Kelly v. Central Pacific Railroad

Hayne, C. Action for specific performance of a contract to convey land. The Central Pacific Railroad Company, being the owner of large tracts of land acquired from the federal govern — 558 — ment, placed the disposition of the same in the hands of one of its officers, called its land agent. The finding'fi.'n this regard is that: " Said railroad company, for the purpose of disposing of its lands, established a land department and appointed a land agent, who had power to issue and carry into effect the circulars hereinafter copied. Said land agent had full power to appoint subordinate agents, and to distribute to them the work of the land department.” In the exercise of his functions the land agent addressed a circular to , the public inviting settlement upon its vacant lands, and stating, among other things, that " settlers and actual occupants who in good faith cultivate and improve lands belonging to either of the companies will generally be given preference of purchase at the regular price.” It appears that in the spring of 1881, one Menger, who was then in occupation of the south half of the northeast quarter of section 7, in township 13, range 9 east, Mount Diablo base and meridian, and of an adjoining piece, received the above-mentioned circular, and certain verbal assurances, and after several months sold and conveyed whatever rights he had to one Cole. Before making.the purchase, Cole inquired of one .Perkins, • the deputy of the land agent, “ whether, if he. bought from Menger, he could get the title of the company ” to the said south half of the • northeast quarter, and the other land which Menger occupied. And Perkins "then gave him one of said circulars, and informed him that if he moved upon, the land and improved it, he could safely buy of said Menger, and that the railroad company would give him the preference to buy the same at such price as it might fix; and said Cole made said purchase under said advice, and moved into said Monger’s house .immediately upon the purchase.....Said - Cole moved upon said land, and continued to" reside" upon it and make improvements on it, relying upon said — 559 — circulars, and what was said to him" by said Perkins, believing that he would have the prior right to purchase from said railroad company said land at a price which it might fix.” In December, 1881, he filed his application to purchase with the land agent; but no immediate action appears to have been taken thereon. During all of this time the plaintiff, Kelly, had brought himself within the terms offered by said circular, as to certain adjoining land, but had never done so as to the land in controversy.' It sufficiently appears, we think, that Kelly had notice of Cole’s equities. For he resided in the vicinity, and it is found that on one occasion he undertook to make an entry upon Cole’s possession, and commenced to erect “a small board house’’ upon the land in controversy; but Cole ordered him off, and he left and moved his house away. He therefore knew that Cole had a claim to the land, and by inquiry he could easily have learned the nature of such claim. Several weeks after this Kelly filed with the land agent an application to purchase certain lands, including the tract in controversy, and represented to the land agent that he, Kelly, had settled upon the same. The land agent, believing these representations, entered into a-contract with Kelly for the conveyance to him of this and o.ther tracts, and received from him the first payment therefor. These representations of Kelly were entirely false. The finding in this regard is as follows : “Kelly's said representations, made by himself and his witnesses to the land agent, were untrue, and he at the time knew that they were untrue, and they deceived the land agent, and induced him to award to said Kelly said south half of the northeast quarter; and the land agent, but for such deception, would not have awarded said south half of the northeast quarter to said Kelly, but would have awarded it to said Cole.’’ Upon becoming aware of the deception which had — 560 — been practiced upon him, the land agent notified Kelly that he could not have the tract in controversy, and tendered him back the portion of his first payment which applied to that tract, but did not tender him back the money applying to the other lands mentioned in his contract. Kelly refused to receive the money, and brought this action to compel the conveyance to him of all the land mentioned in the contract. Cole intervened and prayed for the conveyance of the land in controversy to him. The court below decreed that the land be conveyed to Cole, and Kelly appeals. The-evidence is not brought up,—the appeal being from the judgment, and upon the judgment roll alone. The point made on Kelly's appeal is, that the false, representation was not productive of injury to the railroad company. And the argument is that there was no injury, because, in the first place, it was under no obligation to convey to Cole, — the promise contained in the circular being merely that “preference will generally be given to settlers,” in which respect it differs from the promise contained in the circular considered in Boyd v. Brinckin, 55 Cal. 427; and because, in the second place, the company was willing to convey and will convey the land to Cole for the same price that it agreed to convey it to Kelly, and hence could not be injured pecuniarily. It is deserving of serious consideration whether, admitting that Boyd v. Brinckin can be distinguished as contended, there was not sufficient part performance of the oral promise to Cole to take the case out of the statute of frauds and entitle him to a specific performance. But waiving this, we think there are two answers to the argument for the appellant. 1. Assuming the correctness of appellant's major proposition,—viz., that in order to defeat a suit for specific performance on the ground of fraud, the fraud must be productive of injury,—it is not necessary that the injury should result to the vendor. It is sufficient if it would — 561 — result to third persons. It is upon this principle that the relief is refused where the thing to be done would operate as a fraud upon the public. Thus a court will refuse to decree specific performance of an agreement to publish a book purporting to be written by one person, but in fact written by another. (Post v. Marsh, L. R. 16 Ch. D. 406.) So upon the same principle the relief is refused where the agreement was in fraud of the rights of creditors (St. John v. Benedict, 6 John Ch. 117; Baldwin v. Campfield, 8 N. J. Eq. 600; Ryan v. Ryan, 97 Ill. 40), or in fraud of the rights of other parties. (Kitchen v. Coffyn, 4 Ind. 507.) So it is refused where the act sought to be enforced would operate to the injury of interests in remainder (Fry on Specific Performance, p. *141, sec. 304; Thomas v. Dering, 1 Keen, *747, 748); or to a wife's right in a homestead (Phillips v. Stauch, 20 Mich. 383); or to subsequent purchasers from the same vendor. (Curran v. Holyoke, 116 Mass. 90; and see Pomeroy on Specific Performance, sec. 181.) The court will not make itself an instrument to carry out the fraud,. whether the person to be injured be a party to the contract or not. It will not assist the plaintiff to get the ■ benefit of the intervenor's labor and improvements upon the tract in controversy. 2. But we do not think that in order to defeat a suit ■ for the specific performance of a contract to convey land, upon the ground of fraud, the fraud must be productive of damage either to the vendor or to third persons. Iff the misrepresentation was intentional, and made for the purpose of deceiving the vendor, and the vendor relies upon it, and was deceived by it, and would not have entered into the contract but for the fact that he was so deceived, then we think a court of equity will not enforce the contract, whether it be accompanied by damage or not. So far as this kind of suit is concerned, such a misrepresentation is material although not accompanied by damage. — 562 — The counsel for the appellant cite in this connection the case of Morrison v. Lods, 39 Cal. 385, as affirming the contrary doctrine. The report of that case is somewhat obscure. It does not show what the representation was, nor whether it was intentionally false or a mere innocent misrepresentation. But if the court meant to decide that a court of equity will enforce a contract obtained solely through a falseand fraudulent representation, then we think the decision is in violation of established principles. It is perfectly true, as stated in the opinion, that an action at law cannot be maintained for fraud unless accompanied by damage. It is also true, as stated in the opinion, that a court of equity will not set aside a contract obtained through fraud unless it be productive of injury. (1 Story’s Eq. Jur., sec. 203.) But it is not true that this applies to suits for specific performance. It is well settled that a court of equity may refuse specific. performance of a contract which it would not set aside. (Mortlock v. Buller, 10 Ves. *308; Cadman v. Horner, 18 Ves. 11; Seymour v. Delancy, 6 Johns. Ch. *222; Jackson v. Ashton, 11 Pet. 248; Barksdale v. Payne, Riley, *178; Frisby v. Ballance, 4 Scam. 299; Clement v. Reid, 17 Miss. 542, 543; Taylor v. Merrill, 55 Ill. 61; Hilliard on Vendors, 445; Fry on Specific Performance, Am. ed., p. *192, sec. 427.) Although the court will refuse to destroy the contract, it