Clark v. Laurel Park Estates, Inc.

ClakksoN, J. This is an action for rescission, tbe plaintiffs alleging actionable fraud. Tbe record discloses tbat none of'the exceptions and assignments of •error except those above set forth is in accordance with tbe rules of this Court. Tbe exceptions to tbe charge should be made as pointed out in Rawls v. Lupton, 193 N. C., p. 428, at p. 432. It is there said: “Continuity of tbe charge is necessary with tbe ‘specific’ exceptions. Anything else is unfair to tbe trial judge — to have his charge cut up in piecemeal and disconnected.” Tbe defendant, Laurel Park Estates, Inc., filed no answer to tbe complaint tbat set forth actionable fraud. Plaintiff, Mrs. Clark,, purchased *634 the lot in controversy for $5,000, paid one-fourtb casb and gave three negotiable notes for the balance, $1,250 each, due 12, 18 and 24 months, to Laurel Park Estates, Inc., or order. The Central Bank and Trust Company, as trustee, set up the defense that “Said Laurel Park Estates, Inc., duly endorsed, transferred and delivered to the defendant, Central Bank and Trust Company, as trustee, for value, and before maturity, the said three notes and the said defendant, Central Bank and Trust Company, as trustee, is now the bona fide holder of said notes,” and demanded judgment against the plaintiffs for the amount and interest. The court below charged the jury, to which the Central Bank and Trust Company, trustee, excepted and assigned error: “The court instructs the jury that the defendant, Laurel Park Estates, Inc., not having answered, and from the evidence introduced, if the jury believe the same, under the definition of fraud and instructions later to be given, will answer the first issue Yes, and the second issue $1,250, and interest from the date of payment.” This instruction says "under the definition of fraud and instructions later to be given.” In Nichols v. Fibre Co., 190 N. C., at p. 6, it is said: “Defendant further assigns as error the failure of the court in the charge to the jury to comply with the requirements of C. S., 564. This statute makes it the duty of the judge presiding at a trial, in which issues are submitted to the jury, ‘to state in a plain and correct manner the evidence given in the case and to declare and explain the law arising thereon.’ ” Wilson v. Wilson, 190 N. C., 819. There is no assignment of error, as in the Nichols case, that the court below did not comply with the requirements of C. S., 564. If it be conceded that the Central Bank and Trust Company, trustee, could take advantage of this, if the exception to the charge was properly made, yet on this record from all the evidence we could not hold that this was reversible error. Proctor v. Fertilizer Co., 189 N. C., 243. “Fraud, it has been said, assumes so many different hues and forms that courts are compelled to content themselves with comparatively few general rules for its discovery and defeat, and allow the facts and circumstances peculiar to each case to bear heavily on the conscience and judgment of the court or jury in determining its presence or absence.” 51 A. L. R., p. 47; McNair v. Finance Co., 191 N. C., at p. 716. The record discloses a charge of actionable fraud, so cunning, subtle and shrewd, that defendant, Laurel Park Estates, Inc., made no answer and allowed the action against it to go by default. The evidence was plenary to establish the fraud as alleged practiced on unwary victims: “ ‘Will you walk into my parlour,’ said the spider to a fly; "Tis the prettiest little parlour that ever you did spy.’ ” *635 The agents of the Laurel Park Estates, Inc., set the web — they brought plaintiffs from their home in Maryville, Tenn., took them to Kenilworth Inn and places of amusement a,nd paid their expenses. Then took them to the top of Stradley Mountain, some eight miles from Asheville, N. C. A lecture was delivered by an agent, who said he had been all over the tuorld, and this was the most beautiful spot he had ever seen for a development. Then he described what the development was to have. Hard-surfaced roads, paved streets and sidewalks, water, electric lights, telephones, sewers, golf course, clubhouse, schoolhouse, a business section, etc. A hotel at a cost of a million or two dollars under contract to be erected on top of the mountain by the first of the year, to be called-“Lafayette Chateau,” underground wiring for electric lights and telephone connections, lakes, parks and those things which make “a beautiful place.” The water to be brought from Mount Pisgah watershed. That the money for these improvements was in the Central Bank and Trust Company in Asheville. They had a band concert and luncheon. From the office a megaphone was repeatedly saying “Sold.” “It seemed as if they were selling lots fast.” The agent guaranteed to refund to the purchasers or resell at a profit. Plaintiffs’ evidence was to the effect that this was not complied with. The subtle tempter was there and the lady plaintiff, with her husband standing by “She took of the fruit thereof and did eat.” The plat was ready. "He had the red ink mark put on lot 7 on the plaid It was near the imaginary Chateau. She borrowed the money to pay for the lot. She signed the notes and deed of trust and bought this property because of the agent’s “alluring portrayal” of the wonders to be made there. Later she went back to the place, portrayed almost perhaps as beautiful as the Garden of Eden: “I went out there the other day to see if the improvements had been