Sawyer v. Menominee Loan & Building Ass'n

Lono, J. In September, 1888, complainant applied to the defendant association for a loan, and in order to procure it was obliged to subscribe for stock in the association. The taking of the stock and procuring the loan were all one transaction. James H. Walton was secretary of the — 230 — association, and acted in the transaction in behalf of the defendant. Complainant claims that, before he subscribed for the stock, Walton, in setting forth the advantages to-be gained by a borrower, among other things, represented that such borrower could pay a loan at any time, at the end of any quarter, and could settle on the basis of the loan’s being canceled in eight years, and at one-eighth thereof each year, taking the actual money loaned as a basis, and, so far as settlement was concerned, disregard the premium bid for the loan. The secretary explained that the association could do this because of the advantages it had in compounding interest monthly, and receiving interest on premiums and installments on premiums, and that the right to settle on this basis was plainly guaranteed by the by-laws. Complainant claims that, relying upon these representations, he did not examine the by-laws, but agreed to take a loan of $4,500, and subscribed for 45 shares of the capital stock of the association, having bid for such stock 22£ per cent premium. After subscribing for such stock and securing the loan, complainant claims that, relying upon the representations made by the secretary, he continued for 17 quarters to pay the installments on the stock and interest, when he decided to settle and pay up the loan and cancel the stock pursuant to the representations made by the secretary, and was then for the first time informed that there was no such by-law, whereupon he tendered the sum of $1,700, and demanded the cancellation of the stock, bond, and mortgage given to secure the loan, which was refused. This bill was filed for the purpose of having the bond and mortgage canceled upon the payment of the $1,700, which complainant claims is sufficient to discharge his indebtedness to the company under the by-laws as represented to him by the secretary. The testimony was taken in open court, and at its close — 231 — the court filed a written opinion, which sets out substantially that the complainants object in joining the assocú ation was to secure the loan; that the certificate in the form used by the association was issued to him for the' 45 shares, and on the same day of its issue was duly assigned to the defendant to secure in part the loan; that in the written application signed by complainant he agreed “to comply with the charter and by-laws of your association;” that he secured the loan, or the preference for an advance on 45 shares of the stock, at a premium of 22£ per cent; that he filled out, _ signed, and executed the form of bond and mortgage in use by the defendant, which bond recited that he had become a stockholder of the association, and had subscribed to its charter and by-laws; that the mortgage contained the following condition: “That if the parties of the first part shall and do well and truly pay or cause to be paid to the said party of the second part, at its office in Menominee, the full sum of $4,500, payable in installments of $22.50, on the first Tuesday of each and every month beginning on the first Tuesday of September, 1888, together with interest on the principal sum at the rate of 8 per cent, per annum, payable in monthly installments of $30 each, at the same place and time respectively, until the said shares of stock shall have attained the full value of $100 each, and shall pay all fines on said stock, or shall sooner pay said indebtedness under the provisions of the by-laws of said second party, according to a certain bond bearing even date herewith, executed by said Alvah L. Sawyer to the said party of the second part, then these presents and said bond shall cease and shall be null and void.” The opinion recited that the amount actually received by complainant on the loan was $3,487.50; that he made payments for 17 quarters, or 51 monthly installments of $52.50 each, denominated by said association as $22.50 installment and $30 interest; that up to December, 1892, when he sought to withdraw from the association, he had — 232 — paid $2,677.50. The court stated the claims of complain■aut made in his bill: 1. That he was induced to join the association and make ¡said loan by reason of certain false and fraudulent representations of its secretary and business manager; that it was contemplated from the first that he would want to ¡settle at the end of about four years, and that the secretary represented to him that for the purpose of settlement after the first year a borrower could disregard the premium bid, and could for each year his loan continued deduct one-eighth from the amount of money actually received, and could cancel the loan by paying the balance thereof, disregarding the premium, and on the same basis and at the same rate at the end of any quarter year, so that at the end of four years the loan would be half paid up; that the secretary figured over the loan desired on the basis above specified, and showed that for the first four years the average cost of the use of the money would not exceed about 8 per cent.; and that the secretary said that at the end of four years complainant could cancel the mortgage by paying one-half the amount of money actually received, and that the right was plainly guaranteed to borrowers in the by-laws of the association. 