Vavricka v. Mid-Continent Co.
| Decision Date | 26 March 1943 |
| Docket Number | 31435. |
| Citation | 8 N.W.2d 674,143 Neb. 94 |
| Parties | VAVRICKA et al. v. MID-CONTINENT CO. |
| Court | Nebraska Supreme Court |
Syllabus by the Court.
1. Ordinarily a person rescinding a contract for fraud is required to restore whatever has been received under the contract in the way of money, property or other consideration as a condition precedent to an action at law for the recovery of the purchase price.
2. There are, however, exceptions to the foregoing rule, one of which is: Where the party rescinding would be entitled to retain the money or property received, either by virtue of an original liability if the contract be rescinded, or under the contract itself if rescission be refused, no tender or offer of restoration is required.
3. If the restoration consists of money, the amount of which can be credited in partial cancelation of the injured party's claim, a failure to restore will not preclude a suit to recover the consideration paid.
4. Where an authorized agent of a corporation engaged in selling the stock of the corporation induces a person to purchase such stock by fraudulent representations or concealments, the person defrauded will ordinarily be entitled to a rescission of the contract in the same manner and to the same extent as between two natural persons.
5. While actionable fraud may not be predicated upon sales talk puffing, or the expression of a mere opinion as to value honestly made under circumstances that do not give another the right to rely thereon, representations of positive facts pertaining to the quality of the thing sold and relied upon by the purchaser, which are calculated to mislead and deceive, if proved false, constitute actionable fraud.
6. Evidence examined and held to be sufficient to sustain plaintiff's right to rescind his contract for the purchase of corporate stock because of fraud and to recover judgment for the purchase price.
Littrell & Patz and Frank D. Eager, all of Lincoln, for appellant.
I. D. Beynon of Lincoln, for appellee.
Heard before SIMMONS, C. J., and ROSE, EBERLY, PAINE, CARTER, MESSMORE, and YEAGER, JJ.
This is an action at law to rescind a contract for the purchase of corporate stock because of fraud and to recover the purchase price. The jury returned a verdict for $1,527.60, for which amount judgment was entered. The defendant Mid-Continent Company appeals.
On May 5, 1937, plaintiff purchased 120 shares of the capital stock of the defendant company for $1,200. On January 6, 1940, he demanded the return of the purchase price immediately after he claims to have discovered that the sale of the stock to him had been fraudulently made. The defendant first contends that the tender of plaintiff's stock certificate and a dividend check for $6, while retaining $226 received as dividends, was insufficient to support an action for the purchase price.
The general rule is that a party who seeks to rescind a contract must return, or offer to return, the property acquired by the contract within a reasonable time. The purpose of the rule is to prevent enrichment by the rescinding party at the expense of the other party to the contract. There are, however, exceptions to the rule. For instance, "one who attempts to rescind a transaction on the ground of fraud, mistake, or otherwise, is not bound to restore that which he has received by virtue thereof, when, in any event, he is entitled to retain it as indisputably his own whatever may be the fate of his effort to rescind the transaction." 5 Williston, Contracts, Revised Ed., § 1530.
An authoritative text states the rule as follows: "A failure to return or offer to return performance received in accordance with the rule stated in subsection (1) does not preclude avoidance if the performance *** (c) is merely money paid, the amount of which can be credited in partial cancelation of the injured party's claim ***." Restatement, Contracts, § 480. We think the rule in this state is in accord with this. The development of the exceptions to the general rule in this state will be found by an examination of the following cases: Symns & Co. v. Benner, 31 Neb. 593, 48 N.W. 472; Phenix Iron Works Co. v. McEvony, 47 Neb. 228, 66 N.W. 290, 53 Am.St.Rep. 527; Collins v. Hughes & Riddle, 134 Neb. 380, 278 N.W. 888, 894. In the last case cited the court said: While it is true that some of our earlier cases adopted more strict rules in requiring restoration as a condition precedent to the bringing of an action for the purchase price after a rescission of the contract for fraud, the tendency has been toward a less stringent rule in the furtherance of justice between the parties. This has resulted in several well-established exceptions, including the one which we have applied to the case at bar. The exception to the general rule here invoked has been generally adopted as is evidenced by the following cases: Beverly v. Richards, 255 Mich. 508, 238 N.W. 270; Keefe v. Jefferson, 151 Minn. 368, 186 N.W. 789; Damerel v. North American Bond & Mortg. Co., 133 Cal.App. 290, 24 P.2d 237; Kyser v. Southern Bldg. & Loan Ass'n, 224 Ala. 673, 141 So. 648. For a concise statement of the difference between rescission in equity and law, see Corse & Co. v. Minnesota Grain Co., 94 Minn. 331, 102 N.W. 728.
Consequently, even though the general rule is that a person rescinding a contract for fraud is required to restore whatever has been received under the contract in the way of money, property or other consideration as a condition precedent to an action at law for the recovery of the purchase price, yet, in order to effect justice between the parties, the following exception, among others, has become a part of the law of rescission in this state: Where the party rescinding would be entitled to retain the money or property received, either by virtue of an original liability if the contract be rescinded, or under the contract itself if rescission be refused, no tender or offer of restoration is required. If, then, the thing to be restored consists of money, the amount of which can be credited in partial cancelation of the injured party's claim, a failure to restore will not preclude a suit to recover the consideration paid. We conclude that the trial court properly held that a sufficient tender was made in the instant case.
The record in this case shows the following: Prior to 1937 one George Vance organized a corporation known as Midwest Company Number One with a capital stock of $25,000. When the stock had been sold he organized Midwest Company Number Two with a capital stock of $25,000. When the stock in this company had also been sold, a third company known as Midwest Company Number Three was organized with a capital stock of $25,000, and its stock similarly disposed of. The Mid-Continent Company was thereupon organized with a capital stock of $25,000, which authorized capital stock has been increased from time to time until it reached the amount of $250,000 on January 11, 1937. On January 31, 1937, the three Midwest companies were consolidated with the Mid-Continent Company, the defendant herein. On December 14, 1936, Vance also organized the Mid-Continent Sales Company with an authorized capital stock of $5,000, and on December 29, 1937, the Royalty Purchasing Company was also incorporated with an authorized capital stock of $10,000. The purpose of the three Midwest companies and the Mid-Continent Company, with which they were later consolidated, was to engage in the purchase of oil royalties for profit. The purpose of the Mid-Continent Sales Company was to sell the stock of the Mid-Continent Company and any stock or securities of which they might become possessed by trading Mid-Continent Company stock therefor. The purpose of the Royalty Purchasing Company was to engage in the buying of oil royalties in Oklahoma, Texas, Kansas and other oil producing states primarily, we think the evidence shows, for resale to the Mid-Continent Company at a marked up price.
The record further shows that all of these corporations maintained their offices at the same location. That Vance participated in the organization of all these corporations is established. He was the president of all of them. The other incorporators of the Mid-Continent Company were B. V. Foster, E. E. Erskine and G. P. Fair, all of whom had been connected with the three Midwest companies prior to their consolidation with the defendant company. The incorporators of the Mid-Continent Sales Company were E. M. Sanmann, Georgia P. Fair and E. E. Erskine, the latter two of whom were officers of the Mid-Continent Company.
The plaintiff alleges, and there is evidence to sustain the allegations that on May 5, 1937, the Mid-Continent Company, through its agents, in order to induce plaintiff to purchase 120 shares of its capital stock, represented to plaintiff that the Mid-Continent Company was a good, sound and substantial company whose stock had a value of $10 per share and would soon be valued at $12.50 per share, that the stock was earning in...
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