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the action prescribed by the Minnesota Rep. 558; Allen v. Alleghany Co. 196 U. S. statute to entitle a vendor to cancel had not 458, 49 L. ed. 551, 25 Sup. Ct. Rep. 311; been taken. The trial court held that the Marrow v. Brinkley, 129 U. S. 178, 32 L. ed. North Dakota law governed; that under it 654, 9 Sup. Ct. Rep. 267. the contract had been "duly and legally The argument of the plaintiff in error is canceled;" that the plaintiff in error hav- seemingly based upon the erroneous theory ing shown no right in the land, title should that his rights were foreclosed by the canbe forever quieted in the defendant in er- celation proceeding, which, lacking the req This decree was affirmed by the su- uisite notice, deprived him of property preme court on appeal. Wilson v. Kryger, without due process. But the action un29 N. D. 28, 149 N. W. 721. We are asked der the cancelation statute was in no sense to review the case on the ground that the a judicial proceeding. It was simply a state court deprived the plaintiff in error statutory condition with which vendors were of property without due process of law and required to comply before they could take impaired the obligation of his contract, in advantage of a default by the vendee. If holding that the cancelation proceeding, of the contract, properly interpreted, or the which the plaintiff in error had no actual law, properly applied, required that this notice, effectively terminated his rights un-condition be performed in Minnesota, steps der the contract.

taken by him under the North Dakota statute would be ineffective. Whether or not proper proceedings had been taken to secure cancelation could be determined only by a court having jurisdiction; and the North Dakota court had jurisdiction not only over the land, but, through the voluntary appearance of plaintiff in error, also over him. His rights have been foreclosed, not by the cancelation proceeding under the statute, but by a due and regular judicial decree which was based upon the finding that a default had occurred, of which the vendor was entitled to take advantage, having complied with the proper law. If the

It is apparent from the above statement that there has been no lack of due process. The court below, having jurisdiction of the suit to quiet title, was called upon to determine the conflicting claims to the land. The plaintiff in error voluntarily appeared, and he availed himself of the opportunity to urge his claims to equitable ownership under the contract of sale. The court de cided against him, holding the contract no longer outstanding. The most that the plaintiff in error can say is that the state court made a mistaken application of doctrines of the conflict of laws in deciding that the cancelation of a land contract is gov-plaintiff in error had not submitted himself erned by the law of the situs instead of the place of making and performance. But that, being purely a question of local common law, is a matter with which this court is not concerned. Pennsylvania R. Co. v. Hughes, 191 U. S. 477, 48 L. ed. 268, 24 Sup. Ct. Rep. 132; Finney v. Guy, 189 U. S. 335, 346, 47 L. ed. 839, 845, 23 Sup. Ct. such default occurred, and that said con- | tract will be canceled or terminated, and shall recite in said notice the time when said cancelation or termination shall take effect, which shall not be less than thirty days after the service of such notice.

"Par. 7496. Notice, how served. Such notice shall be served upon the vendee or purchaser, or his assigns, in the manner now provided for the service of summons in the district court of this state, if such person to be served resides within the state. If such vendee or purchaser, or his assigns, as the case may be, resides without the state or cannot be found therein, of which fact, the return of the sheriff of the county in which said real estate is situated, that such person to be served cannot be found in his county, shall be prima facie evidence, then such notice shall be served by the publication thereof in a weekly newspaper within said county; or, if there is no weekly newspaper within said county, then in a

to the jurisdiction of the court, the decree could have determined only the title to the land, and would have left him free to as sert any personal rights he may have had under the contract. But, having come into court and specifically asked in his cross bill that he be declared entitled to the "posses sion and control of the real estate described newspaper published at the capital of this state for a period of three successive weeks.

"Par. 7497. Time allowed.-Such vendee or purchaser, or his assigns, shall have thirty days after the service of such notice upon him in which to perform the conditions or comply with the provisions upon which the default shall have occurred; and upon such performance, and upon making such payment, together with the costs of service of such notice, such contract or other instrument shall be reinstated and shall remain in force and effect the same as if no default had occurred therein. No provision in any contract for the purchase of land, or an interest in land, shall be construed to obviate the necessity of giving the aforesaid notice, and no contract shall terminate until such notice is given, any provision in such contract to the contrary notwithstanding."

The provisions of the Minnesota statute are substantially to the same effect.

See same case below, 124 C. C. A. 339, 206 Fed. 275.

