Consolidated Wagon MacH. Co. v. Kay , 81 Utah 595 ( 1933 )

In my opinion, the judgment in this case should be reversed and a new trial granted. In remanding the cause for a new trial, the parties should be permitted, if they are so advised, to amend their pleadings. I concur in the views expressed in the prevailing opinion that this cause is one of equitable cognizance. A proceeding to foreclose a chattel mortgage is a suit in equity. Whether a decree of foreclosure of a chattel mortgage should or should not be entered depends on whether or not anything is owing upon the obligation secured by the mortgage, and in the event the mortgage is to be foreclosed a determination of the amount owing and secured by the mortgage. A suit to foreclose a mortgage does not cease to be a suit in equity because the mortgagor claims a set-off or recoupment against the amount claimed to be owing. The cases cited in the prevailing opinion amply support such view. I also concur in the view expressed in the prevailing opinion that the deficiency judgment against Zina D. Kay should be reversed. The assignments of error are made jointly by the defendants. As a general rule, where several appellants jointly assign error, they must be disregarded as to all, unless the assignments are good as to all joining therein. Such rule, however, has no application where the mandatory record of the court shows that the judgment is not supported by the pleadings. It is alleged in the complaint filed in this cause that Loren Kay and George S. Cooke signed the contract for the purchase of the combine gleaner. A copy of the contract of purchase is attached to and made a part of the complaint. It shows that Mrs. Kay did not sign the contract. She did sign the chattel mortgage and that only. She was therefore not liable for the purchase price of the machinery beyond what might be received for the sale of the mortgaged chattels. When the mandatory record shows that the judgment was rendered contrary to fundamental law, such judgment is void for all purposes. In the language of Mr. Justice Straup, writing the opinion for this court in the case of Worley v.Peterson, 12 P.2d 579, at page 587:

"And a judgment founded upon such a record is subject to direct and collateral attack, and will, sua sponte, be noticed by courts and acted upon by them without regard to the wishes or relation of the parties named upon the record."

The complaint upon which the judgment in this case was rendered showing, as it does, that the judgment against Mrs. Kay is wrong, this court should order it vacatd as to any deficiency without regard to the assignments of error. It is urged on behalf of appellants that the defendant Cooke was entitled to a jury trial, in any event, because he did not sign the chattel mortgage. As already indicated, all of the assignments are made jointly, and this appeal was taken jointly. This court is committed to the doctrine stated in McGuire v. State Bank ofTremonton, 49 Utah 381, 164 P. 494, 495.

"It is well settled that, where several appellants jointly assign errors, unless the assignments are good as to all who join therein, they must be disregarded as to all."

If, therefore, Mr. and Mrs. Kay were not entitled to a jury trial, it follows that the defendant Cooke, having joined with them in the assignments, may not succeed unless Mr. and Mrs. Kay are also entitled to succeed on the assignments.

This proceeding being a suit in equity, the parties are entitled to have this court review both questions of law and of fact. In their assignments of error, appellants have attacked those findings which are to the effect that plaintiff in no way deceived or defrauded the defendants in the transaction for the sale and purchase of the combine gleaner. In my opinion, the clear preponderance of the evidence requires a finding that the plaintiff perpetrated a fraud upon the defendants in the sale of the combine harvester.

There is no conflict in the evidence as to these facts: The contract for the sale and purchase of the combine gleaner was entered into on June 8, 1928. The contract price was $1,625. The gleaner was valued at $1,000, and the Fordson tractor, which was to be used to furnish the power to operate the gleaner, was valued at $625. The gleaner had been used before the contract was entered into, but apparently the tractor had not. The sum of $100 was paid on the date the contract was entered into. The sum of $300 was to be paid on the day of delivery, $425 on December 1, 1928, and the remainder on December 1, 1929. At the time the contract was entered into, the gleaner was not set up. It was at Malad, Idaho. The contract was entered into at Tremonton, Utah. When the contract was entered into, no grain was ripe in the vicinity of Malad or Tremonton, so there was no way at that time of trying out the gleaner. In the summer of 1927 the gleaner had been sold to a Mr. Haws, who resided at Holbrook, Idaho. Mr. Haws attempted to operate the gleaner, but after a trial of a few days he notified the plaintiff company that it would not operate successfully, and requested the company to come and get it. The agents of the plaintiff company attempted to convince Mr. Haws that he should give the gleaner a further trial, but he refused to do so. James Walton represented the plaintiff company in the sale of the gleaner to the defendants. He was familiar with the land and the kind of grain that was grown by the defendant Kay and others in the vicinity where the gleaner was to be used. Mr. Kay's land and the other lands in that vicinity were level. During the negotiations which preceded the execution of the contract, Mr. Walton stated to the defendant Kay that the combine gleaner was what he needed, and that it would successfully harvest his grain and the other grain crops in that vicinity; that the combine gleaner would work as successfully as other combine harvesters. There is a slight discrepancy between the testimony of the defendant Kay and of Mr. Walton as to what was said in the negotiations which led up to the execution of the contract. Defendant Kay testified that Mr. Walton stated that the company had repossessed the harvester from Mr. Haws the year before, and that Mr. Walton did not tell him of any one other than Mr. Haws who had used that particular type of combine harvester. Mr. Walton testified that he informed Mr. Kay of a number of persons who had successfully used gleaners of the same type as the one in question; that he informed Mr. Kay that the gleaner which he proposed to sell had been repossessed from Mr. Haws the year before; that the gleaner would not operate successfully on hilly ground, and that was the reason Mr. Haws returned the gleaner.

