text:
    John Annan v. The Hill Union Brewery Company.
    [Submitted January 27th, 1900.
    Decided May 10th, 1900.
    Filed May 12th, 1900.]
    1. Where by-laws endorsed on a fire policy issued by a mutual company, and made a part of the contract, provide “ that a full statement of losses assessed for will be sent with each assessment,” a receiver of the company cannot collect an assessment directed to be levied by the court to pay losses, unless he sends a statement of such losses, with a notice of the assessment.
    2. A fire policy issued by a mutual company provided that the by-laws appearing on the back thereof should form a part of the contract, and be binding on the holder in the same manner as though they appeared on the face of the policy. One of them authorized the board of directors to change the by-laws at any time, but there was no agreement on the part of the assured that the by-laws so changed should, ipso fado, become a part of the contract. — Held, that the rights of a policyholder were governed by the by-laws as they appeared on his policy, and not as subsequently changed by the board of directors.
    3. An agent authorized to insure property of his principal has no authority to insure in a mutual company since he will thereby make the owner an insurer of others.
    4. A decree directed a receiver of a mutual company to levy and collect an assessment on outstanding policies “in force on the date of the respective losses.” It contained a schedule of “ the total insurance in force, and policies liable to pay losses,” and provided that it should “not be construed to prevent any member from setting up defences he might have to the collection of the same.” — Held, that the decree was not conclusive on the question as to what policies were subject to assessment.
    On petition, answer and proofs.

      Mr. Edward A. Day, for the receiver of the People’s Mutual Live Stock Insurance Company.

      Mr. Thomas H. McCarter, Jr., for the receiver of the Hill Union Brewery Company.
   Stevens, V. C.

This is an appeal from the determination of the receiver of the brewery company rejecting the claim of the receiver of the People’s Mutual Live Stock Insurance Company.

The receiver of the live stock company claims that a valid assessment against the brewery company, amounting to $2,235.34, has been made either by himself or by the court of common pleas of Dauphin county, Pennsylvania. The facts, so far as it is necessary to state them, are these:

The live stock company carried on the business of insuring horses and mules. On May 2d, 1898, it was adjudged by the common pleas of Dauphin county to be insolvent. On May 18th, 1898, Frank B. Stockley was appointed receiver. On September 13th, 1898, it was decreed

‘‘That Frank B. Stockley, receiver of the within named corporation, be and is hereby authorized to levy and collect an assessment and assessments upon the outstanding policies of the company, in force on the dates of the respective losses according to the following schedule

Then follows a schedule showing the date of each loss, the number of the policy in respect of which the loss occurred, the amount of insurance, the “ total insurance in force and policies liable to pay the said loss” and the “pro rata assessment, covering liabilities, allowance for insolvency of policyholders and expenses of collection and receivership.”

In his petition, praying the court to make an assessment, the receiver states the total- liabilities, exclusive of the expenses of the receivership, at $18,767.54, and he avers that in view of the possibility that some of the assessments may be uncollectible, it is necessary to levy an assessment of $76,000 on all its policies for the purpose of paying its debts. This levy the court authorized.

Although the decree in term; authorizes the receiver to make the assessment, he appears to have regarded this decree as in itself an assessment; for on November 5th, 1898, he sent the following notice to Hill’s Union Brewery Company, Limited:

“ Sib — You are hereby notified that on September 18th, 1898, the court of common pleas of Dauphin Co. made an assessment against you amounting to $2,235.34 for your proportion of the unpaid liabilities of the People’s Mutual Live Stock Insurance Co., of Pennsylvania, incurred while you were.a member thereof and while your insurance was in force. In pursuance of that decree you are requested to pay said amount to the receiver within thirty days from this date.
“Pbakk B. Stogeley,
“Receiver.”

The' amount, $2,235.34, is the aggregate sum assessed or alleged to have been assessed upon forty-four policies held or alleged to have been held by the brewery company.

Many objections were urged against the collection of this assessment. I shall mention only two.

(1) Thirty of the policies now said to be included in the assessment were issued on August 10th, 1895. One of their conditions is “ (4) that the holder of this policy agrees to pay any assessment that may be levied upon him or her from time to time as provided in the by-laws of this company.”

Article 4, section 3, of the by-laws, which are endorsed upon the policy and made part of the contract, reads thus:

The losses of this Co. are paid by assessments levied upon the members or policyholders, which will be made in exact proportion to the losses sustained. A full statement of the losses assessed for will be sent with each assessment.”

It is conceded that the only notice sent by the receiver was the one whose contents I have stated. This did not contain any statement of the losses assessed for. In Northampton Mutual Live Stock Insurance Co. v. Stewart, 10 Vr. 486, the policy provided that the tax (i. e., assessment) levied should be published in two newspapers and paid within sixty days from the day of publication. It was held by the court of errors that although the personal notice given in that case would apprise the assured of the fact of the levy better than the public notice, yet he could not be held liable until such public notice was given, for the reason that “it could be no injustice to the plaintiff to hold it bound to the observance of rules which, of its own volition, it had enacted for its guidance in dealing with its members.” The same reason applies to the case at bar and with greater force. At least forty-nine policies had been issued to the brewery company between August 10th, 1895, and May 2d, 1898. The insurance in the case of six of them had been transferred from horses that had been sold to other horses. Six new policies had been issued pursuant to article 6 of the by-laws and the six old ones canceled. But notwithstanding this cancellation, and notwithstanding the fact that all assessments levied prior to the sale of the animals had been paid, the receiver assessed the canceled policies not only for losses unpaid prior to the sale of the animals insured, but also for the expenses of the receivership. This he did apparently on the idea that all canceled policies were liable for unpaid losses occurring prior to cancellation. In Doane v. Millville Insurance Co., 18 Stew. Eq. 274, it was held that surrendered notes were liable for unpaid losses occurring prior to the time of their unauthorized surrender by the secretary, but this was put expressly upon the ground that one of the by-laws, part of the contract, so provided. One of the conditions of the policies in question is

“7. This policy shall he in force only so long as the insured animal remains in the possession of the insured. The holder * * * must immediately notify the company of the sale of any animal insured, and surrender the policy for cancellation, and the party to whom this policy is issued shall be liable for all assessments levied prior to the sale of the animal.”

A part of condition 8 reads: “All assessments due at the time of cancellation may be collected by law.” It is quite plain that if the contract is to govern, the assured completely performed his part of it when he paid all assessments levied prior to the sale. This the brewery company did. The assessments had been regularly levied at stated intervals. I know of no principle on which the liability can or should be extended beyond the contract. The liability of the policyholders of this company is unusually great. It does not appear to have been limited by anything short of payment of all losses and expenses. No premium note was given, and there is no provision restricting it to the value of the thing insured.

If the notice which the receiver sent had contained a statement of the losses the assured would have seen at once that the receiver was assessing him for more than his contracts warranted. The right to have the statement was therefore valuable. I do not see why the company should not be entitled to insist upon the performance of so reasonable a stipulation.

The receiver stands in the shoes of the company. Meley v. Whilaker, 22 Vr. 602. If the company must have given notice in the manner prescribed, so must the receiver.

It is said, however, that the original by-laws provided for their amendment or repeal, and that after the contract was entered into, the by-laws were revised and the clause in question modified by section 1, of article 6, which provides that

“ Whenever an assessment is levied, a written or printed notice shall be mailed to each member, directed to his or her post-office address as it appears on the books of the company, stating the amount of the said assessment and giving thirty days in which to pay the same.”

Now, in the first place, the notice is not a compliance with this by-law. It does not correctly state the amount of the assessment, but, as I have shown, an amount considerably in excess of what the receiver could lawfully levy. In the second place, condition 15 of the policy reads thus:

“ This policy of insurance is delivered upon the condition and agreement that the by-laws appearing upon the bach of the same shall form a part of it and shall be binding upon the holder in the same manner and form as though they appeared upon the face of this policy.”

