Walsh v. Wescoatt

Bridges, J. This is an unusual case. The facts are that the respondents were the owners of a note given by one Williams, which was secured by a mortgage upon real estate in Idaho. The appellant was the owner of certain other personal property. The parties .traded, the respondents assigning their note and mortgage to the appellant, their endorsement of the note being unrestricted. Later, the appellant brought suit on the note, waiving the mortgage. The action was against Williams, as the maker, and against the respondents as unrestricted endorsers. Williams was not served with process. The respondents, by their answer, alleged that, as a part of the trade, it was — 315 — mutually agreed that they were to endorse the note without recourse against them, hut that through mistake the endorsement was unrestricted. They prayed for a reformation of the endorsement so that it would show that it was without recourse. The appellant, in his reply, denied that there was any agreement that the note was to he endorsed without recourse, and further alleged that the respondents were not in position to seek relief from a court of equity, because, in their effort to consummate the business transaction, they had fraudulently misrepresented the land on which the mortgage was given which secured the note sued on; and that he had no personal knowledge concerning the lands or the value of the security, and did not have any opportunity prior to the consummation of the transaction to examine the lands or inquire about them, and that he relied on the representations so made. On these facts the case went to trial. Considerable testimony was introduced; first, on the question of endorsement; and, second on the question of the alleged misrepresentations as to the character and value of the land. The trial court found with the respondents on the first question, hut made no determination of the second. Judgment was entered on the cross-complaint, reforming the endorsement of the note as prayed for and dismissing the appellant’s action. The trial court seemed to be of the opinion that the testimony with reference to the alleged misrepresentations was immaterial in this case. Appellant does not seek rescission or damages, hut merely alleges the misrepresentations for the purpose of depriving respondents of the right to obtain equitable relief. There are two questions before us; one of fact concerning the endorsement, and the other concerning the alleged misrepresentations. — 316 — It will not be useful to review tbe testimony as to whether there was a mutual agreement that the respondents’ endorsement was to be without recourse; suffice it to say that a reading of the testimony convinces us that the trial court was right in this respect, and that if there were nothing else in the case the judgment should be affirmed. But it is argued by the appellant that whether the respondents are entitled to a reformation of their endorsement depends entirely upon whether they fraudulently or falsely misrepresented the character of the land to his injury, contending that, if the testimony establishes such, the respondents were not entitled to any relief in a court of equity. The argument is based on the maxim that “one who seeks equity must come into court with clean hands.” If there were misrepresentations and they were fraudulently made, and appellant had a right to, and did, rely on them to his injury, then the principle of this maxim is properly applicable to the case. Equity demands of suitors fair dealing with reference to matters concerning which they seek relief. If they have acted in bad faith, or been guilty of fraud, or have resorted to trickery to the injury of another, they will be turned away as unworthy of the consideration of such a court. They will be left where they are found. In other words, equity will not help those who have been guilty of serious misconduct in the same transaction concerning which they seek relief. That sought by the respondents is directly connected with the fraud charged against them, and if that charge is true, we see no reason why a court of equity should relieve them of their mistake concerning their endorsement of the note. What we have said is with ref — 317 — erence to fraudulent misrepresentations as distinguished from unintentional misrepresentations. But there is another question which may be in the case, and which we ought to dispose of lest it should arise upon a new trial. There is an intimation in the memorandum opinion by the court, and also in one of the briefs, that, if the respondents made any misrepresentations concerning the land, they did so in the honest belief they were correct. Suppose the trial court should find that the representations were untrue but were made honestly and in the belief that they were true, and that the respondents were not guilty of any actual fraud, and that the appellant relied upon such misrepresentations to his damage, then the question arises whether the court, under those circumstances, would deny respondents reformation of their endorsement. The respondents argue that, if they