Case ID: ny-super-ct_57/html/0459-01.html
Source: Caselaw Access Project
Author: {"author": "By the Court.—Ingraham, J. Sedgwick, Ch. J., (concurring).", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

WILLIAM H. CROSSMAN, et al., Plaintiffs, v. THE UNIVERSAL RUBBER COMPANY OF NEW YORK, Defendant.
    
      G'-ntract, rescission of on the ground of fraud in its inception—After party has elected to rescind a sale which was fraudulent, the contract cannot be enforced.
    
    In this case plaintiffs were the owners of goods sold to the defendant, and received defendant’s notes for the purchase price, and plaintiffs after-wards, and before the notes became due, elected to rescind the contract and to proceed against the defendant for fraud, and brought an action to reclaim the goods on the ground that such sale was induced by fraud. Held, that after this election and action on their part, they could not after-wards successfully assert a claim and recover in an action against the defendant on the contract or the notes. The contract was terminated by this election on the part of plaintiffs, and no action on the part of plaintiffs could revive it.
    Before Sedgwick, Ch. J., Freedman and Ingraham, JJ.
    
      Decided February 6, 1890.
    Exceptions taken by the plaintiffs to the dismissal of the complaint at the trial term, ordered to be heard in the first instance at general term.
    
      Norwood & Coggeshall, attorneys, and Carlisle Nor-wood, Jr., of counsel for plaintiffs, argued:—
    1. The trial court erred in excluding the evidence offered by plaintiffs to show that the action of the court of chancery in appointing a receiver was not predicated at all on the allegations in the bill charging fraud against the defendant by contracting the notes and to show that the charge of fraud was withdrawn on the hearing of the application for a receiver. A similar error was committed in refusing to permit the plaintiffs to show that no benefit accrued by the New Jersey attachment, and that the same was discontinued. On the trial of this case below, the defendant took the position that the ■plaintiffs having begun an action on the ground of fraud, and having obtained what preliminary advantages they could obtain by the form of their action, had elected there- and then the remedy they would adopt, and that the election of itself binds them to that position, and also that they had similarly elected their remedy by the commencement of the attachment suit. The plaintiffs took the position that allegations of fraud and of the rescission of the contract in the chancery suit were withdrawn on the hearing before the chancellor, and were not considered by him in disposing of the motion for a receiver, etc., and that his action in such proceeding was not based upon such allegations, and that such proceedings could have been brought by any creditor, whether his debt was due or not, and also that the attachment suit had been discontinued and that the plaintiffs had received no benefit therefrom. Where a party must elect between inconsistent remedies, his election is not conclusive unless the remedy first chosen has been prosecuted to judgment, or some substantial advantage has been obtained therefrom. The mere commencement of a former action is not such an election which will bar a subsequent action brought upon a different theory. Wright v. Ritterman, 4 Robt., 704, 709-10; Hays v. Midas, 39 Hun, 460, 461-2; affd. 104 N. Y. 602; Johnson v. Frew, 33 Hun, 193, 195; Equitable Foundry Co. v. Hersee, 33 Ib. 169; affd. 103 N. Y. 25; Underhill v. Rumsey, 18 N. Y. State Rep. 717-719; Boots v. Furguson, 46 Hun, 129; Terry v. Munger, 49 Ib. 560; Bach v. Tuck, 47 Ib. 536; Sternfeld v. Simonson, 44 Ib. 529; Kennedy v. Thorp, 51 N. Y. 174; Talcott v. Hess, 4 St. Rep. 67; Conrow v. Little, 41 Hun, 395.
    
