Grabenheimer v. Blum

63 Tex. 369, 1885 Tex. LEXIS 91

• Court: Texas Supreme Court
• Decided: February 23, 1885
• Docket: Case No. 1763
• Status: Published

Opinion

Walker, P. J. Com. App.

The first assignment of error is that the court erred in overruling defendant’s demurrer and exceptions to plaintiffs’ first supplemental petition. The exceptions may be considered in their order. The first is that the pleadings of plaintiffs admit that the cause of action sued on, to wit, balance due on account, has been settled and discharged, and show that, if plaintiffs have any cause of action by reason of the fraud and misrepresentations alleged against defendant, that the same is for damages for such fraud, and not on the original cause of action.

The prayer for relief contained in the supplemental petition is alternatively for the balance of account sued for, or for the amount thereof as damages for the alleged fraud, and the prayer in the original petition is for general relief, as well as for the amount sued for as the balance due on the account. The court will render such judgment in the premises as the evidence in the case requires. See Hardy v. De Leon, 5 Tex., 212; Nash v. George, 6 Tex., 234; Wintz v. Morrison, 17 Tex., 372; Ware v. Bennett, 18 Tex., 794; Smith v. Clopton, 4 Tex., 109. See, also, Mitchell v. Sheppard, 13 Tex., 484. If the plaintiffs are entitled to recover under either aspect of their case, if the facts alleged as constituting a frahd upon the plaintiffs are a sufficient answer to the defendant’s answer, it follows that the supplemental petition is sufficient, whether they be entitled to recover under the prayer for one relief or the other.

The second special exception is that it was not competent for plaintiffs to set up in this suit, especially in a supplemental petition, a new cause of action, as for damages for fraud. The pleading referred to is not obnoxious to the objection that it set up as by amendment a new and distinct cause of action from that relied on in the original petition; it was a reply—a replication it would be termed in common law parlance—to the defendant’s answer; and pertinent to the phase of the case thus existing under the development of the pleadings by the defendant and that required to meet it on the part of the plaintiffs, they prayed, as they well might have done, for the relief appropriate to their pleadings as they then stood.

The third exception is that the allegations of fraud and misrepresentations are insufficient, in that it is not alleged when plaintiffs had knowledge of the same, so that it may appear whether they waived or confirmed the same; and it is not alleged that defendant made any concealment of his assets, or that plaintiffs could not by reasonable diligence have discovered their existence.

The contract which the imputed fraud and misrepresentations related to was the agreement to compound the defendant’s debt to the plaintiffs at sixty-six cents on the dollar in full discharge of the same, and in determining the question here presented it is important to consider the discrimination to be made between the two remedies of rescission of the contract, and that of an action to recover damages for the deceit.

The plaintiffs’ original petition takes no notice of the release set up by the defendant, and the supplemental petition taken in connection with it is to be regarded as construing the fraud as avoiding the contract to release the debt the same as if it had not been made, and not as acquiescing in the fraud or as affirming the contract. The plaintiffs do not seek to rescind the contract, but in effect allege that they were damaged by the fraud practiced upon them to the extent of the unpaid balance of their account. They having received, by the composition made, about two-thirds of their debt, may not have preferred to rescind the contract, nor yet to acquiesce in the results of the fraud. In such case they may recover damages for the fraud or deceit under circumstances that a cancellation or rescission of the contract would be denied to them. In Whitney v. Allaire, 4 Denio, 554, it is laid down that when a party, after the making a contract, but before its performance, discovers the fraud of the other, and still goes on and performs his part, he is thereby precluded from the equitable remedy of cancellation, and also from the remedy of recovering back the consideration, but not from the legal remedy of damages for deceit. See note 1, vol. 2, Pomeroy’s Eq. Jur., sec. 897.

The distinction between the remedies appropriate to cases of fraud are thus stated by Bigelow in his treatise on fraud, p. 184. “It is well established that if a party, with knowledge that a fraud has been perpetrated upon him in a particular transaction, confirm the transaction by making new agreements or engagements respecting it, or by retaining and using the subject of it after knowledge, or otherwise recognize it as binding, he thereby waives the right to treat it as invalid, and abandons his right to rescind if it be a case of contract, or to redress if it be a tort not attended with a contract with the wrong-doer. If the fraud result in a contract, performance of the same, after discovering that it was fraudulently obtained by the opposite party, does not preclude a person from suing for damages on account of the fraud. The injured party may retain the benefits of the contract, confirm its validity, and still recover damages for the fraud by which he was induced to make it; or he maj'recoup any damages which he has sustained, if the opposite party sue him for money due on the contract, or for other failure to perform it.”