The defendants called as witnesses L.D. Haws and Clarence Haws who in 1927 agreed to purchase the gleaner in question. Their testimony is to the effect that the land upon which they attempted to use the gleaner was level; that the grain was free from weeds, and went about 15 bushels to the acre; that the gleaner could not be made to cut or thresh their grain successfully; that it would not separate the grain from the straw; that it clogged up and gave them so much trouble that after a trial of five or six days they were compelled to abandon its use. The defendant Kay testified that the gleaner could not be made to operate successfully; that the reel chain was always breaking; that, if there were weeds in the grain, the reel chain would pull off; the weeds would wrap around the cylinder, the sprocket chain, the slats, the belting, and tail worm; that the belting would fly off; that it was frequently necessary to cut out the weeds and wild oats which would clog various parts of the gleaner; that the clutch would wear so that it was necessary to file notches therein; that in a short time it would again become necessary to file notches in the clutch; that during the first year he harvested 300 acres of grain, during the second year about 100 acres; that, after the harvester had been used two years, it was worn out and worthless. The testimony of the defendant Cooke is to the same effect as is the testimony of the defendant Kay. A Mr. Allen testified that soon after Mr. Haws purchased the gleaner in question he used it to cut 11 acres of his (Mr. Allen's) grain; that it took him five days to cut 11 acres; that the gleaner failed to separate the grain from the straw, and as a result much of his grain was wasted; that the cutter bar of the gleaner was eight feet wide, but in order to operate the gleaner it was necessary to cut a swath of from one to three feet in width. Mr. Allen corroborated the testimony of the defendants Kay and Cooke as to the difficulties encountered in operating the gleaner. Defendants called a number of farmers who had attempted to operate a gleaner of the same type as that purchased by defendants Kay and Cooke. Their testimony tends to show that other gleaners of the same type as the one in question could not be made to operate successfully on either hilly or level ground; that, after such gleaners were operated for a short period of time, they shook to pieces. The testimony of these farmers was admitted over plaintiff's objection. It was offered and admitted on the theory that it tended to show that plaintiff, at the time it sold the gleaner involved in this controversy, knew that it would not operate successfully. No complaint is made on this appeal because of the admission of such testimony. Three of the plaintiff's employees testified concerning the character of the work that the type of gleaner here involved was capable of doing. Their testimony is to the effect that, while such gleaners could not be successfully operated in hilly ground, they could be operated successfully on level ground. The plaintiff did not offer any evidence touching the manner in which the gleaner in question operated except on the first day that it was used by the defendant Kay. It was also made to appear that after one or two years the gleaners, such as the one in controversy, were not manufactured.

