Kloppenburg v. Mays , 60 Idaho 19 ( 1939 )

The ground for reversal in the majority opinion is that to support rescission of a contract for fraud in its inception, pecuniary injury must be shown and that herein none was shown.

Of the three cases cited in the opinion on this propositionWhite v. Kincaid, 149 N.C. 415, 63 S.E. 109, 128 Am. St. 663, 23 L.R.A., N.S., 1177, was an action by a minority stockholder to enjoin the majority from winding up and dissolving the corporation; Van Buren v. Posteraro,45 Colo. 588, 102 P. 1067, 132 Am. St. 199, was a suit to restrain the enforcement of a judgment and remove it as a cloud on plaintiff's real estate, and Adler v. Fenton, 24 How. (U.S.) 407, 16 L. ed. 696, was an action to set aside an assignment as an alleged fraud on plaintiff, creditor of the defendant. Thus none of the three involved rescission.

While there is authority to the effect that there can be no recovery on the ground of fraud unless injury is shown, the definitive rule with regard to rescission is that while it is necessary to show injury in an action for damages for fraud — and a distinction is made between an action for specific performance and for rescission — action for rescission will lie though no pecuniary damage is shown. (26 C.J. 1171, sec. 79; 58 C.J. 970, sec. 154; 13 C.J. 610, sec. 651; Everson v. J.L. Owens Mfg. Co., 145 Minn. 199, 176 N.W. 505; 66 C.J. 565, sec. 117.)

"Counsel for plaintiff in error urge that, in order to establish fraud, actual pecuniary damages must be pleaded and proven, and that, inasmuch as the plaintiff's pleadings and proof failed in this respect, the judgment of the trial court must be reversed. The general rule is announced in 39 Cyc. 1254, as follows:

" 'The general rule is that a vendor or purchaser is not entitled to rescind the contract because of the other party's fraud or misrepresentation, unless he has been damaged or prejudiced thereby. But it is not always necessary to show actual pecuniary damages. It is enough for him to show that he has been otherwise prejudiced, as that he has been induced by material false representations to enter into a contract which he would not have entered into but for such representations.' " (Conrad v. Darnell, 114 Okl. 48, 242 P. 772, 773.)

"Appellant's contention that the representation was hot material is likewise unconvincing. The test of materiality is that the contract sought to be rescinded would not have been made if the representation had been absent. Colton v. Stanford,82 Cal. 351, 399, 23 P. 16, 16 Am. St. 137; Craig v. Shea,45 Cal. App. 351, 354, 188 P. 73." (Shirreffs v. Alta CanyadaCorp., 8 Cal.App. (2d) 742, 48 P.2d 55, 58.)

"It is urged . . . . that the plaintiff suffered no damage because of this misstatement of fact and that this action cannot, therefore, be maintained. Attention is called to the well-recognized rule that damage or prejudice must be shown to maintain an action for fraud; . . . . that fraud without damage or damage without fraud is not actionable. Urtz v. New YorkCent. H. R. R. Co., 202 N.Y. 170, 95 N.E. 711, and kindred cases laying down this rule are cited. These cases were brought to recover damages for deceit, where the defrauded party elected to affirm the contract and sue for the loss sustained, and where the measure of damages would be the difference in value of the article sold and what it would be had it been as represented . . . . this is not an action to recover damages for deceit, but is brought upon a rescission of the contract to recover the consideration paid . . . . Under these circumstances, appellant was not bound to show that it had suffered pecuniary loss by reason of defendant's fraud." (Commercial Credit Corp. v. Third LaFayette Sts. Garage,226 A.D. 235, 234 N.Y. Supp. 463, 468.)

"It is urged that the complaint does not state a cause of action because (a) it does not allege that plaintiff has suffered pecuniary loss. . . . .

"(a) Is it essential to the statement of a cause of action for rescission of a contract for fraud that the plaintiff allege that he has suffered pecuniary loss? . . . .

. . . . . . . . . . . . . .