Applying these doctrines to the facts of this case, it follows that the plaintiffs were certainly entitled to sue for their unpaid balance of account as for damages, and therefore the plaintiffs’ petition in that aspect, at any rate, is sufficient as against this exception.

It is, however, urged by the appellees’ counsel in their brief and written argument, that the doctrine of the rescission of contracts has no proper application to this case, and that the plaintiffs were entitled to simply treat the amount received by them in the compromise as a payment pro tanto, and to sue for the balance of their account. They cite in support of this view Kahn v. Gumberts, 9 Ind., 430; Partridge v. Messer, 14 Gray, 180; Stuart v. Blum, 28 Pa. St., 225; Pierce v. Wood, 23 N. H. (3 Foster), 519, which authorities maintain, we think, the doctrine contended for, so far as it may be invoked in cases in which the contract sought to be avoided for fraud involves only the acceptance of the debtor’s terms of composition upon fraudulent inducements and the party has received a part of the payment of the debt. Where, however, the contract involves further acts to be done by the party committing the fraud besides the payment of the agreed amount, which involve a sacrifice of pecuniary interest or the forbearance to assert a right which was the subject of the contract of compromise, as, for instance, the dismissal of a suit in which he had an interest, it is not so clear that the rules of law applied in the cases cited would apply.

In such state of case, whilst, it is true, the party injured by the fraud might, nevertheless, be entitled to sue in damages for the deceit, he might not be entitled to sue simply for the balance due as for a part of his original demand. He would be subject to the ordinary rule that would require him to repudiate with promptness, after the discovery of the fraud, the contract, even if he accepted and retained the benefits of the payment made, so as to enable the party committing the fraud to maintain, as far as he might do, his status in respect to those matters which he had engaged to do. Failing to repudiate or give notice of such within a reasonable time, he would perhaps be enabled only to maintain his action for damages.

The supplemental petition, however, is therefore an answer to the defense set up so far as plaintiffs assert an action for damages.

In respect to the proposition to which the brief of appellees’ counsel cites authorities to the effect that the doctrine of rescission of contracts does not apply to cases like this, it is met by opposing authorities cited in the brief of appellant’s counsel to the counter effect, holding that where a creditor is induced by the fraudulent representations of his debtor to compromise, and receives a part of his demand, he cannot on discovery of the fraud retain the sum paid, and sue in assumpsit for the balance; but he may retain the payment and maintain an action on the case for damages sustained by the fraud; citing Jewett v. Petit, 4 Mich., 508; Walsh v. Sisson, 13 N. W. Rep. (Mich.), 802; Gould v. Cayuga, etc., National Bank, 21 Hun (N. Y), 293; Potter v. Monmouth Ins. Co., 63 Me., 442; Jarrett v. Morton, 44 Mo., 275; Brown v. Hartford Ins. Co., 117 Mass., 479; Fishbeck v. Phoenix Ins. Co., 54 Cal., 422.

These cases seem to be well sustained by reason and the current of authority, and the true rule seems to be thus well established as it is laid down in these cases.

In the case of Jewett v. Petit, supra,, Justice Douglass reviewed the case of Pierce v. Wood, 23 N. H. (3 Foster), cited by appellees’ counsel, and expressed doubts of its correctness upon reasons which seem to us to be convincing.

The remaining exceptions need not be referred to, as their merits are mainly disposed of in what has been already said.

The second ground of assigned error is the overruling of the defendant’s motion to quash the writ of attachment; the ground of the motion being because plaintiffs’ pleadings showed that the action was for unliquidated damages.

Such a motion could prevail only when it appears from the cause of action set forth by the plaintiffs that the claim is for unascertained and unliquidated damages. The plaintiffs’ original petition sued for a specific amount due by account, and the plaintiffs’ supplemental petition prayed judgment for the same in the same manner, and alternatively prayed for a judgment for the same amount of balance on account as the damages to which they were entitled. We do not think that the plaintiffs’ pleadings showed a claim by them for unliquidated damages; at most the damages that were claimed were specific and determinate. All the facts alleged as they appear in their relative connections as pleadings, show, it is true, that under the issues, the plaintiffs, if entitled to recover at all, must recover for damages. But this hypothesis is predicated upon the assumption that the defendant shall have relied on his answer at the trial and supported it by evidence sufficient to require the plaintiffs to rebut it or avoid it in some proper manner. The plaintiffs in their supplemental petition, it is true, replying to- defendant’s answer, admit the execution of the contract to compromise and release pleaded by defendant as an answer to plaintiffs’ suit on their original cause of indebtedness, but it must be borne in mind that this admission is made as a replication and not as an amendment setting up a new and distinct cause of action. It nowhere abandons the cause of action set forth in the original, petition, but it sets up matter of confession and avoidance of the facts pleaded as an answer to plaintiffs’ original cause of action.

