
    WILLIAM F. BRIDGE, Appellant, v. GEORGE H. PENNIMAN, Respondent.
    
      Contract—rescission of-—when return of property purchased, deemed made in pursuance of.
    
    Plaintiff purchased of defendant twenty-two shares of the stock of a certain corporation for $22,000, which purchase was induced by the false and fraudulent representations of defendant. This action was brought to recover $22,000, the purchase price aforesaid, the plaintiff claiming that he had returned the said shares of stock to defendant in rescission of the contract. The main fact of the evidence in that regard was, that plaintiff after learning of the embarrassed condition of the company, and after negotiation or dispute with defendant, took a bond executed by defendant and his wife, who charged her separate estate therein, which bond after reciting the transfer of all plaintiff’s stock to defendant, proceeded to indemnify plaintiff from all claims against the company, and from all liability as a stockholder or trustee thereof, etc. ; and plaintiff did at the time, or soon thereafter, so transfer to defendant all his stock, including shares purchased from other persons than defendant, and not in question here. The evidence, however, showed that plaintiff’s entire connection with the company and all his purchases of stock, were induced by defendant’s said false representations.
    
      Held, upon consideration of all the facts and circumstances that said delivery of the twenty-two shares, could not be deemed made in pursuance of a rescission of the contract, and that as there was no unconditional tender or delivery of the stock, plaintiff could not recover in this action.
    