It is true that by article 11 it is provided that “ these bylaws may be amended, changed, altered or repealed at any time by the consent of a majority of the board of directors.” But it is one thing for a member to agree, generally, that the by-laws may be changed by his agents, the directors, and quite another for him to agree that the by-laws so changed shall, ipso facto, become part of his already-completed contract. The court leans against giving by-laws a retrospective effect. Roxbury Lodge v. Hocking, 38 Atl. Rep. 693. Otherwise the contract would be anything the directors might, from time to time, choose to make it. The meeting of minds, so necessary to the conception of a contract, would be purely notional. In the case at bar, however, it seems to me that we have a clear intimation, in the language of the condition itself, that the by-laws which go to make up the contract are those then in force as they appear upon the back of the policy.

(2) Hill’s Union Brewery Company, Limited, is an English corporation. Its directors meet in London. For the more convenient transaction of business they, by deed, on October 17th, 1893, appointed Hamilton Fish Kean, of 33 Wall street, New York, to be the attorney of the company. They vested him with every power necessary or convenient for the transaction of the company’s business, carried on at Newark. After his appointment he exercised a general supervision over it, but retained Arthur He Gruchy as local manager. Mr. He Gruchy, he says, attended to all the local business — to the direct workings of the brewery. He authorized him, he says further, to insure against loss by fire, but did not authorize him to insure live stock. He knew that the live stock had been insured by He Gruchy, but did not know that it had been insured in a mutual company. The question is whether He Gruchy had authority to insure in such a company, or if not. whether his action was afterwards ratified.

In White v. Madison, 26 N. Y. 122, it was held that while a deputy sheriff had general authority to insure on behalf of his principal, the sheriff, he was not authorized to insure in a mutual company, for he would thereby make his principal an insurer of others. This decision is cited with approval in the latest text-books (1 May Ins. § IS//.; 1 Bidd. Ins. § 613), and I do not find that it has been questioned. It seems to be sound in principle and directly applicable to the present case. ■ The liability was, in the case cited, limited to the amount of the premium note, but in the case at bar there is, as I have said, 'no limit to it except the amount of the company’s indebtedness. If the brewery company were the only solvent member, it might be assessed for the entire amount which the live stock company now owes. On the authority of White v. Madison, I think that Mr. De Gruchy had no authority to insure in this way. Joyce Ins. § 609.

The more difficult question is whether De Gruchy’s action in this respect was ratified. It is not pretended that it was ratified by the company itself, but it is said that it was by Mr. Kean. The acts relied on are (1) the knowledge of Mr. Kean that the horses were insured; (2) the fact that quarterly statements were made to him, which, it is said, must have included the premiums paid to the live stock company and money received for three losses; (3) the countersigning by Mr. Kean of fourteen checks made payable to the order of the “ People’s Mutual Live Stock Insurance Company, of Pennsylvania.” None of these circumstances appear to me to warrant the inference of a ratification. It is true that Mr. Kean knew that the horses had been insured, but he did not know (and this is the controlling fact) that they had been insured in a mutual company. He says further that he did not examine the books himself, and that the quarterly statements furnished to him by an expert accountant did not disclose the fact of insurance in this company. As to the checks, he says that he would sign them sometimes in blank and sometimes after they were filled in, but that he never remembers to have seen the name of the People’s Mutual Company on them. The burden of proving ratification is on the appellant, and the person ratifying must have full knowledge of his rights and of all the material facts. Owings v. Hull, 9 Pet. 607; Titus & Scudder v. Cairo and F. Railroad Co., 17 Vr. 393, 420. It would be difficult to affirm that the evidence brings Mr. Kean within the operation of this rule. Whether the receiver may not have the right to recover back the money paid for losses, is a different question. Titus & Scudder v. Cairo and F. Railroad Co., supra; Stokes v. New Jersey Pottery Co., 17 Vr. 238.

It is insisted, however, that if there was neither original authority to insure nor ratification, still authority in De Gruchy to represent the corporation might be implied from the manner .in which he had been permitted to transact the business. Usual employment is evidence of the powers of an agent, and the principal will be held responsible for his acts done within the apparent authority conferred. Fifth Ward Saving Bank v. First National Bank, 19 Vr. 527. The rationale of this rule is that the agency arises from the assent of the directors, which assent is inferred from their acquiescence in permitting the agent to exercise the power assumed. Stokes v. Pottery Co., 17 Vr. 242.

In the case at bar it was not shown that the agent had ever before insured in a mutual company, and so the instances from which such apparent authority'is to be deduced are those which refer to the live stock company alone. Were these of such a character as to warrant the deduction? Thirty-four policies were taken out on August 10th, 1895; one on December 5th, 1895; one on June 12th, 1896; two on June 18th, 1896 ; three on July 1st, 1896; five on November 22d, 1897, these being substituted for five of the policies issued on August 10th, 1895, and two on March 21st, 1898. Considering that the company was an English corporation with English directors, and considering further, the nature of the supervision and control exercised by Mr. Kean, it seems to me unreasonable to presume, contrary to the sworn fact, that the directors assented to this kind of insurance.

Blake v. Domestic Insurance Co., 38 Atl. Rep. 242, was also relied upon. It was argued that if the directors or Mr. Kean did not know of the acts of De Gruchy they ought to have known of them, and by the exercise of a moderate degree of diligence might have known of them.

In that case the endorsements of the treasurer were very numerous and effected a considerable number of persons, and the directors were plainly negligent or inattentive to what was going on. Here the instances are few and concern only the appellant. It is difficult, in view of the situation, to impute negligence. I think, therefore, that the policies are not binding.

It was argued that the decree directing the assessment was conclusive. But this decree itself provides that it “ shall not be construed to prevent any individual member from setting up any defence he may have to the collection of the same.” It is evident, therefore, that the question, in its general form, does not arise, for the defences mentioned are plainly peculiar to the brewery company.

It may be added that there is considerable ambiguity about the language of the decree. It is not, in terms at least, in itself au assessment, although the receiver in the notice which he gave, in the case in hand, says that it is. It is apparently a direction to the receiver to make an assessment upon all policies between certain members. It does indeed first adjudge that the receiver shall levy and collect an assessment upon the policies in force on the dates of the respective losses; ” but then, in the table, it uses the following language: “Total insurance in force and policies liable to pay said loss. Nos. 46,926 to 55,180 inch,” &c. The receiver himself in his evidence repudiates the view that all policies between the members indicated are to be assessed. The decree, therefore, if his construction of it be correct, leaves open to him the determination of the question what policies are subject to assessment, and there is no judicial determination on the subject.

I think the petition of appeal should be dismissed.


source: Caselaw Access Project

author: Stevens, V. C.

license: Public Domain

text:
    Thomas Potter v. Morris & Cummings Dredging Company et al.
    [Argued March 29th, 1900.
    Decided May 10th, 1900.
    Filed May 12th, 1900.]
    1. A number of persons, firms and corporations engaged in the business of dredging entered into a voluntary association, the object of which, as stated in its articles, was to designate and maintain a uniform scale of prices for dredging and to equitably distribute work; officers were to be elected annually, but the chief powers were vested in an “adjuster;” members might bid on work or make contracts, provided they bid according to the association rules, but if a member secured more than its fair proportion of the work, the adjuster might assign the work secured to another member. Each member retained its own plant — there was no central plant — and the association partook of no gains or losses. — Held, that such association was not a partnership so as to entitle a member thereof, on the death of another member-, to dissolution and a distribution of its assets.
    2. Where a number of persons, firms and corporations engaged in the business of dredging have entered into an association to maintain prices for dredging and to equitably distribute work, the conduct of which was put under the control of an adjuster, sucli adjuster is not entitled to personal relief from the fact that he had not received his just share of the work. He could not complain, as the distribution was entirely within his own hands.
    On demurrer to bill.