If the plaintiffs had proved the account sued on, and defendant had offered no evidence whatever, is it not clear that the plaintiffs would recover on the cause of action set out in the original petition? If, however, the case should be developed by full proof of the facts pleaded by both parties contained in all their pleadings, then only would it become a question as to whether the plaintiffs might recover for unliquidated damages or for a specific amount as set forth in the original petition.

This view is, we think, decisive that a motion to quash the attachment for the cause relied on could not prevail. A motion to quash reaches only what is patent on the face of the record.

The appellant’s sixth and seventh assigned grounds of error are as follows:

“ 6th. If plaintiffs had any cause of action under the facts, after having failed to promptly disaffirm the agreement and after acting under it, etc., as above assigned, it was for damages for the alleged fraud; and the court erred in giving judgment for plaintiffs for the balance of the account and interest upon the original contract and without finding damages to that amount for fraud; and the finding and judgment of the court are unsupported by the evidence, in this: there is no evidence or finding that plaintiffs were damaged by the alleged fraud, or that they would have received more on their debt than they actually received had all the assets of defendant been properly rendered.”

“7th. If plaintiffs are entitled to judgment under the law and facts, defendant should be allowed a deduction for the costs paid by him under the agreement.”

Conceding the rule of damages to be as stated, the evidence, we think, supports the judgment of the court. The rule is thus stated in "Walsh v. Sisson (Mich.), supra, quoting from Jewett v. Petit, 4 Mich., 514; “ Where the creditor brings an action to recover dam-

ages for the fraud, retaining what he has received, he thereby affirms the compromise, and the damages which he is entitled to recover is the amount he would have received had no fraudulent concealment been made. This is the extent of the fraud practiced upon him. Field, Dam., sec. 706; Page v. Wells, 37 Mich., 421; Warren v. Cole, 15 Mich., 274; Bowman v. Parker, 40 Vt., 413; Foster v. Kennedy, 38 Ala., 359: Moberly v. Alexander, 19 Iowa, 164; Reynolds v. Cox, 11 Ind., 266.”

The boastful declarations of the defendant after consummating the transactions involving a settlement of composition with his creditors, to the effect that he had so far misled and overreached them by deceptions practiced by him in effecting it that he was worth $10,000 after paying his said debts, seem from the general tenor of all the evidence in the case to commend them to belief. These statements made by him were proved by three witnesses. The defendant evidently was well acquainted with the condition of his own affairs, and knew whereof he spoke. In those conversations he elaborated the subject, too, in a way to indicate that he meant to make the statements he did make, seriously, and the specifications of certain facts mentioned by him at the time, intended apparently to urge conviction on his hearers of the truth of his statements of successful imposition, all seem to receive an appearance of corroboration in the evidence as it was developed on the trial. Hr. Lasker testified that he heard the defendant, a few hours after the settlement was made with him, state to Isaac Heidenheimer how he had got the best of him (Lasker, who represented the claims of the plaintiffs Le Gierse & Co. and Heidenheimer & Co.); that, “although he (Lasker) was considered to be pretty smart, he had bamboozled him; that he would get out of this settlement worth from eight to ten thousand dollars; that a certain stock of goods unassigned would come back to him immediately after his settlement was completed. That he did not owe the amount of money that was represented as liabilities according to the schedule furnished to the assignee; that he owed Gumble & Co. virtually nothing.” The debt of Gumble & Co. was scheduled at $5,500; Judge Burnett testified, however, that the entry ought to have been $3,500, and was incorrectly entered as above by mistake. The debts, if correctly scheduled, including one that was compromised just before the assignment was made, amounted to about $17,000, more or less. If the Gumble & Co. debt be subtracted, the indebtedness would be, say, $13,500. Those debts being adjusted at sixty-six cents on the dollar, it would require thirty-fóur p,er cent, to make up the full amount of the indebtedness. It would require about $4,600 to make up the difference between sixty-six per cent, and the full face value of the entire indebtedness. Consequently, according to the defendant’s declarations concerning his means, at the time when he induced the plaintiffs to compound their debt with him, he was abundantly solvent, and was able to pay all he owed his creditors, with a liberal margin to spare as an excess over and above the amount of his liabilities. The evidence thus indicated his solvency even though the Gumble & Co. debt had been a real and Iona fide indebtedness.

