Dickson v. Day , 275 S.W. 307 ( 1925 )

^* Writ of error dismissed for want of jurisdiction November 18, 1925. The contention presented by the first, second, sixth, tenth, and eleventh assignments in appellants' brief is that, to be entitled to the relief awarded him, Day must have alleged and proved that he offered to rescind his contract with Baker before Dickson "accepted" his assumption of the payment of the notes specified. We do not understand that to be the law. On the contrary, as we understand it, the law warrants the statement that, if Baker practiced fraud upon Day and thereby induced him to enter into the contract whereby he assumed the payment of the notes, Day had a right to rescind the contract without respect to whether Dickson had accepted such assumption or not, and without respect to whether Dickson knew or was chargeable with knowledge of such fraud or not. In support of his contention Dickson argues that —

"The acceptance of the contract of indebtedness by the holder of the indebtedness creates a separate and independent contract between the holder of the indebtedness and the party assuming same, and may only be set aside by mutual consent * * * or for fraud committed either by the holder or the party assuming the indebtedness."

We do not think the argument is sound, or that it has support in the cases Dickson cited, to wit, Hill v. Hoeldtke, 104 Tex. 594, 142 S.W. 871,40 L. R A. (N.S.) 672, and Maddox v. Clark, 107 Tex. 212, 175 S.W. 1053. In fact, there is a strong intimation in the Hill-Hoeldtke Case that the Supreme Court was of the opinion that a promisor induced by fraud of the promisee to assume indebtedness of the latter was not liable to the owner of the indebtedness merely because the latter had "accepted" such assumption. The authorities are to the effect that the right of the holder of the indebtedness so assumed is a derivative one, and not referable to a "separate and independent contract" between him and the promisor. That being the nature of the holder's right, if the promise, because of fraud or for lack of a consideration, is not enforceable by the promisee, it is not enforceable by the holder of the indebtedness assumed. Hanover Fire Ins. Co. v. Bank (Tex.Civ.App.) 34 S.W. 333; Hill v. Hoeldtke, 54 Tex. Civ. App. 201, 117 S.W. 217; Heath v. Coreth,11 Tex. Civ. App. 91, 32 S.W. 56; Malanaphy v. Mfg. Co., 125 Iowa 719,101 N.W. 640, 106 Am. St. Rep. 332; Dunning v. Leavitt, 85 N.Y. 30, 39 Am.Rep. 617; 6 R.C.L. 886; 13 C.J. 712. In the case first cited, the court said:

"The doctrine is well established in this state that A., for a consideration paid by him, may make a contract with B., for the benefit of C., and the latter will have a right of action to enforce it. Spann v. Cochran, 63 Tex. 242; McCown v. Schrimpf, 21 Tex. 27 [73 Am.Dec. 221]; Story, Cont. § 451b. But, if the contract was obtained by a fraudulent device of A., the person for whose benefit he fraudulently obtained it can gain no higher right than A. held, and, if the contract is void as to him, it is void as to his beneficiary."

In the case next cited (Hill v. Hoeldtke), the court said:

"We think it is also clear that plaintiff in error is entitled to defend against personal liability on the notes by tendering back the land and showing that he was induced to accept the conveyance and assume the notes through the fraud of McLeary, his vendor, in falsely representing that the land was free of other liens, if upon discovering the fraud he acts promptly in rescission, and before he induces defendants in error to rely upon the assumption to their injury. Heath v. Coreth, 11 Tex. Civ. App. 91,32 S.W. 56; Loeb v. Willis, 100 N.Y. 231, 3 N.E. 177; Drury v. Hayden,111 U.S. 223, 4 S. Ct. 405, 28 L. Ed. 408; Dry Goods Co. v. Swofford,65 Kan. 572, 70 P. 582. To same effect: Keller v. Ashford, 133 U.S. 610,10 S. Ct. 494, 33 L. Ed. 667; Clay v. Woodrum, 45 Kan. 116, 25 P. 619; Green v. McDonald, 75 Vt. 93, 53 A. 332."

And in another one of the cases cited, to wit, Dunning v. Leavitt, Andrews, J., speaking for the New York Court of Appeals, said:

"I know of no authority to support the proposition that a person not a party to the promise, but for whose benefit the promise is made, can maintain an action to enforce the promise, where the promise is void as between the promisor and promisee for fraud, or want of consideration, or failure of consideration. It would be strange, I think, if such an adjudication should be found."