The facts are stated in the opinion.
Mr. Theron G. Strong for petitioner.
Messrs. Joseph W. Bailey, Martin W.
Littleton, and Owen N. Brown for respond-
ent.

in the complaint herein under a contract of | made thereunder. Reversed; judgment of sale," he cannot now complain if he has trial court affirmed. been concluded altogether in the premises. The plaintiff in error relies upon Selover, B. & Co. v. Walsh, 226 U. S. 112, 57 L. ed. 146, 33 Sup. Ct. Rep. 69. That was a personal action for breach of contract, and not, like the present case, an action merely to determine the title to land; and, as the court found on the facts there involved, that the proper law as to cancelation had been applied, the case cannot be construed as holding that an erroneous application thereof would raise a question of due process.

Mr. Justice McReynolds delivered the opinion of the court:

By an action at law commenced in the supreme court, Kings county, New York, and subsequently removed to the United States circuit court because of diverse citi

The contention based on the contract clause is equally devoid of merit, for there has been no subsequent legislation impair-zenship, petitioner, Sim, sought to recover ing the obligation of the contract. Impairment by judicial decision does not raise a Federal question. Cross Lake Shooting & Fishing Club v. Louisiana, 224 U. S. 632, 56 L. ed. 924, 32 Sup. Ct. Rep. 577. Judgment affirmed.

(242 U. S. 131)

JAMES SIM, Petitioner,

V.

WILLIAM EDENBORN.

COURTS366(14) FEDERAL COURTS
FOLLOWING DECISION OF STATE COURT-
RESCISSION RESTORATION OF STATUS
QUO.
The Federal Supreme Court, when
undertaking to determine rights dependent
upon the laws of a state, should follow a
ruling of the highest court of that state
that persons induced to subscribe to a
syndicate agreement for the purchase of the
capital stock of an existing corporation, to-
gether with certain coal properties, through
the misleading representations and suppres-
sions of fact of the promoter, whom they
created their agent in the matter, may re-
scind, upon discovering that he was a ma-
jority owner of the stock to be purchased,
and recover the amount of their subscrip-
tions, without doing anything more to re-
store the status quo than to tender the
stock which they had received under the
agreement.

from respondent the amounts paid upon subscriptions to a syndicate agreement which the latter fraudulently induced him and his assignors to make. By stipulation, a jury being waived, the issues were referred to a referee. The reported facts, essential to an understanding of points now involved, are summarized below.

While owning the majority stock of United States Iron Company, respondent and others conceived a scheme to consolidate it with certain coal properties, erect blast furnaces, engage in smelting and manufacturing iron, etc. He accordingly prepared an agreement, dated April 15, 1902, stating generally the ends in view, and invited subscriptions. This instrument desig nated him and two others as "syndicate managers," and recited there was an oppor tunity to acquire for cash the $1,000,000 capital stock of that company, together with valuable coal properties, and that the purpose was to raise the essential two and a half million dollars. It further specified that "the syndicate managers hereunder shall have the direction and management of the subject-matter of the said syndicate, and each subscriber nominates and appoints the syndicate managers his agents and attorneys irrevocable, until the termination of this agreement, to exercise all the rights of the subscribers in and to the properties

[Ed. Note.-For other cases, see Courts, Cent. proposed to be acquired." Still other proDig. 955; Dec. Dig.

366(14).]

[No. 8.]

visions conferred upon the managers wide discretion and powers of control. Petitioner and his assignors became subscribers

Argued May 5, 1915. Reargued October 23, while in entire ignorance of respondent's 1916. Decided December 4, 1916.

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true position. He represented that it was proposed to purchase only valuable and N WRIT of Certiorari to the United paying properties; that subscriptions were States Circuit Court of Appeals for payable in dollars, and not in property; the Second Circuit to review a judgment that he had made a subscription for $500,which reversed a judgment of the District 000, payable in dollars; that the enterprise Court for the Eastern District of New York, was being organized in good faith; that in favor of plaintiff, in a suit to rescind a all, according to their interest, had equal contract for fraud and to recover payments' rights and stood on same basis; that every

