Warner v. Daniels

WOODBURY, Circuit Justice. There was a preliminary objection in this case, as to the competency of the testimony of Scott and Gilbert, and G. C. Thompson, that must first be examined. Scott was brought in to defend, after the institution of these proceedings, on account of a mortgage of the premises to him by one of the respondents. But it is now admitted, as well as proved, that his interest ceased before the bill was filed; and he denies, as do the rest of the parties, any collusion or combination with Daniels; and there is no witness in the case testifying to the contrary. It is proper, then, to say in the outset, that not being responsible at all, nor interested when he gave his testimony, it ought to be and is admitted. 1 Barb. Ch. 260; Murray v. Shadwell, 2 Ves. & B. 401; M’Donald v. Neilson, 2 Cow. 139. If he was interested, he could not testify for his co-defendant. 3 Johns. Ch. 612. The objections to Gilbert were, that a copy of the interrogatories was forwarded to him beforehand. But this does not render him incompetent, nor make his testimony inadmissible, as no comments accompanied them; and if they came from the respondents, the latter neither dictated nor wrote the answers, nor used any influence to shape them into any particular form. The letter to Thompson also merely requested him to tell.the truth, without any suggestion as to what the writer of it considered to be the truth. The evidence of all of them is then properly in the case. The grounds set up for relief on the merits, are, first, on account of an important mistake as to the value of the shares received in payment for the farm by the complainant; and secondly, on account of fraud, false representation and imposition by the respondents in making the exchange of the shares for the farm. In respect to the first ground, I do not think it tenable on the facts of the case here, though it is often a good ground for interfering when well supported. See cases in 3 Cow. 537; 14 Ves. 288; 2 Ves. Sr. 627; Rosevelt v. Dale, 2 Cow. 129; Daniel v. Mitchell [Case No. 3,562]. I doubt its validity here, because, great as was the acknowledged difference between the real value of the shares and that supposed by the complainant when he took them, being as some of the witnesses testify, from nothing to a par value; yet he had means of avoiding much of the mistake, if there had not been falsehood and fraud. He was referred to the officers of the company, and to a personal examination of the property of the company, and allowed time for the purpose of full inquiry, and actually did consult the officers, as far as he deemed it useful to consult them. He relied then rather on the means pointed out and used by himself to get information as to most matters, than on the statements alone of the parties; and in such eases, generally, if a mistake as to a material fact occurs without any fraud or falsehood on the part of the respondent, no relief can be granted on account of the mistake alone. Daniel v. Mitchell [supra]; Hough v. Richardson [Case No. 6,722]; and Attwood v. Small, 6 Clark & F. 523, note; Moffat v. Winslow, 7 Paige, 124. It is true that the facts, connected with his examination into the matter tend strongly to sustain the idea that the difference between the real and pretended value of the shares, in the rash and speculating mania of the times in 1836, could not then be detected by anybody so easily as now. Beside the times being so “out of joint,” a mistake in the value, however great, could with difficulty, even after a very full scrutiny, have become manifest to one, who, like the complainant, seemed so infatuated and so bent on cheating himself. Under the general delusion which then prevailed, and the plausible mode adopted by the respondents to make the complainant seem rather to go forward than they, he acted on that occasion with what seems now an apparent determination to be duped, which would almost justify placing him under guardianship. Such circumstances rendered a mistake almost inevitable. But it is still doubtful whether it is remediable, when the means of judging were-so opened to him, if no deception had been practised upon him, no concealments, exaggerations and falsehoods, which he had not the means to detect readily, nor the keenness to-suspect or expose, and hence became their victim. This brings us to the second ground for relief-fraud or imposition. In order to sustain that, the whole circumstances of the case, as well as the positive testimony and the character and relations of the parties, are all proper subjects of consideration. Courts of equity can go more on what is called “presumptive-evidence.” than those of law. 1 Story, Eq. Jur. § 190; Rosevelt v. Dale, 2 Cow. 129; Neville v. Wilkinson, 1 Brown. Ch. 543. 