Plaintiff in its brief earnestly contends that the evidence conclusively shows that the gleaner was in fact as represented because it was used to harvest 300 acres of grain during the first year and 100 acres during the second year after it was purchased by the defendants. As already stated, the contract price of the harvester and the Fordson was $1,625, of which $1,000 was for the gleaner and $625 for the Fordson. It appears that the price paid for the harvesting of grain with a gleaner was from $2.25 to $2.50 per acre. If defendants' evidence is to be believed, and there is no evidence to the contrary, the gleaner was valueless after it had been used to cut 400 acres. Thus the grain cut at the maximum of $2.50 per acre would barely pay for the gleaner, allowing nothing for the depreciation of the value of the Fordson and nothing for the time and expense incident to the harvesting of the 400 acres of grain. Machinery which cannot be used to earn sufficient to pay its purchase price may not well be said to operate successfully. It is further urged on behalf of respondent that there was no occasion for appellants to rely on the representations made by respondent's agents; that Mr. Kay could have ascertained for himself just what the combine gleaner was capable of doing. The policy of the law is on the one hand to suppress fraud, and on the other to discourage inattention to one's own interest. Respondent contends that appellants' own negligence or inattention to their own interests should, in any event, preclude them from interposing a defense of fraud in this proceeding. The courts are not entirely in accord as to the circumstances under which the negligence of a party to a contract defeats his right to recover for fraud. It may be said generally that: "Where the means of knowledge are at hand and are equally available to both parties, and the subject matter is alike open to their inspection, if one of them does not avail himself of those means and opportunities, he will not be heard to say that he was deceived by the other's misrepresentations. But this doctrine does not authorize deception in what is said or unsaid, and hence the effect of negligence on the part of the party deceived may be tolled by the active fraud of the other party." 12 R.C.L., § 123, p. 372. Applying these principles to the evidence in the instant case, it cannot be said that the defendant Kay was guilty of any negligence at or before the time the contract was entered into which would defeat his rights to recover for a fraud perpetrated upon him.

The gleaner was "knocked down" at the time the contract was entered into. Grain was not then ripe, and so the gleaner could not have been tried out if it had been set up. It is suggested that Mr. Kay should have gone and made inquiry of L.D. and Clarence Haws as to why they could not operate the gleaner successfully. In the light of the fact that the plaintiff's sales agent informed Mr. Kay that Mr. Haws turned the gleaner back because it would not operate successfully on hilly ground, it cannot be said that Mr. Kay was negligent in failing to consult Mr. Haws. The defendant Kay testified that he relied upon the representations made by Mr. Walton. It is quite obvious that the defendants Kay and Cooke would not have purchased a combine harvester at a price of $1,625 unless they believed it could successfully harvest grain. In my opinion, the clear preponderance of the evidence establishes all of the essential elements of actionable fraud on the part of the plaintiff in securing the execution of the contract involved in this controversy.

I dissent from the view expressed in the prevailing opinion that plaintiff's reply alleged sufficient facts to raise an issue as to a waiver of the fraud alleged in defendants' answer. The reply contains a denial that plaintiff perpetrated any fraud upon the defendants. By an amendment to the reply, plaintiff alleged various facts which may well preclude defendants from recovering any damage on account of any breach of contract. Thus it is alleged in the reply that the contract expressly mentions that the gleaner is secondhand, and as such is not warranted; that by the terms of the contract defendants had no right to recover on any warranty contained in the contract, unless written notice was given plaintiff within five days after receipt of the machinery of any failure of plaintiff to fulfill any warranty in the contract and that no such notice was given. All of the allegations in the reply are directed against defendants' right to recover under the terms of the contract. As I understand defendants' answer, it proceeds upon the theory that defendants have the right to recover for a tort. They make no claim that they are entitled to recover on the contract. It is no defense to an action for a tort to say that recovery may not be had on a contract. The stipulations of the contract pleaded in plaintiff's reply cannot be said to relieve it from liability for fraud. If the stipulations in the contract were intended to relieve plaintiff from its fraud, they are void because against public policy. 13 C.J. § 350, p. 420. Nor can it in my opinion be said that the defendants have pleaded a waiver of fraud.

There is a vast distinction between a suit to rescind a contract and an action to recover damages sustained by a party to a contract because of the fraud of the other party to such contract. The defendants in this case concede, as well they may, that they are precluded from rescinding the contract by reason of the fact that they have made payments on the contract and have executed a mortgage for the unpaid part of the contract price. It by no means follows, however, that defendants are also precluded from their right to recover damages because of fraud and deceit practiced on them as an inducement to them to enter into the contract. Cook v. Covey-Ballard Motor Co., 69 Utah 161,253 P. 196.

"One who has been injured by fraud may elect to accept the situation created by the fraud and seek to recover his damages or he may elect to repudiate the transaction and seek to be placed in statu quo. * * * One who by fraud has been induced to enter into a contract may affirm the contract and maintain an action to recover the damages which he has sustained, or may set up such damages by way of defense or recoupment or counterclaim, or he may rescind the contract and avail himself of the remedies based upon a rescission, or he may sue in equity in a proper case to cancel or rescind the contract, or to secure a reformation of the instrument." 27 C.J. 18.

