Shepard v. Pabst

135 N.W. 158, 149 Wis. 35, 1912 Wisc. LEXIS 106

• Court: Wisconsin Supreme Court
• Decided: March 12, 1912
• Status: Published

Opinion

TiMLiN, J.

Upon a verified complaint having the contracts in question annexed thereunto as exhibits, and an affidavit by two of the plaintiffs, a restraining order was issued enjoining the defendant from selling, assigning, or transferring any and all unpaid notes theretofore executed by the plaintiffs and delivered to the defendant, and from selling, assigning, or transferring a certain written contract, and from commencing or prosecuting any action at law or suit in equity against the plaintiffs, or either of them, upon the said unpaid notes or contract until the further order of the court. The defendant moved before the circuit court to vacate this restraining order, or in the alternative to modify it so as to permit the defendant to commence suit on the notes. This motion was supported by several affidavits and a proposed answer and counterclaim or cross-complaint, and after hearing the circuit court ruled that the complaint was sufficient to state a cause of action against tbe defendant, also that tbe contract between tbe defendant and tbe Western Land Securities Company constituted tbe latter tbe agent of tbe defendant, and tbat tbe plaintiffs were not, by reason of anything in tbe contract between them and tbe defendant, estopped to allege and prove fraud, and further modified tbe injunction by permitting tbe defendant to interpose in this action a counterclaim upon any and all notes held by him against tbe plaintiffs. From this order tbe defendant appeals. lie contends tbat tbe following issues are involved on tbe appeal: (1) A construction of tbe contracts between appellant and tbe Securities Company as to whether they are contracts of purchase or option to purchase, or whether they are contracts of agency; (2) whether this action can be maintained by respondents in view of their stipulation relating to their examination of tbe land and nonreliance on any representations made to them; (3) whether respondents are guilty of negligence in failing to ascertain tbe alleged fraud within a reasonable time; (4) whether it is a proper case for an injunction.

It is conceded tbat tbe motion to vacate tbe injunction challenges tbe sufficiency of plaintiffs’ complaint and presents all questions to this court which would be presented by a general demurrer, within tbe rule of Harley v. Lindemann, 129 Wis. 514, 109 N. W. 570; Sage v. Fifield, 68 Wis. 546, 32 N. W. 629; and Judd v. Fox Lake, 28 Wis. 583. There is thus attempted to be presented in limine tbat very perplexing question discussed in 1 Mechem on Sales, secs. 43 to 50, inclusive. Tbat learned author, writing in 1901, says:

“Tbe cases involving this question have now become so numerous, and tbe varieties of forms of contracts so great, tbat it would be impracticable to attempt a full exposition of them in tbe text.” Sec. 47.

This practical consideration, joined with well known common-law rules, forbids any such attempt within tbe narrower limits of a judicial decision. Confining ourselves as closely as possible to tbe ease presented: The defendant, who resided in Waukesha county, Wisconsin, was the owner'of about 64,000 acres of land in North Dakota. The Western Land Securities Company was a Minnesota corporation with its principal office and place of business in the city of St. Paul, and engaged, among other things, in marketing, selling, and disposing of lands as agent, for compensation. On December 1, 1907, these two persons entered into an agreement in writing to be hereinafter noticed, and upon the construction of this agreement the case mainly turns. The Securities Company about June, 1908, undertook to sell to the plaintiffs 4,241.76 acres of this land, and, as is averred, falsely and fraudulently pointed out to the plaintiffs as the lands in question other and different lands far superior in quality and value to the lands of defendant, representing such lands so pointed out as the lands which they were selling, and plaintiffs, relying on such representations, paid the money, entered into the contract with defendant, and gave the notes hereinafter mentioned. It does not appear by the complaint exactly when the plaintiffs discovered the alleged fraud. It does appear that they made payments as late as June 29, 1910, and that since the discovery of the fraud they have executed and tendered to the defendant a conveyance or release and relinquishment of all their right, title, and interest whatsoever in the lands included in their contracts with the defendant and offered to deliver the same to the defendant, and they make the offer to reconvey in their pleading, and it also appears by averment that all the sums paid by the plaintiffs upon the purchase price were paid without knowledge on their part of the fraud committed upon them and before the discovery of said fraud. There is an inference then that the fraud was discovered after June 29, 1910, and the action was begun in January, 1911.

