Rumsey v. Shaw , 25 Pa. Super. 386 ( 1904 )

Opinion by

Pobtek, J.,

The plaintiff being the owner of an option to purchase all the stock of the Martinsburg Electric Company, of Marfcinsburg, W. Va., at the price of #50,000, which option expired on November 14, 1899, employed one Wilbur to assist him in making a sale of the option. Wilbur presented the matter to the defendant and, after some preliminary negotiations, the parties, plaintiff, defendant and Wilbur, met at Martinsburg on November 13, 1899. The defendant found that the extent and physical condition of the property of the electric company was as it had been represented to be, but desired additional time to investigate as to the amount of the net earnings which resulted from its operations. The stockholders of the electric company gave to the defendant a new option upon the stock, at the same price, which extended until February 15, 1900, he paying to the company for such new option the sum of #2,500, which was to be credited upon the purchase price in case the option was closed. The defendant, on November 13,1899, entered into an agreement to pay the plaintiff #1,500, for his option which, expired the next day, and paid §1,000 of said amount in cash and agreed to pay the remaining §500 on or before February 15, 1900. The §500 was not paid within the time specified, and for the recovery thereof the plaintiff brought this action.

The defense is upon the ground that Shaw was induced to enter into this contract upon the faith of positive representations made at the time as to the amount of the net earnings of the electric company, which representations were upon investigation discovered to be false. There was evidence which if believed would have warranted a finding that plaintiff and his associate, Wilbur, in his presence had represented to the defendant that the earnings of the company were not less than §6,000 per annum. There was no question in controversy at the trial which involved the extent and condition of the lands and equipment owned hy the company ; the contest was over the amount of the net earnings of the company and the representations which plaintiff had made with regard to the same. It is an undisputed fact that the defendant, after the books of the company had been examined by an expert for the purpose of ascertaining the actual amount of the net earnings, and as the result of that examination, let the new option, which he had taken in his own name, lapse and lost the §2,500, which he had paid to the stockholders of the electric company.

The jury were in substance instructed, in the language which is the subject of the third specification of error, that they might infer from the fact that the defendant had inspected the plant of the conqjany, or from the information conveyed to him by Kitner that the defendant had full knowledge concerning the plant including its income, and, if they did so infer, that the defense set up could not be sustained. The defense was not upon the ground that the physical plant of the company was not what it had been represented to be ,• the sole complaint of the defendant was that the amount of the net income had been misrepresented. There was no evidence that the defendant, prior to the making of this contract, had been permitted to inspect the books of the company or had any opportunity to ascertain the amount of the company’s revenues, nor was there any evidence that Kitner had communicated to him any information upon that subject. This instruction might well have lead the jury to understand that they could base their verdict on a finding of fact of which there was no evidence, and the specification of error must be sustained: Paul v. Kunz, 195 Pa. 207; Reel v. Martin, 12 Pa. Superior Ct. 340.

The court below held, in the ruling, which is the subject of the fourth specification of error, that the defendant could not set off, as against the claim of the plaintiff, the amount of the damages which he had sustained by reason of being led to part with his money through misrepresentations as to the net income of the company the entire issue of the stock of which was the subject of the option with regard to which the parties contracted. The reason of the learned judge for so holding, as stated in his opinion refusing a new trial, was because the defendant had failed to promptly rescind the contract and tender back to Rumsey the option with regard to which they had bargained. The damages which the defendant attempted to set off grew out of the same contract upon which the action was brought. The option of Rumsey expired the day after this contract was made, the defendant obtained a new option for the purpose of enabling him to have an examination made into the amount of the income of the company; there does not seem to have been any unreasonable delay in the making of this examination, and when it was completed the Rumsey option had expired. When the defendant discovered the facts which would have warranted a rescission of the contract it was not possible to place the parties in the position which they had occupied at the time the contract was made for the reason that the property, the Rumsey option, which was the subject of the contract, had ceased to exist. When it is not possible for a vendee to restore the conditions which had existed, at the time of his contract of purchase, when he discovers that he has been the victim of misrepresentation he may, without a formal rescission of the contract, have compensation in damages for the injury, as an equitable defense to an action0 on the contract, or to be recovered in a suit for them: Blygh v. Samson, 137 Pa. 368. When a party relies upon a rescission of a contract he must show that he elected to rescind with reasonable promptness upon discovery of the fraud, and must tender a return of the property or security which was the subject-mat-* ter of the contract: Cornelius v. Lincoln Nat. Bank, 15 Pa. Superior Ct. 82. When, however the thing, the consideration of which is sought to be recovered back, is entirely worthless, there is no duty to return it: Babcock v. Case, 61 Pa. 427; Beetem v. Burkholder, 69 Pa. 249. The fourth specification of error is sustained.

The judgment is reversed and a venire facias de novo awarded.