Tidgwell v. Bouma

176 Iowa 47

• Court: Supreme Court of Iowa
• Decided: April 10, 1916
• Status: Published

Opinion

Gaynor, J.

This is an action in equity brought by the plaintiff to set aside and cancel a certain deed executed and delivered by him to ope of the defendants,- Nettie M. Bouma. The ground of the action is fraud alleged to have been committed by the defendant B. T. Bouma, husband of the other defendant. The land involved is 160 acres in Howard County, in this state.

The petition alleges that the defendant B. T, Bouma and one Herman Rietveld, prior to March 18, 1907, confederated and conspired together for the purpose of cheating and defrauding this plaintiff; that, at the time of the conspiracy, Rietveld was a banker residing in the city of Pella, Iowa, and reputed by the general public to be worth $75,000 or more, but in fact, at the time, was wholly insolvent; that this fact was well known to the defendant Bouma; that Bouma was a real estate agent; that Bouma and Rietveld conspired and agreed together that Rietveld, without any consideration therefor, would execute and deliver to said defendant his promissory notes; that Bouma should trade, sell or negotiate the same for money or other property, and that they would divide the proceeds received therefrom between them; that, to effectuate this fraudulent purpose, and in pursuance thereof, Rietveld executed and delivered to the defendant his promissory note for $4,000, and executed to him a mortgage on 160 acres of land in Nebraska, ostensibly to secure the same; that, at the time of the execution of the mortgage, Rietveld had the record title to the land; that, at the same time, and for the same purpose, Rietveld executed and delivered to the defendant Bouma his note for $2,500, ostensibly secured by a mortgage on 120 acres of land in Madison County, Arkansas; also a promissory note for $2,000, ostensibly secured by a mortgage on 120 acres of land also in Madison County; that the lands described in said mortgages and pledged to secure said notes were practically worthless, and were not worth more than $2 an acre, which facts were well known both to Bouma and Rietveld, at the time of the execution of the said notes and mortgages; that, about the time mentioned, the plaintiff Tidgwell was the owner of 160 acres of land situated in Howard County, this state; that the defendant Bouma represented that the land described in said mortgages was well improved, with good fences and buildings, and was productive, that the title to the land was perfect in the mortgagor, and the maker of the notes solvent, whereas, as a matter of fact, the land was practically worthless, and the title of the mortgagor imperfect, and the mortgagor insolvent, and the notes and mortgages were practically worthless ; that, in the month of March, 1907, the plaintiff traded his land in Howard County for the said notes and mortgages. At the time of the execution of the deed by this plaintiff to the defendant for said notes and mortgages, the maker of the notes, Rietveld, was insolvent and financially worthless, and still is insolvent and worthless; that all the statements as to the value and conditions of the mortgage securities were absolutely false at the time that they were made; that the securities were worthless, and are still worthless.

Plaintiff further alleges that, subsequent to said exchange of properties, plaintiff put said notes in judgment against said Rietveld in Marion County, Iowa; that said notes are now in possession of the clerk of said court, by reason of which fact plaintiff is unable to tender them back, but plaintiff offers to assign to the defendants the judgment obtained upon said notes, and to return all the mortgages and other evidence received by him in said exchange. Plaintiff says that he was entirely ignorant of the facts herein recited, at the time that he made the exchange, and did not discover their falsity until a short time before the commencement of this action; that the name “Nettie M. Bouma” was inserted in the deed at the time that it was made, at the request of the other defendant, her husband, and without any consideration passing therefor. • Wherefore, the plaintiff prays that the deed be canceled and set aside; that the title to the Howard County land be quieted in him, and that he have judgment for the fair rental value of the property during the time that' it has been in the possession of the defendants.