546. After examining all the facts in the general aspect, and then in detail, if the conclusion follows clearly that the complainant has been overreached, and that in some material degree, [251] by impositions or concealments, or misrepresentations, by the respondents, on which he properly relied, he ought to be relieved. 1 Story, Eq. Jur. §§ 192, 222; 7 Paige, 124; Colt v. Woollaston, 2 P. Wms. 154; Blain v. Agar, 1 Sim. 37, 45, 2 Sim. 289; 1 Schoales & L. 429. Nothing should in that event prevent relief, but great and unexplained delay in seeking it, or an adequate and ample remedy at law, or a condition of the property in controversy, which renders it impracticable for the court on any sound principle to grant redress. The great feature of the whole case is, that the complainant, in 1836, from being a wealthy and prosperous farmer, is stripped of the whole by the respondents, through the transaction complained of. There does not seem to have been in him the imbecility of mind which, though not idiocy, makes one liable to imposition, and calls aloud for the aid of a court of equity. Story, Eq. Jur. §§ 237, 238; Willis v. Jernegan, 2 Atk. 251; Huguenin v. Baseley, 14 Ves. 273, 290. Nor does he appear to have been a man rash in character, or inexperienced in business; and the difficulty in the outset, under these facts, is to find any reason for this catastrophe, except in some fraud practised upon him in making the contract. Many circumstances in the transaction, whose truth is admitted, were calculated to mislead a common observer, such as the first interview seeming to be accidental, and not apparently sought by Daniels and Fales; such likewise as their referring him to the officers of the company for full information, and not hurrying the bargain; such as the reluctance of Daniels to exchange his stock for the farm at so high a price; and the respectability of the president and treasurer and the agent at Durham, and the geologist who certified; with the large number of persons employed, and the important contracts said to be negotiating. or made, by a company apparently authorized by law and duly organized, and with so much capital represented to have been fairly paid in. But, amidst all this plausible exterior, it was a fact that the person introducing him to Daniels and Fales was a brother-in-law of one of them; and that the brother of that person was an owner of some of the stock, as is disclosed since his death, ifet neither of these circumstances appear to have been known to Warner. That the company was incorporated so as to appear larger and more imposing than it really was, by including in the charter several persons, not original purchasers of the quarry, nor owners of any of its stock; that it was organized, if at all, by those original purchasers; and its stock at first appears to have been entirely theirs, rather than belonging to others in some considerable amount at that time. That it thus converted the apparent sale of the quarry for $53.000 to others, merely into a real sale to themselves alone,— at first in a corporate capacity, by themselves in an individual capacity, and, in this way. they charged other stockholders who should afterwards buy in, the enormous difference between that sum and the seven or eight thousand dollars only, which was the original cost of the whole and the improvements. That, beside some of this being not disclosed fully to Warner, so far as any evidence is put in, the president and secretary were nof proprietors of the stock originally, nor acquainted intimately with its concerns, nor was the agent. Bates; and the former had been induced to officiate in their stations under flattering assurances, which all failed, and for stock chiefly given to them for services, and which peculiar situation of theirs tended directly to mislead those confiding in their general respectability and judgment, as members and purchasers of stock in the ordinary manner. That, instead of a large amount of capital having ever been paid in with money, as was represented, the treasurer swears he never received in that way over one hundred dollars; and, from the exhibits in the case, not over a thousand was probably at any time so paid; an important fact, unknown to Warner, for aught which appears, and contrary to the distinct averments in Fales' answer. That the original proprietors of the quarry, as members of the company, or creditors of it, were still interested in all the stock, except two hundred and thirty shares, out of two thousand of the old emission, and two hundred and forty’ out of eight thousand of the new emission, instead of the new owners being numerous, and to a large amount, as Warner probably supposed; that inquiries of officers, who owned nothing, or only a few shares given to them for their services, and knew little about the company, were not likely to be very useful, but rather to mislead, as