Case Name: Harry E. Mooney, Respondent, v. Harvey M. La Follette, Appellant
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1897-11
Citations: 21 A.D. 510
Docket Number: 
Parties: Harry E. Mooney, Respondent, v. Harvey M. La Follette, Appellant.
Judges: 
Reporter: Appellate Division Reports
Volume: 21
Pages: 510–514

Head Matter:
Harry E. Mooney, Respondent, v. Harvey M. La Follette, Appellant.
Orden' of arrest— breach of an executory contract to deliver first ‘mortgage bonds by knowingly delivering second mortgage bonds — the fraud is in the ostensible performance, not in the making, of the contract.
Where the complaint in an action, brought to recover damages for the breach of a contract, alleges an executory contract for the sale and delivery of first mortgage bonds, and that, under it, the defendant knowingly delivered less valuable second mortgage bonds, and thereby secured a payment from the plaintiff, an ■ order of arrest, granted upon the ground that the defendant was guilty of fraud in contracting or incurring liability under the contract; cannot be sustained, as such failure of the defendant to deliver, in the future, first mortgage bonds constitutes a simple breach of contract, entitling the plaintiff to damages in the amount of the difference between the contract price and the actual value of- the bonds agreed to be delivered — the fraud in the ostensible performance of the contract, although available in avoidance of performance, does not affect the contract itself.
Appeal by the defendant, Harvey M. La Eollette, from an order of the Supreme Court, made at the New York Special Term and entered in the office of the clerk of the county of New York on the 24th day of June, 1897, denying his motion to'vacate an order of arrest and for such other relief as might be just.
Frederic R. Kellogg, for the appellant.
Wm. Pierrepont Williams, for the respondent. .

Opinion:
Williams, J.:
The motion was made upon the papers alone upon which the order was granted. The action was brought to recover damages for the breach of two contracts, and the ground of arrest was that the defendant was guilty of fraud in contracting or incurring the liability. The sheriff was by the order required to hold the defendant to bail in the sum of $10,000. One of the contracts alleged in the complaint was, that the defendant on or about the 29th day of December, 1895, agreed to sell and deliver to -the plaintiff sixty-two-first mortgage bonds (each of the par valué of $500) of a series of 200 bonds, issued by the Connersville Gas and Electric Company, at the agreed price of $24,800, payable $10,000 in cash and $14,800 in real estate. And it was alleged that the plaintiff thereafter,paid the $10,000 in cash,'but had not transferred the real estate, for the reason that it was subsequently agreed1 that the real estate should be retained by the plaintiff as -collateral security for moneys advanced, which had not been repaid in whole or in part; that the defendant on or about April 13, 1896, delivered to the plaintiff sixty-two bonds of the kind stipulated for in the contract except that they were second instead of first mortgage bonds, and that he had in no other way performed the contract, though frequently requested to do so; that the bonds so delivered had nothing thereon to indicate that they were second mortgage bonds, and the plaintiff was induced to accept the same and pay the $10,000 by statements made to him by the defendant to the effect that they were first mortgage bonds, which plaintiff relied on and believed; that plaintiff ascertained that the bonds delivered were, second and subordinate to another series of first mortgage bonds amounting to $20,000, which, were' outstanding and uncanceled; that the defendant warranted and agreed that the bonds so delivered to the plaintiff should be first mortgage bonds; that the bonds delivered were worth but $21,700, and if they were first mortgage bonds they would be worth $31,000; and the plaintiff claimed to recover the difference of $9,300 and interest from r delivery of the bonds April 13, 1896, and it was alleged that, on incurring this liability, the defendant was guilty of fraud in warranting and agreeing the bonds delivered to be first mortgage bonds, he knowing that they were second mortgage bonds, and suppressing and concealing the fact from the plaintiff, and inducing the plaintiff to pay $10,000 by the statements relied on and believed by the plaintiff, but which were untrue, and known to defendant to be untrue, and made with intent to induce the acceptance of the bonds and payment of the money. The other contract alleged -in the complaint was for the sale and delivery of another lot of bonds of the same kind as the sixty-two- bonds, to be delivered at different times, aggregating sixty in number, at the agreed price, in all, of $21,750, and payment was alleged upon this contract of $9,783.12 in April, 1896. Similar allegations were made as to this contract as were made as to the other, except that the defendant had delivered but twenty-two of the bonds; that the whole were : worth but $21,000, and if they were first mortgage bonds they would be worth $30,000; and the plaintiff claimed the- sum of $18,033.12, being the difference between what the whole lot of bonds would have been worth if' first "mortgage bonds, $30,000, and the amount unpaid on the contract, $11,966.88.