Defendants for answer admit that Herman Rietveld was a banker in the town of Pella at the time of the happening of the matters complained of; that he had record title to the land described and the mortgages referred to; that he was generally reputed to be worth $75,000; that the plaintiff was the owner of the land in Howard County referred to; that about the 18th day of March, 1907, plaintiff conveyed said land to defendant Nettie M. Bouma by deed; that, in consideration for the conveyance, the defendant B. T. Bouma traded to him one promissory note for $4,000 by Rietveld to Bouma, and endorsed by Bouma without recourse to the plaintiff ; that the note was secured by a mortgage on 160 acres of land in Holt County, Nebraska, then owned by Rietveld; also one promissory note for $2,500, executed by the same party to the same party, and endorsed to the plaintiff without recourse, this note secured by a mortgage on land in Madison County, Arkansas; also a note of $2,000, executed by the same party to the same party, and endorsed without recourse to the plaintiff, said note being secured by mortgage on land situated in Madison County, Arkansas. It is further admitted that the notes were by the plaintiff reduced to judgment in .July, 1910. They deny Ml other allegations. As a defense, however, .it is pleaded that, before accepting said notes, the plaintiff investigated for himself the character and value of the notes, and, after such investigation, relied wholly upon his own judgment and upon the information so received, in making the trade; that, on the 8th day of July, 1910, the plaintiff, with full knowledge of all the conditions now complained of, and with full knowledge of all the facts connected with the transaction in question, elected to treat the promissory notes as his own, and, without any notice to these defendants of the intention to repudiate the trade, he reduced said noted to judgment against Bietveld; that, after reducing the notes to judgment, in the fall of the year 1911, and before the commencement of this action, the plaintiff procured the said Bietveld to convey to him the land in Holt County, Nebraska, and agreed to and did accépt said conveyance as a full and complete satisfaction and payment of the judgment rendered and security on the notes, thereby releasing and discharging this defendant, and thereby rendering it impossible for him to put the defendants in sta-tu quo. Wherefore, the defendants say that, by reason of the facts aforesaid, the plaintiff has ratified and confirmed the trade in question, and has been guilty of laches in asserting his claim against the defendants, and is now estopped to demand the relief asked for. They pray that plaintiff’s, claim be dismissed and title quieted in-defendants.

In April, 1912, since the commencement of this suit, the plaintiff sold and assigned to H. O. Michaels the judgment obtained by him against the said Bietveld upon the notes referred to in plaintiff’s petition.

Upon the issues thus tendered, the evidence was introduced, and, at the conclusion of all the evidence, the court entered judgment for the defendants dismissing plaintiff’s petition, and from this, plaintiff appeals.

The evidence in this ease is conflicting. It is triable de novo here. We are not bound to accept the testimony of any witness as true, nor may we assume a fact established because a witness has been.produced whose testimony tends to establish it. Our only duty is to account, if possible, for this conflict in the evidence; to reconcile it where it can be reconciled, and ultimately to ascertain out of it all what the truth is.

There is much in this record that reflects upon the character and integrity of some of the witnesses on whom the greatest reliance is placed to establish plaintiff’s contention. The plaintiff alleges a conspiracy entered into between Bouma and Rietveld. A conspiracy consists in an alleged understanding and agreement entered into between them, by which Rietveld was to execute to Bouma certain notes, Bouma, to sell or trade them for other property, and the proceeds so obtained, to be divided between them. It is conceded that Rietveld, at the time that these notes were executed, and for some time prior thereto, was generally reported to be a wealthy man, and responsible for his obligations. It is claimed that this was known to Bouma and Rietveld; that, in making these notes, they speculated upon this seeming solvency of Rietveld; that both parties at the time knew that he was insolvent, and that the notes were worthless. This conspiracy is testified to by Rietveld alone; denied by Bouma. Rietveld himself makes the shameful confession without shame, and says that he was wholly insolvent at the time that these notes were made; that both he and Bouma knew this fact; that the notes were made for the purpose of being palmed off on an unsuspecting public as of value, when, in fact, they had no value, and that he was to share in the profits of the wicked scheme. Touching the conspiracy, Rietveld said:

‘ ‘ It was arranged and agreed that I should 'sign certain notes and mortgages which he (meaning Bouma) would have made payable to himself, and seemingly secured by real estate mortgages on property of little or no value, on which I had no title or equity, and he was to trade these off for property and give me half of the proceeds.”

