Felt v. Bell

68 N.E. 794, 205 Ill. 213

• Court: Illinois Supreme Court
• Decided: October 26, 1903
• Status: Published

Opinion

Mr. Justice Ricks

delivered the opinion of the court:

The record in this case discloses a transaction which is palpably fraudulent. Bell was induced, by false representations of Mason as to the contract price, to part with $7000 in money and his note for $1333.33 for a one-third interest in patent rights, although the vendors had placed a valuation of only $7000 upon the entire interest. It is no defense to the' allegation of fraud to contend that Bell was willing to pay $8333.33 for a one-third interest and that he actually obtained that interest for the amount paid, for if we concede that he obtained the very thing he expected to obtain, and paid no more therefor than he, after investigation, had concluded was reasonable, it does not follow that he was not grossly imposed upon. (Veazie v. Williams, 8 How. 134; Pendergast v. Reed, 29 Md. 398; 96 Am. Dec. 539.) He would not have paid $8333.33 for a one-third interest if he had known that the entire property was to be purchased for $7000, and that Mason was to profit by the transaction to the extent of receiving a two-thirds interest without" any expense whatever. Mason represented as a fact—not as an opinion—that the valuation and price fixed upon the patent rights were $25,000. By this deception Bell was induced to part with a greater sum of money for a one-third interest than the vendors asked for the entire interest. He was misled by the false misrepresentations of Mason,—representations which were made to deceive him and which did deceive him. An unconscionable advantage was taken, which it is within the sphere of equity to remedy. If, therefore, the record shows that the defendants are in any way implicated in the fraud by active procurance or deceptive conduct, and if it can be further shown that no rule of equity will be contravened, there will be a clear case for the applicaton of the equitable remedy of rescission. Cortes Co. v. Tannhauser, 45 Fed. Rep. 730; Yeoman v. Lasley, 40 Ohio St. 190.

It is next to be determined whether or not defendants Felt and Tarrant and the Felt & Tarrant Manufacturing Company have become implicated in this fraudulent scheme executed by Mason. Bell swears that before the sale was made Felt and Tarrant each told him that the contract price was $25,000. Felt and Tarrant deny this. Each one swears that he had no conversation with Bell relative to the price of the patent rights, but that all their negotiations were with Mason, and that they fixed the price to him at $7000. It is not necessary to weigh this testimony, for the record shows, we think, that De-Berard, the agent of the defendants Felt and Tarrant and the Felt & Tarrant Manufacturing Company, while within the scope of his authority, was an active participant in the fraud, and that said defendants have adopted the benefits of the transaction. Therefore, whether it was with or without their knowledge, the defendants are subject to equitable action. DeBerard, the financial agent of the defendant company, drew the assignments in accordance with the directions given by Mason. On the 15th of May, 1891, he went to the vaults of the Commercial Safety Deposit Company with Felt, Mason and Bell. The assignments were transferred, and DeBerard received from Bell $7000 in cash and his note for $1333.33, and from Mason he received $900 cash and his check for $15,766.67, making the entire consideration received $25,000. A few days after this Mason went to DeBerard and demanded his money back. DeBerard thereupon delivered to him the $900 cash and the check for $15,766.67. He retained the $7000 and the note for $1333.33. DeBerard attempts to explain his attitude by saying that he understood at the time that the consideration was to be $7000; that he was surprised to receive the note from Bell and the money from Mason, but that he thought the matter was between Bell and Mason, and he “just kept quiet, and that is all:” We cannot believe that was all. Even if the matter were between Mason and Bell, there was a surplus of $18,000 being paid to him. Is it possible that a man will innocently receive $18,000, for which there is absolutely no consideration, and fail to manifest some surprise? Even if he had not known of this scheme before, being a man of financial experience he must have known that such a proceeding was colorable.