carried out. There is no paving there and it is just a waste place, grown up with scrubby pines. There are no telephone lines — :not anything in the world.” It turned out to be a “fool’s paradise.” It was in evidence that there was no money in the Central Bank and Trust Company for the purpose of making the improvements. All the above representations are more than merely “dealer’s talk.” The evidence is abundant to be submitted to the jury to show no intention of performance. It may be termed “futurity fraud.” In 1 Bigelow on Fraud, 484, it is said: “The general rule in regard to promises is that they are without the domain of the law unless they create a' contract, breach of which gives to the injured party simply a right of action for damages and not a, right to treat the other party as guilty of a fraud. But that proceeds upon the ground that to fail to perform a promise is no indication that there was fraud in the transaction. There may, however, have been fraud in it; and this fraud may have *636 consisted in making a promise with intent not to perform it. To profess an'intent to do or not to do, when the party intends the contrary, is as clear a case of misrepresentation and of fraud as could be made. A promise is- a solemn affirmation of intention as a present fact.” Hill v. Gettys, 135 N. C., at p. 376. In Braddy v. Elliott, 146 N. C., 578, at p. 582, it is said: “If the jury should find, in addition to their findings on the first and second issues, that the defendant fraudulently induced plaintiffs to agree to the exchange by falsely representing and pretending that he would build two suitable dwellings and necessary outhouses on the tract of land, such finding would be ample basis for the decree canceling the entire transaction. . . . The subsequent acts and conduct of a party may be submitted to the jury as some evidence of his original intent and purpose, when they tend to indicate it.” In Herndon v. Durham, 161 N. C., p. 650, at p. 556, it is said: “A promise is usually without the domain of the law, unless it creates a contract, but if made when there is no intention of performance, and for the purpose of inducing action by another, it is fraudulent, and may be made the ground of relief.” Abel v. Dworsky, 195 N. C., 867; Palmetto Bank and Trust Co. v. Grimsley, 134 S. C., 493, 51 A. L. R., 42. Bispham’s Equity (9 ed.), sec. 211, says: “The representation must not be an expression of intention merely. A man has no right to rely upon what another says he intends to do, unless, indeed, the expression of intention assumes such a shape that it amounts to a contract, when, of course, the party will be bound by his engagement and for the breach of which the other side has, ordinarily, an adequate remedy at law. But if a promise is made with no intent to perform it, and merely with a fraudulent design to induce action under an erroneous belief, or if a representation amounts to a statement of fact, although dependent upon future action, in either case there is ground for equitable relief.” See Walsh v. Hall, 66 N. C., 233; Furst v. Merritt, 190 N. C., at p. 403; McNair v. Finance Co., supra, p. 716-7. In May v. Loomis, 140 N. C., at p. 357, it is held: “In order to rescind, however, the party injured must act promptly and within a reasonable time after the discovery of the fraud, or after he should have discovered it by due diligence; and he is not allowed to rescind in part and affirm in part; he must do one or the other. And, as a general rule, a party is not allowed to rescind where he is not in a position to put the other in statu quo by restoring the consideration passed. Furthermore, if, after discovering the fraud, the injured party voluntarily does some act in recognition of the contract, his power to rescind is then at an end. These principles will be found in accord with the authorities. Bishop on Contracts, secs. 679, 688; Beach on Contracts, sec. 812; Page on Con *637 tracts, secs. 137, 139; Clark oil Contracts, pp. 236, 237; Trust Co. v. Auten, 68 Ark., 299; Parker v. Marquis, 64 Mo., 38.” McNair v. Finance Co., supra, at p. 718. In 6 R. 0. L., part sec. 316, at p. 934, it is said: “Fraud is not waived unless there is conduct inconsistent with a purpose to disaffirm the contract after full knowledge of the facts which constitute the fraud, and raise an election whether the defrauded party will go on with the contract, or disaffirm what has been done. But full knowledge of a fraud does not mean that the party defrauded shall have knowledge of all of the evidence tending to prove the fraud. If he has knowledge of the material facts which go to make up the case of deceit as practiced upon him, it is sufficient to make him elect whether he will go on with the contract, or stop short and sue for the loss he has already suffered. If a contract has been procured by fraud, and the person defrauded, with knowledge of the substance of the fraud, elects to affirm the contract, he cannot subsequently, upon discovering new incidents of the same fraud, elect to rescind the contract. Knowledge of the essence of the fraud puts him to his election.” Hawkins v. Carter, ante, 538. The evidence was to the effect that the interest payment was made before the discovery of the fraud and plaintiffs are in the position to put the parties in statu quo. They offered to reconvey and the judgment requires this to be done. The next proposition: Did the court err in overruling motion of appellant, Central Bank and Trust Company, trustee, for a