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promises actionable, and creating a rule of evidence to determine the falsity of such promises, the statute proceeds to make all persons deriving the benefit of the fraud jointly and severally liable with the persons making the representations and promises. In the main case the defendant not only received the benefit of the fraud but was also guilty of making the false representations and so this part of the statute was not applicable and its effect was not considered except in a discursive fashion.
At common law the types of cases, in which the recipient of the benefit of the fraud is liable to the defrauded party, fall into several well defined classes. In general, one who accepts the fruits of fraud, with knowledge of the misrepresentations by which they were obtained, thereby inferentially ratifies the fraud even though he did not participate in it; and this is so apart from any considerations of the theory of agency. Then where an agent, in excess of his authority, obtains a contract by means of misrepresentations, the principal who with knowledge of this accepts the benefits of the contract, ratifies the whole transaction and assumes responsibility for the means used in obtaining the contract. And this is also true where the principal accepts the benefits of the transaction without knowledge of the fraud of the agent, provided the agent was acting at the time within the apparent scope of his authority. It is within this class of cases that those cited in the main case fall. In answer to the defendants objection to this phase of the statute as fixing liability for damages without regard to participation in the wrong, the court called attention to the liability of partners, at common law, for the fraud of their copartners where the proceeds of the fraud accrued to the common business, and to the liability of shareholders, by statute,
rule of damages being the difference between the value of the property as represented or as it would have been worth had the promise been fulfilled, and the actual value of the property in the condition it is delivered at the time of the contract. All persons making the false representations or promises and all persons deriving the benefit of said fraud, shall be jointly and severally liable in actual damages, and in addition thereto all persons wilfully making such false representations or promises or knowingly taking the advantage of said fraud shall be liable in exemplary damages to the person defrauded in such amount as shall be assessed by the jury, not to exceed double the amount of the actual damages suffered."
El Jardin Immigration Co v. Karlin, 245 S. W. (Tex. Civ. App. 1922) 1043, 1045 "The statute* *provides a severe rule of evidence. ***The long established rule that fraud must not only be alleged, but must be proven as alleged, is changed by this statute somewhat. Here it puts the burden on the alleged fraudulent party to overcome the presumption of fraud on his part, that it was not made in good faith, and then he must further show that he was "prevented from complying by the act of God, the public enemy, or by some equitable reason." 'McClung v. Watt, 190 Cal. 155,211 Pac. 17 (1922); Bailey v. London Guarantee and Accident Co., 72 Ind. App. 84, 121 N. E. 128 (1918); Green v. Des Garets, 210 N. Y. 79, 103 N. E. 964 (1913); Law v. Grant, 37 Wisc. 548 (1875). Baker v. Union Mutual Life Insurance Co. of Maine, 43 N. Y. 283 (1871); Krumm v. Beach, 96 N. Y. 398 (1884); Fairchild v. McMahon, 139 N. Y. 290, 34 N. E. 779 (1893); Crocker v. United States, 240 U. S. 74, 36 Sup. Ct. 245 (1915).
Phipps v. Mallory Commission Co., 105 Mo. App. 67, 78 S. W. 1097 (1904); Bennett v. Judson, 21 N. Y. 238 (1860); Garner v. Mangam, 93 N. Y. 642 (1883). 'Strang v. Bradner, 114 U. S. 555, 5 Sup. Ct. 1038 (1885).
for the torts of the agents of the corporation. The basis of the liability in these cases is that the principal, having placed his agent in a position of apparent authority, is estopped to deny that such authority was extended even to the making of representations. Another class of cases are those in which a constructive trust is created by law in one who accepts and retains property with knowledge that it was acquired by fraud; the trust being terminated when the property comes into the hands of a bona fide purchaser for value.8 In none of these cases, however, is liability based solely on the mere receipt of the benefits of the fraud, but rather on some fault of the principal, a ratification of the wrong of an agent or the acceptance of the benefit with knowledge of the fraud and so an unconscionable acceptance. In fact, it is held that the mere receipt by a principal in ignorance of his agent's fraud of the apparently legitimate proceeds of a transaction, is not sufficient to bind the principal as by ratification, where there was a collateral fraud committed beyond the scope of his authority. Likewise in the case of a will induced by the fraud of one not a beneficiary under it, where the plaintiff would have been the beneficiary had it not been for the fraud, equity refuses to raise a constructive trust in the beneficiary of the will who did not participate in the fraud.10 The Texas statute, read literally, would seem to impose absolute liability on one deriving the benefit of the fraud of another, without regard to any fault whatsoever on the part of the recipient.
The statute up to the present seems to have been for the most part overlooked, and the number of cases involving its interpretation is decidedly small. The case of El Jardin Immigration Co. v. Karlin1 is one pertinent to the discussion of the liability of an innocent third party who merely receives the benefit of a fraud committed by another. The defendants therein are the same persons who appear as defendants in the case under discussion. The El Jardin Co. was alleged to be the party who actually made the representations to the plaintiff and the court found that the James Dickinson Co. of Missouri,
"Buttner v. Adams, 236 Fed. 105 (C. C. A. 9th 1916).
