HOWISON v. ALABAMA COAL & IRON CO., 70 F. 683

PARDEE, Circuit Judge, after stating the facts, delivered the opinion of the court. There are 8(5 alleged errors of the trial judge in the progress of tills case, and we give the foregoing lengthy statement of the proceedings for the purpose of justifying counsel as far as we can in his assignments, by allowing that, from the extent of the proceedings and the objections made on the trial, it was possible that the trial jndge could have made that many specific errors in one case.

Generally, we find that, where the errors complained of are multiplied and reproduced under different forms, counsel have either endeavored to make up in quantity what may be lacking in quality, or else, doubting their own judgment, have been unable to distinguish the strong from the weak points of their case. However, with the aid of the learned counsel who briefed and argued this case for the plaintiff in error, we are able to arrange his many assignments of error under three heads, to wit, errors in rulings on the pleadings, errors in the admission and rejection of evidence, and errors in charging the jury.

The main question which arises in regard to the pleadings is whether, in a suit by a vendor of real estate for the recovery of the purchase money, the vendee may set off or otherwise recoup the damages he has suffered by the fraud and deceit practiced by the vendor directly affecting the quantity or quality of the thing sold.

If is conceded that, by the law and practice in Alabama prior to the Code of 1852, it was settled that, save in exceptional cases, a purchaser of lands, when sued for the purchase money, could not set off nor recoup for damages arising from the fraud or deceit of the vendor in the transaction. Patton v. England, 15 Ala. 69; Dunn v. White, 1 Ala. 645; Elliot v. Boaz, 9 Ala. 773; Homer v. Purser, 20 Ala. 573. At the same time the party defrauded was not without a remedy, since he had a clear right to maintain an action at law against the vendor for the fraud and deceit practiced upon him. Monroe v.

Pritchett, 16 Ala. 785; Gibson v. Marquis, 29 Ala. 668; Gordon v. Phillips, 13 Ala. 565. By the Code of Alabama of 3852 (section 2240), and now in the Code of 1886 (section 2678), it is declared that mutual debts, liquidated or unliquidated demands not sounding in damages merely, subsisting between the parties at the commencement of the suit, may be set off one against the other by the defendant or his personal representative, whether the legal title be in defendant or not.

Since the adoption of this provision, we understand that it has been uniformly held in Alabama that, in a suit at law by the vendor for the purchase money, the defendant can set off damages arising out of the transaction. Holley v. Younge, 27 Ala. 203; Martin v. Wharton, 38 Ala. 637; Kelly v. Allen, 34 Ala. 663; Eads v. Murphy, 52 Ala. 520; Bridges v. McClendon, 56 Ala. 327; Joseph v. Seward, 91 Ala. 598, 8 South. 682. It is even probable that this is the only remedy of the defendant. In Howell v.

Motes, 54 Ala. 1, where a purchaser, complaining of fraud and deceit when sued at law for the purchase money, omitted to make his defense, and afterwards sought a remedy in equity, Brickell, C.

J., says: “The grounds on which relief is sought against the judgment at law are that it is founded upon a promissory note, the consideration of which is the purchase money of land; that the complainant was induced into ihe purchase by false representations of the defendant that he had and could make the title to the land; that, in fact, the title resided in third persons, from whom the complainant ivas compelled subsequently to purchase the lands. Prior to the Code it may be that these facts would not have constituted a defense available at law. Since the Code they would form au available legal defense.

The sum paid or contracted to he paid in extinguishment, or rather in acquisition of the title from those holding it, would have been the proper matter of set-off or recoupment against the note given to the defendant, and, exceeding it in amount, would have been a full answer to the suit at law,” — citing Holley v. Younge, supra, and Martin v. Wharton, supra.

Relying upon these authorities, and without further reviewing the adjudged cases cited by industrious counsel, we are disposed to hold that the defendant in the circuit court had a right to set off against the plaintiff’s demand for the balance of the purchase money, represented by the note sued on, any damages suffered through the fraud or deceit of the plaintiff, and arising out of the transaction of sale.

