CHARLES J. KING, JAMES F. CROSETT, and SAMUEL FOSTER v. B. J. WISE, 43 Cal. 628

By the Court, Niles, J.: By the terms of the original agreement between the defendant and the plaintiffs, Crosett and King, the defendant was to purchase the land for the least price for which it could be purchased, and for the benefit of the three parties concerned. By this agreement the defendant assumed a position of trust, and in that relation was bound to exercise the utmost good faith towards his associates in the transaction. It is one of the plainest principles of equity that an agent cannot make a profit out of his principal in the business of his agency.

The defendant, as associate of the plaintiffs in the proposed purchase, and entrusted by them with its management, was held to the same good faith, and could make no bargain, the benefits of which his co-associates would not be entitled to share. It is not mentioned whether the price which the defendant induced the plaintiffs to pay was more or less than the value of the property purchased. The plaintiffs were entitled to share the profits of a good bargain, as they would have been bound to share the losses of a bad one.

It is claimed by the defendant that the failure of the plaintiffs to offer a rescission of the contract and a restoration of the land, and their affirmance of the. contract after the discovery of the fraud, was a bar to their recovery in this action. The rule, which requires a rescission of the contract upon the discovery of fraud, has no application to this case. The contest is not between a vendor, who has made fraudulent misrepresentations in regard to the property sold, and the vendee, who has been misled and injured by the fraud.

The plaintiffs may have been willing to purchase the land at the price they paid, or at even a larger price, and may not wish to rescind the sale; but they are none the less entitled to hold the defendant to a strict observance of the trust confided to him, and to enjoy their proportionate benefit of any bargain he may have made. They do not complain that they were induced to pay more than the land was worth, but that they would have paid less if the defendant had been faithful to his trust.

By their affirmance of the contract, after knowledge of the fraud, they lost any right they may have had to rescind the sale and recover back the purchase money; but it was not a release of their right of action against the defendant for damages resulting from his fraudulent acts. We are of the opinion that the plaintiffs should have judgment upon the facts as found by the Court. It is not difficult to arrive at the exact measure of damages which plaintiffs are entitled to recover. The actual value of the land is not an element in the estimate.

The plaintiffs should have, from the defendant, the difference between the price of the land purchased by him for the plaintiffs and the amount paid by the plaintiffs. The claim of the plaintiffs, Crosett and King, to set off the amount of the judgment in this action against the promissory note held by the defendant, cannot be sustained. These were joint notes of the plaintiffs, Crosett, King, and Foster.

It is well settled that joint and separate debts cannot be set off against each other at law, and I can see no good reason for the application of a different rule to a claim for damages which is the subject of recoupment. Kor do sufficient facts appear to call for the equitable interposition of the Court. If the liabilities were in reality mutual, as if Foster were a merely nominal party to the notes or surety upon them, the insolvency of the defendant might be a ground for equitable relief.

But Foster is a bona fide debtor of the defendant upon the notes, and we do not see upon what recognized principle we can apportion to the plaintiffs, Crosett and King, by way of recoupment, an aliquot part of the joint indebtedness. Judgment reversed, with instructions to the Court below to render judgment for the plaintiffs, Crosett and King, in accordance with this opinion.