A recovery was sought upon both causes of action for the sum of $27,033.12, besides interest, being for the sum total of the two amounts, $9,300 and $18,033.12. The allegations of the complaint were supported, upon the application for the order of arrest, by the affidavits of the plaintiff and another witness. The result of these allegations was that the plaintiff had paid to the defendant' under these contracts, in cash,, $10,000 and $9,783.12; in all, $19,783.12, and had received from him bonds, worth $21,700 and $7,700 '; in all, $29,400, the plaintiff thus receiving $9,608.88 more than he paid out.
The condition of things showed, therefore, that the plaintiff had made a profit in the transaction of $9,616.88, if his bonds were taken at their real value, He claimed, however, that he was entitled to bonds worth $18,300 more than their real value, and deducting profit above, $9,616.88, from this amount, would leave his actual loss $8,683.12. And yet he sought to recover $27,033.12. It seems to us, however,, that the fraud alleged and shown by the affidavits was not one committed in making the contracts, but in the so-called ostensible performance of them. The contracts to sell and deliver first mortgage bonds were merely executory. There could not be said to be any fraud in making the contracts themselves.- Defendant could only perform the contracts by delivering the bonds described therein. If he failed to deliver such bonds there would be breaches of the contracts. The plaintiff was not obliged to accept any other bonds or to pay the contract price, and the damages would result from the breaches and not from any fraud in making the contract, and they would be the difference between the / contract price and the actual value of the bonds agreed to be delivered.
The fraud really consisted in the defendant's delivering second ' mortgage bonds instead of first mortgage bonds, and concealing from plaintiff the fact that they were second mortgage bonds, rep-. resenting them to be first mortgage, bonds; and the damages occa- . sioned by the fraud extended only to the money actually received by the defendant from the plaintiff, less the actual value of the bonds • received and retained by the plaintiff. Under the first contract only $10,000 in money was received from plaintiff, while the value of the bonds received was $21,700. The fraud in this transaction did, therefore, no damage to the plaintiff. Under the second contract $9,783.12 in money was received from the plaintiff, and the value of the bonds received was $7,700. So that the fraud in this transaction was a damage to the plaintiff of $2,083.12 only.
The plaintiff had no occasion to sue defendant under the first, contract. Whenever the defendant attempted to recover the real estate from the plaintiff or the value thereof, $11,800, plaintiff could allege the fraud and breach of the contract by defendant and offset or recoup his damages. As to the second contract the plaintiff could sue defendant for the damages resulting from the delivery of the twenty-two bonds, and damages for breach of the contract in not delivering the bonds described in the contract.
The present action is not, however, brought to recover damages occasioned by defendant's fraud. It is purely an action upon the contract to recover damages for the breach thereof, and the order of arrest was granted upon the distinct ground that the defendant was guilty of fraud in contracting or incurring his liability under the contract. There was, as we have seen, po fraud in contracting or incurring such liability, that is, for breach of the contracts, and, therefore, the order of arrest was improperly granted. This was not the case of an executed contract, where the bonds were sold and delivered at the time, and there was fraud and misrepresentation as to the nature of the bonds so sold and delivered. In such case it might be said there was fraud in contracting or incurring the liability, and such fraud could be made, the basis of an order of arrest. Here the contracts were executory. The defendant promised to deliver bonds of a certain description at a future time; and the mere promise to do this in the future, even if the intention was to deliver other bonds, would not constitute such fraud as would vitiate the contracts. The contracts would be valid, and could only be performed by delivering-the bonds described therein.
The bonds here were delivered subsequent to the making of the contracts, but they were not such as were agreed to be delivered" and, hence, there were breaches of the contracts. The alleged per formance of the- contracts could be avoided by proof of the. fraud,' but the fraud did not vitiate the contracts- themselves:
Other questions are raised on this appeal, but it is unnecessary to consider them, in. view of the conclusion reached by us as to the questions already considered.
The order appealed from should be reversed, with ten dollars costs and disbursements to the appellants, and the motion to vacate the order of arrest be granted, with ten dollars costs.
Yan Brunt, P. J., O'Brien and Ingraham, JJ., concurred; Patterson, J., concurred in the result.
Order reversed, with ten dollars costs and disbursements, and motion granted, with ten dollars costs.