For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

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man's dollar was put up against every other, tions involved are of general law, and that man's dollar; and that there were to be no the state court reached an unwarranted respecial advantages to anyone. In fact, sult, not to be accepted here. however, he always intended to utilize stock owned by him in payment of his subscription. The managers changed the company's name to Sheffield Coal & Iron Company, increased the capital to $2,500,000, and caused it to acquire additional coal properties. For cash paid to them by syndicate members, they delivered an equal amount of stock issued by the corporation. In settlement of his subscription (reduced from $500,000 to $475,000) respondent surrendered the majority stock in United States Iron Company, at a valuation of $70 per share, paid balance in cash, and took new certificates. When he solicited and obtained subscriptions and received payments, he knew subscribers were relying upon him faithfully to act as their agent. Subsequent to the specified transactions petitioner and his assignors discovered respondent's interest, and thereupon promptly elected to rescind their subscriptions, gave due notice to the managers, offered to return and restore all stock received, and demanded their money.

This court has many times considered how far Federal tribunals, when undertaking to enforce laws of the states, should follow opinions of their courts. The authorities were reviewed and rule announced in Burgess v. Seligman, 107 U. S. 20, 3335, 27 L. ed. 359, 365, 366, 2 Sup. Ct. Rep. 10, which declared that, as to doctrines of commercial law and general jurisprudence, the former exercise their own judgment, "but even in such cases, for the sake of harmony and to avoid confusion, the Federal courts will lean towards an agreement of views with the state courts, if the question seems to them balanced with doubt." This has been often reaffirmed. Wilson v. Standefer, 184 U. S. 399, 412, 46 L. ed. 612, 618, 22 Sup. Ct. Rep. 384; Bienville Water Supply Co. v. Mobile, 186 U. S. 212, 220, 46 L. ed. 1132, 1135, 22 Sup. Ct. Rep. 820; Stanly County v. Coler, 190 U. S. 437, 444, 445, 47 L. ed. 1126, 1131, 1132, 23 Sup. Ct. Rep. 811; Great Southern Fire Proof Hotel Co. v. Jones, 193 U. S. 532, 547, 48 L. ed. 778, 786, 24 Sup. Ct. Rep. Relying on Heckscher v. Edenborn, 203 576; Tampa Waterworks Co. v. Tampa, 199 N. Y. 210, 96 N. E. 441, the referee re- U. S. 241, 243, 244, 50 L. ed. 172-174, 26 ported that Edenborn was liable for amounts Sup. Ct. Rep. 23; Kuhn v. Fairmont Coal paid, with interest, and final judgment Co. 215 U. S. 349, 357-361, 54 L. ed. 228, therefor was duly entered. The circuit 233-235, 30 Sup. Ct. Rep. 140; Ennis Watercourt of appeals declined to follow the state works v. Ennis, 233 U. S. 652, 657, 658, 58 court, and, being of opinion that "it is a L. ed. 1139-1141, 34 Sup. Ct. Rep. 767; condition of rescission that the status quo Moore-Mansfield Constr. Co. v. Electrical shall be restored," and that no such resto- Installation Co. 234 U. S. 619, 625, 58 L. ration had been offered, reversed the trial | ed. 1503, 1505, 34 Sup. Ct. Rep. 941; Lankcourt (124 C. C. A. 339, 206 Fed. 275, 277). ford v. Platte Iron Works Co. 235 U. S. The cause is here upon writ of certiorari. | 461, 474, 59 L. ed. 316, 320, 35 Sup. Ct. Heckscher v. Edenborn arose out of an- Rep. 173. other subscription to the agreement now involved, and the essential facts there and here are substantially alike. After much consideration the court of appeals decided in favor of plaintiff, Heckscher, holding the agreement was vitiated by fraud because Edenborn failed to reveal his interest in the stock intended to be purchased, and, further, that tender of stock actually received was all the subscriber could do towards restoring the original position, and constituted an adequate preliminary to an action for recovery. The opinion expresses that court's deliberate conclusion upon the is sues, and is supported by reference to earlier decisions of its own and other authorities.

Petitioner now contends that the court of appeals was correct upon principle, and, moreover, that if doubts exist they should be resolved in favor of its opinion. On the other hand, respondent maintains the ques

The conclusions of the court of appeals in Heckscher's Case are not in direct conflict with any declared views of this court and some expressions in our former opinions tend to support them. Veazie v. Williams, 8 How. 134, 158, 12 L. ed. 1018, 1028; Andrews v. Hensler, 6 Wall. 254, 258, 18 L. ed. 737, 739; Neblett v. Macfarland, 92 U. S. 101, 103-105, 23 L. ed. 471473.