      Mr. Charles D. Thompson, for the demurrant.

      Mr. George T. Werts, for the complainant.
   Stevens, V. C.

The bill, which is demurred to, prays for a decree dissolving, and distributing the assets of, a voluntary association known as “The Dredge Owners’ Association of New York Harbor.” The prayer is founded upon the assumption that the association is a partnership, and that by the death of one of its members and the bankruptcy of another the complainant has become entitled to the relief sought.

I will consider two questions — -first, is the association a partnership? second, if it is not, is the complainant, on the facts stated, entitled to any relief short of dissolution ?

First. Is the association a partnership? On April 20th, 1894, a number of persons, firms and corporations engaged in the business of dredgers, formed an association with the above name and adopted a constitution, by-laws and rules.

Article 2 of the constitution specifies that “ its object shall be to designate and maintain a uniform scale of prices for dredging in that [New York] harbor and vicinity, and to equitably distribute work.” With a view to this object, it is provided that the association shall elect, annually, a president, a vice-presidenl, a treasurer and an adjuster, and that weekly meetings shall be held. The powers of the association are chiefly concentrated in the “adjuster.” Rule 2 provides, in substance, that members must not bid on work and must not make contracts without the express authority of this last-mentioned officer. If the case is urgent they may, indeed, name a “ spot price ” not less than the existing schedule price fixed by the association, but they must at once report to the adjuster, who may award the work to another member. Rule 3 provides “ that each member shall be entitled to a certain percentage of the work done; which percentage is to be figured on the basis of days’ work.” By rule 5, the adjuster is directed to equalize the account of members and to balance the same on his books. The objects of the association are, therefore, threefold — -first, to fix prices; second, to prevent genuine competition in bidding among the members; third, to assign to each member his proper share or proportion of the aggregate of the contracts which may be entered into severally by the members, without, however, compelling any member to do any work which he may not have contracted to do, or which he may not desire to do. The basis of the apportionment is “ days’ work,” which means days actually worked by the machines of the several contractors; the capacity of the machines being, roughly speaking, gauged by their power.

The scheme, as I understand it (and I speak only from the bill and the schedules attached thereto), is to 'allow the several contractors, who are members, to bid for such work as they please, and to take the profits of it. But 'with this limitation : the members must bid according to the rules of the association, and if he is getting more than his fair share of all the work done, the adjuster may refuse his assent to the award of any particular contract to him, or may, if he have named a “ spot price,” award the work to another member.

' No attempt is made in the constitution, by-laws, or rules to create a common plant or a central'control of the work undertaken, or to authorize bids by the association as such. Each member retains his own plant, hires his own men to operate it, and the contract having been awarded to him with the approval of the adjuster, takes the profits and bears the losses which result from its execution. Neither the association nor any officer of it has, after the award, the least authority to interfere. If the job is a profitable one, the association derives no benefit from it; if a losing one, no loss.

Such an arrangement does not appear to me to come within any definition of partnership to be found in the text-books or in the adjudged cases. A partnership, says Mr. Justice Depue, in Wild v. Davenport, 19 Vr. 130, is usually defined to be “ a voluntary contract between competent persons to place their money, effects, labor and skill or some or all of them in lawful commerce or business, upon the understanding that there shall be a communion of the profits thereof between them.” In the case at bar there is no attempt to unite either the property, labor or skill of the several members, and there is absolutely no communion of profits. Community of capital may not be essential (Pooley v. Driver, 5 Ch. Div. 472), but community of interest in profits is. 1 Lind. Part. *7. Here there is no such community. The business of the members is dredging, and each member dredges on his own account and takes to himself alone, as I have said, such profit as he derives fr’om the contracts that he is permitted to make. The association itself has no plant, does no work and makes no profits. Its sole province is to maintain prices and to designate the members to whom the work shall go.

Members may be assessed for the expenses of the association. There is a vague provision for “extra assessment,” in article 3 of the constitution, and it is said, in rule 5, that in equalizing the account of members the adjuster “may either apportion any work to members in arrears or charge those in excess such sum in money as he may determine to be due those in arrears.” What this last provision means it is difficult to say. The expression “ members in arrears ” is averred to mean members who have done less than their proportionate amount of work. The appropriate relief to be afforded to them is to assign them more if they desire it. How any sum of money can be due those in arrears does not appear. No rule for ascertaining it is to be found. So far as the bill shows, its ascertainment is impossible, except by the arbitrary fiat of the adjuster. Should the adjuster attempt to name a sum as “due” (and no such attempt is alleged), it is plain that his determination would not be an apportionment of profits according to any rule of the association, but rather a penalty exacted by him because of his own default in not properly regulating the award of contracts among the members on the basis of days’ work.

I am therefore of opinion that the association is not a partnership, and that it cannot be wound up on that theory. The bill alleges no other ground upon which to proceed against it in this way.

Second. Is the complainant, on the facts alleged, entitled to any species of relief against the defendants short of dissolution? It must be borne in mind that he is seeking it against the demurrant, not for the benefit of the association, but for his own benefit. The -only conceivable ground for a claim to personal relief is that there has not been awarded to him as much work as he is entitled to. But the bill alleges that he is himself the adjuster. The inference from the facts stated is that he has been the adjuster from the beginning. If, therefore, he has not had his fair share of the work, he alone is to blame for it, and the remedy is obvious and entirely within his own hands.

The defendant assigns as another ground of demurrer that the purposes of the association are contrary to public policy and null and void, and that, therefore, the complainant is not entitled to relief against it. It is unnecessary to consider this objection in view of my conclusion on the other points.


author: Grey, V. C.

text:
    Elizabeth W. Brown v. S. Budd Norcross.
    [Filed February 6th, 1900.]
    1. Where, under a contract for the sale of land; it is provided that upon payment of the purchase-money a deed shall be delivered, and it appears that the vendor has put the vendee into possession and has always been ready to deliver the deed, that the vendee knew this, but has refused and failed to pay the purchase-money, an actual tender of the deed by the vendor is not a necessary preliminary to the filing of a bill for specific performance. .
    2. Where the proposed vendee is put into possession under the contract, he is entitled to the profits of the land, and the proposed vendor is entitled to interest on the unpaid purchase-money, unless some superior equity appears.
    3. Whether a clause providing for liquidated damages makes the agreement for sale an alternative one, depends, not upon the mere fact that the agreement contains such a clause, but upon the intent of the parties ascertained from the whole instrument with relation to the subject-matter of the contract.
    4. If it appears that the clause providing for liquidated damages was inserted to secure performance of the contract, and not to give an election to refuse to perform and to pay the damages, equity will enforce' specific performance.
    On bill for specific performance, answer and proofs.

      Messrs. Sims & Slaughter, for the complainant.

      Mr. Samuel A. Atkinson, for the defendant.
   Grey, V. C.

The complainant is a widow, and files this bill to compel specific performance of an agreement made between herself and her husband (who was then living), on the one part, and the defendant, on the other part, to the effect that they should convey to the defendant a piece of land in Mount Holly, the property of the complainant. By the agreement, which is in writing, the party of the first part agrees to sell, and the party of the second part to purchase, the lot of land

“ for the price of $400, of which $25 is now paid and receipt hereby acknowledged, the balance, $375, to be paid not later than six months after March 1, 1896, upon payment of which balance, proper deed of conveyance shall be delivered to the said S. Budd Norcross.”

