William Updegrave and Lulu Updegrave, Husband and Wife, Dave Eterno and Bertha Eterno, Husband and Wife, Harvey W. Kring, Jack Mathis, Edwin G. Schacher, W. Glenn Huston, Thomas Itami, George Chladek and Lilly Chladek, Husband and Wife, Appellants, v. Reliance National Investors Corporation, a Corporation, and Frank B. Salisbury, Appellees, 337 F.2d 604 (9th Cir. 1964)

Annotate this Case
U.S. Court of Appeals for the Ninth Circuit - 337 F.2d 604 (9th Cir. 1964) October 19, 1964

Fredric A. Yerke, Jr., Harvey C. Barragar, King, Miller, Anderson, Nash & Yerke, Portland, Or., for appellants.

Donald W. McEwen, Cake, Jaureguy, Hardy, Buttler & McEwen, Portland, Or., for appellees.

Before BASTIAN, JERTBERG and MERRILL, Circuit Judges.

MERRILL, Circuit Judge:

Appellees have brought this suit for rescission of an agreement for exchange of stock, alleging fraudulent representations of one Giles H. Florence, made as agent of appellants. The District Court decided in favor of appellees. The agreement was ordered rescinded and the appellants were directed to deliver up for cancellation the stock certificates of appellees which had been issued in accordance with the agreement. This appeal followed.

1. Appellants contend that Florence, as a party to the stock exchange agreement, was an indispensable party to the suit for rescission of that agreement and that since the District Court had not acquired personal jurisdiction over him it could not proceed to decree rescission.

Appellees contend that Florence's interest was distinct and severable from that of appellants, and that they suffered no prejudice through his nonjoiner; that his absence did not preclude the Court from a just resolution of the dispute between the parties before it; that it was thus proper for the Court to proceed to a decree as to the rights of appellants. We agree. In Shields v. Barrow, 58 U.S. (17 How.) 129, 15 L. Ed. 158 (1854), the Court stated that a contract could be rescinded although some of the parties to it were not before the court if "* * * the rights of those before the Court are completely separable from the rights of those absent, otherwise the latter are indispensable parties." The certificates of stock constitute the subject matter of the contract here in issue. One such share is quite separate from any other share. The subject matter being severable, the District Court properly held Florence not an indispensable party.

2. Appellants contend that Florence was not their agent; that no authority, actual or apparent, had been shown to exist; that appellants had not ratified Florence's representations since they had no knowledge of them until after the transaction had been consummated.

Appellees contend ratification resulted from appellants' retention of the benefits of Florence's fraud after having learned of it. We agree. Restatement (Second), Agency § 99 (1958). We do not, therefore, pass upon the nature of Florence's authority, if any.

Appellants argue that they had so changed their position by the time they learned of the fraud that they were entitled to retain the results of it. The District Court found that their position had not so changed. Its finding was not clearly erroneous and we therefore affirm it. Fed. R. Civ. P. 52(a).

3. Appellants contend that appellees did not rely on Florence's representations but entered into the transaction after their own independent investigation; that appellees had no right to rely on Florence's representations in the light of suspicious circumstances which reasonably called for the exercise of caution.

The District Court found to the contrary and its findings are not clearly erroneous.

4. Appellants contend that appellees were guilty of laches.

Appellees assert that rescission was not unduly delayed but followed promptly after their receipt and analysis of pertinent records and that no prejudice resulted to appellants from such delay as did occur. We agree.

Judgment affirmed.