The contract between the defendant and the Securities Company recites that the defendant is the owner of the lands in question and certain personal property used or intended to be used in connection therewith, and desires to sell and dispose of the lands and personal property except the horses, cattle, hay, etc. This paragraph follows:

“Whereas said party of the second part [Securities Company] is engaged- in the purchase and sale of such lands and the marketing the same, in parcels, among settlers and other purchasers, and is desirous to acquire title to said personal property, and the right up to June 1, 1910, to so market, sell, and dispose of the lands aforesaid, and the right to said date to acquire title to such of said lands as shall not he so sold or disposed of: Now, therefore, in consideration of the premises and the sum of $32,000 in hand paid by said party of the second part to said party of the first part, the receipt whereof is hereby acknowledged, and in consideration of the agreements hereinafter contained,” etc.

Then follows a recital of the purchase price, a provision that this shall bear interest from December 1, 1907, payable annually, special provisions relating to small tracts to which the title might fail, and then:

“That said party of the second part at its own cost and expense shall forthwith and at all times hereafter, during the life of this agreement, use its best endeavors to find purchasers for all of said lands in parcels, either for cash or upon land contracts to be made with said party of the first part upon terms of not less than one third cash and the balance in not to exceed eight equal annual payments evidenced by the promissory notes of the purchaser thereof payable to the order of the said party of the first part, with interest thereon at the rate of five per cent, per annum, payable annually or semiannually, which land contracts shall be in the form hereto annexed and marked Exhibit T>,’ and made a part hereof, and shall be executed in duplicate.”

The fourth paragraph fixes the minimum price at which the Securities Company may sell the land, and if it goes below that price it must make up the deficiency in cash. Upon each sale the consideration must be promptly paid or turned over to tbe defendant with tbe said land contract properly executed, and thereupon tbe defendant, either in person or by his duly authorized agent, shall execute a land contract in duplicate, retain one, and deliver the other to the Securities Company for such purchaser, and credit the amount thereof upon the purchase price, subject to conditions. It was also agreed that the Securities Company might, at its election, purchase from the defendant any of the said lands and pay him for such lands according to the provisions and terms therein for sales to other purchasers. In the sixth paragraph it was stipulated that at any time during the life of the agreement, if the Securities Company should not be in default, the defendant would, upon demand, convey to the Securities Company any parcel or parcels of said lands not theretofore conveyed by him under the contract or agreed to be conveyed by land contract to others, upon payment to the defendant for said parcels in cash at a fixed rate per acre. By the seventh subdivision it was provided that at any time during the existence of the agreement, the Securities Company not being in default and the lands sold amounting to a stated price per acre, the defendant would on demand execute and deliver to the.Securities Company his warranty deed of the balance of said land not theretofore conveyed or agreed to be conveyed to others by land contract under the agreement. By the eighth paragraph the Securities Company was given the right to the possession of all the land with an item excepted, but in case it failed to perform its agreements it was required to surrender up possession to the defendant. The Securities Company was required to pay all taxes and assessments during the life of the agreement except such as might be payable by purchasers under said land contracts, and to furnish duplicate receipts to the defendant-. It was provided that the covenants of this instrument should extend to the heirs, legal representatives, and assigns of defendant, and to the successors and assigns of the Securities Company.

In a modification of tbis contract made February 22, 1908, not otherwise relevant here, some prior contract was described as “a preliminary agreement for tbe sale or purchase or option to purchase certain lands,” and the aforesaid contract as “a permanent agreement therefor.” This modification recited certain co-operation between the Securities Company and the defendant to procure for the defendant a release of some claim on part of the land. It corrected some descriptions in the agreement of December 1, 1907, and provided for an indorsement thereon as a payment by the Securities Company to Pabst of the sum of $27,740 as of the date thereof.

The land contract which the Securities Company was obliged to malee with purchasers was in the same form and contained the same stipulation with reference to representations as that which the defendant made with the plaintiffs and which will now be taken up. This last mentioned contract names the defendant as vendor and the plaintiffs as vendees, does not mention the outstanding option to the Securities Company. It recites a present sale, and it binds the vendor to convey to the vendees, upon performance by them, the lands therein described, which are a portion of the 64,000 acres optioned to the Securities Company. The vendees agree to make a cash payment to the vendor which is receipted, to execute their interest-bearing promissory notes which are described, and to pay all taxes and assessments and furnish duplicate receipts to defendant. A forfeiture for nonpayment is provided, and in such case the property is to come back to defendant, his heirs, legal representatives, or assigns. There is also this provision :

“The said parties of the second part hereby agree and warrant, as a part of the consideration for the sale to them of said land, that they have inspected said premises, and that in making' this purchase and in executing this contract they are not relying upon any representation made by the party of the first part, or by any agent or servant thereof, and explicitly waive any claim on that account.”

