Case Name: Morgan Munitions Supply Company, Inc., Appellant, Respondent, v. The Studebaker Corporation of America, Respondent, Appellant
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1917-12-21
Citations: 180 A.D. 530
Docket Number: 
Parties: Morgan Munitions Supply Company, Inc., Appellant, Respondent, v. The Studebaker Corporation of America, Respondent, Appellant.
Judges: 
Reporter: Appellate Division Reports
Volume: 180
Pages: 530–541

Head Matter:
Morgan Munitions Supply Company, Inc., Appellant, Respondent, v. The Studebaker Corporation of America, Respondent, Appellant.
First Department,
December 21, 1917.
Pleading — action to recover commissions for procuring war con- , tracts — answer —false representations of plaintiff’s assignor — falsely impersonating another — contract procured by crime unenforcible — rescission of contract on discovery of fraud — when offer of restoration not essential — allegation that services rendered were valueless.
Where the plaintiff, as assignee of a person purporting to be named “ Hill ‘ Gr. Morgan,” sues to recover commissions alleged to be due to the assignor for procuring contracts for the defendant to manufacture supplies for a foreign government engaged in the pygggp^ war, th§ ^©plaint pur porting to be verified by “ Hill G. Morgan,” it is a good defense to allege in substance that Hill G. Morgan is a distinguished officer in the active service of the foreign government and administrative head of a war office for supplies and that as a matter of fact the plaintiff’s assignor is the brother of said Hill G. Morgan, but falsely represented himself to be said person and stated that fact to the defendant in writing, and falsely represented that he was in the service of the foreign government in an honorary advisory capacity and was on such terms of intimacy with officers of the foreign army that by reason of his knowledge and connections he could be of great assistance to the defendant in procuring for it a contract for supplies, and that all said statements of the plaintiff’s assignor were false and untrue, as the defendant has since learned, and that it was in reliance on said false representations that the contract for commissions, if any, was made.
Such defense sets out facts which bring the agreement for commissions within the inhibitions of section 939 of the Penal Law relating to the obtaining of employment by false or forged letter or certificate of recommendation or by any false statement in writing as to name, residence, previous employment or qualification. Hence the contract for commissions procured by the commission of said crime is unenforcible, and this whether executory or executed.
It is also a good defense to said action to allege in substance the facts aforesaid and in addition that the services rendered by the plaintiff’s assignor were of no value and that the defendant never had knowledge or information sufficient to form a belief as to the falsity of the representations made by the plaintiff’s assignor until after the commencement of the action, and that the defendant promptly and without delay interposes the defense as and for a rescission of any contract of employment made between it and the plaintiff’s assignor.
While ordinarily a defendant when rescinding a contract would be compelled to allege that it restored or offered to restore to the plaintiff all benefits received under the contract, said offer of restoration is not essential under the facts aforesaid, for the defendant alleges it has received nothing of value from the plaintiff’s assignor in that his services were valueless.
Laughlin, J., dissented, with opinion.
Cross-appeals by the plaintiff, Morgan Munitions Supply Company, Inc., and by the defendant, The Studebaker Corporation of America, 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 28th day of June, 1917.
Plaintiff appeals from so much of said order as overrules its demurrer to the first defense in the supplemental answer. Defendant appeals from so much of said order as sustains a demurrer to the second defense.
Merle I. St. John [George Gordon Battle with him on the brief], for the plaintiff.
Eugene D. Hawkins [E. J. Dimock with him on the brief], for the defendant.