      Decided January 5, 1885.
    Before Sedgwick, Ch. J., Van Vorst and Freedman, JJ.
    Appeal by plaintiff, from judgment for defendant, entered on the report of a referee.
    So much of the opinion of the referee as is necessary to show the facts, is given below :
    E. W. Patterson, Referee.
    “ This is an action brought to recover back the purchase price paid by the plaintiff to the defendant, upon a sale made by the latter to the former, of twenty-two shares of the stock of the Judd Linseed and Sperm Oil Company, which shares were of the par value of one thousand dollars each, and for which the plaintiff paid to the defendant the sum of twenty-two' thousand dollars. The theory of the action is that the plaintiff rescinded the sale, because of the falsity of certain representations made by the defendant, concerning the value of the stock and the condition of the company, which induced the plaintiff, to purchase. It is claimed that the shares were given bask to, and received by the defendant, and that he was placed by the plaintiff in the condition in which he stood before the sale was made, except in so far as it became impossible to place him in that condition by reason of Ms own acts preventing it.
    “The plaintiff having closed Ms case, the defendant moved to dismiss the complaint. . . because it appeared affirmatively that the plaintiff did not rescind the sale by residing the defendant, as nearly as might be, to the position he occupied before the sale was made, but on the contrary entered into a new arrangement, entirely incompatible with a claim of a rescission of a sale of the shares having been made. . . .
    “ Some time in 1816, prior to the month of Hay, Penniman began negotiations with Bridge,. looking to the purchase by the latter of the shares of stock in the Judd Company. After some time spent in these negotiations, Bridge bought the shares belonging to the defendant, and he also bought some belonging to the other persons. He did so on the faith of the statements made by the defendant that after the payment to the company of certain indebtedness then due it by the defendant and his brother Samuel, the capital of the company would be intact, and that the company would in effect be in a sound and solvent condition. The money Bridge paid for the defendant’s shares went into the treasury of the company in payment of the defendant’s debt thereto. It was agreed that Bridge should be made a trustee and president of the company ; and that agreement was carried out. And from May, 1876, until some time in November, 1876, Bridge acted as a trustee and president of the company. In June, 1876, the plaintiff made an examination of the books of the company and ascertained that the representations made by the defendant as to the value of the stock and the condition of the company were erroneous. He at once communicated his discovery to the defendant, and exhibited to him a statement of the accounts showing the result of the examination, he, the plaintiff had made. On the 28th of June the defendant wrote Bridge a letter, in which he said : ‘ I am grieved to write that after worrying all day over the figures of the accounts, I cannot find any mistakes in the balances as taken off in the sheet you handed me. I have gone back to the balances taken January 1, 1876, and find them all apparently correct, and I cannot conceive how we could have made so great mistakes then, or such serious losses since. I can readily make the assets foot up some seventy thousand dollars more than your sheet does, but even this will leave us with an apparent loss of nearly half our capital.’ In the same letter he also uses the following expression : 11 need not write you that anything in my power will be done to keep you from loss.’” . . .
    The referee after holding that plaintiff was justified by circumstances in not moving towards rescission till November, 1816, proceeds: . . “And assuming that the plaintiff then desired to pursue a remedy in the courts, he had, under the well settled rules of law, one of the three courses to take : 1st. To retain the shares and to sue Mr. Penniman for damages. 2d. To file a bill in equity to procure a rescission of the contract of sale, in which event he need hot have returned what he received, nor made any offer to return it before he filed his bill. For, on tender of return made in his bill, all the equities could have been adjusted in the action ; or, 3d. To return or offer to return,, unconditionally the twenty-two shares, thus placing the defendant, as near as might be, in the position he occupied in May, 1816, when the shares were sold and the price paid for them ; and sue for, as money had and received, the price paid (Gould v. Cayuga Co. Nat. B., 86 N. Y. 75).
    “ As before stated, the theory of the plaintiff’s case is that he elected to take the third of the courses above referred to ; that he returned the shares, and was thereupon entitled to sue for the money he paid for them. He must stand on that presentation of his case. . .
    “Bridge’s testimony is, that on the 1st day of November, 1816, he said to the defendant: ‘I expected him to hold me harmless, and pay me that money for the stock I had purchased.’ This expectation was founded on the passage contained in Penniman’s letter, of June 28th, above quoted, as to protecting Bridge from loss ; but that passage does not in any way relate to Bridge’s surrendering his shares, or retiring from all interest in, or connection with the company, and I do not see anything in the evidence before me to countenance any such construction. Bridge says, that in this interview of November 1st, asked Penniman to give me a written obligation, so that, in case anything should happen to me, my wife would get the money that I put into the company for his benefit and the benefit of his concern;’ and that Penniman refused to sign any more papers. Thereupon the witness continues : I told him he could have the stock, that it was worthless; and I gave it back to him, and told him at the same time I should expect him to pay me for that stock.’ He subsequently gave back to the defendant not only the twenty-two shares he had bought from the defendant, but he surrendered to the defendant thirty-eight other shares, for which he, Bridge, had paid to other parties the full sum of thirty-eight thousand dollars ; and he thus gave up and relinquished to the defendant every share of stock he held in the Company. This relinquishment and transfer of the shares to the defendant was after and in consequence of certain correspondence, which began by letter from the defendant to the plaintiff on November 2, 1876. . . Having the date of the actual transfer of the sixty shares from the plaintiff to the defendant thus fixed as of the 10 or 12 of November, 1876, it becomes pertinent, in order to ascertain the nature and purpose of this transfer, to recur to what took place between the parties early in that month ; and, as what they did is in writing, there can be no mistake as to its meaning.
    