He said that the land on which the mortgages were given was of little or no value; that some of it he had no title to; that he had never seen the land in Arkansas; that Bouma had seen all the land described in the mortgages, and knew all about it, and knew that it was of no value. He said that he never owned any land in Madison County, Arkansas; never bought any there; never paid for any; in fact, never had any; that he received no consideration from Bouma for the notes; that the only arrangement was that he should make the notes and mortgages, Bouma should dispose of them, and they would divide what they got out of them. He further testified that Bouma said that the public did not know his financial condition, and would not find it out until they traded the paper off; that this would make both of them money. He further testified that Bouma, since the commencement of this action, said that, if he (Rietveld) would stay by him in the matter and he could win it, he would have the Howard County land — the land in controversy — deeded to him (Rietveld). His testimony was taken by way of depositions. He said:

“I got a copy of these depositions two or three days before my deposition was given before the notary; I wrote my answers in before I appeared before the notary, and I read my answers to the notary as they appeared in the copy. ’ ’

There is no question, for it is admitted, that the public generally supposed Rietveld to be worth from $75,000 to $80,000 at that time. He had been in the banking business. His father was in the banking business — the father a reputable and worthy man, as this record shows. We must judge the testimony of Rietveld in the light of his own confessions. What influences were brought to bear upon him to induce him to make these statements now relied upon by the plaintiff and set out in the deposition are not made plain in this record. The pressure, however, that was brought to bear upon the other witnesses in this case to induce them to swear to facts serving the plaintiff’s purpose, would suggest that the same hand was at work in influencing this man to give the testimony that he has given. The plaintiff, for 4y2 years after this exchange was made, made no complaint to anyone of the conduct of Bouma, nor did he suggest that Bouma had praeticed any fraud upon him. Not until after this matter got into the hands of H. O. Michaels did the theory develop, upon which this case has been presented to this court. Michaels was the controlling spirit after his entry into the case, and he was also a witness for the plaintiff upon the trial. It was through, him that this suit was commenced. He was to receive one third of all that was recovered. He was to receive one third of this farm if plaintiff recovered it. He took an assignment of the judgment and did not pay any consideration for it. Plaintiff testifies that Michaels now owns the judgments, but claims that he may have them back at any time, if the court orders them to be turned over to the defendants. This party visited Hawkins, the attorney who obtained the judgment, and made a vigorous effort to influence his testimony; visited Mr. Bouma and threatened him with criminal prosecution. In his own testimony, he says that he said to Hawkins and Bouma:

“If you will take care of me and my part of it, you gentlemen can make any settlement you care to with Mr. Tidgwell; one third of whatever I collected of the obligations Mr. Tidgwell had against Mr. Hawkins, Mr. Rietveld, Mr. Bouma and Mr. Hardy.” (Mr. Hardy was the agent by whom the trade was effected that is now complained of.)

He further said, in conference with Bouma and Hawkins:

“I told them: ‘You just deed the farm to me. I have the power of attorney to act for Mr. Tidgwell.’ I said: ‘If you deed this farm to me, gentlemen, Mr. Tidgwell will surely have to pay me before he can get it. ’ Q. And the matter of the $3,000 cash payment was discussed? A. No, sir; I told them $4,000. I told them if they would give me $4,000 for my share, they could settle with Tidgwell, but I would tell Tidgwell what I got for my part, and that, if they could put in any cheap stuff for him, that was for him, and not for me. ’ ’’

Touching the assignment of the judgments, he said that that was a private deal between him and the plaintiff; that he had some agreement that, in the event that this suit went in favor of the plaintiff, and the court ordered it, he would reassign the judgments. He further testified that he had a conversation with Bouma, in which Bouma offered to deed the land in question to the plaintiff; that he said that he would deed it to the plaintiff if the plaintiff would agree not to prosecute him criminally; that he said to Bouma:

“That is all Tidgwell is asking of you in the suit no|v filed, that you return to him a deed for the Howard County farm and the rents of it. ’ ’

He said that the plaintiff would surely not refuse this offer to deed the land if Bouma could make it appear that he had no other property, neither he nor his wife. He says that Bouma told him that the deed was already made out in blank and in a safe at Lynville; that in the conversation he told Bouma to go and get the deed' and make an affidavit that he had no other property, and to come back on the next day and bring the deed; that he would take the deed to' Tidgwell and try to bring about this settlement, only that Mr. Tidgwell cannot and dare not promise in any way that he would not prosecute him criminally. He says that he left the matter right there and went home, expecting Bouma back the next day; that Bouma never came, and that was the last conference that he had with him. He further testified that Bouma, in this conversation, told him that it was a crooked deal that he had worked on Tidgwell.