Through misleading representations and suppression of facts, respondent induced syndicate subscribers to become parties to an agreement creating him their agent to acquire and deal with certain properties,a position of especial trust and confidence. His original undisclosed purpose was to obtain their money and appropriate it toward purchase of something partly owned by himself. Having led them to intrust their funds to his discretion, he carried out his preconceived plan, and, as a part of it,

caused them to receive an equivalent amount of corporate stock. He now seeks to avoid a judgment, because his own actions have rendered it impossible for him to get back to the beginning point.

This was not a proceeding in equity addressed to the court's discretion, but a demand at law upon an agent for return of something improperly received and disposed of. The defrauded principals tendered back everything received by them,-did all they could towards restoring original conditions. In such circumstances it is but just and right that any loss should fall on the unfaithful agent, not on his too-confiding principals. See Snow v. Alley, 144 Mass. 546, 551, 59 Am. Rep. 119, 11 N. E. 764; O'Shea v. Vaughn, 201 Mass. 412, 87 N. E. 616; Bigelow, Fr. 430, 431; Whart. Contr. § 285.

We think, in Heckscher v. Edenborn, the Court of Appeals reached a result well supported both by reason and upon authority,

and that the courts below should have fol

lowed it when undertaking to determine rights depending upon the laws of New York. The action of the Circuit Court of Appeals is accordingly reversed; and the judgment of the trial court is affirmed. Reversed.

Mr. Justice McKenna, Mr. Justice Day, and Mr. Justice Van Devanter dissent,

being of opinion that the questions involved are of general, not local, law; that there has not been such restoration of the status quo as is essential to a recovery at law upon a rescission; and that, upon the facts specially found by the referee, the decision of the Circuit Court of Appeals was right.

(242 U. S. 137)

THOMAS P. ALDER, Petitioner,

V.

WILLIAM EDENBORN.

See same case below, 124 C. C. A. 339, 206 Fed. 275.

Mr. Theron G. Strong for petitioner. Messrs. Joseph W. Bailey, Martin W. Littleton, and Owen N. Brown for respondent.

Mr. Justice McReynolds delivered the opinion of the court:

This cause is similar in all essential respects to Sim v. Edenborn, just decided [242 U. S. 131, 61 L. ed. 199, 37 Sup. Ct. Rep. 36]. Accordingly, the Circuit Court of Appeals' action is reversed, and the judgment of the trial court is affirmed. Reversed.

(242 U. S. 138)

JOHN G. MCINTYRE, Plff. in Err.,

V.

FREDERICK W. KAVANAUGH.

PARTNERSHIP 153(1)-INDIVIDUAL RE

SPONSIBILITY FOR FIRM'S TORT.

1. Partners are individually responsible for torts by the firm when acting within the general scope of its business, whether they personally participate therein or not.

[Ed. Note.-For other cases, see Partnership, Cent. Dig. §§ 274, 276, 277; Dec. Dig. 153 (1).j BANKRUPTCY 424 EFFECT OF DISCHARGE-LIABILITY FOR CONVERSION "WILFUL AND MALICIOUS INJURY TO PROPERTY."

2. The unauthorized sale by a firm of brokers of certificates of stock held by them as collateral, and the appropriation of the avails to their own use, without the knowledge of the owner, is a wilful and malicious injury to property within the meaning of the provision of the Bankrupt Act of July 1, 1898 (30 Stat. at L. 550, chap. 541), § 17, as amended by the Act of February 5, 1903 (32 Stat. at L. 798, chap. 487, Comp. Stat. 1913, § 9601), that a discharge in bankruptcy shall not release the bankrupt from liability for wilful and malicious injuries to the person or property of another. [Ed. Note. For other cases, see Bankruptcy, Cent. Dig. $$ 787, 818; Dec. Dig. 424. For other definitions, see Words and Phrases, First and Second Series, Wilful and Malicious

This case is governed by the decision in Injury.] Sim v. Edenborn, ante, 36.

[No. 9.]

[No. 88.]

Argued November 10, 1916. Decided December 4, 1916.

N ERROR to the Supreme Court of the

Argued May 5, 1915. Reargued October 23, State of New York in and for the Coun

Ο

1916. Decided December 4, 1916.

N WRIT of Certiorari to the United States Circuit Court of Appeals for the Second Circuit to review a judgment which reversed a judgment of the District Court for the Eastern District of New York in favor of plaintiff in a suit to rescind a contract for fraud, and to recover payments made thereunder. Reversed; judgment of trial court affirmed.

ty of Saratoga, entered pursuant to the mandate of the Court of Appeals of that state, which affirmed a judgment of the Appellate Division of the Supreme Court, Third Department, affirming a judgment of the Trial Term of the Supreme Court in favor of plaintiff in an action against a discharged bankrupt to recover damages for conversion. Affirmed.