The right of a defrauded party to recover damages because of fraud perpetrated upon him may also depend upon whether the contract sued upon is executed or executory. Again quoting from 27 C.J. pp. 24-26, we find the law thus stated:

"Acts upon the part of the defrauded party in performance or affirmance of the transaction or in the exaction of performance from the other party after a discovery of the fraud and while the contract or transaction remains entirely executory upon his part will ordinarily preclude him from thereafter asserting a cause of action for deceit, although there is some authority to the contrary. Under such circumstances a recovery would be largely if not entirely for self-inflicted injuries and the maxim, Volenti non fit injuria, applies. * * * Where plaintiff has fully executed his part of the contract, acts thereafter done by him in affirmance of the contract and with knowledge of the fraud do not ordinarily amount to a waiver. But even in case of an executed contract the fraud practiced in procuring it may be waived by the defrauded party where his acts and conduct clearly indicate an intention to ratify the contract and to abandon his right of action in deceit. * * * The rule permitting acts in affirmance of an executed contract to be performed after discovery of fraud without waiving an action for deceit applies also, generally speaking, to a contract which is partly executed at the time of discovery of the fraud, particularly where further damage would be occasioned to the defrauded party by a recission, or the past performance is such that the party cannot safely discontinue or recede, or further performance is necessary to determine positively whether fraud has been practiced, although some courts have applied the rules applicable to wholly executory contracts. * * * Laches or delay which might preclude the defrauded party from rescinding the contract induced by the fraud does not affect his right of action for damages, but he may bring his action of deceit at any time within the period fixed by the statute of limitations."

Numerous cases are cited in footnotes which support the rules announced in the text. The contract here involved was not executory, and therefore the rule applicable in such case does not apply. In the case of Wilson v. Meyer, 23 Utah 529,65 P. 488, 491, this court said:

"A waiver is `the relinquishment or refusal to accept of a right.' Bouv. Law. Dict. It is effective only when it is made intentionally and with knowledge of the circumstances."

In 40 Cyc. 261, it is said:

"The question of waiver is mainly a question of intention, which lies at the foundation of the doctrine. Waiver must be manifested in some unequivocal manner, and to operate as such it must in all cases be intentional. There can be no waiver unless so intended by one party and so understood by the other, or one party has so acted as to mislead the other and is estopped thereby. Since intent is an operation of the mind it should be proven and found as a fact, and is rarely to be inferred as a matter of law."

To the same effect is the statement of the law in 27 C.J. 22. The mere giving of renewal notes after the discovery of the fraud in a contract does not, as a matter of law, operate as either a waiver or as an estoppel. Garrett v. Neitzel, 48 Idaho 727,285 P. 472; Bean v. Bickley, 187 Iowa 689, 174 N.W. 675;Sell v. Mississippi River Logging Co., 88 Wis. 581,60 N.W. 1065; Graham-Jones Motor Co. v. Nutter, 77 Colo. 74,234 P. 1063. The intent to waive a right being an essential element of a waiver, it was necessary for the plaintiff to plead that fact before such defense was available to it. Neither plaintiff nor defendant pleaded such fact, and therefore in my opinion there is no issue in this case raising the question of a waiver. Nor are there any facts found by the trial court which supports a conclusion of law that defendants waived the fraud. The only findings touching that question are findings numbered 5 and 13. In finding No. 5 the court found the number and amounts of the payments that had been made on the contract. No complaint is made of that finding. Finding No. 13 reads as follows:

"That by the defendants' failure to comply with the terms of the contract and the failure of the defendants to give notice or make complaint at the proper time, they are guilty of laches and are barred from making any claim for any fraudulent representations; that the defendants have failed to return the gleaner-combine to the plaintiff, and still keep said gleaner."

Appellants assign as error the making of the finding just quoted because, as they claim, the finding is a conclusion of law and is not supported by, but is contrary to, the evidence. The claim that the finding is a conclusion of law would seem to be well taken as to a part thereof. There are no sufficient facts there found or elsewhere in the findings which justify the conclusion that defendants have waived their right to a recoupment because of fraud. There being no issue and no sufficient finding as to the question of a waiver of fraud, this court should not, in my opinion, pass upon the question of whether the evidence does or does not show a waiver of fraud until such time as proper pleadings have been framed and the court below has been given an opportunity to make findings upon such issue.

In my opinion, the judgment should be reversed and a new trial granted. The appellants should be awarded their costs on appeal.