The issues, as settled under the rulings of the circuit court, substantially present defenses within this rule; and although, as presented by the record, some of the rulings assigned as erroneous are open to criticism, and, standing alone, would require discussion, and perhaps warrant relief, yet, on the whole, we are of opinion that no reversal is warranted on errors so far as the pleadings are concerned. The rulings of the trial court on the admission and rejection of evidence do not appear to be seriously assailed, except in regard to the admission in evidence of the deposition of H. R.

Stoughton, in regard to which it is urged that no notice of taking the said deposition had ever been given, and to the admission in evidence of conversations alleged to have taken place between the plaintiff’s and the defendant’s agents prior to the execution of the contract of October 20, 1890, and prior to the execution of the deed. The admission in the record, and recited in the statement of the case, gives the facts with regard to the notice given of the taking of the Stough-ton deposition, from which each side finds the conclusion clear in its own favor.

As we find ourselves compelled to reverse the case, and award a new trial, on grounds hereinafter to be stated, and as, on such new trial, the question as to sufficiency of notice of taking depositions need not again arise, we think it unnecessary to further consider the matter.

As the issues in the case involve the question whether the plaintiff was guilty of fraud and deceit in the contract of October 20,. 1890, and in the execution and delivery of the deed, in pursuance of said contract, we are of opinion that the acts and declarations of the parties prior to the execution of the contract and touching the matter of deceit were admissible. We agree to the rule declared in Pettus v. McKinney, 71 Ala. 108, and Insurance Co. v.

Pruett, Id. 487, cited and relied upon by the learned counsel for the plaintiff in error, to wit: “When parties make agreements verbally, and then reduce them to writing, in the absence of fraud or mistake, the writing becomes the sole memorial and expositor of the contract, and in it all prior parol or verbal stipulations are merged.” Hut, so far as the rule is applicable, we place the case in hand within the exception named, which, by the way, is one well recognized in the text-books. We come now to consider the errors assigned in relation to the instructions given by the trial judge to the jury.

The important instructions asked by the plaintiff in error and refused by the court, and the instructions asked by the defendant in error and given by the court, have been set out at length in the statement of facts, and it is not necessary to recapitulate. An important, if not the turning, point in the case, was whether the corporation (defendant in the court below) had or was fully charged with notice, al the time the deed for the timber lands was accepted and the notes for the purchase money executed, that

section 9 of the Oakley tract, although included in the preliminary agreement, was not included in the deed of conveyance.

Upon this point there is much and somewhat conflicting evidence, but we have no difficulty in folding from I he record that, in respect to the purchase of the timber on the lands belonging to the plaintiff in the court below, there is evidence tending to show that the defendant corporation employed agents to inspect and report upon the quality and amount of timber upon the binds in question, and also employed agents to pass upon and determine the sufficiency of the plaintiff’s title‘and right to convey the timber on the lands included in the deed, and that these a genis so employed had some knowledge and were more or less informed that

section 9 of the Oakley tract; was not among the lands the timber of which was to be, and thereafter was, conveyed to the defendant. The substance of the instructions asked by (he plaintiff was to the effect that the defendant corporation was bound by tin* knowledge of these agents, acquired within the scope of their employment.

The propositions, however, advanced by counsel for the plaintiff on this line, are clearly inadmissible, either because they invade the province of the jury as to mailers of fact, or state too broadly the law applicable to the case; and, if our action were based wholly upon the instructions requested by the plaintiff and refused by the court, we should have difficulty in holding that there was any error in refusing said instructions as a whole or as separate propositions. When, however, we come to the instructions asked by the defendant and granted by the court, the error is, we think, fully apparent.

These instructions are to the effect that, although agents of the corporation employed in respect to the purchase of the timber in question had notice that the timber of

section 9 of the Oakley tract was not included in the deed of conveyance, yet the company was not bound by such notice, unless the agent of the conipany who actually accepted the deed and executed the notes had knowledge of the same fact. In other words, the jury was practically instructed that the notice to and the knowledge' qf the corporation were limited to the notice to and the knowledge of the agent who accepted the deed. In our opinion, this was erroneous. The text-books say: “When an agent performs

an act on behalf of his principal, the latter, by a legal-fiction, is regarded as the party performing the act; and, by a similar fiction, the principal is regarded as having any knowledge by the agent which would affect the validity of the act if the agent were acting for himself. In other words, the knowledge of an agent binds the principal to the same extent as if it were the knowledge of the principal, in any transaction in which the agent represents the principal; and it is immaterial when or how the knowledge of the agent was acquired.” Mor. Priv.