We are considering this transaction in a light most favorable to defendants. These conclusions are drawn from the testimony of DeBerard alone. Bell’s testimony tends to make DeBerard’s conduct much more culpable; but we may disregard his testimony and still find sufficient evidence to make it clear that DeBerard, by affirmative acts, made himself a party to the fraudulent scheme. Let ns consider his subsequent conduct. Take, for instance, DeBerard’s own version of his attitude. He did not know of the fraud. He understood the consideration to be $7000, and was surprised to receive $18,000 in excess of that, but kept quiet because it was a matter between Bell and Mason. Mason came several days later and demanded his money and check, and DeBerard unhesitatingly returned them. That is to say, knowing that there were two joint purchasers, and knowing that one was to receive a two-thirds interest and the other a one-third interest in the patent rights, he returned to the one who was to receive the greater interest the entire amount he had paid. If he had been innocent, would he have kept all the consideration from one joint purchaser and returned all that the other had paid? Moreover, not only did he make the $7000 cash given by Bell pay for the entire patent interest, but he kept the note made by Bell for $1333.33, and one of the objects of this suit is to enjoin the negotiation of that note. Later on we see the defendant company, through Felt, one of the firm and company, offering to surrender this note to Bell as part of the consideration for a proposed purchase of Bell’s interest in the patent rights. This evidence, and the inferences deducible from it, show clearly that DeBerard had guilty knowledge of the fraud practiced by Mason, and that to assist in its perpetration he lulled the complainant into security by going through the form of receiving from Mason the sum of $16,666.67, being Mason’s two-thirds of the purchase price. The law does not permit one in this manner to assist in cheating another. (Beidler v. Crane, 135 Ill. 92.) It is not necessary for the purpose of making DeBerard’s conduct fraudulent, to show that there was a fiduciary relation between him and Bell. It is sufficient that Mason and Bell, with the knowledge of DeBerard and the company, were about to enter into the relation of co-purchasers, and that this was a fiduciary relation. Bunn v. Sclnellbacher, 163 Ill. 328; Cortes Co. v. Tannhauser, supra.

It is undoubtedly true that Mason committed a fraud, and it is just as clear to us that DeBerard assisted affirmatively in its commission. This being the case, we need not attempt to show that Mason was actually the agent of the defendants in this transaction, or that his commission for the sale was to be a two-thirds interest, for which he was ostensibly to pay $16,666.67 and actually paid not one cent. Nor does it affect this conclusion to admit, as the appellants urge, that Mason was Bell’s agent. We recognize the general rule that notice to the agent is notice to the principal; but it would be, indeed, a novel doctrine if we should hold that if an agent has knowledge that he is defrauding the principal, the principal cannot have a remedy, for the reason th at, being charged with the knowledge of his agent in the fraud, he was a guilty party in the plot to defraud himself. From DeBerard’s own testimony we conclude, without hesitancy, that he assisted in the perpetration pf the fraud by his sham conduct, and this being so, all arguments, however logical in themselves, which rely upon this doctrine of agency as a defense, are specious, because based upon the premise that DeBerard was entirely innocent. We conclude, therefore, that the defendants, through their agent, are guilty of fraud. Fitzsimmons v. Joslin, 21 Vt. 129; 52 Am. Dec. 46.

If there has been no ratification and if the parties can be put in statu quo, or, this being impossible, there is some equitable excuse for the inability to do so, this complainant is clearly in a position to invoke the aid of equity in the restoration of his rights. The question of ratification is easily disposed of. There is no evidence whatever to show that the complainant ever had any knowledge that fraud was committed until the time of the trial. Mason swore, even on his death-bed, that the transaction was bona JicLe and that he actually paid $16,666.67 for his two-thirds interest in the patent rights. The defendants, in their answer to the bill, say that the actual consideration was $25,000. Under such circumstances it is not difficult to believe that complainant had no knowledge of the fraud until the time of the trial. It is true that he had been suspicious, but suspicion is not knowledge. (Warren v. Tyler, 81 Ill. 15.) Of what avail would an inquiry growing out of suspicion have been, if Mason would swear on his death-bed that the actual consideration was $25,000 and if these defendants would state in their answer that the actual purchase price was $25,000? It is not surprising that it required a long time for the complainant to establish his case. The defendants urge that because complainant’s solicitor, Wilbur, wrote a letter to the defendants two years before filing the bill, in which he threatened a suit on the ground of fraud, there was knowledge of the commission of the fraud, and that a delay of two years thereafter was a ratification. Wilbur swears that when he wrote that letter he had no positive knowledge of fraud, but that he had looked into Mason’s financial standing and concluded that it was improbable that a man without greater means would pay $16,666.67 for patent rights and then not prosecute the enterprise in which he had so much money. We think the testimony of this witness was entirely satisfactory. He, as he said, wrote that letter on a “big, cold guess,” thinking thereby to bring the defendants to a settlement. He suspected fraud, but knew that all proof of it must come from the other side. There is no evidence of ratification, because there is no evidence that complainant had knowledge before the bill was filed.