The bill alleges, and the answer admits, that^at the making of this agreement the defendant paid the $25 on account of the purchase; that shortly after the making of the agreement he entered into possession of the premises under it, and has continued in possession of the premises until the present time. The agreement also contains the following clause;

“and for the due performance of all and singular the covenants and agreements herein contained, the said parties of the first and second parts do bind themselves * * * each to the other * * * in the sum of $100, firmly by these presents, the said sum to be considered as liquidated damages to be paid by the defaulting party.”

The defences made to the claim of the complainant for the specific performance of a contract are — -first, that no tender was made of a deed for the premises before the filing of the bill in this cause; second, that the complainant demanded that the defendant should pay interest on the unpaid purchase-money; and third, that the clause as to liquidated damages limits the remedy to the complainant to a suit at law for damages, and precludes him from any relief in this court.

By the terms of the contract it is expressly agreed by the defendant that the balance of the purchase-money should be paid not later than six mouths after March 1st, 1896, which is September 1st, 1896, and that upon the payment of that balance, a proper deed of conveyance should be delivered. The effect of this term is that the obligation to deliver the deed will arise when the defendant pays the balance of the purchase-money. The proof in the case shows that after the defendant had entered into possession of the premises there was a considerable delay, during which the complainant sought to induce the defendant to perform. No day was selected for the fulfillment of the contract after the day of payment named in the contract had passed, though neither party either disavowed the obligation or denied a willingness to perform it.

The defendant was invited to pay the balance of the purchase-money, and it was insisted that having agreed to pay it on the day named in the contract, and having failed, he should also pay interest from the time that it came to be due.' The defendant refused to pay the interest, and the dispute between the parties on this point is such that it is quite evident that the essential matter in difference between the parties is the defendant’s contention that he is not liable to the payment of interest on the balance of the purchase-money during the period in which he has had possession of the premises, and has of his own choice delayed payment of that balance. Under these circumstances, if the complainant was entitled to the interest there was no obligation upon her as a preliminary to this suit to make a formal tender of the deed. That was only deliverable upon the payment of the purchase-money.

The testimony shows that the complainant was at all times ready to deliver the deed, and that the defendant knew this; the delay was occasioned by the defendant’s refusal to pay interest on the due purchase-money. Neither party claimed a rescission because of the delay in performance, each being willing to perform, if only his construction of the terms of the contract were accepted by the other. In such cases mere delay in forcing performance is of little significance. McTague v. Sea Isle City Building Association, 28 Vr. 428.

. The second point made is that the complainant is not entitled to interest on the balance of'the purchase-money. Upon the making of such an agreement between • parties as is above set forth, the proposed vendee becomes, in the consideration of a court of equity, the owner of the land, and the proposed vendor becomes, subject to the terms of the agreement, the owner of the purchase-money. Houghwout v. Murphy, 7 C. E. Gr. 546. The vendee, if holding possession of the land, is entitled to the rents and profits thereof, and the vendor, under such circumstances, is entitled to receive interest upon the unpaid portion of the ■ purchase-money. King v. Ruckman, 9 C. E. Gr. 301. That is the exact situation in this case. The vendee admits by his answer that he has been in possession of the land; the contract shows that the balance of the purchase-money came to be due on September 1st, 1896. The complainant was ready to convey when the defendant- should pay that balance. The defendant knew this, and though he retained the possession of the land, did not pay the remaining portion of the purchase-money. Under such conditions interest should be charged against the defendant from the time named in the agreement as the day of payment.

There remains but one more question. The defendant insists that the above-quoted term — that for the due performance of the contract the parties bound themselves in $100 liquidated damages, &c. — obliges the complainant to sue at law for the $100 as a full satisfaction of the breach of the contract and deprives him of all equity to have the contract specifically enforced. The concluding clause in Chancellor Halsted’s opinion, in St. Mary’s Church v. Stockton, 4 Halst. Ch. 532, is cited to sustain this proposition.

In the case cited the question was before the court in such a way that no attendant equities were presented for consideration. The matter considered was merely the effect of the stipulation as expressed in the contract. The defendant had not taken and retained possession of the premises under the agreement and none of the difficulties attendant upon the restoration of the parties to their former positions had arisen.

It may, however, be doubted whether the intimation of the learned chancellor (if it ever did expound the true principle upon which specific performance is enforced in equity in such cases) is now expressive of the accepted view in this state. Vice-Chancellor Pitney, when sitting as master, in Crane v. Peer, 16 Stew. Eq. 553, collates the English and American cases and concludes that the mere presence of a provision for liquidated damages does not of itself necessarily render the contract an optional one, giving the right to the parties either to perform or to break the contract and pay the liquidated damages. The learned master declared that whether the contract was an alternative one or not must be ascertained from its language and the subject-matter. The spirit of the cases collated and the learned master’s opinion concur in the declaration that if the parties inserted the liquidated damage clause in order to secure the performance of the contract, either may compel the other specifically to perform according to their agreement, but if they intended that the contract should oblige them to do one of two things— either to perform or to pay the liquidated damages — then either party may pay and be free from the obligation to perform.

In O’Connor v. Tyrell, 8 Dick. Ch. Rep. 18, there was an agreement to convey with a stipulation for liquidated damages in case of failure. The vendors failed to convey, giving no reason therefor. The vendee filed his bill to compel specific performance. The vendors moved to dismiss the bill, contending that equity would leave the complainant to a suit at law to recover the liquidated damages. Chancellor McGill declared that such a contract was not optional with the defaulting party to perform, or to pay the named sum; that damages did not become a factor in the consideration of remedies until there had been an honest effort to perform and a failure, and held that the complainant was clearly entitled to a decree for specific performance. He further declared that the case had not been brought within the intimation of Chancellor Halsted above cited.

These cases which fully discuss the principle involved, indicate that specific performance should be denied not because of the mere presence of a clause for liquidated damages, as does Chancellor Halsted, but only in those cases where the frame of the contract and its relation to the subject-matter show that the parties intended the agreement to be in the alternative, giving to each the right to choose either to perform or to pay the damages and refuse to perform. This appears to be the better exposition of the equity rule.

In Dooley v. Watson, 1 Gray 414 Chief-Justice Shaw held that where there was an agreement to convey, and a separate contract, that a certain sum should be paid if the party failed, the promise to pay the money was merely a security for the performance of the contract to convey, and he decreed specific performance. See, also, Hooker v. Pyncheon, 8 Gray 552; and Hull v. Sturdivant, 46 Me. 34, to the same effect.

In the case now under consideration, the words of the contract declare that for the due performance of the agreement, the parties bind themselves in the sum of $100, to be considered as liquidated damages, to be paid by the defaulting party. Here is an express declaration that the purpose in requiring the payment of the money is to secure the performance of the contract. The object sought is a single and entire thing — the performance of the agreement. There is no 'provision for an alternative whereby the parties are given an option to perform or to refuse and pay. Nothing of that sort appears to have been within the contemplation of the parties when they made the contract. Nothing in their action towards each other since indicates that they ever so understood their agreement. The defendant has always been ready to perform if he were excused from the payment of interest. He never either refused to perform or offered to pay the $100.

If the contract should be held to tender a choice to accept performance or to refuse and pay the liquidated siim, the defendant long ago has exercised his election and has chosen to accept performance. He has paid a part of the purchase-money, accepted delivery of possession which he yet' retains, and has declared his willingness fully to perform if his construction of the amount yet due be made the basis of settlement. Under these circumstances having already elected and still retaining the benefits of his choice, he cannot, without even offering to restore those benefits, now choose again and take the other alternative.

To deny the complainant a decree for performance and compel him to seek his remedy at law, will oblige him to bring one suit against the defendant to recover the liquidated, damages, and another in ejectment to recover possession of the land. It cannot be said that the procedure at law is adequate to the relief which this court can afford by compelling specific performance of the contract, for even if the stipulated damages are held to be an agreed satisfaction for a mere breach of the contract, they do not compensate the complainant for the consequent loss by reason of the defendant’s continued use and retention of the land.