unintentionally misrepresented the land, it cannot be. said that they come into court with unclean hands, and.that the maxim is applicable only when there is intentional wrongdoing. But it seems to us that the maxim is broader than that. It is associated with the other maxim that he who seeks equity must do equity. If the respondents misrepresented the land, the result is the same both to them and the appellant, whether the misrepresentations were honestly or fraudulently made — the appellant, under those circumstances, will have been injured and the respondents will have reaped a corresponding benefit. So long as one retains the benefits flowing from misrepresentations, he may not seek the interposition of a court of equity. It is said that “ ‘A court of equity acts only when and as conscience commands, and if the conduct of the plaintiff be — 318 — offensive to the dictates of natural justice, then, whatever may he the rights he possesses and whatever use he may make of them in a court of law, he will he remediless in a court of equity.’ Deiueese v. Remhard, 165 TT. S. 386. Again, it is said: “The exclusion of a plaintiff from the peculiar favors of courts of equity results equally where his conduct has been unconscionable by reason of a bad motive or where the result in any degree induced by his conduct will be unconscionable either in the benefit to himself or the injury to others.” Larscheid v. Kittell, 142 Wis. 172, 125 N. W. 442. So, also, “the maxim applies not only to fraudulent and illegal transactions, but to any unrighteous, unconscientious or oppressive conduct by one seeking equitable interference in his own behalf.” Eaton on Equity, page 74. A case which is apparently directly in point is that of Cushman v. New England Fire Ins. Co., 65 Vt. 569, 27 Atl. 426. The purpose of that suit was to reform a fire insurance policy. Touching the question here involved, the court said: “A court of equity will not reform a contract if its execution was procured by the false representation of the party who is seeking to have it corrected; it will not order its specific performance. And this is the rule even if the party did not know of its falsity, and had no intent to deceive; nor does his belief in its truth make any difference. The question is, has the party been misled by a false representation calculated to mislead him, and not the existence of a fraudulent design in the cocontractor. ’ ’ Appellant has cited other cases which he contends strongly support this view. We think, however, they are not in point. They are cases where the plaintiff sought rescission because of misrepresentations, and the courts held that there might be rescission notwithstanding the misrepresentations were not fraudulently made, and that intent was not a controlling factor. — 319 — This court has long- since aligned itself in rescission cases with this doctrine. The maxim here involved was not discussed in those cases. To support their contention that one does not come into court with unclean hands if the misrepresentations were innocently made, respondents cite Harlan v. Willard, 52 Cal. App. 194, 198 Pac. 424. There it appeared that the plaintiff, who was seeking to recover on a contract whereby a deceased person was to will her a portion of his property, had previously sought, as decedent’s widow, to acquire one-half of his property. It was there contended that, because of her fraud in previous acts, the court should not give her any relief. The court said: “The lack of a fraudulent purpose to get something to which she was not legally entitled takes the case without the rule as insisted for by appellant.” While this language is somewhat in respondents’ favor, yet it ought not to be so considered, because the plaintiff in that case had not succeeded in her original fraudulent purpose and imposed no injury thereby. This exact question seems to have been but little discussed by the courts or text-book writers. It is our view that a court of equity will deny relief to a party who, to the injury of another, has misrepresented facts connected with the relief sought, whether the misrepresentations were made with intent to defraud or were made in the honest belief that they were true, so long as the person making them retains the benefits flowing therefrom. The judgment is reversed, and the cause remanded with directions to the trial court to determine whether the respondents made the misrepresentations charged and whether appellant relied thereon to his damage, and if it answers these questions in the affirmative, — 320 — then to deny respondents any relief on their cross-complaint and enter judgment for appellant as prayed. If the court find there were no material misrepresentations, or, if there were, they were not relied on or no injury resulted therefrom, then the judgment should be for respondents and against appellant, substantially as now made. Under all the circumstances of this case, we deem it equitable that neither party should recover costs in this court of the other, and it is so ordered. Main, O. J., Fullerton, Mitchell, and Pemberton, JJ., concur.