will not further in any way the fraudulent design. In such cases, by an application of the maxim, that he who comes into equity must come with clean hands, the court is enabled to give greater effect to the principles of morality than can be done in ordinary cases. The leading text-writers are agreed in this view. Chancellor Kent, after stating the general rule that fraud must be accompanied by damage, and that “there are many duties that belong to the class of imperfect obligations, which are binding in conscience, but which human laws do not and cannot undertake directly to enforce,” goes on to say: “ But — 563 — where the aid of a court of equity is sought to carry into execution such a contract, then the principles of ethics have a more extensive sway.” (2 Kent’s Com. 490.) This statement is adopted by Story. (1 Story’s Eq. Jur., sec. 206.) So Kerr, in his work on fraud and mistake, says: “Where the aid of a court of equity is sought by way of specific performance of a contract, the principles of ethics have a more extensive sway than where a contract is sought to be rescinded.....Where a party calls for specific performance, he must, as to every part of the transaction, be free from every imputation of fraud or deceit,” and “must show that his conduct has been clear, honorable, and fair.” (Kerr on Fraud and Mistake, Am. ed., 357, 358.) So Hovenden says: “Specific performance of an agreement is never compelled unless the case is clear of the imputation of any deception; the conduct of the party seeking it must be free from all blame.” (2 Hovenden on Fraud, p. 4; see also Fry on Specific Performance, Am. ed., *204.) This rule is embodied in section 3391 of the Civil Code, which provides that: “Specific performance cannot be enforced against a party to a contract. .... 3. If his assent was obtained by the misrepresentation, concealment, circumvention, or unfair practices of any party to whom performance would become due,” etc. And it is evident that such must be the rule. To say otherwise is to place suits for specific performance on the same level with actions at law, which is contrary to all the authorities. If, therefore, the case of Morrison v. Lods is to be construed as affirming any such doctrine, it does not state the law correctly. The case of Board of Commissioners v. Younger, 29 Cal. 172, was a suit to set aside a contract, and not for specific performance. In the present case the false and fraudulent representation of plaintiff was the inducing cause of the contract. This is apparent from the fact that as soon as the com564 pany discovered the fraud which had been practiced upon it, it repudiated the contract. And it is expressly found that “the land agent, but for such deception, would not have awarded said south half of northeast quarter to said Kelly, but would have awarded it to said Cole.” This state of facts well illustrates the wisdom of the doctrine which does not insist upon measuring everything by the standard of damage, but so far as can be done, allows parties to determine what is for their own interests, and to contract or refuse to contract accordingly. It is evident from the circulars contained in the record that it was the policy of the company to encourage the settlement of its vast tracts of unoccupied land. To carry out this policy it offered special inducements to settlers. It ought to be allowed to fulfill its promises to those who have relied upon its good faith. It is not for one who falsely pretends to be entitled to the benefit of those promises to say that it is all the same to the company because he pays the same price as the other would. ' The case is one where the vendor has special motives for selling to one person at a price which it would not accept from another. (See dictum of Lord Eldon in Bonnett v. Sadler, 14 Ves. *528.) It may be conceded in favor of appellant that the company did not take the proper course to rescind its contract -with the plaintiff. Be that as it may, he cannot, for the reasons stated, have the aid ef a court of equity to carry it out. His case against the company, therefore, fails. And this being so,-he cannot inquire into the correctness of the decree directing the company to convey to. the intervenor. For if he is not entitled to the specific thing, it is of no consequence to him what becomes of it, and he cannot concern himself with that question. We do not regard the case of Taylor v. C. P. R. R. Co., 67 Cal. 615, as conflicting in any degree with the above positions. — 565 — We therefore advise that, upon the appeal of the plaintiff, the judgment be affirmed. Foote, C., and Belcher, C. C., concurred. The Court.—For the reasons given in the foregoing opinion, in the appeal of the plaintiff, the judgment is affirmed. "