This contract was rewritten, with slight modification not material on tbe question bere presented, on February 4,1909.

Tbe complaint expressly charges that tbe defendant, by writing of December 1, 1907, appointed tbe Securities Company bis agent to market, sell, and dispose of tbe lands in question, and this may be considered a sufficient pleading of what tbe defendant intended by that instrument, if such intention is not negatived by tbe writing annexed to tbe complaint. Tbe complaint also avers that tbe plaintiffs purchased tbe lands from tbe defendant through tbe Securities Company, defendant’s agent, which conducted all negotiations in behalf of defendant leading up to the making of tbe contract between plaintiffs and defendant. We are to inquire whether tbe written instruments show that tbe Securities Company bad authority to do so. Appellant points out, among other things, tbe following features indicating that tbe instrument of December 1, 1907, was a contract of sale: (1) Tbe declaration in tbe amendatory agreement of February 22,1908, above mentioned describing tbe preceding agreements; (2) tbe payment of a large sum of money by tbe Securities Company to tbe defendant; (3) the Securities Company was given possession of tbe property; (4) it was to pay interest on tbe purchase price and pay taxes; (5) it was given the right to purchase tbe property; (6) tbe net proceeds of sales by it to be applied on tbe purchase price, and when less than tbe specified price per acre at which it was required to sell, the Securities Company should make up tbe deficiency; (7) all moneys received over tbe stipulated price to belong to tbe Securities Company; (8) tbe latter bad a right at its option to take a deed for tbe unsold remainder of tbe tract or for all tbe tract. Some of these, it will be observed, are quite appropriate to either form of contract, agency or sale. On tbe other band, as pointed out by respondents, tbe contract contained tbe following indications of agency: (1) It recites that tbe defendant owns land which be is desirous of selling and the Securities Company is engaged in marketing the same among settlers and.other persons; (2) the Securities Company is desirous to acquire (a) title to the personal property, (b) the right up to June 1, 1910, to so market, sell, and dispose of the lands, (c) the right up to the date last mentioned to acquire title to such of said lands as shall not he so sold and disposed of; (3) the Securities Company binds itself to use its best endeavors to find purchasers for all of said lands or parcels either for cash or upon land contracts to be made with defendant by the persons whom the Securities Company finds as purchasers; (4) the price for which the Securities Company must sell, the time, terms, and form of the land contract which it must negotiate and find purchasers to agree to, are fixed, and in these contracts the Securities Company does not appear at all, but the purchaser found or procured by'it is vendee and the defendant is vendor; (5) the Securities Company did not agree to purchase any of the land from defendant, there are no words of present sale to the Securities Company, the latter was merely given the option to so purchase; (6) if the Securities Company exercises its option to purchase it could do so for the unsold remainder of such land, if any such remainder there should be.

What was the value of the personal property or the value of the use and occupation of the land does not appear. It seems to be assumed by counsel for appellant and by counsel for respondents that this must be either a contract of agency or a contract of sale; that it cannot be both, and there are cases to that effect. Such cases usually involve a question of title, like Monitor Mfg. Co. v. Jones, 96 Wis. 619, 72 N. W. 44. There is nothing inconsistent in a contract which creates an agency to sell and also gives the agent an option to himself purchase, which he is at liberty to avail himself of at any time during his agency but is not bound to do so. Russell v. Andrae, 79 Wis. 108, 48 N. W. 117; Puffer v. Welch, 144 , 129 N. W. 525; Arnold v. Nat. Bank, 126 Wis. 362, 105 N. W. 828.

“Contracts admit of infinite variety, and they are all valid except where lacking a consideration, lacking parties or capacity, lacking mutual assent, or contrary to rules of law or subversive of public morals.” Hartman F. & C. Co. v. Krieger, 137 Wis. 650, 119 N. W. 347.