      II. The remedies pursued in New Jersey were not inconsistent with this action. The suit in the court of New Jersey, as admitted by the answer, was simply brought “ for the purpose of declaring the defendant insolvent and procuring the appointment of a receiver for the purpose of administering its assets, etc.” It was brought in pursuance of the statute of New Jersey, which provides that the receiver shall be appointed in a summary way upon the application of any creditor or stockholder, the motion is heard by the chancellor upon affidavit, bill and petition, and then a final receiver is appointed to wind up the affairs of the company. In such suit there could be no recovery of the debt of the defendant or any judgment, and the proceeding terminated on the appointment of the receiver. It was a proceeding not for the benefit of the plaintiffs alone, but for all the creditors of the company who were to be paid proportionally to the amount of their respective debts. The allegations of fraud in the plaintiffs’ papers were totally unnecessary and mere surplusage, as the plaintiffs would have been entitled to take such proceedings as creditors, whether their debt was due or not. The act says, that the said creditors shall be entitled to such distribution on debts not due, making in such case a lawful rebate of interest, etc.” The plaintiffs endeavored to show by an order entered in such proceeding that the allegations of fraud and rescission of the contract were withdrawn on the argument, and were not considered by the chancellor in disposing of the matter. The mere fact that these charges of fraud and statements of rescission, of the contract appear in the papers on which the receiver was appointed does not make such proceeding inconsistent in theory with the action. They were unnecessary allegations, and not considered by the court. The sole question involved was whether the defendant was insolvent, and whether a receiver should be appointed, to have which question adjudged the plaintiffs could have brought such action, whether their debt was due or not, as they were creditors of the corporation. Post v. Stiger, 2 Stew. 559; Van Wyck v. Seward, 18 Wend. 384; Seward v. Jackson, 8 Cow. 437; Schmidt v. Opie, 6 Stew. 139; Oakley v. Paterson Bank, 1 Green. Eq. Rep. 173.
    III. The trial court erred in refusing to allow the plaintiffs to show that there was no answer on file in the suit in the court of chancery, and plaintiffs’ exception was well taken to such refusal. Such proof was offered to show that such suit was not pending at the time of the trial of the action, and that it was simply a summary proceeding for the appointment of a. receiver, and terminated on the disposal of such application. It was clearly competent to prove such by the witness called by plaintiff.
    IV. The trial court erred in refusing to admit in evidence Exhibit No. 2. Such exhibit was offered to show that on the argument for the appointment of the receiver, the allegations of fraud were withdrawn, and that the chancellor did not consider such question, and that he reiterated, such position when the defendant moved to impound the notes on the theory on a rescission of the contract by refusing to so impound on the ground that such allegations of fraud had been withdrawn, and therefore the plaintiffs should not be holden thereto. Such exhibit was offered to show an amendment made in the pleadings before the chancellor and to show exactly what facts were before him when he made the appointment of a receiver. Clearly if this exhibit had been admitted in evidence the very foundation of the defendant’s defence would have been taken away. As we have previously shown, such proceedings could be taken by any creditor whether his debt was due or not, and in snch case not even the defendant could claim any election of remedies. This evidence clearly was material, and was wrongfully excluded. This exhibit was properly exemplified under the statutes. § 905 U. S. Revised Statutes; Trebilcox v. McAlpine. 46 Hunf 469. The objection, however, of defendants was not sufficient for its exclusion. Weed Sewing Machine Co. v. Kautback, 3 T. and C. (Sup. Ct.) 304.
    V. The trial court erred in refusing to admit in evidence Exhibits 3, 4, 5 and 6. These exhibits were offered for the purpose of showing that the attachment suit had been discontinued. The defendant had previously introduced in evidence the affidavit of the plaintiff, in which the attachment was granted, and also the warrant of attachment, and also an affidavit of an alleged applying creditor, and an order admitting him as such a creditor. Under the law of New Jersey the attachment could not have been discontinued without the consent of all the applying creditors. If the theory of the defendant was right, that this attachment suit was inconsistent with the bringing of this action, then it was clearly material and competent for plaintiffs to show such action had been discontinued. These papers showed who the applying creditors were, their consent for the discontinuance of such proceeding and the order discontinuing the same.
    VI. The trial judge erred in refusing to allow the plaintiff to show by parol evidence what questions were included in the hearing, what facts were considered by the court, and the statements and arguments of the respective counsel on the motion for the appointment of a receiver in chancery suit and the plaintiffs’ exception was well taken. Pellman v. Johnson, 35 Hun, 41; Briggs v. Wells, 12 Barb. 567; Wilcox v. Lee, 26 Hun, 418; Agan v. Hey, 30 Ib. 510.
    