The complainant is entitled to a decree.


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    John Chambers, administrator of Susan W. Ferguson, v. George Kunzman.
    [Filed February 8th, 1900.]
    1. The administrator of a pledgor is entitled to redeem the pledge upon payment or tender of the amount of the loan at any time after the loan has become payable.
    2. The pledgee, having been subjected to some expenses in realizing and applying the property pledged, and having all the securities in his hands, and accurate knowledge of the actual condition of the loan and having rendered no account, cannot prevent the payment of the loan, in order to keep his money profitably invested, by refusing to disclose the exact sum due and denying that the tender made was the proper sum.
    3. An accounting will be decreed under a general prayer for relief, where it is not inconsistent with the special prayers, and accords with the general frame of the bill.
    On bill, answer and proofs.
    The complainant is administrator of the estate of Susan Ferguson. In her lifetime, on May 16th, 1893, George Kunzman, the defendant, advanced to Miss Ferguson, on her four separate bonds and mortgages, covering four separate lots of land in Atlantic county, four separate sums of money to the amount of $1,500 each. The bonds and mortgages were all dated April 12th, 1893, and were all payable at the expiration of three years, with interest. In order further to indemnify Kunzman against loss, Miss Ferguson assigned him an additional bond and mortgage, made by one Hannah Kerr, securing the payment of $1,600, with interest. This latter bond was dated the 1st day of February, 1893, and payable in three years from the date thereof. It was agreed that this last-named bond and mortgage was a collateral security, and that it should be assigned back to Miss Ferguson upon payment of the debt, interest and costs of the four loans of $1,500 each. The transaction is shown by the written agreement between the parties, a copy of which is set forth in the complainant’s bill of complaint.
    On November 2d, 1895, Miss Ferguson died intestate, and on the following 25th day of November the complainant was appointed administrator by the surrogate of Atlantic county. The principal money due on the collateral mortgage became due, and the mortgagor, Hannah Kerr, about May 5th, 1897, paid the amount then due upon it, amounting to the sum of $1,421, either to the defendant, Kunzman, or to his order, and he surrendered the mortgage to Hannah Kerr, and it was canceled of record.
    In her lifetime, Miss Ferguson conveyed one of the lots of land which she had mortgaged to Kunzman, to one Julia Herbert, subject to the mortgage of $1,500 held by Kunzman. The total amount of the personalty of Miss Ferguson, omitting her interest in the collateral mortgage, was insufficient to pay her debts.
    In October, 1896, after Miss Ferguson’s death, Kunzman foreclosed the three separate mortgages held by him on these lots of land, the title of which had remained in Susan Ferguson at her death, and caused the same to be sold, and realized enough therefrom to pay nearly all of the three several mortgage debts, interest and costs. In the meanwhile, large claims had been filed against the estate of Miss Ferguson, in the hands of the complainant as administrator, amounting in all to about $2,600, ■ and there was no property of her estate with which to settle these claims, except her interest in the collateral mortgage pledged to Kunzman. The fourth bond and mortgage on the premises owned by Julia Herbert has not yet been paid, and is yet held by Mr. Kunsman, although it is due. The complainant alleges that creditors of Miss Ferguson’s estate and the administrator have endeavored to induce Mr. Kunzman, the defendant, to accept from them payment of the full amount due on the Herbert mortgage, and to assign it to that creditor of Miss Ferguson’s estate who would advance the money, or to the complainant as Miss Ferguson’s administrator, arid to deduct from the moneys collected on the collateral Kerr mortgage any balance that may be due to Kunzman, in order to release the residue of the moneys collected by Mr. Kunzman on the Kerr mortgage, which he held as collateral security for the payment of the mortgage on the Herbert property. They seek this in order that the residue money may go to the estate of Miss Ferguson, so that the administrator may use them in payment of her debts. The complainant alleges that Mr. Kunzman declined to comply with either of these offers. The complainant prays that the defendant may be decreed to perform the agreement under which the four mortgages and the collateral mortgage were assigned to him, on being paid the money due to him ; that he may deliver to the complainant the proceeds of the collateral mortgage and account for interest accruing thereon, and for general relief.
    Mr. Kunzman, in his answer, admits the agreement under which he advanced the money to Miss Ferguson, and also the foreclosure of the three mortgages. He claims that the proceeds of sale under these mortgages did not produce the amounts due on them by some $285.26. He denies that any tender was made him with request for an assignment of the mortgage he' holds on the Herbert property and his collateral mortgage accompanying the same. He alleges that by an agreement between himself and the complainant the $1,421 collected on the Herbert mortgage were paid to one John H. Ringe, Jr., to hold “ in escrow to satisfy any deficiency that might arise upon the mortgage held by him made by said Susan W. Ferguson.” He admits that Ringe has paid to him the deficiency of $285.26,' and he alleges that Ringe has the balance.

      Mr. William M. Clevenger, for the complainant.

      Mr. John F. Flamed, for the defendant.
   Grey, V. C.

At the hearing of this cause the defendant did not appear. It had previously been postponed at his instance. The vice-chancellor was satisfied that the defendant’s absence was voluntary, and for the purpose of delaying the trial of the cause for his own benefit, and the hearing having been properly noticed, the cause was for this reason heard, notwithstanding the defendant’s absence. His counsel has filed a brief contesting the complainant’s right to relief, insisting, among other things, that in view of the fact that both the complainant and defendant reside out of the state, and that the collateral fund is also held out of the state, there is nothing to give jurisdiction to this court, and that it would be powerless to enforce its decree for specific performance.

No question as to the jurisdiction of this court is suggested in the pleadings, nor was it heard of until argument at final hearing. If it appeared even at final hearing, without plea, that this court had no judicial power to consider the subject-matter of the cause, it would not further entertain the suit, for a decree in such case would be futile. No such objection is made by the defendant, nor can there be any question that this court has jurisdiction to entertain a suit for the specific performance of an agreement. Nor is there any difficulty in this cause touching jurisdiction over the party defendant. He has appeared and answered fully upon the merits of the ease. The defendant’s argument is, that because the complainant and defendant are non-residents, and the collateral fund is out of the state, it may be found to be inconvenient to enforce the court’s decree. The Herbert mortgage which it is desired to have assigned is, however, a lien on lands in this state. It is not to be presumed that the parties who have submitted themselves to the jurisdiction of the court will disobey its decree. If such a contingency happens, a remedy will probably then be found. The possibility that it may occur is no reason to deny a decree for the relief sought.

The defendant further contends that no proper tender has been made to him. That the complainant, in order to arrive at the.proper sum, must show that on the realizations by the defendant’s foreclosure there was no deficiency, or that it was less than the amount of the Kerr mortgage. He contends that the proofs of the foreclosures, the sheriff’s statements, &c., do not show affirmatively that the $1,550 tendered was precisely the sum remaining due, and that therefore the tender failed.

The defendant, as his agreement recites, advanced to Miss Eerguson in her lifetime, on her four separate bonds and mortgages, four separate sums of $1,500 each. He also received an assignment of the additional Kerr mortgage (which he has collected) on which $1,400 of principal was unpaid with interest, &c., agreeing to assign it back on payment of the four loans. He foreclosed three of these mortgages, and they did not produce the full sum of debt, interest and costs. The knowledge of the precise sum of the deficiency lies peculiarly within the defendant’s breast. It was his duty as pledgee to have stated an account of his receipts and disbursements in the disposal of the pledge, and the application of the collateral to the satisfaction of the deficiency. Had he stated such an account the defendant would have been informed as to the exact balance and could then have tendered the precise sum due. But the defendant, though not disclosing the facts to the pledgor’s representative, yet objects to the insufficiency of the tender, because not the proper amount. The agreement whereby the defendant received the mortgages on which he advanced the loans to Miss Ferguson, specified no ti.me for the repayment by Miss Ferguson to the defendant of the money loaned. The pledgor or her lawful representative might repay and receive back the securities pledged at any time.