their information must have been chiefly obtained from parties deeply interested to make sales; that the geologist who reported on the quarry, did so before it had been much opened or worked, and had been induced by Fales to leave out the important facts of there being much more granite in the immediate neighborhood of this; and that every owner of the stock, and especially the original purchasers of tile quarry, among whom was Fales. had a strong motive and interest, to the extent in all of near $50.000. in getting new owners of shares. It is further manifest, that Daniels’ representation of a number of persons in Newport having bought into the company, and which he admits he made, and which was calculated to have much influence on a purchaser, was unfounded. It is not supported by any proof; and the statements by him and Fales. as to the company being duly organized, which goes to the essence of the validity of the shares, and of the purchase of the quarry, and is denied in the bill, do not appear to be sustained from the records. — the evidence proper for that purpose, in an issue like this, though they are by the oath of one of its officers, who aided to organize it. All this [252] evidence on record, if existing, is in possession of the respondents, and is the best and suitable evidence of such a fact. Denning v. Roome, 6 Wend. 651, 656; Owings v. Speed, 5 Wheat. [18 U. S.] 420. It is also the suitable evidence to prove not only the organization. but the authority to buy the quarry, and axecute the notes, issue the shares, and other material proceedings of the corporation. Rex v. Mothersell, 1 Strange, 93. This, and not the incompetency of the owners of the quarry to pass a title to a corporation, if duly organized and composed, chiefly or only of themselves as members, is the ground on which this part of the case is very defective. and leads to a strong presumption that Tadieal objections exist to the regularity of the proceedings of the company in these important matters. It is charged in the bill, that the company was fictitious, and hence this point becomes material. But I should hesitate to decide the case on this objection alone, as the error may be one that could be removed by further evidence, and may have happened from an impression that it was the duty of the complainant to put in the record, or that the oath of the clerk was sufficient evidence to show the original organization, and the charter and acts done under it, as may suffice under different issues, and when the question is an incidental one. 3 Metc. (Mass.) 133; Id. 282; 7 Metc. (Mass.) 592. But, finally, it is manifest, further, that several misrepresentations very material, and calculated to mislead Warner, were made by both of the respondents. Thus, the statements which are admitted to have been made by both Daniels and Bales of the successful operations, then going on, viz., on the 19th of November, 183(i, under the agent, Bates, and of the valuable contract which had been made, and was fulfilling at Portsmouth, and which were calculated to be very influential with Warner, or any other purchaser, and to be much relied on by them, as it was testing by experiment what was before theoretical as to the goodness and value of the quarry, were utterly unfounded, and known to be so to Pales, if not to Daniels. These were assurances not only relied on probably, but were material, distinct, not vague, and such as were proper to be relied on. Trower v. Newcome, 3 Mer. 704; Scott v. Hanson, 1 Sim. 13. They were the most important representations, next to the legal existence or continuance of the company itself, which could be made; and by Pales’ own letter of October 5, to the agent at Durham, as well as by the agent's testimony, they were, not only then, on the 19th of November, known to be false, by Pales: but Pales, as early as the 5th of October, urged the agent to keep the truth concealed from the public, lest it might injure the value of the property. On this account Warner had not the means of detecting the groundlessness of those misrepresentations. The agent left Durham entirely, about the 1st of November, and went to New York for the company: and he loft their employment the last of November. Daniels joined with Fales, or was principal, in all these last unfounded assertions, calculated to deceive Warner in most important particulars. He had opportunities to know, and must be presumed to know, if this be necessary to charge him, that some of them were entirely groundless, and especially that one, made by him alone, concerning a large number of persons at Newport having bought into the company. These, then, vitiate the Transaction as representations untrue, on material points; and. if untrue by mistake, still vitiating as much by such a mistake in material matters as if there was a fraudulent design. Daniel v. Mitchell [Case No. 3,562], So it is the better opinion, that whether Daniels himself knew these accounts to be false or not. is immaterial, if they were false and influential. 