Sutro v. Rhodes (1891) · DecisionDepot

Sutro v. Rhodes

Name: California Superior Court Tentative Rulings
Creator: DecisionDepot
License: https://creativecommons.org/licenses/by-nc/4.0/

California Supreme Court Nov 27, 1891 No. No. 13916Published

Before: Beatty, Garoutte, McFarland, Paterson

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Holding. The court held that a seller of municipal bonds is not liable for the invalidity of the bonds absent an express warranty or knowledge of their worthlessness, as the doctrine of caveat emptor applies to such sales under the Civil Code.

Issues

Whether a seller of municipal bonds is liable for the invalidity of the bonds in the absence of an express warranty or fraud.
Whether the sale of invalid municipal bonds constitutes a failure of consideration allowing for the recovery of the purchase price.

Disposition. affirmed

Quotations verified verbatim against the opinion

“It seems to be an express declaration and warning to purchasers of such instruments that the rule of caveat emptor applies, and that they must examine for themselves, and exercise their own judgment, or take a guaranty.”

“The plaintiffs in error got exactly what they intended to buy, and did buy. They took no guaranty. They are seeking to recover, as it were, upon one, while none exists.”

Synopsis

Appeal from a judgment of the Superior Court of San Joaquin County, and from an order denying a new trial.

The facts are stated in the opinion of the court.

Opinion — McFarland

McFarland, J. An act of the legislature was passed March 25, 1868, entitled “An act in relation to the funded indebtedness of Calaveras County, and to provide for the funding of unpaid claims against said county.” By this act, fund commissioners were created, and the board of supervisors were authorized to have prepared, executed, and issued bonds of the county in [122]denominations of one hundred dollars and five hundred dollars, but “ not to exceed in all one hundred and fifteen thousand dollars.” The bonds were to be signed and sealed in a certain prescribed manner; were to mature and bear interest (with interest coupons attached), as specially provided in the act; and a record of the number, date, and amount of each bond issued was to be entered upon the journal of the board. They were negotiable in form, being payable to a party named, or holder. Under this act, bonds were executed and issued in form as provided therein, to the amount of the said one hundred and fifteen thousand dollars; and after-wards additional bonds, similar in form to the first ones, and executed in the same manner, were issued to the amount of about forty thousand dollars in excess of said one hundred and fifteen thousand dollars. Nine of these latter “overissued” bonds, each of the par value of five hundred dollars, were sold by defendant to plaintiffs on July 18,1888, for $4,675; and plaintiffs bring this action to recover said last-mentioned sum of money. The court below rendered judgment for defendant, and plaintiffs appeal from the judgment, and from an order denying a new trial.

It is averred in the complaint that at the time of the sale defendant “falsely and fraudulently represented and warranted to plaintiffs that said pretended bonds were good, valid, and legal,” and that such representation was made “ for the express purpose of cheating and defrauding them”; and that the bonds were not good, valid, and legal bonds of Calaveras County, but were entirely worthless; and that these facts were known to defendant and unknown to plaintiffs. It is further averred that “as soon as plaintiffs ascertained” the worthless character of said bonds they tendered them to defendant, and demanded the repayment of said money, but that defendant refused to accept them or repay the money. The answer admits the sale of the bonds, but denies nearly all the other material averments of the complaint.

The court found that defendant did not make any

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Concurrence — Beatty

Beatty, C. J., concurring. I concur. There is a conflict of authority upon the principal question involved in this case, but I think the best-considered decisions support the conclusions reached by Justice McFarland. If a vendor contracts to deliver goods of a certain description, he must deliver sound articles of that description; and if he fails to do so, there is a failure of consideration for the price paid. But if a vendor submits specific articles to the inspection and examination of the purchaser; if he conceals no fact'within his knowledge, and makes no false representation; if each party has equal knowh edge or means of knowledge respecting every fact affecting the soundness and value of the article, — then, if a price is agreed upon, and a sale made, the purchaser cannot, upon the subsequent discovery that the articles sold were in fact worthless, recover the price paid upon the ground of failure of consideration. For having got precisely what he bargained for, he cannot say that there has been any failure of consideration. If he can recover at all, it must be upon the ground of a breach of some implied warranty by the vendor.

Now, in this case, there was no executory contract for the sale of Calaveras County bonds issued under the act of 1868, which would have undoubtedly required the delivery of bonds regularly and lawfully issued under the [127]act. On the contrary, certain specific bonds purporting on their face to have been issued under the act were offered for sale. The defendant concealed no fact within his knowledge touching their validity, nor did he misrepresent any fact. Everything he knew the plaintiff knew, and if the plaintiff did not know that they were part of an overissue of bonds, it was only because he chose voluntarily to forego the means of knowledge open and easily accessible to him. He therefore got precisely what he bargained for, and he cannot recover the price paid upon the ground of failure of consideration. And since there was no express warranty, he must rely upon such warranties as the law implies from the nature of the transaction.

On this point it seems to me that section 1774 of the Civil Code, especially in view of the clause eliminated ex industria by the amendments of 1874, is conclusive against the right to recover.