The evidence satisfies me that the complainant, as the representative of Miss Ferguson, the pledgor, indicated to the defendant his ability and desire to redeem the pledge by paying to the defendant the entire sum due to him in the transaction, so that the surplus of funds from the collateral mortgage, owned by Miss Ferguson’s estate, might be returned to her administrator and applied to the settlement of her debts. The defendant perfectly understood this, and endeavored to prevent the tender and to delay the return of the surplus to Miss Ferguson’s estate, because, as he stated, “ Six per cent, mortgages well secured are not easy to get.”

Taking the admissions of the answer and the evidence submitted on the question, I am satisfied that there was a sufficient demand upon and tender to the defendant to entitle the complainant, as the representative of Miss Ferguson, to have her bond and mortgage upon the Herbert property returned to him, and thus to release that part of the collateral Kerr mortgage moneys which the defendant had collected which were not necessary to pay the deficiencies on previous sales.

The defendant contends that Julia Herbert, the holder of the lands whereon the uncollected mortgage is a lien, alone has the right to pay it off, &c. The defendant’s agreement recites that he advanced the money loaned to Miss Ferguson on the four mortgages” and indicates a pledge rather than a sale. Miss Ferguson’s administrator had the right to redeem that pledge. The Herbert mortgage is security for the payment of Miss Ferguson’s bond, which has come to be due. She conveyed the land (subject to the mortgage) to Julia Herbert. After that conveyance Miss Ferguson, the grantor, stood in the attitude of a surety in respect to the payment of that mortgage debt. Klapworth v. Dressler, 2 Beas. 62; Youngs v. Trustees, 4 Stew. Eq. 290; Hoy v. Bramhall, 4 C. E. Gr. 563. Irrespective of the express written agreement of the defendant, Miss Ferguson, in her lifetime and her administrator since her death, standing in their rights as sureties for the payment of the mortgage debt, have been entitled to a re-assignment of the securities in order to compel the Herbert mortgage to satisfy the bond. The defendant, on making the four separate loans on the four bonds and mortgages (of which the mortgage on the Herbert lot was one), took, also, the collateral Kerr mortgage upon his express agreement, “ the same to be assigned to said Susan W. Ferguson upon the payment of the debt, interest and costs of the said four loans of $1,500 each.” By this the defendant, under the very words of the contract which brought him the Kerr mort- . gage, agreed- to assign it back upon payment of the four loans. The mortgages which secured three of those loans the defendant has collected; the small deficiency on these mortgage sales he has received from a realization of the Kerr mortgage. He refuses to accept a return of the loan secured by the Herbert bond and mortgage and proposes to keep that as a good six per cent, investment and also to retain the large balance realized from collecting the Kerr mortgage. The right of the complainant, as Miss Ferguson’s administrator, to pay off the last of the four loans, and to have the securities which supported it re-assigned to him, and to have an accounting for the moneys collected on the Kerr mortgage appears to be entirely clear.

It should, perhaps, be noticed that the proofs show that the defendant surrendered the Kerr mortgage to be canceled. He thus became responsible for the mortgage money. There was no proof whatever that the defendant had assented to any delivery of these moneys to John H. Einge, Jr., as a stakeholder. If there was any such delivery it must have been the voluntary act of the defendant, in no way binding upon the complainant.

As to the defendant’s denial of the complainant’s right to an accounting, it may be said that a complainant is entitled, under the general prayer, to any relief put in issue by the facts alleged and not inconsistent with the special prayers or the general object of the bill. Hiern v. Mill, 13 Ves. *119. In this case the special prayers are that the defendant may be decreed to perform his agreement to re-assign the mortgage, &c., and to' pay the collateral mortgage moneys with interest. He has not accounted, so that the precise sum due on the fourth loan on the Herbert mortgage may be known, nor are the amounts of the deficiencies alleged by him admitted to be correct. An accounting as to these collateral matters complements the special relief prayed for and is entirely consistent with the general frame of the complainant’s bill.

There should be an order of reference to a master to ascertain and report the amount due on the fourth loan remaining unpaid to the defendant, and to take and state an account of the amount paid by Hannah Kerr when she obtained the surrender of her mortgage by the defendant, charging the defendant with interest thereon from the date of that payment and crediting the complainant with such amounts of deficiencies on the first three loans as he may prove before the master. The testimony taken in this cause may be used by the master subject to this opinion, and all further equity should be reserved until the coming in of the master’s report with said account.


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    Frank Linwood Garrison v. Technic Electrical Works et al.
    [Filed February 10th, 1900.]
    1. The burden is upon the vendee, who seeks to rescind a sale for fraudulent misrepresentations, to prove the making of the representations which he alleges, and which the vendors deny, and that they were false.
    2. Where an admitted written statement is set up as the representation, and its falsity is sought to be proven by other proof, the burden is still upon the complainant to prove that the written memorandum is false in fact.
    3. It is only when the vendee has proven that there have been false representations made, that the burden shifts and the vendor is called upon to show that they did not influence the purchase.
    4. The affording to the vendee a full and unrestricted opportunity to examine into the subject-matter of the sale, is evidence of good faith on the part of the vendor.
    5. When a false representation is alleged, which is of so trivial a character that it cannot be believed to have affected the vendee’s judgment, it furnishes no ground on which to rescind the sale.
    On bill, answer and proofs.
    The bill in this ease is filed by the complainant, declaring, so far as its allegations are well pleaded, that the complainant was induced by false representations to purchase shares of stock of the defendant company, which he tenders himself ready to return, and praying that the defendants who made the false statements, or knowingly accepted the benefit of them, may be decreed to return the price so fraudulently obtained.
    The bill was demurred to, and held to be a sufficient pleading, taking it to be true, to entitle the complainant to relief. See Garrison v. Technic Electrical Works, &c., 10 Dick. Ch. Rep. 708. The defendants have answered the bill, denying all its allegations of fraudulent representations, and the cause has been heard upon the merits. These allegations of fraudulent representations inducing the purchase by the complainant of the stock of the company are recited in the discussion of the second ground of demurrer. 10 Dick. Ch. Rep. 715.

    The defendant Zimmele was the president, and the defendant Sinclair the secretary and treasurer of the defendant company. It is complained that Sinclair requested the complainant to purchase shares of the company’s stock, and that during the negotiations both Sinclair and Zimmele stated that the collective assets of the company were in excess of its liabilities, taking capital stock to be a liability; that the receipt from sales of its products were in excess of its expenditures, and that it was then doing a profitable business. The bill further alleges that the defendants gave to complainant a written memorandum, pledging their word that the assets and liabilities of the company, stated in a trial-balance sheet of February 1st, 1896, submitted to the complainant, and that all their verbal statements as to the solvency, credit and condition of the company, were correct and true. The bill asserts that these representations induced the complainant to purchase the stock; that shortly after he was elected president of the company, and then discovered that $400 of bills payable had been omitted from the balance sheet; that the inventory of plant and tools had been made more than a year, with no allowance for depreciation; that the bills receivable, which had been represented as collectible to amount of two-thirds value, were in fact less than one-half of them collectible; that for over two years the assets of the company had been insufficient to pay its debts and continue its business; that its expenditures for five months had been in excess of its receipts, and its business for some time had been unprofitable; and that the company had been insolvent for over two months and unable to pay its liabilities without suspending its business.
    These allegations charging fraudulent misrepresentations by the defendant are distinctly disputed by the answer. The defendants deny that Sinclair invited the complainant to purchase the stock, and state that the proposition to buy came from the latter. They admit that they represented the company to be solvent, and say that it was in fact solvent, that its collectible assets exceeded its liabilities. They insist that the receipts from sales were in excess of expenditures, though during certain periods when business was slack the reverse for a time might be true, but they allege that this was stated to the complainant.
    They deny that they represented that the company was doing a profitable business at the time of the sale, and allege that in fact the company, at the time the complainant was about to purchase the stock, had just started a new line of manufacture, and that they stated to the complainant their belief that with some small additional capital and proper attention the concern would become prosperous.
    On the issues of fact thus joined, the cause came to hearing.