There is no rule of law which forbids the principal giving, or the agent taking, an option to the latter to purchase. The legal name which the parties give to their acts or instruments is not controlling in interpretation. The real substantial nature of the legal relation created thereby will control the mere name. Neither are provisions to be isolated, identified, and named as if they stood alone and then set back in their place in the instrument with this meaning fixed so as to overrule the meaning derived from a survey of the whole. All parts of the instrument must be harmonized if this may be done. One of the most significant provisions of the instrument in question is that in which the parties declare what they desire to accomplish. That is, to acquire title to the personal property, to acquire the right to market, sell, and dispose of the lands, and to have the right, within the time limited, to acquire title to such of the lands as shall not be sold or disposed of. They do not agree to purchase the land, but are merely given the option to do so within a time fixed, and during this period of time they have the right to market and sell, but in all such sales made by them to others the defendant fixes the price and the terms, and he has to appear as vendor and such others as vendees. The Securities Company paid a large sum of money, but it acquired therefor the title to the personal property, the possession of the lands, and the right or option to purchase, and the right, up to the time it saw fit to exercise its option to purchase, to market and to sell defendant’s lands to whomsoever it could induce to buy and thereby earn the difference between the amount for which it sold the land and the price per acre fixed in this contract. The large payment under such circumstances is shorn of much of the significance which was given to it in Harney v. Burhans, 91 Wis. 348, 64 N. W. 1031, where the question considered was quite different. There the question which arose between the parties to the instrument was whether a contract of purchase or a mere agency to sell was intended, and it appeared that the' promisee or agent had paid nearly half of the purchase price. This fact was properly taken to negative a mere agency and to, give the transaction the indicia of a purchase. But in the instant case it expressly appears that there was no purchase by the Securities Company of the land. The instrument is carefully drawn, and in no part thereof does the Securities Company agree to purchase the land. The most that could be said is that it has the right to purchase the land not theretofore sold by it to others at any time after the making of the contract and before June 1, 1910, should it elect to do so. All the provisions of the instrument harmonize with this view. Even the amendatory writing of February 22, 1908, upon which much reliance is placed, describes the preliminary agreement as one “for the sale or purchase or option to purchase certain lands.” Fixing a price to the Securities Company was a necessary part of the option given it. Requiring it to make up the deficiency, in case of sale by it below the fixed price, was necessary to give some elasticity to that part of the contract which fixed an uniform price per acre upon large tracts which the Securities Company was authorized to sell to settlers in small parcels, presumably at prices somewhat varying according to the quality of the land. The advance by the Securities Company was secured by personal property acquired; by the possession of the lands; and by its option to take the unsold lands and have credit thereon for all its advances; as well as by its commissions or profit on what sales it made to settlers or others. We are convinced that the contract in question does not controvert but rather supports tbe averment of the complaint that it was intended by the parties thereunto to constitute the Securities Company the selling agent of the defendant up to such time as the former exercised its option and became itself a purchaser.

Having reached this conclusion, all difficulty with reference to the effect of the clause quoted from plaintiffs’ contract waiving reliance upon representations disappears. .For it cannpt be successfully contended that a principal may put in the hands of his selling agents an instrument containing such a provision, and, after the agents have by fraud obtained assent to this instrument, hold this part of it conclusive upon the defrauded party. There ought to be some way in which a principal may relieve himself from responsibility for the misrepresentations of his agent which he has not authorized, but certainly it cannot be done by prescribing a form of contract for the agent to negotiate which declares either that there were no misrepresentations or that the party whose consent the agent is to obtain did not rely upon misrepresentations, where the purchaser is induced to buy by pointing out to bim land which the principal does not own and which the agent did not intend to.sell him as and for the land to be purchased. In such case the agent’s fraud avoids the assent to this as well as to the other recitals and stipulations of the contract which the buyer signs under the influence of such misrepresentation. Fraud avoids all contracts, and if one of two innocent persons must be the sufferer it seems more just, at least it is more according to law, that that one should be the principal who selected the dishonest agent and put it in the power of the latter to prey upon the public. Bridger v. Goldsmith, 143 N. Y. 424, 38 N. E. 458; Burroughs v. Pacific G. Co. 81 Ala. 255, 1 South. 212; Hickman v. Stewart, 69 Tex. 255, 5 S. W. 833; Smyth v. Munroe, 84 N. Y. 354; Shapley v. Abbott, 42 N. Y. 443; Universal F. Co. v. Skinner, 64 Hun, 293, 19 N. Y. Supp. 62. The mere execution by the owner of the land of an option contract thereon does not per se constitute the holder his agent, and he will not be bound by fraud or misrepresentations inducing a sale to a second purchaser, where such contract is only what it purports on its face to be and not intended merely as a form of agency; and the rule is the same although it is expected that the contract may be assigned before its expiration in case the holder should sell the property. Alger v. Keith, 105 Fed. 105, 44 C. C. A. 371. This rule may come very close to the situation in the case at hand. A good illustration is found in Reeves v. McCracken, 103 Tex. 416, 128 S. W. 895. The distinction between that case and the instant case is that we find in the latter indications of an intention to create a selling agency, giving the agent at the same time an option to himself become the purchaser or go on acting as selling agent.