Kent v. Dean, 128 Ala. 600, 30 So. 543 (1900); Morris v. Vyse, 154 Mich. 253, 117 N. W.639 (1908); Bluett v. Wilce, 43 Wash. 492, 86 Pac. 853 (1906); Moore v. Crawford, 130 U. S. 122, 9 Sup. Ct. 447 (1889); 3 POMEROY. EQ. JUR. § 1053. 'Deyo v. Hudson, 225 N. Y. 602, 614, 122 N. E. 635 (1919) speaking of the liability of the principal, the court says: "We would be carrying remedial liability beyond the logic of any reported case if we charged the defendants with responsibility for Mitchell's [the agent] false promise. The peculiar doctrines of agency are not to be extended beyond the limitations of common sense." Smith v. Tracy, 36 N. Y. 79, 85 (1867) speaking of the collateral contracts of an agent: "Such a ruling would be subversive of well-settled legal principles, and would open the door to illimitable frauds by brokers, factors, attorneys, and others, clothed with limited powers and occupying strictly fiduciary relations." 10Dye v. Parker, 108 Kan. 304, 194 Pac. 640 (1921); (1921) 5 Minn. L. Rev. 488.
11(1926) 4 TEX. L. REV. 510, 516 contains a discussion of the application of the damages provisions of the statute.
12 Supra, note 2 at 1045, it was said: "We shall give no construction to that statute that will subject an innocent person to a personal liability for the fraud committed by the agents of another, in which he was neither a participant nor beneficiary in the fraud."
one of the three corporations involved in this scheme, which had invested money in the land sold by the El Jardin Co., had neither participated in the fraud of that company, nor had it received any benefit therefrom and so was not liable under the statute. It seems that the title to the land was in an innocent trustee and that each of the three corporations was under contract to sell the land to the others, in succession; it was claimed that the El Jardin Co., being the last in line, sold the land to the plaintiff by means of fraud. The basis of the decision releasing the James Dickinson Co. from liability in that case was the fact that it was under contract to sell the land to the El Jardin Co. and since the price it was to receive for the land was fixed by contract, the James Dickinson Co. could derive no benefit from such a fraud, even though the money it received in payment was actually acquired by the El Jardin Co. through the alleged fraud.
The attitude of the federal courts as to this statute is brought into contrast by the case of Seimer v. James-Dickinson Farm Mortgage Co.,13 decided in 1924. This is a sister case to the Harry case, the defendants being the same. The District Court of Illinois held that the fraud was in pursuance of the common undertaking and that the acts of the three corporations and the individuals representing them constituted a conspiracy. The two officers of these corporations, James and Dickinson, made the representations and the court in discussing the liability of the Missouri James Dickinson Co. held that it was immaterial for which company they were acting at various times since there was a common scheme in which each company had its function. The Missouri corporation was held to have received the benefits of the fraud when it received its share in the return of the money it had invested in the land used as the instrument of the fraud.
The antagonism of the Texas courts to the particular provision of the Fraud Act under discussion is not only reflected by the strict interpretation of facts, as in the El Jardin case, but by specific disapproval in the dictum of two other cases. In Ulrich v. Kreuger14 it was said that the sale of an entire business was not within the purview of the act, which applies only to the sale of stock, but that if it were, the court would hold invalid and void that section of the act making one merely deriving a benefit from the fraud practiced by others, liable not only for actual damages but also for exemplary damages, as "an unreasonable and discriminatory requirement.' The exact meaning of the court is obscure because the act does not make one merely receiving the benefit of the fraud liable for exemplary damages; it makes one "knowingly (italics are the writers) taking advantage of such fraud" liable for exemplary damages, and one "deriving the benefit of such fraud" liable only for actual damages.15 So it is not clear whether the court objected to the imposition of exemplary damages on one merely deriving the benefit of the fraud, which would involve a misreading of the statute, or whether it objected
to any liability on one merely receiving the benefit. The latter would seem more reasonable. In the case of Kreuger v. Waugh, also, by way of dictum, the court expressed doubt as to the constitutionality of the statute.
It would seem, from the lack of observance of the statute in most cases, from the remarks of the Texas court as to the validity of the statute, and from the strict interpretation of the facts in cases coming directly within the provisions of the statute, that the courts of Texas properly realize the impolicy of a statute which on its face seems to impose absolute liability on an innocent third party for the fraud practiced by another, when such third party has had no part in the transaction and has merely derived the benefit of the fraud in some indirect and bona fide manner.
George H. Kenny.