      Mr. James H. Carpenter and Mr. Herbert A. Drake, for the complainant.

      Mr. Edwin Robert Walker and Mr. Garret D. W. Vroom, for the defendants.
   Grey, V. C.

All the allegations of fraudulent statement or conduct set out by the complainant as grounds for relief are denied by the answer, either by express averment that the alleged statements were not made, or that if made they were in substance true.

This presentation of the case puts upon the complainant the burden of proving that the defendants made the representations setup in the bill as fraudulent; that the representations were false; that the complainant was thereby deceived and believed them to be true, and thus induced to purchase the stock of the company.

Without elaborately restating the extremely voluminous testimony presented in support or denial of the alleged fraudulent misrepresentations, it is enough to say that taking all the proofs together, they show that the sale of the stock was made under the following circumstances :

The defendants Zimmele and Sinclair were the principal owners of the stock of the defendant company, and were also its president and secretary and treasurer. The concern was engaged in the manufacture of electrical appliances, and had the usual experiences of newly started enterprises. Some of its productions had been profitably sold, some of them at a loss. At the particuliar time when the complainant came into the company by purchase of the shares, it was about changing the mode of conducting its shop to what was known as the interchangeable plan. This is a method of making each of the respective parts of its products uniform, so that they might be interchanged. The introduction of this new plan called for a partial cessation of business and for the expenditure of considerably more money. These two causes had operated to cut down the extent and the profits of the business.

Upon the opening of the negotiations for the purchase of the stock, the complainant had the freedom both of the workshop and the office of the company. He was told of the pending improvement by the introduction of the interchangeable method of manufacture and of the need of additional capital for this purpose. He saw the modes of manufacture, the material and the product, and the books of the concern were thrown open to him. Fie testifies that he did not see all of the books, and that he was inexperienced in bookkeeping. But his own testimony shows that the defendants repeatedly offered all the books and papers of the company for his inspection, and that he did have access to all such as he desired to see, and I am not satisfied that the complainant, a very intelligent man, engaged in an investigation for the express purpose of finding out the condition of a business, did not look at all of the books which were offered him, which afforded the information he sought. His denials that he saw all the books did not accord with either the. probabilities of the case, or with the weight of the other evidence. It does not appear that the defendants knew the complainant was ignorant of bookkeeping, nor did he in fact, when testifying as to these matters, seem to be so lacking in such knowledge as he asserted himself to be. Ho one prevented him from having the aid of an expert if he felt himself incapable of obtaining from the books all the information he desired. The defendants also gave him a letter of introduction to the New York sales agent of the company. He went alone to see this agent, to ascertain the prices at which the goods produced could be sold, and he thus obtained all the information he desired as to the extent and character of the sales.

Where the vendor, pending the negotiations for a sale, gives the vendee free access to the books, papers, stock, workshops and business of the company, without selection or restraint of the means or extent of the information, it is an indication that there is no intent to defraud. Poland v. Brownell, 131 Mass. 138; Slaughter v. Gerson, 13 Wall. 383; Atwood v. Small, 6 Cl. & F. 232. If the alleged misrepresentations relate to matters which the complainant himself investigated, it is difficult to believe that the defendants who afforded him the means of unrestricted investigation intended to cheat him, or that he relied on their statements against his own observations.

The complainant charges that the defendants represented the company to be solvent, and that its assets were in excess of its liabilities, taking capital stock to be a liability. The defendants deny that they ever made such a statement regarding the taking capital stock to be a liability. The weight of the evidence supports their denial. They say the company was solvent, that they believe its assets were in value in excess of its liabilities. The complainant, before bringing this suit, had filed a bill to have the company declared insolvent, but failed in his effort. It was shown at the hearing that the company was still continuing its business in its usual manner.

Representations of solvency are in a considerable degree matters of belief, depending upon the opinion of the speaker as to the value of assets, and where the variance is not gross or unconscionable, a fraudulent purpose ought not to be imputed to such statements. Nor can fraud be established where no intent to deceive appears by showing differences in judgment in estimating values, and nice calculations by experts to demonstrate supposed conditions of insolvency.

The alleged fraudulent statements regarding the amount and value of bills receivable and payable, the receipts from sales, the expenditures, the collectible assets as compared with the liabilities, the truth of the balance sheet shown as an exhibition of the condition of the company, were all of them matters appearing on the books and papers of the company, which the defendants submitted to the complainant without reserve, and which were inspected and examined by the complainant to his own satisfaction. It is from these same books and papers that it is now sought to show a variance from alleged verbal representations. So as to the character and condition of the stock on hand, and the business in the shops, the complainant saw and examined these for himself, in his own way, and at his own choice, for the very purpose of satisfying himself as to his intended purchase. Nothing was denied him. The defendants did nothing to hinder or mislead him in making his own examination. No charge of any such conduct is made.

There was a written memorandum given by the defendants to the complainant at the time he made his purchase. This memorandum is dated March 2d, 1896. It distinctly recognizes the fact that the company was carrying a debt for which it was desirable that special provision should be made. It secured to the complainant an option to buy additional shares, indicating an expectation that the future business of the company would make its shares desirable. It further pledged the word of the defendants that the assets, liabilities, &c., stated in the trial balance of February 1st, 1896, submitted to the complainant, and all their verbal statements as to°the solvency, credit and condition of the company were true to the best of their knowledge.

At the hearing and in argument it was urgently insisted that if it were shown that there was in fact- any variance from the trial-balance sheet of February 1st, then fraud was conclusively established. This contention is based upon an assumption that the memorandum was a warranty and that the penalty for any variance is a rescission of the contract. This is not the issue upon which the complainant asks relief in this court. The allegation is that the sale was induced by the fraudulent misrepresentations of the defendants. If it appears that the balance sheet was made in good faith and exhibited the condition of the company as the defendants believed it to be — that the variances were not so material as to suggest a fraudulent purpose, or were explained to the complainant at the time, or were matters of opinion and judgment as to values, or of expectation as to future profits — the element of fraud is eliminated, even if there be variance in fact.

There was an item of $2,716.65 of loss (sometimes referred to as $2,716.59) which had been carried through the company’s trial balances since November, 1895. It also appeared on the trial-balance sheet of February 1st, 1896, shown to the complainant and on which he bought the stock. This item was afterwards, on February 29th, 1896, distributed to accounts showing assets, and the distribution operated to swell the apparent values. The complainant insists that these distributive entries of this item were fraudulently made for the purpose of increasing the book assets of the company. Mr. Garrison testifies that he never knew of these correcting entries until after he had purchased. These entries, therefore, never induced him to buy the stock. He bought, he says, on the trial balance of February 1st, 1896. On that trial balance this item of $2,716.65 appeared as a loss unfavorable to the company, and therefore deterring from and not inviting to the purchase of the stock. It cannot be said that an exhibition of an entry showing a loss to the company and thereby lessening the value of its stock could have been an inducement to its purchase. The change by which this item was distributed to capital account operated to increase the apparent assets of the company. But the intent of the parties in making these corrective entries is fairly shown to have been free from fraudulent purpose by the explanation which the defendants testify they gave to the complainant — that the entry of this item of $2,716.65 as a loss or current expenditure was an error which came from a mistake in Sinclair’s method of bookkeeping, in charging so much money to labor and material which had in fact been expended in permanent improvement of the plant. They say this matter was explained to the complainant before he purchased, and he was told that corrective entries would be made whereby this item would be divided and charged in its proper place, to the several divisions of capital account, and that he made no objection. This was afterwards done, and this change in this item is now recited as an indication of a fraudulent concealment. The complainant’s statement is fairly met in this, as in other charges, by the defendants’ contradiction, and it cannot be said that the weight of the evidence sustains the complainant’s claim that the transaction regarding this item was a fraud.

