Case ID: ny-super-ct_57/html/0029-01.html
Source: Caselaw Access Project
Author: {"author": "By the Court.—Freedman, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

DANIEL M. DAVIDSON, Appellant, v. PERRIN H. SUMNER, Respondent.
    
      False and fraudulent representations,—Damages for same.
    
    In an action to recover damages for false and fraudulent representations concerning a certain mine, the defendant denied the fraud, and set up a distinct and separate defence, to the effect that the plaintiff, with full knowledge of all the facts alleged in his complaint, had for a legal consideration, fully released and discharged the defendant of and from all claims and demands arising in any way from any and all of the transactions stated in his complaint, and on the trial the release described in the answer was fully established; and it also appeared that prior to the execution and delivery of said release, that the plaintiff had in his possession a certain affidavit made by a third person as to a number of facts which showed fraud to some extent, ou the part of the defendant, in the original transaction. The trial judge thereupon ruled that, in order to succeed, the plaintiff was bound to show that the release had been obtained by fraud, and also, that the plaintiff had returned or offered to return the money and property received under the release. The counsel for plaintiff admitted that no such return nor offer of return had been made, and upon such admission the court excluded all further evidence offered in support of the claim of fraud in the original transaction, and finally directed a verdict for defendant.
    
      Held, that in case the compromise agreement was obtained by fraud, the plaintiff had a cause of action by reason thereof, and had an election of remedies. He was not bound to rescind and return or offer to return the consideration received. He had a right to retain the consideration and to sue for the damages he had sustained by reason of the fraud, by means of which he was induced to enter into the compromise agreement. The original fraud had been-released by the compromise agreement, and to recover upon that fraud it was necessary to get rid of the effect of the compromise agreement and release, and to do this it became necessary to prove a fraud in the compromise and a return or offer to return of the consideration received for the same. These results called for an affirmance of the order vacating the order of arrest, in the action.
    Before Sedgwick, Ch. J., Freedman and.O’Gorman, JJ.
    
      Decided May 6, 1889.
    Exceptions taken by the plaintiff ordered to. be heard at general term in the first instance.
    Also appeal by plaintiff from order vacating order of arrest.
    
      Charles Howard Williams, attorney for appellant, argued:—
    I. The evidence shows, and the court assumed for the purposes of argument, that the fraud alleged in the complaint was proven. The allegations of the complaint and the testimony of the plaintiff are to the effect that defendant while acting as the agent and trustee of plaintiff, made false representations to plaintiff, knowing them to be such, and thereby induced plaintiff to part with property from time to time to the defendant, until the latter had stripped the former of every dollar he had. These facts are assumed by the court to be proven.
    II. The exclusion of testimony as to the relations of the defendant and his accomplice in the fraud perpetrated upon plaintiff as shown by the admissions of the' accomplice made to the plaintiff was error.
    III. The release is void, and the plaintiff cannot be required as a condition precedent to giving evidence tending to show the nullity of the release, to return to defendant what was already the plaintiff’s, and the plaintiff has the further right to show under the contract and release—contemporaneous instruments —that he received nothing else than what belonged to him. (1) A release is “ presumptive ” only, on its face ; it is not “ conclusive.” Anthony v. Harrison, 14 Hun, 196. (2) The release is void, because it was executed under duress—plaintiff and his family being upon the verge of starvation—and the evidence offered, showing constraint amounting to duress, should have been received. Thomas v. McDaniel, 14 Johns., 185; McPherson v. Cox, 86 N. Y., 472. Solinger v. Earle, 82 Ib., 393. (3) The release is void, because it was executed by plaintiff without full knowledge of the prior frauds of defendant concerning the claims released. (4) The release is void, because the relation of trustee and cestui que trust between defendant and plaintiff has been shown and uncontradicted, and fraud also shown. The release becomes a nullity until the defendant shows a contrary state of facts to exist, the onus being thus shifted upon him. It is clear that where a fiduciary relation exists, as that of “ agent and trustee ” as the case at bar, there is practically no such thing as a “ release,” except where it is shown that not the slightest suspicion of fraud or undue influence exists. Dunn v. Chambers, 4 Barb., 376.
    IY. Rescission or disaffirmance of a contract or release and tender back is not necessary to recover damages for fraud. A plaintiff has the choice of two remedies. He may sue for a rescission, or he may treat the whole as a fraud, retain what he has received, and recover a balance for the damages sustained. Krumm v. Beach, 96 N. Y., 398; Gould v. Cayuga, etc., Bank, 99 Ib., 333; Pearse v. Pettis, 47 Barb., 276; Hubbell v. Meigs, 50 N. Y., 480.
    