1 Story, Eq. Jur. § 193; Ainslie v. Medlycott, 9 Ves. 13, 21; Graves v. White, Freem. 57; Pearson v. Morgan, 2 Brown, Ch. 388; Shackelford v. Hendley. 1 A. K. Marsh. 500. So if Daniels himself had not made some of these false representations, but was present when Pales made them, and was benefited by them, it vitiates the transaction. McMeekin v. Edmonds, 1 Hill. Eq. 288, 293; 1 Grant, Ch. 267. He adopts the contract, and these were a part of it — some of the res gestae. He cannot take part and repudiate part, when the other contractor acts on the whole. The Portsmouth, contract with the government, which Daniels admits ho stated to Warner, in exhibiting the extent of their business and prospects, on November 19th, had also been obliged to be abandoned or transferred, at a loss of five hundred dollars, as early as October, from the unfitness of the stone to fulfil it. But this last fact seems to have been entirely concealed or suppressed: and suppressio veri is as bad as suggests falsi:, and it here related to a particular highly important in respect to the prospective value of the shares and the quarry. It was a fact, likewise, more within his own knowledge, and which it was his duty to disclose. Story. Eq. Jur. §§ 147, 197; 2 Kent, Comm. 484. The agent employed, Colonel Bates, whose character is admitted to have been high, and to commend any business in which he was engaged, was spoken of to Warner, and his high salary as an evidence of the extent of their business; but. the important facts were suit-pressed. not only that he had reported against the goodness of the quarry, but their inability, on that account, to fulfil the Portsmouth contract, and their failure to supply him his own salary, or with means for working the quarry further. So Dr. Jackson’s report was printed and distributed, and a copy delivered to Warner; but the fact concealed that Pales had requested him to strike out what was said of other granite quarries near. These were extensive, and that fact, if known, would of course tend to diminish the value of theirs. It is difficult, also, to see why Daniels should be so anxious to sell more of his stock to Whiting, as well as pay Warner only in this stock, if, as he represented. it was at par value in Boston; if the [253] quarry was likely to yield a dividend in the spring, of seven per cent., if it was the best stock in the market, or if it was worth dollar for dollar; all of which considerations he urged on Whiting, in November, 1836, when Warner was present. His declarations about a week after, in trying to sell a note to Whiting, against the company, were of a like character, and hardly to be explained on any honest hypothesis. For he averred, that the company “would cash a demand against them at any time;'’ when, if true, why was he so anxious to sell the note ? And why had Bates, the agent, been obliged to stop work in part for want of funds? And why had not the five hundred dollars been paid for the loss on the Portsmouth contract? And why had not the numerous other debts, and especially the original mortgage, been paid? And, if true, how were the means obtained, when only from one hundred or one thousand dollars, to the utmost, had ever been paid in by the stockholders ? This last talk with Whiting is competent evidence (Bradley v. Chase, 22 Me. 511), being on a subject of a kindred character, near the time of the transaction in question, and illustrating his intention. Wood v. U. S., 16 Pet. [41 U. S.] 342, 360; [U. S. v. Wood] 14 Pet. [39 U. S.] 430; 1 Starkie, Ev. 64; 2 Starkie, Ev. 220; 1 Phil. Ev. (Cow. Ed.) 179; 2 Id. 452, 463; 4 Bos. & P. 92; 7 Bing. 543. The entire worthlessness of the shares soon became apparent to those officers who had been duped, as well as to several others. The whole estate, including the quarry, which had been mortgaged, was foreclosed, and went merely to pay the balance of the small amount of the original purchase-money. The tools, stone, &c., remaining, were attached to secure other debts; and the original purchasers of the quarry, having most of the stock of their corporation left on their own hands, became bankrupts, like Fales. Instead of $40,000 having been paid in on the shares, as Daniels alleges, the only receipts in money satisfactorily proved, were only from a hundred to a thousand dollars, but a drop in the bucket to their expenses; and the company thus, for aught which appears, ceased to have legal existence, or credit, or property, and exploded, as one of the worst among the thousand bubbles in the speculating mania of that period. Often an entire failure of consideration in the receipt of what is mere moonshine, is