Opinion:
Dowling, J.:
This action is brought by plaintiff as the assignee of one Hill G. Morgan to recover the sum of $825,000 claimed to be due him under the terms of a contract between him and the defendant. The complaint sets forth that in September, 1914, Hill G. Morgan was engaged in business as a broker and selling agent, particularly as representative of various persons, firms and corporations, for the purpose of obtaining on their behalf contracts from the governments now engaged in war, to purchase from his clients munitions of war and other goods manufactured or sold by the latter. It is then alleged that in September, 1914, defendant entered into an agreement with said Hill G. Morgan whereby it authorized and requested him to submit to the belligerent governments or their accredited representatives samples of the merchandise and munitions of war manufactured or sold by defendant, and further authorized and requested him to negotiate sales or obtain orders for the purchase of such goods by such governments, and that defendant promised to pay said Morgan as compensation for his services in introducing said goods and negotiating for such contracts or sales, a commission of five per cent upon the purchase price of all goods sold by defendant to any of said belligerent governments as a result of said Morgan's efforts, or through him, or on sales to which his efforts in any way contributed. The plaintiff then alleges that defendant, about November 15, 1914, obtained from the government of Great Britain large contracts for the purchase of munitions of war from defendant, aggregating $16,500,000. It is then averred that said contracts were obtained, and the sales made, as the result of the efforts of said Morgan in introducing the goods and samples of the defendant to the representatives of the said government, and in negotiating for said sales, and that Morgan was the procuring cause of the sales and his efforts in some way contributed towards such sales being made by defendant; by reason whereof said Morgan became entitled to Ms commissions of $825,000, no part whereof has been paid.
The supplemental answer contains two defenses, each setting forth the same state of facts. Summarized, defendant's allegations of fact are as follows: That Hill Godfrey Morgan is a retired colonel of the English army, holder of the honorary orders of Commander of the Bath and Distinguished Service Order, and had served with Lord Kitchener in Egypt and South Africa and-been Director of Supplies there; that he had re-entered active service in the British army and now is a colonel thereof and the admimstrative member of the British War Office for the Supply of Forage to the Troops Over Sea and at Home. In August and September, 1914, plaintiff's assignor, referred to in the complaint as Hill G. Morgan and who is in fact Francis Curtis Morgan, a brother of the said Hill G. Morgan, represented and stated in writmg to the defendant that he was the said Hill G. Morgan and specifically set forth that he was a retired colonel of the English army; the holder of the orders of Commander of the Bath and Distinguished Service Order; late Director of Supplies for South Africa; and connected with the British War Office in an honorary advisory capacity, and that Ms experience and services as an officer in the English army and as Director of Supplies for South Africa had given Mm a thorough knowledge of the requirements of the English army as to saddles, harness and wagons; that he was on terms of intimacy with officers of the Mghest rank in the English army, and that by reason of Ms knowledge and connections he could be of great assistance to defendant in securing the sale of saddles, harness and wagons to the British Government and the Domimon of Canada, for use in time of war. Each of these statements and representations as thus made in writing is alleged to have been false and untrue, and that Francis Curtis Morgan, posing as Ms brother Hill G. Morgan, in fact possessed none of the qualifications, and had been invested with none of the commands or digmties, and had none of the acquaintancesMps or power, wMch he represented he had. It is then set forth that the statements and representations in question were made by Francis Curtis Morgan to obtain employment from defendant wMch, believing them and relying thereupon, employed Francis Curtis Morgan in the name of Hill ,G. Morgan; and that if the contract in question ever was made, it was procured by Francis Curtis Morgan's misrepresentations and by his assumption of his brother's personality. It is then alleged that defendant did not learn of the falsity of these representations until after the commencement of this action. It may be noted in passing that the complaint herein purports to be verified by Hill G. Morgan, as president of the plaintiff corporation.
f. The first defense raises the question of the legality of the contract in question, for it contains all the allegations necessary to bring the case within the inhibitions of section 939 of the Penal Law, reading as follows: " A person who obtains employment or appointment to any. office or place of trust by color or aid of any false or forged letter or certificate of recommendation, or of any false statement in writing, as to his name, residence, previous employment or qualification; is guilty of a misdemeanor."