Bouma testifies that no such conspiracy was entered into as detailed by Bietveld; claims that the general public considered Bietveld to be a wealthy man; that he also believed it; that he had no knowledge of Bietveld’s insolvency; that he gave Bietveld a consideration for these notes; that he had never seen the land; that it was represented to him by Bietveld to be ample security for the notes; denies that he ever told plaintiff that Bietveld was worth any considerable sum of money; testifies that he told him that he was a banker and reputed to be worth so much money; that he gave him the description of the land and told him that he knew nothing of it personally; that this was a description given to him by Rietveld; that he urged the plaintiff to investigate for himself; that plaintiff did investigate before this deal was entered into; that they had prior dealings in which these notes, were involved; that, prior to this time, the plaintiff had seen these notes and these mortgages, and his attention was called to the securities.

E. B. Maey testifies:

“lam 48 years of age; live at Lynville; am in the' lumber and grain business; have an interest in the bank. In the year 1906, was in a general banking business, grain and lumber business. ’ ’

He said that he was connected with the Exchange Bank; that he was cashier of the bank; that he had been in that bank since 1904; that he was acquainted with Bouma; that he met the plaintiff about December 19, 1906. Plaintiff called at his bank on account of a deal which was being transacted through the bank between Bouma and other parties. lie said also that he had a talk with Tidgwell at the bank; that Mr. Tidgwell inquired with relation to the financial standing of Mr. Rietveld; that he told him that he regarded him worth from $75,000 to $80,000; that that was his opinion at the time. He further testified:

“All I can say is that Mr. Rietveld was worth about $75,000 at that time, and it is still my opinion that he was. I formed that opinion by several years’ reputation he had in our neighborhood. I got that opinion and I believe it was right. ’ ’

The transaction involved in this suit was had in March, 1907. Up to the year 1910, Rietveld was still running the bank with which he was connected at the time that the trade was made. For nearly three years after the trade, he continued in the banking business and other lines of activity in Pella. He had bought and sold considerable quantities of real estate in Iowa and in other places during this time. About the beginning of the year 1910, or the latter part of the year 1909, lie suddenly claimed and appeared to be insolvent, and went out of business entirely, so far as that section of the country was concerned.

Tidgwell testifies that he came to the conclusion that the notes were worthless in the year 1909, and that they could not be collected. He, however, made no effort to rescind the contract, but made an effort to trade the notes off for other property, or at least made a proposition to do so, and after-wards had Rietveld deed to him the land in Nebraska. Upon this point he testified:

“The deed that I took from Rietveld on the Nebraska land was to apply upon my judgment against him. I made arrangements with him that, if this land fetched me more than the mortgages amounted to, I would give him credit for them on the judgment he owed me. ’ ’

Nor was any effort made to rescind the contract, nor any claim made by the plaintiff that he had been defrauded, until the 16th of August, 1911, or about the time when this suit was begun.

We have not attempted to set out all the evidence, or even a substantial part of the evidence, but sufficient to show the conflicting claims of the parties, and the nature and character of the testimony which is given in support.

Plaintiff claims that he relied upon a statement made by Bouma that the land described in the mortgage was amply sufficient to secure the amount of the notes; that, from the description of the property given by Bouma, it so appeared to him; and yet he never had the assignment of these mortgages recorded, nor did he make any investigation as to the character of the land, although he knew, nearly three years before he commenced this suit (if his contention is to be followed that the mortgages were worthless as security), that Rietveld was financially irresponsible. His conduct has probative force as tending to negative the' claims now made that these representations now relied upon were, in fact, made by Bouma. The land deeded by the plaintiff to Bouma remained just as it was deeded. This fact was known to the plaintiff, and yet he took no action to rescind, reduced the - notes to judgment, and assigned them to Michaels. He took deeds to the mortgaged property, agreeing to credit Rietveld on the judgment with the amount realized therefrom. The evidence leaves it in doubt whether or not Rietveld was ’ insolvent at the time these notes were transferred. That he had some property, we are satisfied from the whole record, although he denies it. If we accept Michaels’ and Rietveld’s testimony as a verity, we would have no trouble in ascertaining that a legal fraud had been practiced upon the plaintiff, but the whole record does not justify us in accepting this as true.