"It is axiomatic in the law that, if it is necessary to allege a particular fact, it is equally necessary to prove it, if the allegation is put in issue. It certainly could not be said that it would be sufficient for plaintiff to allege that as a result of the fraud he suffered damage 'in an appreciable amount' or suffered 'material damage' or 'substantial damage.' Any one of these allegations would render the pleadings subject to demurrer under section 6534 of our Codes. If it is necessary to allege pecuniary loss it is necessary to allege the amount of such loss; but section 6532 Revised Codes, provides, 'if the recovery of money or damages be demanded, the amount must be stated,' and this provision is exclusive. 'Expressio unius estexclusio alterius.' This is not an action for the recovery of money or damages, and therefore it is not necessary to allege that plaintiff suffered pecuniary loss.

"Courts of equity, like courts of law, however, do not concern themselves with wrongs which do not produce injury; but 'injury' and 'pecuniary loss' are not synonymous terms. InShoudy v. Reeser, 48 Mont. 579, 142 P. 205, this court stated the rule that, to make out a case of actual fraud, it is necessary for plaintiff to allege: (1) That defendant made representations with the intent that they should be relied upon; (2) that they were false; (3) that by reason of the fraud plaintiff suffered damage. These are the elements recognized by the authorities generally. Most of the courts and text writers employ the term 'damage' in the sense of injury; a few restrict its meaning to financial loss. We prefer to adhere to the rule which gives to the term its broader significance as including either pecuniary loss or the alteration of one's position to his prejudice. Fraud may result in injury which cannot be measured in dollars and cents. . . . ." (Stillwell v. Rankin,55 Mont. 130, 174 P. 186, 187.)

Barcus v. Dorries, 64 A.D. 109, 71 N.Y. Supp. 695, was an action brought to recover for certain books sold to defendant by an agent of plaintiff who falsely represented and induced defendant to believe that he was purchasing the books from a committee of the United States Congress. The court held that defendant had a right to repudiate the contract:

"Under those circumstances, we think it was entirely immaterial that he got the precise books which he bargained for, and that they were in every way as valuable as if they had been the property of the Committee on Distribution, and sold by such committee to him. The principle which is controlling in this case, and which prevents a recovery by the plaintiff is stated in the case of Arkansas Valley Smelting Co. v. BeldenMin. Co., 127 U.S. 379, 8 Sup. Ct. 1308, 32 L. Ed. 246 as follows: 'But every one has a right to select and determine with whom he will contract and cannot have another person thrust upon him without his consent.' "

See also: Boston Ice Company v. Potter, 123 Mass. 28, 25 Am.Rep. 9. It is likewise argued that the doing of a lawful thing in a lawful way is not actionable even though it may result in injury to another, citing White v. Kincaid, supra. The non sequitur is that the appellants here were not doing a lawful thing in a lawful way but a lawful thing (i. e., buying the Golconda) in an unlawful way (i e., by deceit) and I do not think the court should on such specious reasoning place its stamp of approval on fraud and misrepresentation. The trial court's findings of fraudulent material representations are amply supported by appellants' own admissions.

True the contract did not provide against assignment as it could have done but that does not do away with the fact that Mays made false statements, that he knew they were false, that they were made for the purpose of inducing respondent to enter into the contract and that had respondent known the true facts he would not have made the contract. It was his substantial legal right to contract with Mays and not with Greene and Howes. "The voice is Jacob's voice, but the hands are the hands of Esau," (Gen. XXVII, 22.

To allow rescission of the contract restores respondent to possession of his property. Mays, Howes and Greene, of course lose the advantage of their bargain, but they were the ones who committed the fraud, they were the ones that brought about the unfair situation, and properly protected as to their expenditures, it seems to me respondent should not be held to have appealed in vain to a court of equity. "Truth (should not be) forever on the scaffold, wrong forever on the throne." "The Present Crisis," Lowell.

While the trial court found that the work of appellants was of no value I think the evidence does not support him. The only evidence of value of the tunnel, outside of conclusions, was that given by appellant Howes who valued it at $10 per foot, and Penrod, witness for respondent, at $6 per foot.

The judgment should be affirmed upon respondent paying to appellants $575 (work done by appellants) with interest thereon from the date respondent refused to accept further payments under the contract.

Budge, J., joins in this dissent.