The principal defense of the appellants is, that equity will not rescind the contract because the parties cannot be placed in statu quo. It is insisted that the parties can not be restored to their original position, because, first, complainant having only an undivided one-third interest in the patent rights could not return the entire interest to them; and second, complainant having failed to pay certain annuities which were required by the French law, had allowed the patent rights to be forfeited.

As to the first point little need be said. Complainant paid $7000 in cash and his note for $1333.33 for a one-third interest. DeBerard knew that this entire amount came from Bell, because he returned all that Mason had paid. The defendants are therefore in no position to say that complainant cannot rescind the contract as to his one-third interest. If DeBerard saw fit, in the transaction, to make Bell pay $8333.33 for his one-third interest and make a gift to Mason of the other two-thirds interest, it is certainly not the fault of this complainant that a rescission would leave these defendants without compensation for this two-thirds interest. (Hegenmyer v. Marks, 37 Minn. 6; 5 Am. St. Rep. 808.) Mason and De-Berard were united in the fraud, and where such a condition exists a court of equity will not refuse a remedy to an innocent party for the mere reason that one of the guilty parties does not release to the other some advantage gained in the transaction. As this court has said before: “Where parties unite in a fraud, they have no such standing in a court of equity as will require that court to adjust nicely the equities between them when their fraudulent transactions are set aside.” Vandyke v. Walters, 88 Ill. 444.

The second point, as to the status quo, made by the appellants is, that the patents being forfeited under the French laws complainant is able to deliver back only the worthless paper. The evidence on this point is conflicting. Mason swore that the taxes were paid up to 1897 or 1898. Bell, the complainant, swears that he paid them two or three years and that after that. Mason paid them. He was asked to state how he knew that Mason paid them, and he answered that Mason told him so. Felt swears that they were paid up to 1893 through him, but after that he has no knowledge whether they were paid or not. It is true that Mason’s testimony in one respect has been proven to be false; yet it must be remembered that when he swore that he actually paid two-thirds of the $25,000 for his interest in the patent rights he had a strong motive for such a falsehood. That was his defense. He was presumably relying upon it to defeat this suit. These defendants in their answer set up the same defense. It is not difficult to understand why he would forswear himself as to this fraudulent transaction. The payment of annuities, however, was no matter of defense. He had no reason to swear falsely with reference to them. It did not strengthen him in his defense to swear that he paid the taxes up to 1896, 1897 or 1898, and it would not have made his position weaker to have sworn that he discontinued payment in 1893 or 1894. We have, then; Mason’s testimony that the taxes were paid up to the time the bill was filed. No one swears that they were not paid to that time. This bfeing the case, this court can only conclude that up to the filing of the bill in this case the annuities required by the French government were paid.

Testimony is introduced showing that in France the patentee “shall forfeit his rights who does not work the patent within two years under the date of the signature of his patent, or who has ceased to work it during two consecutive years, unless in one or the other case he justifies himself in the causes of his inaction.” For the purposes of argument we shall-not question this law or its method of introduction in evidence. Under it the patent rights which Bell purchased lapsed in 1893, according to appellants’ contention, yet'on September 24, 1894, we find the defendants offering him $7000 cash and his note for $1333.33 for his interest. If forfeited patent rights were then as valuable as that, we can presume that they are still as valuable. On the whole, then, we believe that even if the burden were upon the complainant (as to that we do not decide) to show that at the time the bill was filed he could have put the parties in statu quo, he has done so. Moreover, granting that the rights did lapse in 1893 and became absolutely worthless, the defendants had notice at that time, from Wilbur’s letter, that fraud was suspected and full knowledge that fraud had been committed, and if they had cared to protect the patent rights they could have paid the annuities from that time. It is true, the letter was a mere conjecture on the part of Wilbur; yet it contained an accusation of fraud, and if the defendants surmised that it was a conjecture they must have thought it a good one. The defendants knew, • either actually or through their agent, DeBerard, (and we think, both,) that fraud had been committed, and when receiving this letter they could easily have protected themselves by paying the annuities. They must have known, on the receipt of this letter, that sooner or later Bell would discover enough facts concerning" the fraud to warrant him in bringing a suit to rescind. Having this opportunity to protect themselves, they are in no position now to resist an equitable remedy upon the alleged ground that the patent rights have lapsed.

