Wright v. Spencer

• Decision Date: 05 May 1924
• Citation: 39 Idaho 60,226 P. 173
• Parties: JOHN M. WRIGHT, Respondent, v. E. S. SPENCER, Appellant
• Court: Idaho Supreme Court

226 P. 173

39 Idaho 60

JOHN M. WRIGHT, Respondent, v. E. S. SPENCER, Appellant

Supreme Court of Idaho

May 5, 1924

NEGOTIABLE PROMISSORY NOTE-FRAUD AS DEFENSE-FALSE REPRESENTATIONS-FALSE PROMISES-DAMAGES-HOLDER IN DUE COURSE-NOTICE OF FRAUD-BURDEN OF PROOF.

1. The doctrine of Pocatello Security Trust Co. v. Henry, 35 Idaho 321, 206 P. 175, as to false representations and promises held controlling, and applied to the facts of this case.

2. Fraudulent representations, resulting in material injury furnish ground for rescission of a contract, without regard to the actual extent of the pecuniary damage suffered.

3. In an action on a negotiable promissory note, when defendant pleads and proves that the note was procured by fraud, the plaintiff must show affirmatively that he took the note as a holder in due course.

4. In such case the burden is on the plaintiff to show that he took without notice of the fraud.

APPEAL from the District Court of the Fourth Judicial District, for Lincoln County. Hon. H. F. Ensign, Judge.

Action on promissory note. Judgment for plaintiff. Reversed.

Reversed and remanded. Costs to appellants.

Paul S Haddock and E. D. Reynolds, for Appellant.

In an action to rescind upon the ground of fraud the fraud is the essential thing, and while it must be coupled with loss, injury or damage the precise amount of such damage is of secondary importance. (Wainscott v. Occidental Assn., 98 Cal. 255, 33 P. 88; Pocatello Security Trust Co. v. Henry, 35 Idaho 321, 206 P. 175.)

False statements as to future events will constitute fraud where these events depend upon the acts of the party making the representations and form the inducement whereby the other party is led into the transaction. (Henderson v. San Antonio etc. R. Co., 17 Tex. 560, 67 Am. Dec. 675.)

False representations by a vendor of land of his intent to make improvements which will benefit the property sold are grounds for rescinding the contract. (Roberts v. James, 83 N.J.L. 492, Ann. Cas. 1914B, 859 and note, 85 A. 244; Pocatello Security Trust Co. v. Henry, supra.)

In an action upon a negotiable promissory note where the defendant pleads and proves that the note was procured by fraud it is incumbent upon the plaintiff to show affirmatively that it was a holder in due course. (First National Bank of Shenandoah v. Hall, 31 Idaho 167, 169 P. 936.)

McFadden & Perkins and W. A. Brodhead, for Respondent.

A holder of a promissory note in due course holds the instrument free from defect of title of prior parties and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all of the parties liable thereon. (C. S., sec. 5924; Burdell v. Nereson, 28 Idaho 129, 152 P. 576; Southwest National Bank v. Baker, 23 Idaho 428, 130 P. 799.)

Allegations of fraud in a pleading to be sufficient must set forth the facts constituting the fraud with reasonable certainty. (Frank v. Davis, 34 Idaho 678, 203 P. 287.)

Fraud without damage or injury is not remediable. (Frank v. Davis, supra; Breshears v. Callendar, 23 Idaho 348, 131 P. 15; Pomeroy, Eq. Juris., 1864, sec. 898.)

The answer is insufficient to constitute a defense to plaintiff's complaint. (Sec. 6694, C. S.)

MCCARTHY, C. J. William A. Lee, Wm. E. Lee, JJ., and Brinck, D. J., concur.

OPINION

MCCARTHY, C. J.