sufficient to rescind a contract. Terry v. Breck, 1 Grant, Ch. 367; Chesterfield v. Janssen, 2 Ves. Sr. 155; Dyer v. Rich, 1 Metc. (Mass.) 180, 192. It shocks the conscience on the face of the transaction, and is sometimes plenary evidence of fraud. But mere inadequacy of consideration may honestly occur, and often raises no certain presumption of deceit (1 Story, Eq. Jur. §§ 244-246), as the difference may be small, or, if large, occurring from other causes than fraud, and more especially is this the case in speculating times like those of 1836 (Blachford v. Christian, 1 Knapp, 73, 77; 1 Brown, Ch. 558, 560. It is not, per se, fraud. Griffith v. Spratley, 1 Cox, Ch. 383; Low v. Barchard, 8 Ves. 133; 3 Ves. & B. 180). To charge such a loss on an innocent purchaser of its shares, rather than on its projectors and early owners, would seem inequitable, if the contract had not been carried into effect; but even after that, if it turns out to have been carried into effect by fraudulent representations and falsehoods, on points very material (Smith v. Richards, 13 Pet. [38 U. S.] 26, 37), it would be derogatory to courts of equity and justice, if they could not, and did not lend relief. Attwood v. Small, 6 Clark & F. 232 ; 2 Ridg. App. 397; Jackson v. Ashton, 11 Pet. [36 U. S.] 229; Osgood v. Franklin, 2 Johns. Ch. 1, 23; White v. Damon, 7 Ves. 30; 18 Ves. 335. The points here, where misrepresentation occurred, were manifestly material, as they should be, to present a ground for our interference. Phillips v. Duke of Bucks, 1 Vern. 227. Nor is this a case of clear and sufficient redress at law. The aid of a court of chancery was indispensable to obtain the discovery of most of the important facts in the case; and hence an application for relief here can well be sustained on, and in connection with that discovery, notwithstanding the 16th section of the judiciary act of the United States, requiring us to refuse aid in chancery when it can be obtained as fully at law. I do not find it nectssary to consider several other matters, pressed at the hearing, or if not pressed, disclosed in the pleadings and evidence. These, to which 1 have referred, rest on facts admitted, or clearly proved for the complainant, and not disproved on the part of the respondents by proper evidence. These also give the case a direction that seems to accord with the broad face of the whole transaction. They will work no injustice to any one, as the result will be merely to place the parties in statu quo, as they stood before November 19th, A. D. 1836. The only remaining objection is the length of time that has since elapsed. But it' appears that steps have been taken to obtain this relief, since 1840. That the complainant was induced to believe for some years that the re-vulsions in the times were the cause of the works not going on; that till about 1840 he was not aware he possessed a remedy in chancery; and that the shares and the farm have not been affected by the delay since, so as to render a rescinding of the contract either impracticable or inconvenient. The value of neither appears to have materially changed since, which when happening, sometimes constitutes an objection. McNeil v. Magee [Case No. 8,915]; [Pratt v. Carroll], 8 Cranch [12 U. S.] 471; 8 Clark & F. 650. Length of time unexplained may sometimes be a bar short of the statute of limitations; but if fraud exists, or the delay is accounted for, it is no bar. See 2 Schoales & L., 629; 17 Ves. 99; 7 Johns. Ch. 90; Ang. Lim.; Hough v. Richardson, before referred to and Vigers v. Pike, 8 Clark & F. 562; Sanborn v. Stetson [Case No. 12,291]; [Bowman v. Wathen], 1 How. [42 U. S.] 192. So it will not be a bar by analogy to [254] the statute, as to length of time, if such a course would work injustice. 1 Story, Eq. Jur. § 64a; 1 Johns. Ch. 316; 2 Ves. Jr. 571; 1 Atk. 493; 10 Ves. 466, 467; 12 Ves. 266, 374; 1 Ves. Jr. 374; 14 Ves. 91; Cooper, Ch. 204; 20 Johns. 58, &c. If either party cannot restore the property in good condition, that may be good ground for not rescinding; but, at the same time, damages can be and should be given instead of rescinding, if necessary to enforce what is just, and the case is properly in chancery. Thus, if the inability to restore happens by the course of the complainant, it should not prejudice him in getting some kind of relief, if he was not then aware of the fraud. 3 Litt. (Ky.) 365. But if damages alone are sought, and alone can be given, and the fraud related to personal property, the relief is usually at law. Russell v. Clark, 7 Cranch [11 U. S.] 84. Though some cases hold otherwise, even there. Evans v. Bicknell, 6 Ves. 182; Bacon v. Bronson, 7 Johns. Ch. 194, 201; 1 Story, Eq. Jur. § 184, etc. But it could not be held otherwise in the United States courts, under the ^clause in the judiciary act before referred to, if the remedy at law be complete, since then, it is provided, resort shall be had to law, rather than equity. In cases of fraud in the sale of real estate, as here, when a court of equity can set aside the sale, and a court of law cannot, the jurisdiction of the former is usually held to be clear. 