See same case below, in appellate division,

For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes.

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This was amended by Act February 5, 1903, so as to read:

"A discharge in bankruptcy shall release a bankrupt from all of his provable debts, except such as . . . (2) are liabilities

Mr. Justice McReynolds delivered the for obtaining property by false pretenses opinion of the court:

or false representations, or for wilful and
malicious injuries to the person or prop-
erty of another, or for alimony due or to
become due, or for maintenance or support
of wife or child, or for seduction of an
unmarried female, or for criminal conver-
sation; . . . or (4) were created by his
fraud, embezzlement, misappropriation, or
defalcation while acting as an officer or in
any fiduciary capacity." [32 Stat. at L. 798,
chap. 487, Comp. Stat. 1913, § 9601.]
The trial court found-

Plaintiff in error was a member of T. A. McIntyre & Company, engaged in business as brokers. During February, 1908, the partnership received certain stock certificates owned by defendant in error, and undertook to hold them as security for his indebtedness, amounting to less than one sixth of their market value. Within a few weeks, without authority and without his knowledge, they sold the stocks and appropriated the avails to their own use. Shortly thereafter both firm and its members That on February 5, 1908, McIntyre & were adjudged bankrupts. After his dis- Company by agreement obtained possession charge in bankruptcy this suit was insti- of Kavanaugh's stocks, worth approximatetuted against plaintiff in error, seeking ly $25,000, and held them as security for damages for the wrongful conversion. He his indebtedness, amounting to $3,853.32. set up his discharge and also personal ignorance of and nonparticipation in any tortious act.

"That almost immediately after taking over said stocks by certificates as aforesaid by the said firm of T. A. McIntyre & Company, composed as aforesaid, and commencing on the very next day, said firm of

The trial court held the liability was for wilful and malicious injury to property and expressly excluded from release by §T. A. McIntyre & Company (the above17 (2), Bankruptcy Act, as amended in 1903 (32 Stat. at L. 798, chap. 487, Comp. Stat. 1913, § 9601), and that the several partners were liable. A judgment for damages was affirmed by appellate division (151 App. Div. 910, 135 N. Y. Supp. 1120) and court of appeals (210 N. Y. 175, 104 N. E. 135).

named defendants being members thereof), without any notice to the plaintiff, and without his authority, knowledge, or consent, or demand of any kind upon him, sold and disposed of the identical certificates of such stock and scrip so turned over to them as aforesaid, and placed the avails thereof in the bank account of said firm of T. A. That partners are individually responsi- McIntyre & Company to the credit of said ble for torts by a firm when acting within | firm. the general scope of its business, whether they personally participate therein or not, we regard as entirely clear. Castle v. Ballard, 23 How. 172, 16 L. ed. 424; Re Peck, 206 N. Y. 56, 41 L.R.A. (N.S.) 1223, 99 N. E. 258, Ann. Cas. 1914A, 798. If, under the circumstances here presented, the firm inflicted a wilful and malicious injury to property, of course, plaintiff in error incurred liability for that character of wrong. As originally enacted, § 17 of the Bankruptcy Act provided:

"That the various stocks aforesaid had all been disposed of prior to the 18th day of March, 1908, and that three quarters in value thereof had been disposed of on or prior to February 14th, 1908, or within nine days after the acquisition of the possession thereof by defendant's firm as aforesaid.

"That the above-named defendants, together with the other members of the said firm of T. A. McIntyre & Company, in disposing of said stocks aforesaid, without "A discharge in bankruptcy shall release notice to or demand upon the plaintiff, and a bankrupt from all of his provable debts, without his authority, knowledge, or conexcept such as (2) are judgments sent, and in depositing the proceeds and in actions for frauds, or obtaining property avails thereof in the bank account to the by false pretenses or false representations, credit of said firm of T. A. McIntyre & or for wilful and malicious injuries to the Company, committed wilful and malicious person or property of another; . . . (4) | injury to the property of the plaintiff. were created by his fraud, embezzlement, "That on April 23, 1908, the said firm

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