      Miller & Savage, attorneys, and George W. Miller of counsel, for respondent, argued :—
    The ruling of the court was correct, and the exceptions should be overruled and judgment directed for the defendant upon the verdict, with costs. (1) The agreement and release were perfect answers to the action upon their face. This is too plain to admit of argument. (2) The effect of these papers could only properly have been destroyed by allegations in the complaint, and proof upon the trial, sustaining such allegations to the effect that they had been obtained by fraud, and that the money and property received by the plaintiff in consideration of their execution, had been duly returned or tendered to the defendant before the commencement of the action. Although there were no such allegations in the complaint, yet the court at the trial offered to allow, and did allow plaintiff to show, if he could, such facts. But they were not shown, and it was admitted on the part of the plaintiff that they did not exist, and that no offer to return the money or property had, in fact, been made. (3) It is too well established to admit of discussion that, where a party seeks to rescind a transaction on account of fraud, he must restore to the opposite party what he received in consideration of the transaction. Cobb v. Hatfield, 46 N. Y, 533 Dambman v. Schilling, 75 Ib., 61; Baird v. The Mayor, &c., 96 Ib., 598. (4) But in this case the parties having deliberately compromised the disputed claim, and executed solemn release, each to the other, neither could rescind or avoid the effect of the releases on the ground of fraud without acting promptly upon the discovery of the fraud and restoring or offering to restore to the other party whatever he had received by virtue of it, if of any value, and a tender must be without qualifications or conditions. This was expressly held, and the law upon the whole subject thoroughly reviewed in Gould v. Cayuga County Bank, 86 N. Y, 75.
    In the case cited the trial court found that the bonds claimed by the plaintiff had been lent to the defendant, as alleged, and not returned. That the compromise agreement which was set up in the defence by defendant, was made, and that the plaintiff was induced to enter into it by the fraud of the defendant. But it decided that the plaintiff could not recover solely because he did not before the commencement of the action return or offer to return the money paid to him under the compromise agreement, and therefore it dismissed his complaint. The same view of the case was taken at general term and affirmed in the Court of Appeals. On page 79 (86 N. Y.) after stating the above facts, Earl, J., says : “ The compromise agreement unless annulled, is an absolute bar to this action. It is a general rule laid down in the text books and reported cases that a party who seeks to rescind a contract into which he has been induced to enter by fraud must restore to the other party whatever he has obtained by virtue of the contract. He cannot retain anything he received under the contract, and yet proceed in disaffirmance thereof.” He then proceeds to review the cases, and refers particularly to all the exceptions to the general rule.
   By the Court.—Freedman, J.

The order of arrest having been vacated at special term on the sole ground that the jury, under the direction of the court, had found a verdict for the defendant, it is deemed expedient to proceed at once to the examination of the questions raised by the exceptions taken by the plaintiff at the trial.

The action was brought to recover damages for false and fraudulent representations concerning a certain mining property, by means of which the defendant had obtained from the plaintiff several sums of money and other property.

The answer denied the fraud and then set up, as a distinct and separate defence, that the plaintiff, with full knowledge of all the facts and circumstances alleged in his complaint, had, for a due and legal consideration, fully released and discharged the defendant of and from all claims and demands arising in any way from any and all of the transactions stated in the complaint.

At the trial it conclusively appeared in the course of the cross-examination of the plaintiff that, subsequently to the transactions sued upon, a compromise agreement was made between the parties, that as part thereof the plaintiff executed, under his hand and seal, and delivered to the defendant the release referred to, and that in consideration therefor the plaintiff received from the defendant certain money and clothing. It also appeared that at and prior to the time of the execution and delivery of such release, the plaintiff had in his possession a certain affidavit made by a third person as to a number of facts which showed fraud to some extent in the original transaction.

The trial judge thereupon ruled that, in order to succeed, the plaintiff was bound to show that the 'release had been obtained by fraud, and that the plaintiff had returned or offered to return the money and property received under the release.

The counsel for the plaintiff admitted that in point of fact no such return or offer to return had been made, and upon such admission the court excluded all further evidence offered in support of the claim of fraud in the original transaction, and finally directed a verdict for the defendant, and ordered plaintiff’s exceptions to be heard at general term in the first instance. The exceptions necessary to be considered all relate to this disposition of the . case.

The disposition made was correct. True, if the compromise agreement was obtained by fraud, the plaintiff had a cause of action by reason thereof. He also had an election of remedies. He was not bound to rescind and to return or offer to return the consideration received. He had aright to retain the consideration and to sue for the damages sustained by reason of the fraud by means of which he was induced to enter into the compromise agreement. Gould v. Cayuga Co., National Bank, 99 N. Y. 333, But that is not plaintiff’s action.

The present action was brought upon the fraud in the original transaction. But that fraud had been wiped out by the compromise agreement and the release and the payment of a new consideration. To recover upon that fraud, the plaintiff had to get rid of the effect of the compromise agreement and of the release, which were not void, but only voidable, and this he could only do by proof of a new fraud in the compromise and a return of an offer to return the consideration then and there received. Gould v. Cayuga Co. National Bank, 86 N. Y. 75; Kibbe v. Bowen, 50 N. Y. Super. Ct. (18 J. & S.) 422.

For the foregoing reasons the rulings of the trial judge were entirely correct even if the relation which existed between the parties was of a fiduciary character. Moreover the complaint contained no allegation of fraud in the compromise.

The result already arrived at calls for an affirmance of the order vacating the order of arrest.

Plaintiff’s exceptions should be overruled and judgment ordered for the defendant on the verdict with costs, and the order vacating the order of arrest should be affirmed with $10 costs.

Sedgwick, Ch. J., and O’G-orman, J., concurred.