramount contends that no liability or responsibility attaches to it by reason of these misrepresentations, because (it is argued): (1) Ramos was not an agent of Paramount; (2) Abrams was not an agent of Paramount; (3) even if Abrams was an agent of Paramount, he had no authority to make any of those representations. Taking up these contentions seriatim, it is difficult to believe that contention (1) is seriously made. Apparently it is based on a provision of the contract between Paramount and Ramos, that Ramos 'shall not in any way be considered an agent of Paramount, but shall be simply a 'medium of outlet to the public of the new stock.' A reading of the contract shows that in fact it is a contract of agency for the sale of this stock: if it is not that, it is nothing at all. The statement to the contrary in the agreement is of no avail as against the actual provisions of that agreement—at any rate in so far as Tams is concerned. The transfer of the contract, from Ramos as an individual to the Ramos Company, was with the consent of Paramount
Ramos Company took the place of Ramos as Paramount's selling agent.
"Contention (2) stands upon no sounder basis. The contract not only authorizes but requires Ramos to have at least ten salesmen engaged in the selling of this stock. Abrams was one of those engaged by Ramos in this behalf. There is not even any proof or intimation that Ramos should not have so engaged Abrams, or that Ramos had any reason to suppose that Abrams would make any unauthorized representations.
"As to contention (3), it may be assumed that Abrams had no authority to make any of the last four of the five representations. As will be shown later, he did have authority both from Ramos and Paramount to make the first representation. But passing that for the moment, Paramount cannot escape responsibility for the misrepresentations if it accepts and retains the fruits of those misrepresentations. 'When the company took the benefits of the fraud, it took with those benefits the responsibility for the fraud which procured them, at least to the extent of an obligation of restoration to the party defrauded.' 'If it disavows the fraud, it has not done full equity until it restores to the injured party the benefits which it received by reason of the fraud.' Garrison v. Technic Electrical Works, 55 N.J.Eq. 708, at page 720, 37 A. 741. To the same effect see Downs v. Jersey Central Power & Light Co., 115 N.J.Eq. 348 at page 354, 170 A. 835, affirmed 117 N.J.Eq. 138, 174 A. 887; Duralith Corp. v. Van Houten, 113 N.J.Law, 374, 174 A. 484; Reitman v. Fiorillo, 76 N.J.Law, 815, at page 817, 72 A. 74; Dunston Lithograph Co. v. Borgo, 84 N.J.Law, 623, at page 625; 87 A. 334; Mick v. Corporation of Royal Exchange, 87 N.J.Law, 607, at page 614, 91 A. 102, 52 L.R.A.(N.S.) 1074; Diamond Rubber Co. v. Feldstein, 112 N.J.Law, 514, at page 517, 171 A. 815.
"The last paragraph of the appellate opinion in the Downs Case is somewhat perplexing, but it is clear from the subsequent case of Mechanics' Trust Co. v. Reid, 117 N.J. Eq. 472, 176 A. 325, that it could not have been intended to contradict or overrule the well-established principle set forth in the other opinions. The Mechanics' Trust Co. Case, in any event is the latest; is an express reaffirmance of that principle; and is particularly applicable to the instant case, since there, as here, the fraud was by an agent of the immediate agent.
"It seems clear, therefore, that complainants had the right to rescind the contracts of purchase (there were three separate written contracts, but all practically contemporaneous and all resting on the same basis), because of the fraudulent misrepresentations actually made by the agent (as has been herein determined) even though the agent had not been authorized to make them.
"A further defense is interposed on this point, to wit, that complainant is estopped or precluded from setting up these fraudulent representations because of the statement incorporated in the printed form of purchase agreement signed by complainant—'The purchase of these shares is based solely on the information contained in printed circular issued by you' (Ramos & Col) 'and dated January—, 1933.' That such a defense is not maintainable even in the law courts (much less in a court of equity), was unanimously determined by the appellate court in Duralith Corp. v. Van Houten, supra. Moreover it appears by the proofs that there never was any printed circular bearing any date in January; and it is admitted by Abrams that he did not show— that he refused to show—to the Tams' the circular which he did have (which was dated March 10, 1933).
"Complainant's right to rescind, however, rests not alone on the fraudulent misrepresentations made by the agent Abrams; it arises equally from misrepresentation actually made or authorized by Paramount itself.
"Referring back to the first of the alleged misrepresentations hereinbefore mentioned, it seems clear not only that it was made, and that it was untrue, but also that Abrams was authorized, both by Ramos and by Paramount, to make it. That Abrams did make it, is not only...
