
    Wideman v. Lipman et al.
    
      Contracts — Rescission and restoration — Fraud and concealment of material facts — Purchaser of realty paid worthless mortgage bonds as part consideration.
    
    Where purchaser buying premises for $10,000 paid $2,500 in junior mortgage bonds' which vendor accepted at full value relying on purchaser’s representations that they were worth full value, when at time there was action pending for foreclosure of mortgages on property and purchaser was party and knew or should have known that his bonds were worthless, vendor was entitled to rescission of contract and to be restored to all things lost because of transaction.
    (Decided December 20, 1926.)
    Appeal: Court of Appeals for Cuyahoga county.
    
      Messrs. Kammer, Geiger & Williams, for plaintiff.
    
      Messrs. Treadway & Marlatt, for defendants.
   Vickery, J.

This cause comes into this court on appeal from the common pleas court of Cuyahoga county. In that court Wideman brought an action against M. H. Lipman and Eva Lipman, to set aside and rescind a deed, and to recover back possession of certain property that had been transferred from him to Lipman by virtue of such deed, basing his right to rescind upon both overt acts of fraud and the concealment of material facts.

From the evidence that was introduced in the court below, and the stipulations and statements of counsel which have been introduced in this court, we learn that prior to the 16th day of January, 1925, Wideman was the owner of the premises described in the petition, being located on Lauderdale avenue, in Lakewood, Ohio; that he entered into a contract of sale, whereby Lipman agreed to pay to Wideman the sum of $10,000 as the purchase price for the premises, and to make up this $10,000 were a first and second mortgage, the balance, amounting to about $2,500, to be paid in junior mortgage bonds of the Medical Center Company.

It seems that Wideman is and has been a teller in a banking institution for a number of years, and was so employed at the time of the transaction out of which this lawsuit arose; that Lipman was a plumber, and as such plumber had performed labor and furnished material to the amount of about $4.5,-000 in the construction of the Medical Center Building; that the Medical Center Building was owned by a corporation known as the Medical Center Corporation, and that in order to finance the erection of the Medical Center Building, bond issues were resorted to. The first mortgage secured $650,000 worth of bonds, and the second mortgage amounted to about $125,000. The third mortgage was security for the bonds transferred to the plaintiff in this action, or at least part of them.

It seems that Wideman, owning this property on Lauderdale avenue, advertised for a deal of some kind, to dispose of the property. It seems that Lipman saw the advertisement, and that two or three conferences were had between these parties with respect to this deal, the plaintiff wanting a larger sum, namely, $10,800, but finally being induced to come down to $10,000, the price to be made up by the assumption of two mortgages by Lipman and acceptance by Wideman of these junior mortgage bonds on the Medical Center Building for the equity.

It must be remembered that this deal was completed on the 16th day of January, 1925. The record in this case shows that on November 7, 1924, more than two months prior to the final consummation of this sale, a suit had been brought by some of the lienholders to foreclose the liens and to sell the property covered by the mortgages of this Medical Center Building; and that there were some $60,000 worth of liens that were valid and subsisting and ahead of the third mortgage securing these particular bonds.

It is disclosed by the record that Lipman represented to the plaintiff Wideman that these bonds were of face value; that he himself had put up some of these bonds, as collateral to a loan on a note from the Guardian Savings & Trust Company, which I believe the record shows to be true, and also that this note had been renewed two or three times; and as late as December, before this transaction, a renewal note was given for this sum, which I believe was $800. When asked in regard to the interest, it was stated by Lipman that he did not know whether the interest had been paid or not; that it came after the November coupons were due. As a matter of fact, there never had been any interest paid upon these bonds, nor was there any provision made to create a sinking fund which could provide for the payment of these bonds or the interest thereon.

The record shows that when these bonds were delivered to Lipman the interest coupons that were due were on the bonds, but had been taken off before they were delivered to Wideman. If this is so, that was an indication to Wideman that the interest had been paid; whereas, as a matter of fact it had not been paid, and there never was any interest paid upon these bonds. It was represented in this letter by Lipman that bonds were equal in actual value to their face, and apparently Wideman believed this statement, because in figuring in the ultimate conclusion of the deal, after giving credit for the equity and the full face value of these bonds, there was a small sum of money coming from Wideman to Lipman to make the amount of the face value of the bonds equal to the amount that was due for the equity.

This is important only as bearing upon the question of representation as to the value of these bonds. It seems that Wideman made no endeavor to ascertain the value of these bonds or the condition of the Medical Center Building, but relied wholly and absolutely upon the statements that were made by Lipman. It is significant in this record that there was a lawsuit pending for the foreclosure of the liens and mortgages upon this property, and that Lipman had been made a party to these proceedings, and that two months thereafter he transferred these bonds, representing them to be of face value, and procured therefor, as far as this record shows, a value in equity to the extent of about $2,500. We think that was a circumstance which, in the exercise of good faith, it was his duty to disclose to Wideman, because it reflected very much upon the value of these bonds, and Wideman had the right to know of this fact before he parted with anything of value for them.

It so happened that when this suit resulted in a foreclosure and sale, the amount received for the property was just more than sufficient to pay for the first mortgage and a part of the second mortgage, and there was a deficiency judgment of large sums of money on these second mortgage bonds. This absolutely wiped out the third mortgage, which secured Wideman’s bonds, and resulted in a total failure of consideration for the property; so paying with these bonds was equivalent to paying for the property with worthless paper, for it turned out to be such.

It is true that perhaps Wideman might have learned some of these things, if he had been alert, but that is aside from the question. If these representations were made, and the court believed that they were made, and if it is true, as it apparently is, without any serious contradiction, that this deal was made with this suit pending, which resulted in a foreclosure, and that plaintiff was not made aware of this situation, both fraudulent representations and a concealment of material facts were made as to these bonds, and Wideman had a right to know of those facts before he was induced to part with anything of value for these worthless bonds. So far as it appears, they were absolutely worthless when this transaction was completed, and the defendant below had full knowledge, or information, which should have led him to that conclusion.

We think, therefore, that the plaintiff is entitled to the relief that he prays for in this action, that is, a rescission of the contract, and that he should be restored to all things that he lost by virtue of this transaction, and a decree may be drawn ac-. cordingly.

Decree for plaintiff.

Levine, P. J., and Sullivan, J., concur.  