      “ On November 2,1876, the defendant wrote the plaintiff the letter above alluded to. It evidently relates to the conversation" which Mr. Bridge says they had on the preceding day ; that conversation being the first between them in which the subject of the relinquishment of the stock or its surrender or delivery appears to have been referred to In the letter of November 2, tho defendant says : ‘ I cannot consent to the proposed entire abandonment by you of your interest in our company and business, without again, in this more formal way, advising against it, as I feel perfectly satisfied that by continuing in the business, with your capital and credit, it will take but a little while to make up your losses.’ Again, and in the same letter, he states : If you conclude to give it up, I am, though very unwillingly, obliged to make the best arrangements I can for its continuance.’ This letter, read in connection with the conversation, which Mr. Bridge states took place on the previous day, shows that the parties were negotiating for some arrangement to be made between them, and does not show in any way that Mr. Bridge was taking the attitude of enforcing a legal right to rescind the contract; and it seems that, on the 2d of November, Penniman was corresponding with the plaintiff upon the basis of a proposition made by the plaintiff that the latter should retire from the business altogether, and abandon the interest he had in it. I have tried in vain to make something else out of this letter and the conversation which led to its being written. There is nothing in the case to impeach the good faith of that letter. Nothing had occurred, so far as the evidence discloses, to apprise Penniman of any purpose of Bridge to stand upon or assert legal rights to the return of the purchase money. If he meant it, he certainly did not express it in the conversation to which he had testified. No formal demand had been mado for the return of the purchase money, and no tender or offer back of the twenty two shares of stock had been made. All that Bridge did'was to tell Penniman the stock was worthless, and he might have the whole of it. It is perfectly obvious that what took place in November related to the sixty shares of the stock of the Judd Company, and not merely to the twenty-two shares bought of the defendant. It cannot be contended that it was necessary to tender the sixty shares in order to rescind the sale of the twenty-two shares which was all Bridge purchased of Penniman. There was no liability of Penniman possible, as upon a rescission of tho purchase from the other seller to Bridge. And there is nothing that can indicate that in the offer to hand to Penniman the whole sixty shares, the plaintiff intended or attempted to put himself in a position to sue for the purchase price of the twenty-two shares. The question to be considered hero is, what does this transaction of giving up the sixty shares mean, and what does the evidence show it to have been ? If the plaintiff intended to rescind tho sale of tho twenty-two shares, and place himself in a position to sue for the twenty-two thousand dollars, why did ho transfer sixty shares in bulk, and do it in connection with an agreement for indemnity against claims of creditors of the company ? It seems to me there can be but one answer to this ; namely, That this particular transaction was not intended as a rescission, but that Bridge surrendered all the shares he had under an agreement made with Penniman, and upon receiving indemnity against the debts of the company, doubtless believing that Penniman would, in some way, and at some time, save him from loss. The bond of indemnity itself is very significant. It is not limited to protecting Bridge from liability on the twenty-two shares he bought from the defendant, but extends to all of Bridge’s liability as a stockholder, for the full amount of the sixty shares, and the instrument recites in substance that it is given because and in consideration of the transfer of all Bridge’s stock and interest in the company to the defendant. How can a contract as to specific property be rescinded by giving up that property and also transferring other property, and taking an indemnity against liability for holding that specific property and the other property also ? This bond of indemnity was accepted by Bridge. It was not executed by the defendant alone, but Mrs. Penniman became one of the obligors ; that is, she indemnifies Bridge not only against liability on the twenty-two shares, but against liability on the other shares also. Thus a new party was introduced into the transaction—a transaction much wider in its scope than the twenty-two shares, and having for its object something more than merely protecting the plaintiff from a loss which might be occasioned by the purchase of the twenty-two shares from the defendant. This seems to render it clear that the transaction was not a rescission, nor based upon a rescission, but was a new arrangement, whereby Bridge abandoned his interest in the company in consideration of his being indemnified against claims of creditors which he might have incurred by reason of his having been a stockholder in and trustee of the Judd Company. . . .
    “By the arrangement Penniman was put in new relations to the business again. The plaintiff knew that if Penniman accepted the surrender of the sixty shares, the latter would make arrangements to continue the business, for Pemiiman told him so, and the letter, above referred to, of November 2, shows it distinctly. I do not see how che promise contained in the letter of June 28, vague in its terms, and pointing to no specific method of protecting the plaintiff, can be imported into the transaction of the alleged rescission so as to enable the plaintiff to claim that all that took place upon the surrender of the sixty shares was colored by, and subject to, a reservation of a legal right to sue Penniman for the money paid on the sale of the twenty-two shares. ... I am constrained, therefore, to hold that there is no evidence in this case of an unconditional return, or offer to return to the defendant the twenty-two shares of stock, for the purchase price of which this suit was brought. It is clear that the shares were given upon a new arrangement, amply set forth in the documents in evidence, and in that state of the case it is my duty to dismiss the complaint.”
    
      William C. Holbrook, for appellant.
    G. E. P. Howard and Joseph H. Choate, for respondent.
   By the Court.

Sedgwick, Ch. J.

The plaintiff claimed, that the defendant had sold to him twenty-two shares of the stock of a corporation, for which he had paid the defendant $22,000, and also that the purchase was so induced by the false and fraudulent representations of the defendant; that the plaintiff had a right to rescind the purchase and recover the $22,000, also claiming that he had in fact rescinded. The defenses denied the right to rescind and the fact of rescission, claiming that the plaintiff had not tendered or returned the stock to the defendant, in a manner that would allow the plaintiff to rescind, or in other words, unconditionally.