Criminal Contempt: Publications tending to obstruct justice: Right of review.-A courageous judge' in the Ciminal Court of Baltimore has, within six months in two proceedings, cited six people for criminal contempt of court because of their connections with publications tending to obstruct the administration of justice. These cases raise the question, how far may "trial by newspaper" be curbed. In Ex parte Sturm, Klamm, Deland, Ellisson, and Clark the Hearst newspaper contempt cases-the Court of Appeals of Maryland affirmed the conviction for contempt of court of the named editors and photographers, who had surreptitiously disregarded the trial court's order not to take photographs of the defendant or proceedings in the Whittemore murder trial. All were sentenced to a day in jail, an additional fine of $5000 being imposed on the editor-in-chief. In the later case of Ex parte Burns, the same trial court cited the chief of detectives because he made a statement, which appeared in the newspapers, commenting on the evidence against two persons indicted for a robbery, revealing the serious charges against them and the secret attitude of the detective department which had strategically released one defendant who was at large at the time, and stating the relative merits of the state's case against each. When later Captain Burns, in a letter, disclaimed any intention to obstruct justice, the conviction was stricken out and the citation for contempt quashed. The common law of contempts which has previously been applied more often to the publishers of obstructive newspapers, is applied in Ex parte Burns to that equally culpable group through whom the press has obtained their material. Jurisdiction of courts to punish for contempt because of printed matter is inherent. While at first it was used to punish insults to the king or his government, to-day
16261 S. W. 196 (Tex. Civ. App. 1924).
Judge Eugene O'Dunne of the Supreme Bench of Baltimore City. 2Ct. of App. Md. Oct. T. 1926 No. 69-73, filed Jan. 21, 1927.
Unreported, filed Jan. 4, 1927, reprint from the Daily Record, Baltimore, Jan. 5, 1927.
'People v. Wilson, 64 Ill. 195, (1872).
'Beale, Contempt of Court, Criminal and Civil (1908) 21 HARV. L. Rev. 161.
the power is employed for the protection of the courts. Courts to administer justice properly must keep order, enforce decrees, safeguard the interest of party litigants, and preserve themselves from coercion and interference while in the discharge of their judicial duties. The power extends beyond punishing misbehaviour in their presence, to that broader field of obstructive acts committted elsewhere and often by third parties, so-called constructive contempts.8 Lord Hardwicke, in the leading Huggonson's case, divided contempts into those which scandali ed the Crown (i. e., the courts),10 those which abused the parties, and those which prejudiced mankind against persons before the cause was heard." The tendency has been away from committals for merely scandalizing the court,12 except where it affects a pending suit.13 Proceedings in such cases have been of doubtful efficacy because judges often have failed to distinguish adequately between a personal libel and those which interfere with their judicial functions, 13 and because an honest and intelligent court, it has been said," will win its way to public confidence in spite of adverse newspaper remarks. A publication to be in contempt need not be obstructive in fact, the tendency to so result is sufficient;15 nor must the jury or court have read the writing;16 that the offender intended no obstruction is immaterial except in determining the proper punishment." Burns's interview was published after an indictment had been entered, and therefore concerns a pending case. The tendency of it, according to the court, was to embarrass the prosecutors both in apprehending the criminal who was at large, and also in presenting the case at the trial, because the detective might be called as a witness and cross-examined as to his statement, and the publication might unconsciously find lodgment in the minds of jurors who may be impanelled to try the case. When a publication will tend to obstruct justice, is a question of degree which a trial court, intimately conversant with the particular situation, must pass upon.
In re Debs, 158 U. S. 564, 15 Sup. Ct. 900 (1895).
'People v. Wilson, supra note 4; West Va. v. Frew and Hart, 24 W. Va. 416, (1884).
2 Atk. Rep. 469, 471 (1742).
10State v. Morrill, 16 Ark. 384 (1855), publication intimated court was induced by bribery to make a decision. Ex parte Barry, 85 Cal. 603, 25 Pac. 256 (1890), article charging judge with deliberate lying about the law and denial of justice. McDougall v. Sheridan, 23 Idaho 191, 128 Pac. 954 (1913).
"State v. New Mexican Printing Co., 25 N. M. 102, 177 Pac. 751 (1918). 12Hamma v. People, supra note 7; State v. Dunkan, 6 Iowa 245 (1858); State v. New Mexican Printing Co., supra note 11; Ex parte Hickey, 12 Miss. 751, (1845). 13 Patterson v. Colorado, 205 U. S. 454, 27 Sup. Ct. 556 (1907); Cheadle v. State, 110 Ind. 301, 11 N. E. 426 (1885); State v. Anderson, 40 Iowa 207 (1875); Ex parte Green, 46 Tex. Cr. R. 576, 81 S. W. 723 (1904); State v. Frew and Hart, supra note 8.
13 See Craig v. Hecht, 263 U. S. 255 at 278, 44 Sup. Ct. 103 (1923). 14Stuart v. People, 4 Ill. 395 (1842).
15U. S. v. Toledo Newspaper Co., 220 Fed. 458 (D. C. N. D. Ohio 1915), aff'd 247 U. S. 402, 38 Sup. Ct. 560 (1917); People v. Wilson, supra, note 4. iState v. Howell, 80 Conn. 668, 19 Atl. 1057 (1908).
17State v. Howell, supra note 16; Globe Newspaper Co. v. Comm., 188 Mass. 449, 74 N. E. 682 (1905).