This is an action on a promissory note for $ 1,000, alleged to have been executed and delivered by appellant to the Pocatello Security and Trust Co., a corporation, and by it indorsed to respondent before maturity for value. Respondent seeks to recover the principal with interest and attorney fee. In the answer appellant admits the execution and delivery of the note to the corporation, and, for lack of knowledge or information, denies its indorsement to respondent before maturity and for value. As an affirmative defense appellant pleads that he executed and delivered the note to the corporation as part payment on a contract to purchase certain lands in Blue Lakes Addition to Twin Falls pursuant to a written agreement; that in order to induce appellant to enter into said contract the corporation falsely and fraudulently represented to him that it had received payment in cash for one-half of the total purchase price of the said Blue Lakes Addition and would forthwith proceed to pave, curb and gutter the streets; that it would lay concrete sidewalks and adequate sewers and water system, plant elm trees and install cluster lights, all to be done during 1918; that it had already sold or contracted for the sale of all lots in the east half of said addition, that one Clyde Bacon had purchased lots in the addition and contracted for the construction on them during 1918 of a dwelling-house to cost $ 25,000; also that Peter Bethune and numerous other purchasers of lots in the addition had contracted for the erection of dwelling-houses during 1918. Appellant further alleges that all of said promises and representations of fact were false and fraudulent, and known to be such by the corporation, and were made for the purpose of deceiving appellant; that the corporation had no idea or intention of performing any of said promises; that appellant believed and relied on said false representations and promises and because thereof executed and delivered his promissory note, by reason whereof he has been greatly injured and damaged; that on discovering the falsity of the promises and representations appellant elected to rescind the agreement of purchase, tendered to the corporation the possession of the lands in question and is ready and willing to deliver the said lands and contract. Appellant prays for rescission and cancelation of the written agreement and the note, and for judgment in his favor. After the introduction of evidence by both respondent and appellant the court, on motion of respondent, instructed the jury to return a verdict in his favor and against appellant in the amount prayed for in plaintiff's complaint. Upon the jury's returning such a verdict, a judgment in accordance therewith was rendered. From it this appeal is taken and the one specification of error is that the trial court erred in granting respondent's motion for a directed verdict.

If there was any ground for directing a verdict the judgment should be sustained. Respondent defends the action of the court upon the following grounds: (1) that fraud was not sufficiently alleged or proved, (2) that there was no allegation or proof of pecuniary damage resulting to appellant, (3) that there was no allegation in the answer and no proof that respondent knew of the fraud, if any, committed by the corporation. We will consider these matters in the order above named.

There is evidence in the record tending to show that false representations of fact and false promises were made by the corporation as alleged in the answer. The allegations and proof bring the case within the doctrine of Pocatello Security Trust Co. v. Henry, 35 Idaho 321, 27 A. L. R. 337, 206 P. 175, the facts being almost exactly the same as those involved and passed upon by this court in that case. Respondent's first point is therefore disposed of by that decision.

There is no allegation in the answer of any specific amount of pecuniary damage alleged to have resulted from the misrepresentations, the only allegation being that appellant was greatly injured and damaged. There is no proof of any specific amount of pecuniary damage, no evidence being introduced as to the specific value of the property covered by the contract and what its value would have been if the representations had been true. Respondent relies upon Frank v. Davis, 34 Idaho 678, 203 P. 287, in which this court said:

"A defense to a promissory note of want of consideration because of fraudulent representations of the payee in regard to the transactions in which the note was given is insufficient unless it appears that the maker of the note was damaged by reason of the fraud."

In the body of the opinion the court further said:

"The answer also fails to show injury to appellant. The answer states that the land actually conveyed to appellant was worth less by an amount exceeding $ 800 than the tract of land contracted for, but there is no allegation that the land conveyed was not reasonably worth as much as, or more than, appellant paid for it."

Appellant, on the other hand, relies upon the decision in Pocatello Security Trust Co. v. Henry, supra, in which this court said, at pp. 331, 332:

"We think that appellant has met all of these conditions, except that he did not show a specific amount of damage, his offer to do so being rejected. However, it...