Day v. Fort Scott Investment & Improvement Co.

38 N.E. 567, 153 Ill. 293

Opinion

Mr. Justice Craig

delivered the opinion of the'court:

In the spring of 1887 there was what is termed a “boom” in real estate at Fort Scott, Kansas. Several wells had been sunk which produced natural gas, and the gas was in use, to some extent, for heating purposes, and it seemed to be the prevailing opinion that gas would be obtained in quantity sufficient to supply all demands for manufacturing purposes. Lands were being laid off in town lots, purchasers were coming in, and everything seemed to indicate that the town was on the eve of a rapid growth. Such was the condition of things when the defendants visited Fort Scott with the view of investing for speculation. After their arrival they called on several real estate agents, and finally met William Brown, who represented the Fort Scott Investment and Improvement Company. He called their attention to the addition in question as a good place to invest. He took them over the property, showed them the street railway, partly built, and ties and iron distributed along the proposed line. They were also shown a well on the land, sunk for gas, and a spring of water.

It is claimed that false and fraudulent representations were made by the agent of the complainant, before the contract of purchase was executed, in regard to the intention of the complainant in boring for natural gas, in improving the grounds about the spring, and in reference to the construction and operation of the street railway. As respects the representations the defendant Day testified : “Prior to the time these agreements were signed, Brown took a carriage and drove us out over the addition; showed us the property; showed us the street car line where it had been running and where they intended to extend a line, and we selected lots with reference to this line of road and other improvements that were expected to be made. * * * Brown said that complainant was going to build this proposed railway.” As to the natural gas he testified: “Brown showed us where they had commenced to bore for a gas well. It was abandoned for some reason, but he said they were going to commence and sink it deeper,—and they felt sure they could strike gas at that point.” The defendant Wright, after testifying in regard to the street railway and gas well substantially as the other defendant did, also testified that Brown showed them the spring on the addition, and said they had reserved some lots there, and were going to improve the spring and make a little park there.

The Appellate Court, in considering what bearing these representations had on the contract executed by the parties, speaking through Justice Wall, said :

“It will be noticed that the representations charged to have been false and fraudulent referred to no existing facts, but merely amounted to promises as to something to be done in the future. As was said in Gage v. Lewis, 68 Ill. 604: ‘Even if, at the time they were 'made, it was not intended to comply with them, it was but an unexecuted intention, which has never been held, of itself, to constitute fraud.’ ‘As distinguished from the false representation of a fact, the false representation of a matter of intention not amounting to a matter of fact, though it may have influenced a transaction, is not a fraud in law.’ (Kerr on Fraud and Mistake, 88.) So it is said in Bigelow on Estoppel, 481: ‘The representations or concealment must also, in all ordinary cases, have reference to a present or past state of things, for if a party make a representation concerning something in the future, it must generally be a statement of intention or opinion undertaken to the knowledge of both parties, or it will come to a contract, with the peculiar consequences of a contract. ’ In Pomeroy’s Eq. Jur. sec. 877, it is said: ‘A statement of intention, merely, cannot be a misrepresentation amounting to fraud, since such a statement is not the affirmation of an external fact, but is, at most, only an assertion that a present mental condition or opinion exists. ’ Such is no doubt the general rule.

“As to the development of natural gas, and the improvement of the spring and- the. property adjacent, it seems quite clear there is no sufficient ground for denying the relief sought by the bill. It appears from the evidence that the boring for natural gas was prosecuted by other parties until it was demonstrated that there was no such quantity to be had as to be of practical value. Natural gas had been found in shallow wells and in small quantities, and it was thought that deeper wells would develop an abundant supply; but it turned out otherwise, and thus, no doubt, had much to do with breaking the ‘boom’ in this and adjacent property. The failure by the complainant to further prosecute its boring should not be deemed important, in view of the result established by other borings. The deepening of the spring and making attractive surroundings was very clearly a matter which would rest wholly in the future, and about which there could be merely an intention, dependent upon the contingency that circumstances would justify such action. It can hardly be supposed that a practical man would attach any importance to a matter manifestly so contingent and indefinite.

