Malas v. Lounsbury , 193 Wis. 531 ( 1927 )

The following opinions were filed June 20, 1927:

Rosenberry, J.

The principal contention of the plaintiff is that, the conditional sales contract having been procured by false and fraudulent representations, it is voidable both as to the defendant Lounsbury and his assignee, the defendant company.

The contention of the defendant company is that, the plaintiff having knowingly and intentionally signed the contract which contained a recital to the following effect:

“This agreement witnesseth: That Modern Equipment & Engineering Company [Lounsbury], hereinafter called ‘the seller,’ has sold, and Nick Malas, hereinafter called ‘the buyer,’ has bought one Model 2 ¿4-ton Arctic refrigerating machine, serial number-, as per proposal attached, hereinafter referred to as ‘the goods,’ delivery and acceptance of which is hereby acknowledged by the buyer, for which the. buyer agrees to pay the seller,” etc.,—

the plaintiff is now estopped to deny the truth of the recital as against an innocent purchaser who has relied upon it.

In support of its contention the defendant company cites Guaranty S. Co. v. Equitable T. Co. 136 Md. 417, 110 Atl. 860; Guaranty S. Co. v. Exchange State Bank, 148 Minn. 60, 180 N. W. 919; Bristol-Goodson E. L. & P. Co. v. Bristol G., E. L. & P. Co. 99 Tenn. 371, 42 S. W. 19, and other cases.

We do not find it necessary in our disposition of the case to discuss or decide the very interesting question raised by the contention made by the defendant company. Bearing upon the question, however, attention is called to the followr ing cases: American Nat. Bank v. A. G. Sommerville, Inc. 191 Cal. 364, 216 Pac. 376; Whiting v. Squeglia, 70 Cal. App. 108, 232 Pac. 986; Pacific Acceptance Corp. v. Whalen (Idaho) 248 Pac. 444.

It clearly appears that the signature of the plaintiff to the conditional sales contract was procured by the false and fraudulent representations made by the defendant Louns-bury; that as between the plaintiff and the defendant Louns-bury the contract was voidable because its execution was induced by fraud there can be no reasonable question.

We are then confronted with the question, Does the as-signee, the defendant company, stand in any better position than its assignor, the defendant Lounsbury, so far as the right of the plaintiff .to avoid the contract is concerned? An express agreement made in a contract that it shall be incontestable for fraud is void as against public policy. Reagan v. Union Mut. L. Ins. Co. 189 Mass. 555, 76 N. E. 217, 2 L. R. A. n. s. 821; Pearson v. Dublin, [1907] App. Cas. 351; Industrial & G. Trust, Ltd. v. Tod, 180 N. Y. 215, 73 N. E. 7.

Since Wheelton v. Hardisty, 8 El. & Bl. 232, in which Lord Campbell held that a provision in a contract that it should be indefensible was “subject to an implied exception of personal fraud which shall vitiate every contract,” it has been the rule that all contracts procured by fraud were voidable with the single exception of negotiable instruments.

Fraud in the inducement of a contract may be set up by the obligor as a defense when sued upon it. Harriman Nat. Bank v. Seldomridge, 249 U. S. 1, 39 Sup. Ct. 244; 1 Page, Contracts (2d ed.), p. 343, § 227, and cases cited; Hamley v. Till, 162 Wis. 533, 156 N. W. 968.

Sec. 260.14, Stats., provides:

■ "In case of an assignment of a thing in action the action of the assignee shall be without prejudice to any setoff or other defense existing at the time or before notice of the assignment; but this section shall not apply to a negotiable promissory note or bill of exchange transferred in good faith and upon good consideration before due.” . .

The assignee of a non-negotiable chose in action, though he buys it for value and in good faith, takes it subject to all defenses which the obligor may have had against the assignor. Mangles v. Dixon, 3 H. L. Cas. 702, 731; 1 Williston, Contracts, p. 813, § 432, and cases cited.

It is argued, however, that this rule'is subject to the exception that the debtor has not intrusted to the assignor an instrument which by its form estops himself from setting up the defense. It being, as we have already seen, void as against public policy to make a contract indefensible on the ground of fraud, it must be equally true that the defense of fraud cannot be cut off by mere recitals contained in the instrument assigned.

The plaintiff’s signature to the contract having been induced by fraud, the contract itself is vitiated and at the election of the plaintiff was voidable, and the plaintiff’s rights in that respect are not altered by. the assignment to the defendant company by the defendant Lounsbury. To hold otherwise is to hold that in practical effect it becomes by assignment a negotiable instrument. If the contract were valid, it might well be that as against- the defendant Lounsbury there was a total failure of consideration and that such failure of consideration could be set up as a defense to an action brought by the defendant Lounsbury’s assignee. It is not necessary,to decide that question here, and it is only mentioned to negative any possible implication that the matter was overlooked or decided in this case.

In this case plaintiff was induced to sign the contract by the false and fraudulent representations made to him by the defendant Lounsbury that the property was at the depot in Madison. Relying upon that false and fraudulent representation, the plaintiff signed the contract in which he acknowledged the receipt of the goods. It is not claimed that the plaintiff acted in bad faith. Confusion in this case results from the fact that the false representations related to the facts involved in the recital. The question of whether or not the contract was voidable must be determined by what happened prior to or at the time of its execution and delivery. The fact that thereafter something else happened does not change the legal effect of that transaction. If the contract was valid and the defendant company had relied upon a recital contained therein, the question presented by the contention made by the defendant company would then arise. The contract being vitiated by fraud and voidable, it does not arise in this case. The facts being undisputed,- we see no reason for remanding the case for a new trial. Plaintiff received nothing of value on account of the contract.

By the,Court. — The judgment appealed from is reversed, and the cause is remanded with directions to enter judgment for the plaintiff as indicated herein.