The burden is on the plaintiff to establish his case. Fraud is never presumed. It must be shown by clear and satisfactory evidence. That the plaintiff got the worst of the deal does not argue fraud. These men were dealing at arm’s length. If we accept defendant’s testimony, it appears, not only that the plaintiff was urged to an investigation of these securities before he purchased them, but that he actually did make an investigation, and he is reported to have said that he was satisfied with his investigation; that he cared nothing for the mortgaged property, because he considered Rietveldamply good for the notes.

1. Vendor and PURCHASER: rescission: laches. With this uncertain and confusing state of the record touching the truth or falsity of the ultimate fact sought to be proved, we turn our attention to what we consider a controlling factor in this case, and one that must, in and of itself, dispose of plaintiff’s contention here, and of his right to have this transaction set aside. The plaintiff is asking the right of rescission to undo a transaction that has stood for. four and a half years as unquestioned. Two and a half years of that time elapsed after he had full knowledge of the character and value of the property that he received in the transaction, and of the circumstances under which he received it. During this time, he dealt with the property received as his own.

It is elementary that a party defrauded must act diligently. When he has knowledge of the facts upon which he bases his right to rescind, it is his duty, in law and good conscience, to notify the other party of his intention to rescind within a reasonable time. The rule that a party must rescind within a reasonable time after the discovery of the alleged fraud is well settled in this state, and is the uniform holding, not only of courts of law, but of courts of chancery. Courts have even gone so far as to say that, where the means of the knowledge lies within the reach of the party who seeks rescission, and he negligently fails to avail himself of the means of knowledge thus afforded him, he cannot extend the time for rescission by such negligent conduct. Under such circumstances, he will not be heard to say that he did not in fact know, until the time the suit was begun, or that the suit was begun within a reasonable time after he acquired actual knowledge. The rule is a general one and of uniform application. It has its foundation in the very equity of the matter. It rests upon the thought that one who has received from another property of any value and desires to rescind the contract under which he received it must, within a reasonable time, make his election to rescind, and place, or offer to place, the other party as nearly as possible, in the same position in which he would have been if the deal had not been made; or, in other words, it has been said, in State Bank of Iowa Falls v. Brown, 142 Iowa 190, 198:

“It is an universal rule that, where one is induced to purchase property by fraud and deceit, he must, within a reasonable time after discovering the fraud, rescind the contract, and place the other party in statu, quo. In other words, he has an election, after discovering the fraud, or after the means of knowledge are at hand, to treat the contract as valid, or to rescind, and, if he fails to act promptly and to rescind, lie will be held to have waived his right to do so,” citing Moore v. Howe, 115 Iowa 62.

In the last case, it was said:

“We have no hesitancy in saying, as a matter of law, that the retention of a retail stock of goods, and sale therefrom in the ordinary course of business, and appropriating the proceeds thereof, for nearly four months after acquiring knowledge of the alleged fraud, will preclude a subsequent rescission of the contract. Such treatment of the property is an unequivocal election to accept the goods and carry out the contract. Taking any benefit or changing the condition of the property bought after learning of the fraud has been adjudged a waiver of the right to rescind.”

See German Sav. Bank v. Des Moines Nat’l. Bank, 122 Iowa 737, in which it is said:

“ ‘A party seeking relief on the ground of fraud must aver and show that he used diligence to detect it, and, if he had the means of discovery in his power, he will be held to have known it.’ . . . The rule that a party must rescind within a reasonable time after the discovery of the fraud is equally well established. . . . We conclude that as the remedy was not sought within a reasonable time after’the fraud alleged ought to have been ascertained, and as the plaintiff has continuously treated the notes as its own, it ought not to be permitted at this late day to rescind and recover the amount paid.”