This case stands upon its own peculiar facts and no case can be found parallel or closely analogous to it. The fraudulent scheme, the subject matter, the astonishing difference in the nature of the defense relied upon in 'the answer and upon the trial,—these are all unique and peculiar features. There is difficulty in applying the law to the facts, and although the proofs are not altogether satisfactory, yet they are such as to show conclusively that a fraud was perpetrated by Mason and that DeBerard assisted in its commission. In the absence of all other proof we think the question of status quo could be decided from two portions of the evidence, to-wit: the evidence that unworked patents lapsed in two years, and the letter from Felt and Tarrant to Bell on September 24, 1894, in which they offer him $7000 and the surrender of his note for $1333.33 for his interest in the patent rights. What are the inferences to be drawn from the fact that the defendants offered such a large price for patents that had lapsed a year previous? Either that the law was not correctly given at the trial, or that Felt and Tarrant were willing to pay more for a one-third interest in patent rights lapsed in France but still good in Belgium, than they had asked for the entire interest in such rights before they had lapsed. We must assume that the law was given correctly, because it was introduced by these defendants. The alternative is, that defendants consider lapsed patent rights a valuable property, and if they do, we cannot improve upon the valuation that these defendants have placed upon them in the letter mentioned.

The only basis for the requirement that there must be a restoration to the status quo before equity will permit a rescission of the contract is in the maxim of equity that “he who seeks equity must do equity.” (Mason v. Bovet, 1 Denio, 69; 43 Am. Dec. 651.) Equity does not strive to save the perpetrator of the fraud from any harm. (Brown v. Norman, 65 Miss. 369; 7 Am. St. Rep. 663.) It does, however, stand for the principle that no party may successfully invoke the aid of equity for the rescission of a contract unless he is willing to restore the other party to the position he enjoyed at the time the contract was made. (Neblett v. Macfarland, 92 U. S. 105.) This complainant offers to give up the assignment of the patent righjts. If it were conceded that these rights have,lapsed in France but not in Belgium, we could still look upon the rights as property for which the defendants were willing, and. presumably are still willing, to pay a great price.

The appellee assigns as cross-error that the Appellate Court erred in not having directed the allowance of interest on the $7000 from the time it was paid by appellee to appellants, on May 15, 1891. Appellants contend that such interest should not be allowed, for the reason that the statute which provides for the allowance of interest does not include such a condition as this, citing Fowler v. Harts, 149 Ill. 592. In that case the court says (p. 597): “At the common law interest was recoverable in no case except where there was an express agreement to pay it, and in this State the rule seems to be well settled that it cannot be recovered except where the statute authorizes it, and interest may therefore be regarded as dependent upon and the creature of the statute.” In Sammis v. Clark, 13 Ill. 544, it was held that in this State, in actions purely ex contractu and where there is nothing tortious in the character of the indebtedness, interest can only be recovered in the cases specified in the statute or where there has been an express or implied promise to pay interest. But this case is not an ex contractu action free from a tortious aspect. It is a suit to rescind on the ground of fraud. In Warren v. Tyler, 81 Ill. 15, it was held that where a party rescinds a contract whereby he is induced, through fraudulent representations, to accept unimproved lands in settlement of a debt, he will be entitled to interest from the time of such fraudulent transaction, and will not be restricted to the time when he rescinded. (Steere v. Hoagland, 50 Ill. 377; Horne v. Walton, 117 id. 130; Deimel v. Brown, 136 id. 586; Veazie v. Williams, supra.) We are of opinion appellee should recover interest from the date of filing his bill in this cause, May 13, 1896, which was the time of the actual rescission-of said contract by him. The decree of the Appellate Court will therefore be modified to include interest, at the rate of five per cent on $7000, from May 13, 1896.

The decree, with the above modification, will be affirmed.

Becree modified and 'affirmed.