      
      Benjamin Estes, attorney and of counsel, for defendant, argued:—
    I. The plaintiffs have elected their remedy in the actions in New Jersey. They have disaffirmed and repudiated the notes over there and got their remedy, and now seek to affirm what they entirely disaffirm in the other actions. This they cannot do. The course they have pursued in the courts of New Jersey is a perfect bar and defence to this action. It is not merely matter in abatement. “The doctrine of pleading the pendency of a former suit in abatement has no application. The suits are not for the same cause.” Morris v. Rexford, 18 N. Y. 556, 557; Moller v. Tuska, 87 Ib. 166, 169; Rodermund v. Clark, 46 Ib. 357; Kennedy v. Thorp, 51 Ib. 176; Fowler v. Bowery Savings Bank, N. Y. Law Journal, May 23, 1889, pp. 399, 402; Embree & Collins v. Hanna, 5 John. 101. A motion was made in this case shortly before trial, before his honor Chief Justice Sedgwick, at special term, to stay the trial on the ground that inconsistent remedies had been elected in the New 'Jersey actions, and the court held in an oral opinion delivered, that the facts thus shown did not furnish grounds for a stay of trial, but would be a defence to the action if proven.
    II. The defendant’s attempt to show that they had discontinued the attachment suit was of no avail. The proof shows that by the statutes of. New Jersey, after an attachment suit is commenced by one creditor, . other creditors may apply in the same action and become parties with equal rights as the first, and that the action cannot be discontinued without the consent of all such applying creditors as come in after the action is begun. The proof shows that Charles Lowenthal had come in as an applying creditor after the action was begun, and he had not consented to the discontinuance of the action. Any attempted or alleged discontinuance therefore would "be a nullity without the necessary consent required "by the New Jersey statute. This attempted or pretended discontinuance of the attachment suit was not until the 6th of May, 1889, ten days before this trial. The plaintiff could not elect his remedy as he did, inconsistent with the present one, and prosecute it as he did for nearly a year and until his case here was to be tried, and then go over to New Jersey, discontinue them, and pursue the one here. He had made his election and was bound by it, even if Lowenthal and other applying creditors had consented to the discontinuance of the attachment suit, which is not the fact.
   By the Court.—Ingraham, J.

The question presented in this case is whether, where the vendor of goods has elected-to rescind a sale which was fraudulent, by commencing a proceeding in a court of justice, based upon such rescission, and in which proceedings the relief which such vendor asks was granted, and which judgment or decree granting such belief remains in full force and effect, there is any contract, that can be, after such an election, enforced.

In this case plaintiffs were the owners of goods sold to the defendant. They received the defendant’s notes for the purchase price. Such sale was induced by fraud. Plaintiffs, then, had the right to rescind the sale as fraudulent and reclaim the goods, and had also the right to insist that the sale was void and recover the value of the goods, notwithstanding that notes given for the purchase price had not matured.

These positions are based on the invalidity of the sale, and were inconsistent with the fact of the existence of a valid obligation of the vendee on the contract. The right to recover the possession of the goods could not exist with the right to recover on the notes, nor could the right to recover the value of the goods obtained by fraud on the sale of which the notes were given, exist with the right to recover on the notes. If one of these positions was taken and enforced it is clear that the other could not be. Plaintiffs having this right to proceed, elected to rescind the agreement for the sale for which the notes had been given, and declare that the amount was due, offering to return the notes. They did this by presenting to the chancellor of the state of New Jersey a petition in which they alleged the facts constituting the fraud and thereby repudiated the contract,—that the defendant was then indebted to the plaintiffs for goods obtained by it by false representations to the value of $9,309, and asked the appointment of a receiver of the defendant’s property, and that such indebtedness be paid out of the property of the defendant. That application was granted. A receiver was appointed who took possession of the defendant’s property. That such an election was binding upon the plaintiffs, and that the contract upon which the notes were given, namely, the sale of the goods had been destroyed by the rescission of the sale by the plaintiffs is clear, and there being no contract for the sale of the goods there was no consideration for the notes, and no action could be maintained to recover the amount due thereon.

I There has been no case cited that holds that where a party entitled to rescind a contract has elected to rescind it, and has upon such election enforced a remedy against the other contracting party, that said election has not been held binding.

In Kenny v. Kiernan, 49 N. Y. 168, Rapallo, J., says : “ But after the plaintiff had made a valid election to avoid the sale, and had asserted his title to the goods by bringing an action, the contract of sale was at an end. The fraud being established, neither Gill & Co., nor their vendees (other than bona fide purchasers) could claim any title under the “sale, and the right of action of plaintiff against Gill & Co., upon the contract was gone. No subsequent act of the plaintiff alone could revive the contract or the right of action thereon, which had thus been destroyed.” And it was there held that bringing an action against Gill & Co., on the contract, and the recovery of a judgment in that action, did not affect the rights of the plaintiff in the action previously commenced for the conversion. “ That such an action on contract could not debar the plaintiff from prosecuting his action for conversion, because the right of action no longer existed at the time the action on contract was brought.”