Dissent — Garoutte

Garoutte, J., dissenting. I concur in the opinion of Mr. Justice McFarland as to the invalidity of the bonds, but dissent wherein he concludes that plaintiff purchased at his peril, and is prevented upon the principle of caveat emptor from recovering the money paid defendant.

In this case there is no question of fraud practiced by the seller, and no question of negligence involved upon the part of the buyer. Both parties thought these instruments were valid bonds of Calaveras County. It was an honest mistake of fact, and caveat emptor never applies to a mistake of fact. If plaintiff’s mistake had been a mistake of law, — that is, if Sutro had known at the time of the purchase that these bonds were an overissue,— such knowledge would have defeated his right of recovery; but there can be no mistake of law, unless the facts are known.

The question involved here is not a question of warranty, but a total failure of consideration, the existence of which fact is fatal to all contracts; and this principle has been fully and repeatedly recognized by this court. (Keller v. Hicks, 22 Cal. 457; 83 Am. Dec. 78; Peat Fuel Co. v. Tuck, 53 Cal. 305; Redington v. Woods, 45 Cal. 429; 13 Am. Rep. 190.)

[129]As a case involving the legal principles involved here, we will suppose that one blind man should sell to another blind man a lump of clay, both believing at the time that it was gold; there was no express warranty, and under the sections of the code cited in the prevailing opinion there is no implied warranty upon which to base a recovery of the price paid, yet it must be conceded that the right of recovery exists. If a plaintiff’s right of recovery is to be limited only to those cases where there is a violation of an express or implied warranty, then there can be no recovery in this state where one innocent party sells another innocent party a forged or counterfeit bond or note, for, under the provisions of the Civil Code, there is no implied warranty that the instrument is genuine; yet no court to my knowledge, either in this country or England, ever denied the right of recovery in such a case.

In Redington v. Woods, 45 Cal. 429, 13 Am. Rep. 190, this principle was recognized and recovery had, not by reason of any warranty, but by reason of the fact that-the money was paid without consideration, under an innocent mistake, and the court said: “The authorities in-support of this view of the question are numerous and uniform, and we have been referred to none to the-contrary.” Story on Sales, sec. 377, says: “ There is a class of cases which it may be well to notice in this connection, and which are usually included under the'head of implied warranty, but to which the doctrine of warranty does not properly seem to be applicable; . . . .. that is, where the parties suppose themselves to- be buying and selling one thing, when in point of fact they are contracting for the purchase and sale of an entirely different thing. .... But where there is neither fraud nor an express warranty, the case seems to be- one of pure mistake with reference to the subject-matter, and mistake is properly the ground of the- seller’s liability; but it does not seem that the doctrine of implied warranty would properly apply, nor is it at all necessary to found a right of recovery in the vendee, .... for in [130]matters of pure mistake the doctrine of caveat emptor would not seem to apply.....A vendee only warrants by implication the epithet or adjective, but not the substantive.” This doctrine is sustained by Benjamin on Sales, secs. 77, 618, 619, 918, 1005; 4 Wait’s Actions and Defenses, c. 98, secs. 18, 21; Wood v. Sheldon, 42 N. J. L. 427; 36 Am. Rep. 523; Whitney v. National Bank of Potsdam, 45 N. Y. 304; Terry v. Bissell, 26 Conn. 24; Paul v. Kenosha, 22 Wis. 599; 94 Am. Dec. 598; Hurd v. Hall, 12 Wis. 136; and many other cases unnecessary to cite. In the case of Hurd v. Hall, 12 Wis. 136, Chief Justice Dixon, having first decided that the vendor and vendee contracted under a mistake of fact, says: “I also think the action could be maintained upon the ground of a failure of consideration by reason of the plaintiff’s not having obtained what he bargained for; that the instruments did not answer the description of those the defendant professed to sell or the plaintiff to buy. The instruments assigned, though resembling school-land certificates, were not such certificates at all. They were mere worthless pieces of paper, drawn up in the form of such certificates. The fact that they were signed .by the commissioners in their official capacity can make no difference; so long as they were wholly unauthorized to do so, their acts in signing and issuing them under the circumstances were wholly void, and the certificates in that respect were no better than if they had been signed by some other persons, and were sheer forgeries, except so far as recovering back the money already paid was .concerned.”

The equities existing between the innocent vendor .and vendee of invalid municipal bonds, whether those "bonds are the skillful work of a forger or the illegal work of fund commissioners, would seem to stand upon the same plane. Such bonds are equally worthless to a vendee, whether conceived in crime or in illegality. Their nullity in both cases consists in want of legal capacity to make them. In this case, the vendor thought that he was selling valid bonds of Calaveras County, and [131]the vendee thought that he was buying valid bonds of Calaveras County; but both parties labored under a mistake of fact, as they were not valid bonds of Calaveras County, or bonds at all, but worthless pieces of paper. The consideration totally failed, and both parties being equally innocent, they should be restored to their original condition prior to the sale; for the vendor has money which in equity and good conscience belongs to the vendee.

Sutro v. Rhodes

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Synopsis

Opinion — McFarland

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Concurrence — Beatty

Concurrence — Paterson

Dissent — Garoutte

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