The most important fact, as to the return of the shares to the defendant is, that after negotiation or dispute between the plaintiff and defendant, after the plaintiff had demanded that defendant should give security, as well as his own obligation, as an indemnity against plaintiff’s liability as stockholder, etc., the defendant and his wife, the latter expressly charging her separate estate, made a bond to the plaintiff. It recited, whereas William F. Bridge has transferred or is about to transfer to George H. Penniman, all his stock and interest in the company specified, and has resigned as president and trustee of the company, in consideration of the premises and of one dollar, the‘said George H. Penniman, who is here the defendant, and his wife, do jointly and severally agree to indemnify and save harmless the said Bridge from all claims, debts or demands, of whatever name, nature or kind, now existing against said company or heretofore contracted by it, or on its behalf, also from all claims or demands against him as a stockholder in, or trustee of said company,” etc. The plaintiff upon receiving this bond transferred the stock.

The matter may be considered in view of alternative suppositions; one, that the loss indemnified against in the bond, was of the kind that might be the foundation of a recovery for damages in an action brought for damages from the fraudulent representations referred to ; the other that the arrangement as to the bond was independent of the original transaction, and the transferring of the stock was merely a consideration for the contract of indemnity.

On the former supposition, when the plaintiff took indemnity for the losses, upon a claim for damages, he would elect to stand upon his right to damages for being induced by fraudulent means to make the purchase. In such case, he had lost the right to rescind, and indeed the possibility of returning the shares, as a condition of the right to rescind, was gone upon his transferring them, under the contract made by the bond of indemnity. My rendering of the testimony is, that in fact, the bond was given under the plaintiff’s repeated claim for damages from the original transaction.

On the other supposition, that the transfer of the shares was merely a consideration for the bond, it would seem clear that the shares, and the whole of their value and of then use, were given and wholly devoted to the object of the bond as a contract, and that, as in the former case, the plaintiff lost the right and power to use them in any way, as a condition of rescinding the purchase and claiming the money paid on it from the defendant. Evidently, the plaintiff had.lost all dominion, or jus disponendi of the shares, and this he must have to enable him to return the shares or tender them in disaffirmance or rescission of the original contract.

This latter supposition, includes the possible case of the original purchase and sale being made under a mutual mistake of fact.

The learned counsel for the appellant argues, that the bond of indemnity was given in consequence of a promise made by the defendant, after the plaintiff had discovered that the representations were untrue. That promise was in a letter of defendant, and was, “I need not write you that anything in my power to do, wiE be done to keep you from loss.” The learned referee in his opinion, shows that this was not in its meaning, a promise to indemnify, or an offer to make a contract of indemnification, but was an assertion as to the writer’s future action in the business of the company. If it were otherwise, and was a contract, some consideration must be found to support it. The plaintiff made no mutual promise to form a considertion. If the implied promise was the legal obligation of the defendant to make the plaintiff good from loss from the original transaction, then the plaintiff elected not to rescind. If there were an impHed promise that each should do what was afterwards done when the bond was given, then, as it has been remarked before, the plaintiff devoted the shares to a purpose other than giving or tendering them to the defendant, in order that the latter might be subjected to the obligation to return the money paid for the shares.

It is unnecessary to go into further particulars, for the opinion of the referee fully and satisfactorily shows the merits of the case.

Judgment affirmed, with costs.

Freedman, J., concurred.

Van Vorst, J.

(dissenting). I cannot concur in the disposition made of this case by the referee, nor in the result reached by Sedgwick, Oh. J.

The plaintiff had purchased from the defendant, his relative, in whose statements he had reason to suppose he might place confidence, twenty-two shares of stock in “ The Linseed, and Sperm Oil Company,” at one thousand dollars a share, and purchased additional shares of defendant’s brothers, upon similar representations. The representations of the defendant, which induced the plaintiff to buy these shares, were material. They referred to the condition of the company, and the value of the stock. The representations proved to be false.