1 Bibb, 244; 1 Story, Eq. Jur. § 184 et seq.; 2 Story, Eq. Jur. §§ 798, 799, et seq.; Hepburn v. Dunlop, 1 Wheat. [14 U. S.] 197. So the jurisdiction in equity is clear, where a discovery is sought as here. Caines v. Chew, 2 How. [43 U. S.] 619. In relation to the sale in this case, then, let it be rescinded, and the shares conveyed by Warner to Daniels, and the farm by Daniels to Warner, and a master be appointed to report the amount of rents and waste (after deducting permanent improvements) that, in the mean time, should be allowed to Warner by Daniels. 1 Bibb, 244; Daniel v. Mitchell [supra]. It appears, 1 think, from the printed case, that when it was made up, Daniels still owned, and was in a situation to reconvey, the farm, and that Warner, though the shares stood in his son’s name as owner, still probably could control and reconvey them. Should such still be the case, it can be closed, as just directed, without any complexity, or resort to any estimate of damages, on the master’s reporting. But if the condition of either party should be materially altered in this respect, it will be proper to provide for it, if the power and right to do so exist in this court. Some cases hold, that if either party, pending the proceedings, sells the property, so that he cannot reconvey, damages alone should be given, though not in other cases. Todd v. Gee, 17 Ves. 273; Denton v. Stewart, 1 Cox. Ch. 258. But some authorities hold, that in all cases, where the jurisdiction in equity has once attached clearly to the case, damages alone may be given, whenever reasonable, and may be estimated, either by a master in chancery, or on an issue quantum damnificaras to a jury. See cases cited in 2 Story, Eq. Jur. §§ 794-799; [Pratt v. Law] 9 Cranch [13 U. S.] 493; 1 P. Wms. 570; 4 Ves. 497; 3 Atk. 512. If, contrary to expectation, then, neither the land nor the shares can be reconveyed, the master can hereafter examine and report the damages done to Warner by the misrepresentations of Daniels and Pales, and a decree be entered against them for the amount. If the farm can be reconveyed, and not the shares, the former can be done, and the net income ascertained and paid as before directed, — the value of the shares, if any thing, in December, 1836, and interest since being reported by a master, and deducted therefrom. In rescinding a contract, it seems reasonable to adopt a rule like that in enforcing a specific performance, which is, to go as far as you can, pro tanto, and give proportionate damages for the residue. 2 Story, Eq. Jur. § 779; McKay v. Carrington [Case Bo. 8,841]; 1 Fonb. Eq. bk. 1, c. 1, § 8; [Hepburn v. Dunlop] 1 Wheat. [14 U. S.] 197; Paton v. Rogers, 1 Ves. & B. 351. Should the facts, therefore, require more than what has first been proposed by mutual recon-veyances, I am preparad to go further according to what seems to me to be sound principle, sustained by several precedents, in addition to what has already been cited. The parties in this case come here for discovery and relief, and have obtained the former, when it could not be had in a court of law; and, in order to make the redress perfect, if third persons have since become interested in the property, so that the fraudulent sale cannot be set aside, and a reconveyance made of the whole, the relief for damages becomes necessary and proper, either in part or in full. A court of equity may relieve as to part of land or contract, if the fraud does not reach the whole. It will go to the extent of the injury. Dunlap v. Stetson [Case No. 4,164]. Thus in Pratt v. Law, 9 Cranch [13 U. S.] 494. in a bill in equity, where a contract has been partly performed, and the rest, that is, other lots, cannot be conveyed specifically, because sold, &e., the court can make an issue quantum damnificaras, and decree the amount, or, without it, make the party pay the ratio of the price given for all, which the deficiency of lots bears to all. So in Woodcock v. Bennet, 1 Cow. 711, in a prayer for a specific performance, it was held that the court may refer it to a master to assess the damages, and not dismiss the bill, because they cannot enforce a specific performance, the land having been conveyed away. 1 Fonb. Eq. 38, in y, and 165, in b; 3 Atk. 512-517; 1 P. Wms. 570; Colt v. Nettervill. 2 P. Wms. 304; Denton v. Stewart, 1 Cox, Ch. 258; Greenaway v. Adams, 12 Ves. 401. The bill, then, must be dismissed as to E. Fales and Scott, and a final decree entered against Joseph Fales and Daniels, on the principles above set out, and with costs.