Grover, J., in his dissenting opinion, p. 174, says: “ An election to rescind, when distinctly made, cancels and puts an end to the contract, in toto, and restores the vendor to his original title as owner of the property. It follows that the rescission of the contract would constitute a bar to an action brought by the vendor against the purchaser upon the contract of sale for the recovery of the price of the goods. The contract is terminated by the rescission, and has no validity whatever thereafter.”

There was no dissent by any member of the court from the rule thus stated, and I have been unable to find that this decision has ever been questioned.

In Moller v. Tuska, 87 N. Y. 169, the same principle was distinctly asserted. It was there said, “ The plaintiffs manifested their election by bringing their action. After that the other way of redress was not open to them. Hence they could never successfully assert a claim against the purchaser under the contract; for the election to disaffirm it had been manifested, and to revoke it was not in their power * * * * The contract was at an end and no act on the part of the plaintiff alone could revive it.”

In neither of these cases had the plaintiff obtained any benefit by the action brought in disaffirmance of the contract, but it was held that bringing such ' an action was for itself such a disaffirmance of the contract that the contract was at an end, and that no act of the plaintiff alone could revive it.

Our attention has been called to many cases in which the effect of an action to recover the contract price of goods sold upon a subsequent action in disaffirmance of the contract has been discussed, and it is difficult to reconcile all that has been said in the cases cited. In many of the cases the decision is put upon the ground that the fraud was not known to the party seeking to rescind at the time the action was commenced upon the contract. It has, however, sometimes been held, that the mere commencement of an action to recover the contract price, which has not resulted in any advantage to the defrauded party, and which was discontinued before the contract was sought to be rescinded, was not such an election as would prevent such a rescission. The law on this subject has been determined in Conrow v. Little, 115 N. Y. 387. That case construes Foundry Co. v. Hersee, 103 N. Y. 26, and Hay v. Midas, 104 Ib. 602, and holds that bringing an action on the contract with a knowledge of the facts on which fraud is subsequently charged, is a definitive waiver of the right to proceed for fraud. But in no case has it been held that an election to rescind, duly and deliberately exercised, could be recalled, and an action subsequently maintained on the contract. I think, therefore, that the action of the plaintiffs was a rescission of the contract of sale, that after such a rescission the notes were in the hands of the plaintiffs without consideration, and no recovery could be based upon them. There was no judgment or decree of the chancellor that indicated that he did not base his action upon this election of rescission. In that proceeding the plaintiffs asked and obtained relief, • and in their petition their demand for such relief was based upon the rescission of the contract.. That election to rescind has never been withdrawn, but stands of record as the deliberate act of the plaintiffs. It might well be that although the chancellor had the power to grant the application, if the plaintiffs’ debt was not due, he would not in the exercise of his discretion have appointed a receiver if the notes had been outstanding and had had some time to run. It is impossible to tell what effect the allegation in question in the petition presented to him had upon his judicial action.

I do not think that under the conceded facts in this case the plaintiffs can recover upon the notes, and that the exception of the plaintiffs should be overruled and judgment ordered on the verdict, with costs.

Sedgwick, Ch. J., (concurring).

I agree with Judge Ingraham, and wish to point out that, beside the election to avoid the notes, in the mere bringing of the proceeding in chancery in New Jersey, the plaintiffs by means of that proceeding gained an advantage and the defendant suffered a disadvantage. This of itself made the election final.

That proceeding was begun by a bill of complaint. It alleged that the defendant, by false and fraudulent representations, particularly set forth, induced the plaintiffs to sell and deliver to defendant certain goods, for the price of which the defendant delivered its promissory notes to the plaintiffs, “which notes your orators bring into court and tender themselves willing to surrender under the direction of the court,” “ and your orators therefore repudiate the contract, and would take back the materials delivered, if it were possible to do so at this length of time.” The petition showed that at the time of the bill the . promissory notes were not due ; that the defendant was a corporation formed under the laws of the state of New York ; that it owned property situated within the state of New Jersey, and that it was insolvent. The bill prayed that a receiver be appointed of the property of the defendant.

An order to show cause why such a receiver should not be appointed was argued, the defendant appearing by counsel, and it was then ordered that Henry T. Hopper, Esquire “ be appointed and he is hereby appointed receiver, with full power to demand, sue for, collect and receive and take into his possession, all the goods, etc., of any and every description belonging ” to the said company.

It appeared on the trial, that it became the duty of the receiver to turn the property taken by him in the proceeding, into money, and to distribute that among such persons as should prove any claim against the company. This duty had not as yet been performed, but that the receiver was about to perform it in the future.