“There is more difficulty as to the alleged representations with regard to the street railway. It appears that the complainant was the owner of said street railway, and that at the time this contract was made the line was in operation a considerable distance toward this addition, and ties and rails had been distributed upon a part of the line of a proposed extension which would pass through the addition, and it was proved that Brown, the agent of the complainant, showed the defendants where the extension would run, and assured them that it would be built as proposed. It is shown, also, that the lots, or some of them, were selected with reference to the proposed line, and it may be assumed that the belief of the defendants that the line would be so extended had much to do, not only with their selection of lots, but also with their determination to invest in the addition. It is, however, not probable that they would have so invested but for their faith in the future of the city. If that faith was well founded, the growth of the city in that direction would certainly justify the extension of the railway as projected and proposed. So they probably reasoned, and hence they believed the railway would he extended because they believed the city would grow in that direction, independently of any assurances they received from the complainant’s agent. But the failure of natural gas and other causes had a depressing effect. The prospect changed. According to the testimony, the ‘boom’ in this addition, and perhaps in the city, began to subside soon after the contract was made. The ties and rails that had been so distributed along the proposed extension were removed during the summer. The line was not extended, and a part of that already laid was taken up and diverted so as to reach the fair ground, lying in a somewhat different direction. Only a part of the line as now. laid is operated daily, the residue, extending to the fair ground, only when the fair or other attractions make it desirable. All this followed as the natural result of the general depression in the locality. Had the expected growth been realized, the street railway would have been required, and very probably it would have been extended as was planned. But upon a moment’s reflection it would have occurred to the defendants, who were men of some experience and in the habit of acting upon their own judgment, that the railway would be extended in the contingency that it was needed, and not otherwise, and they must have understood it was in view of this contingency, then on all hands believed to be almost a certainty, that the alleged representations or promises were made. Thus it is seen that such representations were not of a fact then existing, but purely" of an intention or purpose with reference to the future,.which might be wholly changed by subsequent developments.”

After a careful consideration of the subject we think the Appellate Court took a correct view of the law applicable to the case, and we concur in what was said.

But it is insisted in the argument that the street railway, so far as it was then constructed, was an existing fact, and the ties and iron placed along the route of the proposed extension were existing facts. The legal effect of the representations was, that the road was there to stay, and that the ties and rails on the ground were there to be placed in the track, and hence the rule in regard to a promise of something to be done in the future does not apply. It appears from the evidence contained in the record that the street railway was operated as located when the lots were purchased, until August or September, 1888, when the complainant took up the street railway track all south of a point about four blocks north of Eighteenth street, and relaid it, extending down Main street and Fair Ground avenue to the south line of south side park addition to Fort Scott, Kansas, that being the southern limit to which it had been built at the time the defendants were there, in April,1887, and such line is operated regularly every day down to a point on Main street a block and a half north of Eighteenth street, and beyond that point it is operated when a fair or races are held in the fair ground, which joins south side park addition on the south. U. B. Pearsol testified in regard to the change of the line of the street railway, as follows : “When Main street, which connects with Fair Ground avenue, as shown by plat, was graded and opened, so as to render a shorter route, the route was changed to Main street and down Fair Ground avenue to the fair ground, and is at present located and operated there. Myself and other directors and stockholders purchased a large number of lots contiguous to the line as shown on plat. The changing to Main street and Fair Ground avenue, if there is any benefit by the location of the railroad, results greatly in favor of the enhancing of the value of these lots, as the plat will show that a large majority, in fact all but two, are more accessible to the line as now located than it was originally.” From this testimony it seems apparent that the change made in the line of the street railway has resulted ' in no serious damage to the defendants. Moreover, there was nothing in the representations made which would require the complainant to maintain and operate a street railway, for all time to come, on a particular line where it was not demanded by the public and when it would not pay operating expenses, to say nothing about a profit on the investment. °