The evidence showed that, as a fact, the defendant did go at once into business after the compromise with his creditors, with a certain stock of goods to which the evidence significantly pointed as being the same to which he referred in his statement to Isaac ITeidenheimer, and strongly intimated that he had been all along their real owner. The evidence tended to show that that stock of goods had been to a considerable degree reinforced in amount by additions made to it from the stock of goods which he had assigned for the benefit of his creditors only a short time before the assignment was made. This, together with many circumstances developed in the examination of defendant’s witnesses testifying in regard to the said unassigned goods, known as the goods of Gernsbacher & Co., tended to confirm the impression that the defendant was the owner of them, as well as of goods which had been added, as above stated, from the assigned stock. It is not deemed necessary to elaborate specifically the testimony relevant to these indicia of a fraudulent concealment of defendant’s means; it is insufficient to say, that, so far from rebutting the force of defendant’s statements concerning the amount and character of his means, that the evidence was such as at least allowed of the reasonable inference that his statements to Ileidenheimer had reference to the Gernsbacher stock of goods, and that they were truthfully made.

Gernsbacher testified that his stock of goods was worth §2,700 when defendant made the assignment, and that he owed the defendant §700. To what extent, if any, that stock was increased by additions to it from the defendant’s, is not made clear; the failure to render it reasonably or approximately so is not favorable to the conclusion that the stock may not have been worth more than §2,700; nevertheless, such may not have been the case.

Gernsbacher testified that defendant bought him out a few days only after the compromise settlement with plaintiffs at a specified sum, §300 (which he stated had never been paid to him), the defendant to pay all the debts due by Gernsbacher & Co. On cross-examination he was asked to enumerate the debts and their amounts. In reply he mentioned a debt to these plaintiffs of $400, and debts to two St. Louis firms, naming them, but stated that he could not state the amounts. These circumstances were calculated to throw suspicion on the genuineness of the sale, and to support the hypothesis that it was a sham, and intended as a cover to protect the defendant in his resumption of business with his own goods.

Neither Gernsbacher, nor Henry Grabenheimer, defendant’s brother, with both of whom he seemed on intimate business relations, had any notice of defendant’s previous intention to make an assignment. Henry Grabenheimer testified that the defendant was doing or bad done a prosperous business during that season. After he resumed business, the character and size of his mercantile transactions seemed to be consistent with the supposition that he had at least the control of considerable means or credit.

It was the province of the judge, the same as of a jury, to weigh the evidence, and to determine the credibility of the witnesses, and we think, for the reasons already given, that the evidence is sufficient to support the conclusion that the plaintiffs were damaged by the defendant’s fraud to the full amount of the balance of their account under the application of the rule which the appellant’s counsel invokes in the assignment under consideration. In other words, that the defendant’s assets were amply sufficient to have paid his debts, dollar for dollar.

The seventh assignment is not well founded. “Ex turpi causa non orittw actio.” The defendant cannot profit by the result of a loss superinduced by his own fraud. Whilst it is true that the plaintiffs are held to the affirmance of the contract of settlement in this action, and may recover only the damages sustained by them by reason of the fraud, it does not follow that the amount of their damage shall be recouped and diminished by the loss which the defendant has encountered in carrying out the terms of the contract which he fraudulently procured to be made. Besides, the defendant has not set up a claim to compensation by appropriate pleadings. His answer sets forth the alleged payment merely incidentally, by way of averment of performance on his part with the terms agreed on for settlement with the plaintiffs, but he does not plead the same in reconvention with prayer for allowance of the same as against plaintiffs’ claim for damages.

There are several other grounds of error presented in the brief of appellant’s counsel which are urged wfith force and discriminating learning and research, all of which have received careful consideration. We do not think, however, that any of them are sufficient to warrant a reversal of the judgment. We have discussed what we find to be the controlling and material matters which the merits of this appeal involve, and our opinion is that the judgment ought to be affirmed.

Affirmed.

[Opinion adopted February 23, 1885.]