These conditions authorized the plaintiff to return the shares, purchased from the defendant, and to demand from the defendant, the price he had paid for them. In other words he might rescind the sale. Dealing with a relative, with whom he had been on friendly terms, his. movements in the direction of a rescission were not so direct, prompt and decisive, as they would have been, had he been dealing with strangers. On purchasing these shares, the plaintiff became a trustee and the president of the company. This was in pursuance of the understanding of' the parties. Shortly after assuming the duties of his office as trustee, and in June, 18J6, and from an examination of the books of the corporation, he discovered the facts, which showed that the capital of the company was largely impaired, and that his stock was worthless. Plaintiff at once, and in a kindly manner, called the defendant’s attention to the facts, and to the worthlessness of his stock. He submitted statements taken from the books. The defendant could find nothing to substantially impeach the truthfulness of the plaintiff’s discoveries from the books. He claimed some errors, but not enough to materially change the result reached. On June 28, the defendant wrote the plaintiff a letter, in which he said, I need not write to you that anything in my power to do, will be done, to keep you from loss.”

The defendant did however, claim at the same time, that «there was a much larger stock of seed on hand, than they had supposed, which would make the condition of the company better, and that there were other assets of of the company, of which the plaintiff had no knowledge. Defendant also claims that when the seed was worked up the condition of the company would be found to be improved. The plaintiff then told the defendant that, relying upon such statements, and that the defendant would save him from loss, he would remain in the company until the seed was worked up. The seed was worked up by the latter part of October following, but the affairs of the company were not at all improved. The result was the same as when plaintiff discovered the real condition of the company in June. About the last of October the plaintiff informed the defendant, that he expected that he would hold him harmless, and pay him the money for the stock, and that he wanted him to give a written obligation, that he would get the money that he had put in the concern for his benefit. Plaintiff told the defendant in this interview, that he could have the stock, that it was worthless, and that he expected that he would pay back the money which he had received for it.

The certificates for the shares, it appears, were not actually transferred to the defendant until November 10 or 12, when an undertaking of indemnity was executed by the defendant, and his wife, the purpose of which was to save the plaintiff harmless from the debts and liabilities of the company, to which he might be exposed from havbeen a stockholder and trustee of the corporation. This obligation made no provision for payment for the shares, nor has defendant returned to the plaintiff, the money paid by him on the purchase of the shares.

In giving this bond of indemnity, the defendant did not come up to the measure of his liability to the plaintiff. And in executing and delivering it, he was only moving in the direction which he had clearly undertaken to pursue in his letter of June 28, to hold plaintiff from loss.

The plaintiff is still, however, out of pocket, through the purchase of these shares, from the defendant, in the sum of $22,000, and upwards.

It was held by the referee that the bond of indemnity was the result of a new arrangement between the parties, inconsistent with a right of rescission, or a demand at this ■ time for the price paid for these shares. I do not put such construction upon the bond of indemnity, nor the letters of the parties. I do not understand from the case, that the plaintiff when he received that undertaking, gave up, or intended to give up, his demand or claim for the money he had paid for the stock, and which moneys the defendant used to extinguish, joro tanto, his obligations to the corporation. The certificates for the stock itself, as the plaintiff testifies, he delivered to the defendant on or about the first of November, with a demand for payment. The transfer of the shares was not however, made until about the 11th day of the month. According to the evidence, the debts of the company did not cause the plaintiff alarm, as he believed there were assets sufficient to pay them.

That his stock had become valueless or substantially so, through the loss of three-quarters of the capital of the corporation, was the fact upon which his claim and demand against the defendant rested. For that, he seeks indemnity in the action.

I cannot find and do not believe under the evidence, that he ever intended, in his negotiations with the defendant, to abandon such substantial claim, or that his delivery of the shares to the defendant, under the circuxnstances, is to be considered otherwise than as an effort to get back his money.

It was suggested on the argument that the bond of indemnity guarantees the plaintiff against liability from his ownership of the shares purchased from the brothers of the defendant, in addition to these he acquired from the defendant himself. But in guaranteeing against liability as the owner of all the shares, the defendant was doing nothing more, than discharging his duty. He had promised to secure the plaintiff against all loss by his letter of June 28.

The referee has found as a fact, that the plaintiff bought all the shares relying upon the representation m'ade by the defendant.

That was consideration sufficient to sustain the promise made, and feeling the force of such obligation he made the original promise.

The judgment should be reversed, with costs to abide the event.  