and Garfield would be restored to ownership of the stock. But if Sankin is to retain title to the stock he must pay the notes. By this action and through the relief he seeks, he has evidenced his intent to retain ownership. Thus he is liable for the $800,000.00, a fraudulently inflated price and the damage he has suffered is the difference between that amount and the reasonable value of the Garfield stock.
Garfield asserts that the damage, if any, that Sankin suffered was self inflicted. He argues that Sankin could have rescinded his stock purchase contract with Garfield on May 28, 1959 when Sankin first learned of the fraud; that since Sankin did not he approved the purchase of the stock at the fraudulently inflated price and that he, therefore, cannot complain of the damage he suffered. Garfield cites Simon v. Rossier, D.C.Mun.App., 127 A.2d 394 (1956) as one authority for that position. But the Simon case was treating with an executory contract. The purchaser of the house in that case had done nothing but make a deposit of $547.50 at the time he learned of the fraud in the inducement of the contract to purchase. Rossier, the purchaser had been induced to purchase the house on the false representation that it would be built and delivered within sixty days. In fact, construction was not even begun within that time. Rossier being aware of this fact, nevertheless, requested the defendant to build the house as soon as possible. He, therefore, waived any action for fraud.
Here, Sankin's purchase of Garfield's stock was an accomplished fact. His position was like that of the purchaser of real estate in Hale v. Helvering, 66 App.D.C. 242, 85 F.2d 819 (1936), to whom title was transferred upon payment of $20,000.00 in cash and $40,000.00 in notes secured by a first mortgage. The Ninth Circuit Court of Appeals in analyzing the facts in Hale stated: "It is evident that in that case the original transaction had been fully completed, as to all parties. Title to the property had been transferred and new obligations were created, promissory notes, secured by mortgage." Wener v. Commissioner of Internal Revenue, 242 F.2d 938, 943 (9th Cir. 1957).
Garfield has overlooked the fact that what Sankin did on May 26, 1959, was to exercise his rights provided him by the May 1, 1958 agreements - written and oral. He was induced to agree to the $800,000.00 price for the stock as a result of the Garfield-Benn-5410 fraud. In the District of Columbia "[one] who has been induced to enter into a contract by false and fraudulent representations may rescind the contract; or he may affirm it, keeping what he has received under it, and maintain an action to recover damages he has sustained by reason of the fraud; * * *." Wyatt v. Madden, 59 App.D.C. 38, 39, 32 F.2d 838, 839 (1929). See also United Securities Corporation v. Franklin, D.C.Mun.App., 180 A.2d 505, 510 (1962).
Moreover, this is a case "where the defrauded party may, by reason of the wrong, be unable to recede from his situation without prejudice." Kingman & Co. v. Stoddard, 85 F. 740, 749 (7th Cir. 1898). On May 28, 1959, when Sankin learned for the first time of the Benn-5410-Garfield fraud on him, he knew that unless he was able to retain the stock he had acquired from Garfield on May 26, he would have as his partner in the two close corporations either Garfield or 5410 which to him was Benn. Neither could be a satisfactory partner. Garfield, with whom he had been so closely associated for several years in business and to whom he was related through marriage, had seen fit to have participated in a fraudulent conspiracy to deprive him of his equal voting rights, which were the very rights that Garfield had agreed he should have. Benn he had come to know too well in the month past. Under the threat of placing the two corporations in receivership Benn has compelled Sankin to disburse $24,000.00 of Garfield and Sankin, Inc. funds to Benn. Moreover, constantly since April 21 Benn had been asserting that he would refuse to recognize Sankin's equal voting rights. Under such circumstances, a recision would not afford Sankin an adequate remedy and therefore he was not obliged to rescind even if it were possible for him to do so. Grand Trunk Western R. Co. v. H. W. Nelson Co., 116 F.2d 823, 833 (6th Cir. 1941). See also Horning v. Ferguson, D.C.Mun.App., 52 A.2d 116, 119 (1947).