directed verdict on the third and fourth issues? We think not. In Bank v. Wester, 188 N. C., at p. 375, it is said: “This matter is so well stated in Moon v. Simpson, 170 N. C., 336-7, by Allen, J., that we reproduce it: ‘In Trust Co. v. Bank, 167 N. C., 261, the Court said: “Our negotiable instrument law is simply the codification of the common law, and under both the statute and the common law the possession of a negotiable instrument by the endorsee, or by a transferee where endorsement is not necessary, imports prima, facie that he is the lawful owner and that he acquired it before maturity, for value, in the usual course of business and without notice of any circumstances impeaching its validity. Nothing else appearing, this entitles the holder of a negotiable instrument to maintain an action upon it. By presenting the paper, in case duly endorsed, the plaintiff made out a prima facie case, that is, a case sufficient to justify a verdict for him on the first issue.” This prima facie case may be rebutted. The rule is different where it is shown that the title of the person who negotiated the instrument is defective (Rev., sec. 2208 (C. S., 3040), and his title is defective if “he obtained the instrument or any signature thereto by fraud, duress or force and fear, or other unlawful means, or for an illegal consideration as amounts to *638 fraud.” Rev., sec. 2204 (C. S., 3036). In such case, when it is shown that the title of the person who negotiated the instrument is defective, or there is evidence of the fact, “it is necessary for a recovery by one claiming to be the holder in due course to show by the greater weight of the evidence that he acquired the title (1) before maturity, (2) in good faith for value; (3) without notice of any infirmity or defect in the title of the person negotiating it.” Mfg. Co. v. Summers, 143 N. C., 108; Smathers v. Hotel Co., 168 N. C., 69; Bank v. Fountain, 148 N. C., 590; Bank v. Branson, 165 N. C., 344; Bank v. Drug Co., 166 N. C., 100.’” Holleman v. Trust Co., 185 N. C., 49; Bank v. Felton, 188 N. C., 384. It may be noted that defendant in its defense does not allege that it “had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.” The third issue was in conformity with the law and had this requisite. C. S., 3033, is as follows: “A holder in due course is a holder who has taken the instrument under the following conditions: (1) That the instrument is complete and regular upon its face; (2) that he became the holder of it before it was overdue and without notice that it had been previously dishonored, if such was the fact; (3) that he took it for good faith and value; (4) that at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.” Bank v. Wester, supra. These are material facts to be proved by the Central Bafik and Trust Company, trustee, by the greater weight of the evidence that it was a holder in due course, when under the facts as appear on the record in this case there was evidence to the effect that the notes were obtained by fraud. The Central Bank and Trust Company’s, trustee, evidence was to the effect that it was a holder in due course for the bondholders. The plaintiff’s evidence was to the contrary and to the effect that the Central Bank and Trust Company, trustee, did not take the notes in good faith and for value and without notice. What was the combination of facts and circumstances relied on by plaintiffs? (1) The three notes all had reference that each was one of a series secured by deed in trust on real estate bearing even date. (2) The release made by the Central Bank and Trust Company, as trustee, to Mrs. Clark, releasing lot in controversy. The release recites (a) a deed in trust from Stradley Mountains, Inc., dated 1 March, 1926, duly registered, to Central Bank and Trust Company, trustee, to secure certain indebtedness (b) on the same date a deed' from Stradley Mountains, Inc., certain land including the lot in controversy to defendant Laurel Park Estates, Inc., duly registered, (c) on the same date deed in trust from Laurel Park Estates, Inc., to Central Bank and Trust Company, trustee, certain lands including the *639 lot in controversy duly registered. (3) Tbe trust deed made to Central Bank and Trust Company, trustee, contained certain provisions before a release could be made by it, among other things (a) which consideration may be cash (b) or partly cash and partly obligations secured by purchase-money mortgage or deed of trust to Central Bank and Trust Company, as trustee, upon the property so sold to be released. (4) The lot was eight miles from Asheville at the time released with no improvements on it. By the terms of the trust the bank was authorized to release lots therefrom upon being paid “50% of the purchase price of the property so sold, provided in no event should the amount paid for each release be less than a sum equal to $1,000 per acre.” (5) The release from the bank to Mrs. Clark recites “in consideration of a sum of money sufficient under the terms of each of said deeds of trust to entitle the said party of the second part to a release of the land hereinafter described from the lien and effect of said deed of trust.” (6) The attorney of the Laurel Park Estates, Inc., in writing to plaintiff, said: “If however you do not wish to forward, the deed of trust and notes to me, mail the same to the Trust Department of the Central Bank amd Trust Company, and sign the enclosed letter addressed to that officer, and the deed will be placed there for delivery