But if the misrepresentations relied upon were as to existing facts and were fraudulent, are the defendants in a position to ask a court of equity to rescind the contract? It is a familiar rule, and one well settled by the authorities, that where a party discovers that fraud has been practiced upon him in the making of a contract, it is his duty at once to repudiate the contract and tender back what he has received under the contract, so that the other party may be placed as nearly as possible in the same position he occupiecL before the contract was made. Grymes v. Sanders, 93 U. S. 55; Greenwood v. Fenn, 136 Ill. 146; Pomeroy’s Eq. Jur. secs. 897, 964, 965; Linington v. Strong, 107 Ill, 295; Strong v. Lord, 107 id. 25; Dowden v. Wilson, 108 id. 257; Kelsey v. Snyder, 118 id. 544; Brown v. Brown, 142 id. 409.

In Greenwood v. Fenn, supra, where a bill was interposed to set aside a contract for the sale of land on the ground of fraudulent representations as to the quality of the land, in the decision of the case it is said: “The rule on this subject is well stated in Grymes v. Sanders, 93 U. S. 55, as follows: ‘Where a party desires to rescind upon the ground of mistake or fraud, he must, upon the discovery of the facts, at once announce his purpose and adhere to it. If hé be silent, and continue to treat the property as his own, he will be held to have waived the objection, and will be conclusively bound by the contract, as if the mistake or fraud had not occurred. He is not permitted to play fast and loose. Delay and vacillation are fatal to the right which had before subsisted. ’ The rule is also laid down in 2 Pomeroy’s Eq. Jur. sec. 897, as follows: ‘All these considerations as to the nature of misrepresentations require great punctuality and promptness of action by the deceived party upon his discovery of the fraud. The person who has been misled is required, as soon as he learns the truth, with all reasonable diligence to disaffirm the contract or abandon the transaction, and give the other party an opportunity of rescinding it, and of restoring both of them to their original position. He is not allowed to go on and derive all possible benefits from the transaction, and then claim to be relieved from his own obligations by a rescission, or a refusal to perform on his own part. If, after discovering the untruth of the representations, he conducts himself with reference to the transaction as though it were still subsisting and binding, he thereby waives all benefit of and relief from the misrepresentations.’”

It seems from the evidence that upon the making of the purchase one of the defendants, Day, opened an office at Port Scott for the purpose of selling the lots, and remained there until the last part of December, 1887, when he returned to this State. Thus he, and the other defendants through him, knew that the complainant was not making the improvements which it claimed were to be made, and, as appears from the evidence, the defendants, as early as April 28, 1888, determined among themselves that they would make no further payments on the contract. But no notice of this determination was given to the complainant. They divided thirty-two of the lots among themselves. Four of the lots were sold to a man named Swan, and on July 4, 1888, the defendants signed an order, in writing, requesting the complainant to convey those lots to him, which was done. On the next day the following letter was written to the complainant :

“Paxton, III., July 5, 1888.

“Fort Scott Investment Go.:

“We have just given Mr. Swan an order on you for a deed to four lots described in order. He says he has arrangements with you to send deed to bank here, where he has money to pay in full for the lots. You must not be too hard on us for bal. due. We need all the leniency you can possibly give, and give us a chance to dispose of the others in some way. We have several trades on hand, and hope to dispose of some of them. Give us a chance to get out of the hole. We have paid you a good deal of money, and spent a good deal of time, money and gas on Fort Scott. Don’t care anything about the time and gas, but would like the money back, and think if it was convenient to hold the lots a few years there is money in them. I have more confidence in Fort Scott than in any city in Kansas, and hear more of Fort Scott and Hutchinson than all the bal. in the State.

S. L. Day.”

Indeed, we find nothing in the record manifesting an intention on behalf of the defendants to rescind the contract before the filing of the bill for a specific performance. On the other hand, all that was said and done by the defendants was but an affirmance of the contract. Under such circumstances they are precluded from claiming a rescission of the contract on the alleged ground of false representations.

Some minor questions have been raised in the argument, which we have considered, but we find no merit in them.

After a careful consideration of the entire record we think the judgment of the Appellate Court is correct, and it .will be affirmed.

Judgment affirmed.