It would seem clear that if this were all the evidence, that an election had been made, and that under it, having procured a transfer of defendant’s property in New Jersey, and that, too, at a time before the notes became due, the plaintiffs had avoided the notes and could not thereafter resort to the notes.

The learned counsel for the plaintiffs claim, that the court below erred in excluding the evidence offered by plaintiffs to show that the action of the court in chancery in appointing a receiver, was not based at all on the allegation in the bill charging fraud against the defendant, and to show that the charge of fraud was withdrawn.

The evidence excluded was in part an order made upon the motion of the defendant in the chancery proceedings, that the promissory notes in question be surrendered in accordance with the tender in the bill, or that the same be impounded with the clerk of the court. The order recited that the complainants did not intend to rely on the statement of fraud on the defendant’s part set up in the bill, and proceeded to state that the chancellor being of the opinion, for divers reasons him thereto moving, that said motion should be denied, ordered that the same be denied with costs.

Whatever might be the effect of the declaration of the counsel for. complainant, that effect concerned the future and did not annul the legal effect of what had already happened on the filing of the bill and the appointment of the receiver. Indeed, the withdrawing of the allegation of fraud would have left the prayer for the appointment of a receiver without any ground, for, as has been shown, there would have been left no allegation of fact that would show that the complainant claimed that the defendant was indebted in contract. And several months after the order that was excluded from the testimony was made, the plaintiffs here, recognized the authority of the receiver as continuing, by entering an order of the discontinuance of an action against the corporation upon the consent of the receiver. I am of opinion that the exclusion of the order did not injure the plaintiffs. If it had been admitted as evidence, the conclusion of the court, upon the testimony admitted, should not have been changed.

The defendant, on the trial below, proved without objection, for the purpose of supporting its defence, that the plaintiffs had elected to avoid the notes and to proceed against defendant for fraud ; that the plaintiffs had begun an action in the state of New Jersey, by attachment, which the sheriff had levied upon the defendant’s property in that state. The attachment proceeded upon an affidavit that the defendant was indebted on contract. The defendant gave extrinsic evidence to show that the claim in the attachment was upon the sale of the goods, for which the promissory notes in action were given; and argued that the notes must have been avoided for fraud by the plaintiffs, because the claim in the attachment was treated as maturing before the notes matured. The plaintiffs were not permitted to show that the attachment-suit had been discontinued by order. The order proposed for testimony and the papers on which it was founded appear in the case and, in my opinion, if treated as admitted, they do not change the result of the decision below. That order of discontinuance was based upon the consent of the receiver appointed in the chancery proceeding. It recognized the right of that receiver to act for the corporation and to take into his possession as receiver the property of the defendant. Its intended, if not actual, effect was, that the sheriff should deliver the property levied upon by him, to the receiver, and at the least it freed the title of the receiver from the claim of the sheriff. So that the discontinuance made clearer the advantage to the plaintiffs and the disadvantage to the defendant caused by the appointment of the receiver.

The court, on the trial below, did not allow the defendant to show that at the time of the appointment of the receiver the counsel for defendant here, who was complainant there, made a certain statement. The counsel offering the testimony did not explain the nature of this statement. The court in excluding the statement permitted the defendant to prove what ruling the chancellor made, if verbal or written. The court was right, as prima facie the statement of a counsel is not evidence of the existence of any fact.

The result below should not be changed, because in the chancery suit the defendant did not answer and no judgment had been entered. The effect of not answering was that the defendant conceded the correctness Of the charge made in the bill, and if no judgment was entered, that was because the plaintiffs did not apply for judgment. The election was effectual upon the earlier appointment of the receiver.

The same considerations are relevant to the position of plaintiffs, that they had not proved any claim before the receiver and that the time for proving claims had expired. ' The receiver had possession of the property lawfully as against the parties to this action. That property had been appropriated to the satisfaction of claims against the defendant and among them of plaintiffs’ claim. If plaintiffs omitted to secure their part of the benefit of that appropriation, none the less had the appropriation been made. As the appropriation had béen made at the instance of the plaintiffs, solely upon the position they took in the bill, that goods had been obtained by fraud, they were at least from the time of the appointment of the receiver, held to the election then made. On the record it appears that the only right they claimed to become complainants, was that they had been defrauded by the defendant.

The judgment should be for defendant, plaintiffs’ exceptions being overruled, with costs.

Freedman, J., concurred.