Some of the defendants contend that Sankin could have suffered no damages because of a May 26, 1959 indemnity agreement between him and Garfield. By that agreement Garfield contracted to indemnify and hold harmless Sankin "* * * from and against all damages, loss, costs and expenses arising or growing out of any claim, demand, action or cause of action asserted against the said Julius Sankin by any person, firm or corporation and resulting from or arising out of any and all transactions between Joseph A. Garfield, on the one hand, and James T. Benn or 5410 Connecticut Ave. Corporation, a District of Columbia corporation, on the other hand, relating to the sale by Joseph A. Garfield and the purchase by 5410 Connecticut Ave. Corporation of capital stock in Garfield & Sankin, Inc. or Julius Sankin, Inc., each District of Columbia corporations [sic], or resulting from or growing out of the purchase by Julius Sankin from Joseph A. Garfield of any of the capital stock of the said Garfield & Sankin, Inc. or of the said Julius Sankin, Inc. * * *."
When Sankin entered into the indemnity agreement of May 26, 1959, he was unaware of the Garfield-Benn-5410 fraud worked upon him. But he did know then and had known from April 21, 1959, that Garfield had advised him that the stock had been sold to Benn and that Garfield had no further interest in the two Garfield apartment corporations. He also knew that Benn had asserted ownership through 5410 of the Garfield stock and that he would have to purchase that stock from Benn-5410. And he also learned from Garfield that he would have to purchase all of Garfield's stock from Garfield. Faced with conflicting claims of Garfield and Benn-5410, Sankin did the prudent thing when he demanded, at the time he purchased the Garfield stock, that Garfield indemnify him against any claims asserted by Benn-5410 or anyone holding under them. As a result of that agreement Garfield has paid on behalf of Sankin certain attorneys fees and costs resulting from the claims asserted against Sankin in this action by Benn-5410 and the five intervenor defendants. But those compensated costs have no bearing on the damage Sankin has suffered because of the $800,000.00 fraudulently inflated purchase price he was required to meet in order to exercise his first right to purchase Garfield's stock.
Nor can it be said that Sankin's May 26, 1959 general release to Garfield constitutes a waiver of the damages suffered by Sankin. On the day he executed the release, he was unaware of the fraud although Garfield, the party released, was well aware of that fact. But while Garfield kept Sankin uninformed he accepted, if he did not demand, the release at the same time he executed a general release to Sankin.
Also on May 26, 1959, Sankin and Garfield executed three other instruments. Two were voting trust agreements, one pertaining to Garfield and Sankin, Inc. stock and one to Julius Sankin, Inc. stock. The third agreement was a stockholders' agreement relating to the restrictions on disposition of that stock. None of those agreements would become effective unless Sankin defaulted in the payment of the $800,000.00 notes. In the event of such a default those agreements would give each stockholder the right of first purchase of the other's stock and pending such disposition each stockholder would in effect have an equal voice in the affairs of the corporations through the voting trust agreements. All three agreements provided that there would be endorsed on the stock certificates the restrictions provided by the agreements. Sankin on May 1, 1958, agreed to Garfield's request that no endorsements be placed on the stock certificates. By May 26, 1959, he had learned, through Garfield's breach of his fiduciary duties and the conduct of Benn, that his 1958 willingness to assist his erstwhile partner brought him nothing but trouble. He would not let that happen again. However, the effect of the voting trust agreements and the stock transfer restriction agreement is moot here since Sankin seeks delivery of Garfield's stock which he purchased on May 26, 1959 and compensation for the damages he has suffered because of Garfield-Benn-5410 fraud.
While conceding that Benn-5410 had actual notice before purchase of the Garfield stock of the May 1, 1958 agreements providing equal voting rights as well as the right of first purchase to Sankin, 5410 contends that those limitations and restrictions on Garfield's stock are unenforceable against "a transferee as a matter of public policy prescribed by statute, regardless of actual prior notice by the purchaser." Benn and the intervenor-defendants assert the same proposition, that is that the limitations and restrictions in the May 1, 1958 agreements are unenforceable as being contrary to statute.
The statutory provisions those defendants contend apply here are the following:
§ 28-2915, D.C.Code (1961):
There shall be no lien in favor of a corporation upon the shares represented by a certificate issued by such corporation and there shall be no restriction upon the transfer of shares so represented by virtue of any bylaws of such corporation, or otherwise, unless the right of the corporation to such lien or the restriction is stated upon the certificate.