The following cases support the above propositions: Stetson v. Northern Investment Co., 104 Iowa 393; Barnes v. Century Savings Bank, 165 Iowa 141; Evans v. Montgomery, 50 Iowa 325; Blackman v. Wright, 96 Iowa 541; Himes v. Langley, 85 Ind. 77. In the last case, it is said:

“After a party has become aware of his right to rescind a contract for fraud, he cannot continue to clqim property acquired under the contract, as his own. and to exercise acts of ownership over it, without forfeiting his right of rescission. ’ ’

See Clampitt v. Doyle (N. J.), 70 Atl. 129; Capital Security Co. v. Holland (Ala.), 60 So. 495; Trauzettel v. Kjellman (Tex. Civ. App.), 163 S. W. 689, 691; Marshall v. Gilman, 47 Minn. 131 (49 N. W. 688); Skinner v. Scott (Okla.), 118 Pac. 394; McCoy v. Prince (Ala.), 66 So. 950. The last case was an action based upon fraudulent representations in which the plaintiff asked a rescission of the contract and the return of the purchase price. The court said:

“If, after the discovery of the fraud or breach of warranty entitling him to rescind, the purchaser uses and deals with the property as his own, or does other acts inconsistent with his right to rescind, then he is held to have elected-to ratify the contract and to have waived his right to rescind; . . . and, in such event, the only remedy left him for the redress of the wrong of the seller is either a suit against such seller for damages (ex delicto if there was fraud or deceit, and ex contractu if there was merely a breach of warranty); . . . or, if sued by the seller for the purchase price, an abatement pro tanto of the recovery by a plea of recoupment or counterclaim.”

See Shappirio v. Goldberg, 192 U. S. 232 (48 L. Ed. 419). In this case, Judge Day, speaking for the Supreme Court, said:

“It is well settled by repeated decisions of this court that, where a party desires to rescind upon the ground of misrepresentation or fraud, he must upon the discovery of the fraud announce his purpose and adhere to it. If he continues to treat the property as his own the right of rescission is gone, and the party will be held bound by the contract. [Citing authorities.] In other words, when a party discovers that he has been deceived in a transaction of this character he may resort to an action at law to recover damages, or he may have the transaction set aside in which he has been wronged, by the rescission of the contract. If he choose the latter remedy, he must act promptly, ‘announce his purpose and adhere to it,’ and not by acts of ownership continue to assert right and title over the property as though it belonged to him. . . . It may be that the mere lapse of time in this ease would not of itself have defeated the right to rescind, as a purchaser has a reasonable time in which to make election of such remedy, after discovery of the fraud [citing authorities], but he cannot after such discovery treat the property as his own and exercise acts of ownership over it which show an election to regard the same as still his and at the same time preserve his right of rescission.”

These authorities are the expression of the almost universal holding of the courts of this country upon this question, and we think they are conclusive upon plaintiff’s rights to. rescind on the record made here.

2. s<SsSon?re-re scission in spite of laches: conditions. It is contended, however, that equity will grant relief, sometimes, in an exercise of its broad equitable power, when it is made to appear that the delay or conduct of the party relied upon as a waiver of the right to rescind did not injuriously affect the other party, and tlie court can so trame its decree as to proteet the other party in granting the rights prayed for. Reliance is had in a measure upon what is said by this court in Curtis v. Armagast, 158 Iowa 507, 518.

The record, however, does not place the plaintiff in a position to insist upon this rule. It is the merest speculation upon this record as to what position the parties would have been in had the plaintiff acted promptly and rescinded his contract within a reasonable time after discovering the fraud, and the court is not required, nor is it the duty of the court, to speculate upon the uncertain showing. Under this record, the plaintiff clearly did not exercise the right he here asserts, within a reasonable time after discovering the fraud of which he complains, if any. It therefore is incumbent upon him, if he would invoke the equitable power of the court upon the theory suggested, to show plainly to the court that it now lies within the power of the court to so frame its decree that exact justice will be done to both parties; to show to the court that, by a decree formulated upon this record, the court can place tbe defendant in the same position that he would have been in had the plaintiff not slept upon his rights. ■

8. Jurchaser? fraud: affirmanee: acts of ownership, Further than that, we think that the record in this case is such that it indicates a positive election on the part of the plaintiff not to rescind the contract on the ground of fraud during all the time intervening between the discovery of the fraud and the commencement . .„ of this action; that his conduct manifests a purpose and intent on his part to affirm the contract, or, at least, not to insist upon a rescission.

With this state of the record, we are satisfied with the holding of the court below, and the ease is therefore — Affirmed..

Deemer, Ladd and Salinger, JJ., concur.