On the theory, it seems, that it conclusively appeared from the testimony that Day "ratified and confirmed" the contract between him and Baker after he discovered that Baker had misrepresented the value of the 40 acres of land, appellant Dickson asked the court to instruct the jury to return a verdict in his favor, and complains because the court refused the request. There was testimony, and it was undisputed, that after Day saw and examined the land and discovered that Baker had misrepresented its value he authorized one Fowler to represent him in renting or selling it, and accepted and used $171 paid him by Fowler as rent of the land. We think there is no escape from the conclusion that such conduct on the part of Day operated to deprive him of the right he had to rescind the contract, and that his remedy thereafter for the wrong done him was by a suit against Baker for damages. 2 Black on Rescission and Cancellation, par. 595; 9 C.J. 1199; 4 R.C.L. 514; Shappirio v. Goldberg, 192 U.S. 232,24 S. Ct. 259, 48 L. Ed. 419; Minter v. Hawkins, 54 Tex. Civ. App. 228,117 S.W. 172; Burke v. Ellis, 44 Tex. Civ. App. 21, 97 S.W. 321; Refining Co. v. Swope (Tex.Civ.App.) 241 S.W. 597. On the page cited of Ruling Case Law, the rule is stated to be:

"That where a party has been induced to enter into a contract by false and fraudulent representations, he may upon discovering the fraud rescind the contract; but [the writer of the article adds] the great weight of authority holds that if the party defrauded continues to receive the benefits under the contract after he has become aware of the fraud, or if he otherwise conducts himself with respect to it as though it were a subsisting and binding engagement, he will be deemed to have affirmed the contract and waived his right to rescind."

The rule, it seems (5 Pomeroy's Equity Jurisprudence, § 2109), rests —

"upon a distinct principle of public policy, that all that justice or equity requires for the relief of a party having such cause to impeach a contract is that he should have but one fair opportunity, after full knowledge of the rights, to decide whether he will affirm and take the benefits of the contract, or disaffirm it and demand the consequent redress."

Day cites G., H. S. A. R. Co. v. Cade (Tex.Civ.App.) 93 S.W. 124, as a case holding to the contrary of the conclusion reached by us. But when the facts of that case are kept in mind, it is plain, we think, it is like this one only in respects referred to by the Supreme Court and disapproved when it denied the railway company's application for a writ of error. G., H. S. A. R. Co. v. Cade, 100 Tex. 37, 94 S.W. 219.

Day's contention in effect that, if his conduct as stated operated to deprive him of a right to the rescission he sought, Dickson should not be heard to say so, because, he asserts, Dickson did not plead that he (Day) had waived the fraud practiced upon him; we think is not supported by the record. It seems to us that such a waiver, in the absence of a special exception thereto, was sufficiently alleged in a paragraph in Dickson's first supplemental petition as follows:

"That by failure to promptly disaffirm said contract and claim a rescission, and notifying plaintiff thereof prior to his acceptance, and retaining possession of the premises, and using and collecting rents and revenues thereon, and by failing to exercise ordinary care to ascertain said fraud, if any there was, and by failing to notify plaintiff thereof prior to plaintiff's acceptance of his contract of assumption, said Day has lost his right of rescission against said Baker as well as against plaintiff, and is no longer entitled to rescission, but can only recover damages from defendant Baker for the fraud complained (of), if any there was."

It follows from what has been said that we think the judgment is wrong so far as appellant Dickson is concerned, in that it denied him a recovery against Day, whereas it should have been in his favor, against Day as well as against Baker.

The contentions presented by the assignments in appellant Baker's brief are: 1. That the findings of the jury (1) that he represented to Day as a fact and for the purpose of inducing him to enter into the contract that the land was worth $200 an acre, and (2) that Day believed the representation to be true and was induced by that belief to consummate the contract, were "contrary to and against the undisputed evidence." 2. That the finding of the jury that he falsely represented the value of the land to be $200 an acre, and did not represent the improvements thereon to be worth $2,000, were "conflicting and contradictory." It is obvious, we think, that the findings last referred to were not conflicting. As to the other findings, we think there was testimony to support them.

The judgment will be reversed so far as it denied Dickson the recovery he sought against Day, and judgment in Dickson's favor against Day, like the one in the court below in favor of Dickson against Baker, will be rendered here. The judgment of the court below will not be disturbed in any other respect. The costs incurred by Dickson in the appeal will be adjudged against Day. The other costs of the appeal will be adjudged against Baker.