2. That the by-laws are capable of the construction given them by the secretary, and complainant asks for ■such a construction. The court below says that upon a review of the testimony he found that the representations were made substantially as claimed by complainant, but that he did not think any fraud was practiced by defendant or its agent, but that there was an honest belief on the part of the secretary that at the end of the four years one-half of the loan would, by the working of the scheme, be paid off; that both parties were bound to take notice of the law of this State under which the defendant association was formed, which constituted the charter of the defendant; that, in his opinion, the secretary believed in the truth of what he asserted, but that both he and the complainant were bound to know that the company could not be operated on such basis without a violation of the charter, — 233 — and that if the complainant did not read the charter and by-laws it was his fault. The court further said: “It will not do for a man, in the absence of fraud, to enter into a contract, and, when called upon to respond to its obligations, to say that he did not read it when he signed it, or did not know what it contained. If this were permitted, contracts would not be worth the paper on which they are written. A contractor must stand by the words of his contract, _ and, if he will not read what he signs, he alone is responsible for his omission.” A decree was entered in the court below dismissing complainant's bill, and from which he appeals. It is evident from all the testimony that complainant took the loan in good faith, and in full reliance upon the •assurances given by the secretary that the defendant company would and did construe the by-laws as the secretary then construed them, and he made his contract in reliance upon such interpretation. If that interpretation had been •adhered to by the company, he could have settled at any time. We think he is now entitled to have the contract construed in the light of the by-laws as they were represented to be, or that at least the defendant should receive its money, with interest at 7 per cent, from the time the loan was made. Whether such misrepresentations were intended or were mere matter of mistake, the complainant has been misled to his injury; and the law is well settled in this State that it is immaterial whether a false representation is made innocently or fraudulently, if, by its means, the party is injured. Holcomb v. Noble, 69 Mich. 396; Totten v. Burhans, 91 Id. 499. We do not think that the rule laid down by the court below, that the complainant had the opportunity to find ■out what the by-laws were, and therefore could not complain if he did not protect himself, can be sustained. The parties were not standing on an equal footing. The secretary represented the company, and the complainant might — 234 — well rely upon the interpretation of the by-laws which the secretary gave. Complainant did not see the by-laws. They were not exhibited to him. The secretary claimed to know what interpretation the company put upon them, and the complainant chose to rely upon such representation. The rule laid down by Lord Chelmsford in Railway Co. v. Kisch, L. R. 2 H. L. 99, 120, it seems to us, is specially applicable to the present case. It was there said: “When once it is established that there has been any fraudulent misrepresentation or willful concealment by which a person has been induced to enter into a contract, it is no answer to his claim to be relieved from it to tell him that he might have known the truth by proper inquiry. He has a right to retort upon his objector, ‘You, at least, who have stated what is untrue, or have concealed the truth, for the purpose of drawing me into a contract, cannot accuse me of want of caution because I relied implicitly upon your fairness and honesty/” In Mead v. Bunn, 32 N. Y. 275, the rule was also laid down that the omission of one of the parties to an agreement to make inquiries as to the truth of facts stated by the other cannot be imputed to him as negligence. In Bank v. Hunt, 76 Mo. 439, it was held that a person buying stock of a bank from the bank is entitled to rely upon assurances of an officer of the bank as to its financial condition, and, if already a stockholder, he is not bound to avail himself of his right of examining the books of the bank; and in Hough v. Richardson, 3 Story, 659, it is said: “ Where, in a treaty for the sale of property, the vendor makes material misrepresentations, by which the purchaser, having no knowledge, or means of knowledge, in relation thereto, is actually deceived to his injury, a court of equity will rescind the contract in pursuance thereof, although it do not contain the misrepresentation; and it matters not, in such a case, whether the misrepresentations be the result of mistake or fraud.” ■ The misrepresentation was made in the present case by — 235 — the secretary of the defendant, and the company has had the benefit of the loan to the injury of the complainant. Equity requires that the mistake be corrected, and the complainant relieved of any claim which defendant may have under the interpretation of the by-laws it now claims. The decree of the court below dismissing complainant’s bill will be overruled, and a decree entered in this Court authorizing him to pay the mortgage at present on the basis of the by-laws as represented, unless the defendant shall elect within 30 days to take its moneys at the rate of 7 per cent, per annum from the time the loan was made, deducting payments made, as the complainant offers to do in his bill; but no interest will be computed from the date of the tender, as the tender was sufficient to meet the amount unpaid on the mortgage at that date. Complainant will recover costs of both courts. McGrath, C. J., and Montgomery, J., concurred with Long, J.