The principle upon which sales will be rescinded because of frauds of the character alleged in this cause, necessarily requires that the statements made must have been false as to some matter of enough significance to have affected the vendee’s judgment in making the purchase. Several of the matters alleged are trivial in character, and indicate a purpose on the part of the complainant to find and exploit a cause of grievance, rather than the statement of a matter which the complainant relied upon as an inducement to the purchase and in which he found he had been deceived.

The element of fraudulent intent on the part of the vendor in making the supposed false statement must also appear, for if all the circumstances rebut the existence of a purpose to mislead and deceive the vendee, it cannot be said that he was defrauded. The conduct of the defendants indicated no fraudulent purpose. They did not invite the complainant to buy. He volunteered his wish to go into the company. They were in no haste to close the negotiation for the sale. It was several weeks under consideration. They gave abundant opportunity to see books, papers, stock and plant; they took payment partly in a due-bill which was not negotiable paper, and left available any defence setting up the supposed fraudulent purchase. The defendants appear to have made no statements substantially variant from the truth.

The vendee, to justify rescission for fraud, must also be shown to have relied on the false statements made to him by the vendor, and to have been thus induced to make the purchase, for otherwise he has no ground of complaint. This element is negatived when it appears that the alleged misrepresentations if made were so trivial that they cannot be believed to have induced the purchase. When it is shown that the purchaser, a competent person, liad himself made personal and unrestricted investigation for the purpose of informing himself as to the condition of the subject-matter of the sale, it is difficult to accept his statement that he relied upon the vendor’s representations rather than upon his own observations. But if there be a showing by the weight of the evidence that the vendor made a statement of a material fact, knowing it to be false, or, at least, not knowing it to be true, which the vendee had a right to believe and rely upon, it would shift the burden of proof to the vendor, and oblige him to show that the false statement did not influence the vendee to make the purchase, and that he relied exclusively upon his own investigation and not on the proven false statement of the vendor. In this case there is no such showing of the alleged misrepresentations.

The testimony of the complainant and of the defendants was, as to most of the alleged misrepresentations, in direct denial and contradiction. The defendants refute other alleged fraudulent statements magnifying the financial capacity of the company, by showing that corresponding explanations were made to the complainant which fully advised him of the actual condition of the company’s affairs. If the contract is to be rescinded, the testimony of the complainant must be accepted as controlling, and that of the two defendants rejected as unworthy of belief. The evidence given as to the alleged misrepresentations and the complainant’s acceptance and reliance upon them, by other witnesses than the parties themselves, is of very little assistance.

No reason appears which indicates that the complainant’s testimony is any more worthy of credence than the defendants’. If the statements of either side were more acceptable than those of the other, they rather appeared to be those given by the defendants. The complainant, while on the stand, manifested a disposition to minimize his own capacity to perceive facts which were obviously within his notice, when testifying as to his examination of the business of the company, previous to his purchase. He was also disposed to exaggerate matters of but little importance in the dealings regarding the sale, into inducing .causes for the purchase. The defendants, when testifying, as when bargaining with the complainant, appeared frankly to expose the facts as they understood them, whether they were advantageous or disadvantageous.

The weight of the evidence fairly indicates that the dealings between the parties were not carried on upon the understanding that the business of the company was, at the time of the sale of the stock, immediately and largely profitable. The sum of the proof is that the defendants’ representations to the complainant fairly indicated that the company had within its scope possibilities which, with the advantages to be derived from the completion of the proposed changes, and the increase of capital by the accession of the complainant’s purchase-money, could be developed into a profitable trade.

Upon the whole case the complainant has failed to prove that he was deceived by false representations of the defendants, and thus induced to purchase the stock of the company. The complainant’s bill should be dismissed, with costs.


text:
    James B. Holmes et al. v. Jacob J. Holmes.
    [Filed February 14th, 1900.]
    A bill to set aside a deed, alleging that it was not intended to pass title unless the purchase-price was paid, and that such price was not paid, and in the event that such relief could not be granted, seeking to enforce a vendor’s lien on the land, is not subject to demurrer for want of equity.
    On demurrer to bill.

      Mr. Clark McK. Whittemore, for the complainants.

      Mr. Charles H. Angleman. for the demurrant.
   Grey, V. C.

The bill in this cause shows that one of the complainants, James B. Holmes, is the grantor, and the others the grantees of a lot of land. That the complainant James B. Holmes had previously made a deed to the defendant, Jacob J. Holmes, conveying the same premises, and had entrusted him with the deed upon an agreement that it should not be recorded until the purchase-money was paid. Without paying the purchase-money, the defendant, Jacob J. Holmes, recorded the deed and insists upon his right to possession. The complainant James B. Holmes has conveyed the property to the other complainants, and they seek to have a decree that the deed mqde to Jacob be canceled, or if it be held not to be void, then that a vendor’s lien for the purchase-money may be decreed and enforced in favor of the complainant James B. Holmes.

The bill contains an extended relation of the transfers of the title, and of the dealings of the parties, and several special prayers for relief, but the above-stated equity is apparent upon inspecting the bill, taking its narrated facts to be true.

To this bill the defendant has filed a general demurrer without specifying any causes of demurrer. The complainant objects that without some specifications of the cause of-demurrer he is not apprised of the grounds upon which the defendant criticises his bill.

In Essex Paper Co. v. Greacen, 18 Stew. Eq. 506, it was declared that where the question as to sufficiency of the bill is manifest on its face, a general demurrer for want of equity without any specification of grounds would be sustained, but where the defect is so obscure that it is not readily discernible on the face of the bill, a specification of the grounds on which the demurrer is found will be required.

The demurrant in this case insists that the bill shows an apparent want of equity because he claims it asks both to set aside the deed to the defendant, Jacob J. Holmes, and recognizes its validity in asking to have the purchase-money in the same deed declared to be a lien, &c.

There is shown in the bill a- most confused condition of the title to the land, arising from the ignorance of the parties who conducted the business, as to the effect of their action. The bill sets out all that was done, and claims that the making of the deed to Jacob was merely tentative, and not intended to pass title, unless upon the happening of a certain stated event that this event did not happen, and consequently the deed to Jacob was inoperative, and he had no right to record it, and the complainant has au equity to have a clearing of the record and a restoration of the title exactly as if that deed had never been executed. The bill also asks in the alternative that if. the first mode of relief should fail, and if for any reason that deed should stand, then that the purchase-money, which should have been paid and was not paid, may be declared a lien against the title so held to be in the defendant, Jacob J. Holmes, and that it may be enforced against it. The remedies sought are within .the general scope of the equity set forth in the bill. They are asked for successively, and not concurrently, as intimated by the defendant.

' Notwithstanding the somewhat confused statement of the complainant’s claim, there may be found in the bill a sufficient allegation of a right to equitable relief, to stand against a general demurrer, which goes to the whole bill, and cannot be sustained as to part only. Banta v. Moore, 2 McCart. 103; Brownlee v. Lockwood, 5 C. E. Gr. 257.

The demurrer should be overruled, with costs.