Corp. § 540c. “It is well settled that a corporation is not chargeable with knowledge of facts merely because those facts were known to its incorporators or stockholders or clerk. But the corporation has notice of facts which come to the knowledge of its officers or agents while engaged in the business of the corporation, provided those facts pertain to that branch of the corporate business over which the particular officer or agent has some control. Thus, a corporation has been charged with notice of facts which were known at the time to its agent, local agent, or superintendent.

So, also, as regards the higher officers of the' company. Thus, the company has been charged with notice of facts known to the treasurer, secretary, cashier, and sometimes the president. . Where a corporation takes title to land through its incorporators, and all of them, as well as the president, had constructive or actual knowledge of a flaw in the title, the corporation thereby had similar notice. But in all cases the test turns on whether the corporate agent received the knowledge in the regular course of business.” Cook, Stock, Stockh. & Corp.

Law, § 727. “It is a general rule, settled by an unbroken current of authority, that notice to an agent while acting within the scope of his authority, and in reference to a matter over which his authority extends, is notice to the principal. In respect to this rule, two important elements will be noticed. The first of these is that the notice or knowledge which will affect the principal is that only which is possessed by the agent while he is agent, and while he is acting within the scope of his authority.

Whether the notice or knowledge must in all cases have been acquired by the agent during the agency is a question upon which there is some divergence of authority, and which will be noticed in a following section.

The second element is that the’ notice or knowledge which shall be imputed to the principal is that only which relates to the subject-matter of that agent’s authority, or, in other words, is that only which relates to the business or transaction in reference to which that agent is authorized to act by and for the principal.” Mechem, Ag. .§ 718. “Two general'theories prevail as to the foundation upon which this rule is based, and the results of these respective theories are not entirely alike.

The first finds the reason of the rule in the legal identity of the agent with the principal; in the fact that the agent, while keeping within the scope of his authority, is, as to the matter embraced within it, for the time being, the principal himself, or, at all events, the alter ego of the principal — the principal’s other self. Whatever notice or knowledge, then, reaches the agent under these circumstances, in law, reaches the principal.

It is the legitimate and necessary result of this view, therefore, that only such notice or knowledge as comes to the agent while he is agent is thus binding upon the principal. The other theory is based upon the rule that it is the duty of the agent to disclose to his principal all notice or knowledge which he may possess, and which is necessary for the principal’s protection or guidance.

This duty the law presumes the agent to have performed, and, according to the view now being considered, imputes to the principal whatever notice or knowledge the agent then possessed, whether he lias in fact disclosed it or not. According to this view, therefore, it is immaterial when or how the agent obtained the information, if he then possessed it.

The courts have not, however, always recognized these differences, nor have their decisions in all cases been con-sh'Tont with the theory adopted.” Meehem, Ag. § 71Í). ■‘So far as that, notice or knowledge which is acquired during the agency is concerned, the result, under either theory, is obviously the same. Such notice or knowledge is chargeable to the principal in the same manner, and with the same effect, as though it had been communicated to or acquired by him in person.” Mechem, Ag. § 720. Tluv.c authors are in accord with adjudged cases, and the principles declared need no argument to sustain them.

As we read the record, there is no evidence that would have warranted the assumption by the court that the defendant corporation or its agents had notice or knowledge that the timber on

section 9 of the Oakley tract was or was not included in the deed accepted by the corporation, and therefore the question of such notice or knowledge was a question for the jury upon the evidence in the case, and under instructions to the effect that corporations, as well as individuals, are bound by the knowledge of their agents acquired in the scope of their employment, and that all agents employed by \iie defendant corporation in respect to the contract of purchase of timber, either to ascertain facts or take action for the guidance or benefit of the corporation, were the representatives of the corporation in that behalf, whose knowledge in relation to the facts pertaining to the purchase of the timber in question was in law the knowledge of the corporation.

As the views herein expressed in regard to the instructions ac-i ually given by the court require a reversal of the case, we do not think it necessary to further discuss the many other errors assigned on the record. The judgment of the circuit court is reversed, and the cause is remanded, with instructions to award a new trial.