to you upon receipt of the notes and deed of trust properly signed and executed.” (7) John M. Clark also testified that C. W. Brown, the trust officer, told him that he “held them in trust for Laurel Park Estates, Inc., and Stradley Mountain Development Corporation.” (8) The Central Bank and Trust Company, trustee, knew by the deed of trust to it, or in the exercise of due care ought to have known, that the development was eight miles from Asheville, on Strad-ley Mountain. It knew, or in the exercise of due care ought to have known, that these lots with no improvements on them were selling at fabulous prices. Plaintiff’s evidence was to the effect that the lot was released for “a sum of money sufficient under the terms of each of said deeds of trust.” The trust deed made by the Laurel Park Estates, Inc., to the Central Bank and Trust Company, as trustee, contained a provision authorizing a release for cash. The evidence would indicate that the release was for cash, not for notes, and the Central Bank and Trust Company, trustee, for the bondholders, obtained a sum of money sufficient for the release and paid nothing of value for the notes — $3,750. One thousand dollars of the $1,250 cash payment could be inferred was paid it under the trust deeds for the bondholders, the minimum release for an acre being $1,000, and plaintiff purchased only one lot, No. Y, on the plat. The president of the Laurel Park Estates, Inc., and its attorney and other officers were also directors of Stradley Mountain Development Corporation, and the president of Laurel Park Estates, Inc., its vice- *640 president. Tbe evidence would indicate that the Central Bank and Trust Company, as trustee, held the notes in trust for the Laurel Park Estates, Inc. John M. Clark testified that C. W. Brown, the trust officer, told him that he held the notes in trust for Laurel Park Estates, Inc., and Strad-ley Mountain Development Corporation. If this was true, the Central Bank and Trust Company, as trustee, could not hold the notes for 'the bondholders. All this was evidence to contradict the testimony of certain officers of the Central Bank and Trust Company, that the notes were held in trust by it for the bondholders. The probative force was for the jury. In regard to the duty of a prudent man to make inquiry, see Mills v. Kemp, ante, at p. 314. The law in regard to negotiable instruments is so well stated by Hoke, J., in Bank v. Fountain, 148 N. C., at p. 594-5, that we repeat it: “It may be that when fraud is established in procuring the instrument, or there was evidence offered tending to establish it, if .the plaintiff, as he is then required to do; should lay before the jury all the evidence available as to the transaction, and it should thereby appear, with no evidence to the contrary and no other fair or reasonable inference permissible, that plaintiff was the purchaser of the instrument in good faith, for value, before maturity and without notice, the court could properly charge the jury if they 'believed the evidence/ or if they 'found the facts to be as testified’ — a more approved form of expression — they would render a verdict for plaintiff. But here, the fraud having been established or having been alleged, and evidence offered to sustain it,' the circumstances and bona fides of plaintiff’s purchase were the material questions in controversy; and both the issues and the credibility of the evidence offered tending to establish the position of either party in reference to it was for the jury and not for the court. S. v. Hill, 141 N. C., 771; S. v. Riley, 113 N. C., 651. As said by the Court in this last case, the 'plea of not guilty disputes the credibility of the evidence, even when uncontradieted.’ His Honor below, therefore, had no right to say to the jury, on this very material question, 'The prima facie case of plaintiff having been restored by the uncontradicted evidence of the president of the bank, that it acquired the note in the usual course of business, before maturity and without notice of any vice in it’; for this assumes that the statement of the president is to-be taken as true, and withdraws that matter from the jury.” In the above case the Court further said: “The trial court was probably misled by the language of the opinion in Bank v. Burgwyn, 110 N. C., 273, making a quotation from Daniel on Negotiable Instruments, sec. 819, without adverting to the facts stated in the case on appeal, and it is in reference to such facts *641 that a, decision is to be considered authority, from which it appears that the trial court in that case had submitted the question of the bona fides of plaintiff’s purchase to the jury, and had not undertaken to determine it, as was done in the present case. The statement of law contained in this section of Mr. Daniel’s valuable work on Negotiable Instruments, see. 819, has been subjected to adverse comment in the decisions on the subject, which we have adopted as law by our statute, and there is doubt if, since the enactment of this statute, it can be regarded as correctly expressing the rule for trial of causes affected by this section of the statute in reference to the burden of proof.” The principle set forth in Banh v. Fountain, supra, has been reiterated time and time again by this Court. Notwithstanding the fact that the exceptions and assignments of error are not in accordance with the rules of this Court, we can find no error in the charge taken as a whole. We find in the judgment of the court below No error.