Barbour v. Poncelor , 203 Ala. 386 ( 1919 )

As shown in the above opinion, plaintiff purchased under two separate contracts 250 shares of the capital stock of the Rye-Ola Company, a corporation, 125 shares of which were purchased November 28, 1916; the purchase of the latter 125 shares being provided for in the contract of May 22, 1917.

This cause of action is based upon the first contract of purchase; the plaintiff claiming in several counts damages for deceit practiced upon him by defendant, setting up numerous false representations, among them: (1) That the defendant did not own and had no right to sell the stock, which fact was known to him at the time of sale; (2) that the stock was fictitious and of no value, which was known to the defendant; and (3) other false representations as to the ownership by the corporation of a certain formula, which constituted the principle if not the sole value of the corporation, which representation was knowingly made to mislead.

In the contract looking to the purchase of the remaining 125 shares of stock there was inserted what may be referred to as the release clause, numbered 5 in the majority opinion. This release was pleaded as a full defense to the cause of action. Plaintiff by way of reply interposed replication E, which sets out the full history of the two transactions, and in which it is expressly averred that upon the execution of the contract of May 22, 1917, some of the above false representations were reiterated; and plaintiff acted on said representations in entering into said contract of May 22, 1917, and the defendant knew that such representations were false when he made them; that defendant received all the considerations mentioned in the contract of May 22, 1917, and went into the possession of the personal property therein mentioned, and converted the same to his own use and purpose; and that it is impossible for the defendant to return to plaintiff the considerations which inured to defendant's benefit on the execution of such contract, and put plaintiff in statu quo. Plaintiff avers that as to the purported release embodied in said contract, the execution of which was procured by said false representations, the defendant is estopped to demand the return of the considerations as a condition precedent to the rescission of that part of the contract relating to the release until it appears that defendant is ready, able, and willing to return to the plaintiff the considerations which moved from plaintiff to defendant in the execution of said contract.

It thus appears that the plaintiff in his replication shows that a fraud was practiced upon him in the original transaction of November 28, 1916, whereby he purchased worthless stock, and of which fraud he was ignorant at the time of the execution of the contract of May 22, 1917, which contained the release clause above noted; and the defendant reiterated the false representations at the time of the execution of this latter contract. Notwithstanding the pleadings disclose these fraudulent representations, the holding of the majority of the court concludes to the effect that the broad and comprehensive language contained in this latter contract — in what is here termed the release clause — forecloses the plaintiff in this cause of action. I cannot agree to such holding. I have read the cases cited in the opinion to sustain this conclusion, viz., Kirchner v. New Home Sewing Machine Co., 135 N.Y. 182, 31 N.E. 1104; Sherburne v. Goodwin, 44 N.H. 271; Slayton v. Hemken, 91 Hull, 582, 36 N.Y. Supp. 249; Pierson v. Hooker, 3 Johns. (N.Y.) 68, 3 Am. Dec. 467.

In none of these cases was the question of fraud involved, and, indeed, in some of them it clearly appears that fraudulent conduct on the part of the releasee would avoid the release. Indeed, in Kirchner v. New Home Sewing Machine Co., the New York court expressly points out that they do not hold that the release is conclusive or unavoidable, but that the plaintiff may show fraud on the part of the defendant, in which event, to quote the language of the decision:

"He is entitled to an instruction to the jury to the effect that the release does not bar his right to recover."

That decision also held that such fraud on the part of the defendant would be sufficient to estop him from insisting upon any advantage to be derived from plaintiff's mistake, and that, under such circumstances, the strict rule as to restoration as to what has been received, applied in cases of rescission of contracts, is not applicable to such case, saying:

"This is not the case of an attempted rescission of a contract, upon the ground of fraud, and the plaintiff is not, therefore, under any obligation to return what he has received, or to tender restoration. He is not seeking to disaffirm the agreement actually made, but merely objecting to the application of the written evidence of it to a subject which the parties did not intend to include in it."

In Slayton v. Hemken, supra, the question of fraud was not involved. The opinion discloses that an opportunity was given by the trial court to the plaintiff to show fraud, but was not availed of. Nor did the case of Pierson v. Hooker, supra, embrace any question of fraud. The citation of this authority therefore, by this court, in Thomason v. Dill, 30 Ala. 444, is without significance. The authority, however, was cited merely to a statement in the opinion written by Justice Stone, to the effect that when a contract is reduced to writing all previous agreements are merged in the writing and, to use the language of the decision:

"In the absence of fraud and mistake, stipulations left out of the writing are considered as abandoned."