The real question, therefore, is not to distinguish between a contract of agency and a contract of sale, but to ascertain whether or not the contract in question created a selling agency, with the option on the part of the agent to purchase any or all of the lands at any time up to the termination of his selling agency, or whether it constituted solely an option contract without any agency features. We are convinced that notwithstanding other features in the contract an agency for the purpose of selling was thereby created.

We cannot upon this motion hold that a delay of six months after discovery and before bringing suit would absolutely and as matter of law bar the plaintiffs’ action. There may be evidentiary facts not necessary to be pleaded or properly pleadable which would affect this question.

Each of the competent and capable counsel representing the litigants is here asserting that this is an action for damages. We may suggest that this might lead to complications further on and also suggest an examination of the following actions at law: Isaacs v. Bardon, 114 Wis. 142, 89 N. W. 913; Main v. Procknow, 131 Wis. 279, 111 N. W. 508; State v. Snyder, 66 Tex. 687, 18 S. W. 106. And see 1 Pomeroy, Eq. Jur. (3d ed.) § 110. In actions for damages based on misrepresentations tbe vendee usually keeps the property and recovers either more or less than what he paid, and sometimes, but not necessarily, damages equal to the amount which he paid. In actions like Isaacs v. Bardon, supra, he recovers the amount paid with interest from the time of demand. But it may he that the plaintiffs can elect to take a lesser measure of damages and still carry on their action as one for damages for deceit, a point which we do not at this stage of the action find it necessary to decide.

When we take up the next question the significance of these observations will appear. Whether or not this is a proper ease for injunction depends upon the nature of the right asserted by plaintiffs and denied by defendant. The plaintiffs here seek to recover damages equal to money and notes paid and notes executed and not yet paid to the defendant. But the action being at law, in any event the injunction must rest on the authority given by sec. 2774, Stats. (1898). Assuming that it appears by the-complaint that the plaintiffs are entitled to the judgment demanded, yet no part of said judgment demanded consists in restraining the commission or continuance of any act whatsoever, much less the act described in the statute. Neither does it appear that the defendant is doing, or threatens or is about to do, any act whatsoever in violation of plaintiffs’ rights, much less an act respecting the subject of the action which would tend to render plaintiffs’ judgment ineffectual. It is not in violation of plaintiffs’ right to recover damages, which damages include these very unpaid notes, for the defendant to sell the notes if he is so disposed. That would rather emphasize plaintiffs’ right to recover the damages they claim. Neither would such act make or tend to make plaintiffs’ judgment for damages ineffectual, but the contrary. Nothing of this kind appears in the complaint, but in a supplementary affidavit on which, to-getber with, the complaint, the restraining order was issued, it merely appeared that “plaintiffs are fearful that the defendant will sell, assign, and transfer said notes to third parties and said third parties will commence actions thereon against the plaintiffs.” But if the defendant does not sell or transfer the notes he will commence such actions himself. The conclusion that such actions would result in annoyance and irreparable loss and damage cannot avail against the facts. It is also averred, following this, that the defendant has given out that he will commence and prosecute actions on said notes and contract. This is more explicit, but, as we have seen, he was permitted to come in by counterclaim in this action for that purpose. Hence this cannot support the injunction. The plaintiffs cannot well expect to recover money damages to the amount of the notes given and unpaid and at the same time deny the defendant’s ownership of such notes or their binding force. There is no averment that defendant is insolvent or unable to respond in damages. Upon such showing in a case of this kind there was no right to the continuation of the remaining portion of the injunctional order and it should have been vacated.

By the Court. — Order reversed, and the cause remanded for further proceedings according to law.