In St. L. S. F. R. R. Co. v. Richards, 23 Okl. 256,102 P. 92, 23 L.R.A. (N.S.) 1032, the Supreme Court of Oklahoma had under consideration a question very similar to that here involved. The opinion points out the two kinds of fraud avoiding a release: (1) Fraud in its execution whereby the party was induced to sign an instrument he really did not intend to make; and (2) fraud in the procurement of the instrument by false representations as to collateral matters, whereby he was induced to sign the instrument, the contents of which he understood, but which he would not have signed but for said false representations of collateral matters. Speaking to the question here under consideration, the court said:

"Nor should it be forgotten or overlooked in the consideration of this class of cases that they are not strictly actions brought for rescission. * * * The contract or release is a mere incident to the suit. The cause of action grows out of an independent antecedent fact, and the release is simply a matter of evidence in defense to the plaintiff's claim of right to prosecute. Nor does it matter that plaintiff, in the release itself, waived, for a consideration, the right to maintain a suit for damages inflicted, if in fact the release was procured through fraud, for no contract is made except the parties thereto retain within themselves the right to assail it on the ground of fraud. Even a stipulation to the effect that any false and fraudulent representations inducing the other to enter into it should not affect its validity would of itself be of no validity. The law will not give effect to a stipulation, if fraudulently entered into, that would grant immunity to iniquity and fraud."

Plaintiff's cause of action is not rested upon this contract, but upon one previously entered into, and, if induced to make the release by false and fraudulent representations, he should be permitted to reply such fraud as an answer why the release should not be held binding upon him. This did not, in my judgment, at all infringe on the rule that you cannot contradict a written contract by parol; but these facts and circumstances set up in the replication should be permitted in evidence for the jury to determine whether or not from the language used such a claim, as here sued upon, was intended to be embraced within the terms of the release. That such fraud suffices to avoid the release, I entertain no doubt; and the only serious question in my mind is one of practice as to whether or not such fraud in procurement may be pleaded as an answer to such plea in the trial of the cause at law. The authorities are in conflict as will be noted by examination of the many cases cited in the note to the case of Olston v. Oregon Water Power R. R. Co., 20 L.R.A. (N.S.) 915.

In Wagner v. National Life Ins. Co., 33 C.C.A. 127, 90 Fed. 401, cited in the above note, it was held that in cases of this character replications setting up such fraud should be allowed; the court saying:

"The history of the course of the English and American courts in defeating releases which would have been set aside in equity justifies the conclusion that there was more liberality in allowing replications to avoid them than in the case of other specialties. The inconvenience of compelling a plaintiff in an action at law, who was met by a plea of release, to resort to an expensive and vexatious proceeding in equity to set it aside for fraud, led courts of law to exercise what has already been alluded to as their equitable jurisdiction to defeat the plea."

The court concluding as follows:

"Our conclusion is, therefore, that it is proper in a suit at law for the plaintiff to meet a plea of release by a replication that the release was obtained by fraud, whether the fraud is in the execution, or in misrepresentation as to material facts inducing execution. We are glad to come to this conclusion, because it avoids circuity of action, and thus facilitates the administration of justice. * * * But where the issue is simply one of fraudulent misrepresentation, it may be as well tried to a jury as to a court of equity, for fraud is an issue of which courts of law and equity, from time immemorial, have had concurrent jurisdiction."

Where the issue is between the original parties to the transaction, and the question of fraud only arises upon the reply of the plaintiff to the defendant's plea of release, I am in full accord with what was said by Judge Taft, the writer of the opinion in Wagner v. Nat. Life Ins. Co., supra, to the effect that the plaintiff may meet such a plea of release by replication setting up the fraud, and not be compelled in the midst of a trial at law to resort to an expensive and vexatious proceeding in equity to set aside the instrument. Such a situation is held by some of the authorities to present an exception to the general rule, and clearly, a court of law may as well try the entire matter which arises collaterally to the main suit, and thus in one suit dispose of the litigation and avoid circuity of action.

But, aside from all these considerations, I am unable to understand why the provisions of section 3973 of the Code of 1907 are not here directly applicable as to this particular release. The plaintiff by his replications to the pleas merely attempted to show the fraud which was perpetrated upon him, and the ignorance on his part of any claim of right of action growing out of said fraud at the time of the execution of the contract containing the release; and that therefore his right of action upon the contract of November 28, 1916, was not embraced in the release, as it could not have been within the intention of the parties at the time.

Under the foregoing statute a release is placed upon the same basis as a receipt, and it is expressly provided that —

"All receipts, releases, * * * must have effect according to the intention of the parties thereto."

This statute has been frequently construed by this court, and the case of Stegall v. Wright, 143 Ala. 204, 38 So. 844, with the authorities therein cited, clearly demonstrates to my mind that such replication was a complete answer, and that evidence to this effect was entirely admissible under the provisions of said statute. Under this statute there can be no question but that the replication was proper as an answer to said plea in the trial of this case at law; and I am therefore of the opinion that under the provisions of this statute, without regard to any other question, error was committed in sustaining the demurrer to the replication, and the cause should be reversed.

The cases of St. L. S. F. R. R. Co. v. Richards and Kirchner v. New Home Sewing Machine Co., supra, sufficiently show that the strict rule as to restoration of what has been received — required in cases of rescission — is without application to the situation here presented; but, in any event, the replication sufficiently excuses the plaintiff from such restoration.

I respectfully dissent.