The allegations of the first defense in the answer, if proven, would establish that Francis Curtis Morgan had obtained employment from the defendant as its selling agent or broker under false representations in writing as to his name, previous employment and qualifications. This would constitute a crime and a contract procured by the commission of a crime is unenforcible even if executed. It was held by this court in Sirkin v. Fourteenth Street Store (124 App. Div. 384) that " A contract, however, made in violation of a penal statute, although not expressly prohibited or declared to be void, is prohibited, void and unenforcible, whether executory or. executed. (Griffith v. Wells, 3 Den. 226; Barton v. Port Jackson & U. F. P. R. Co., 17 Barb. 397.) A contract to do an illegal act or to aid another in violating the law is likewise void and unenforcible, whether executory or executed. (Goodrich v. Houghton, 134 N. Y. 115; Materne v. Horwitz, 101 id. 469; Brinkman v. Eisler, 26 N. Y. St. Repr. 94; affd., 40 id. 865; Hull v. Ruggles, 56 N. Y. 424.)" We are of the opinion, therefore, that in so far as the plaintiff's appeal is concerned the order appealed from is right and should be affirmed.
By its second defense the defendant, after reiterating the facts, hereinbefore epitomized, proceeded to set forth:
" 18. That any services rendered by Francis Curtis Morgan at the request of the defendant were of a reasonable value less than the amount demanded in the complaint, to wit, of no value.
" 19. That defendant never had any knowledge or information sufficient to form a belief as to the falsity of such statements and representations made to it by said Francis Curtis Morgan until about the 11th day of December, 1916, and subsequent to the commencement of this action; that defendant has acted promptly and without undue delay in interposing this defense as and for a rescission of any contract of employment made between it and said Francis Curtis Morgan."
This defense, therefore, amounts to a claim of a rescission by the defendant of the contract in question, based upon the fraud of the plaintiff's assignor. Viewing the second defense by itself we believe it presents a complete statement of facts which, if proven, would have justified the defendant in rescinding the contract in question upon the ground of Francis Curtis Morgan's fraud. The defendant is not asking for a judgment of the court rescinding the contract in question, but is setting forth the facts upon which, as soon as it discovered their falsity, it acted and declared the contract rescinded. In order to justify the defendant in rescinding, it would be compelled to allege that it restored or offered to restore to the plaintiff all benefits which the defendant had received under the contract in question. In other words, if defendant had profited in any way by plaintiff's assistance in obtaining the contract which it sought to annul, it would not be equitable or just that it should keep what it had gained thereby and simply seek to prevent the other party from obtaining any benefit therefrom. But this rule has been modified to some extent. Thus in Kley v. Healy (127 N. Y. 555) it was held that one who attempts to rescind a transaction on the ground of fraud is not required to restore that which in any event he would be entitled to retain either by virtue of the contract sought to be set aside or of the original liability. (See, also, Pritz v. Jones, 117 App. Div. 643.) So, also, it has been held that where it does not appear that anything of value has passed to the party seeking to rescind there is nothing to be returned o the other party. (Wolf v. National City Bank, 170 App. Div. 565.) In that case the subject of the rescission was a credit given by a bank upon the discount of a note obtained by fraud, which note had not yet matured and was never paid. In the case at bar, viewing simply the second defense as a plea of rescission, the defendant, if it had received anything of value, would have been bound to restore or offer to restore what it had received—in this case the value of Morgan's services in obtaining the contract — before it could lawfully rescind the contract between Morgan and itself. But it meets this situation by alleging facts which, if proven, would show that it was under no obligation to restore, or offer to restore, before it rescinded as it had received nothing of value from Morgan, in that his services were valueless. That is, it alleges that any services rendered by Morgan were of no value whatever, and if it can establish that fact, of course it was within its rights in rescinding as soon as it discovered the fraud committed upon it. I am, therefore, of opinion that the second defense upon its face is good and that the demurrer thereto should have been overruled.
The order appealed from will, therefore, be affirmed in so far as the plaintiff appeals therefrom; and upon the defendant's appeal the order in so far as it sustains the demurrer to the second defense will be reversed, and the said demurrer overruled, with ten dollars costs. Defendant is further given ten dollars costs and disbursements upon this appeal.
Clarke, P. J., Scott and Smith, JJ., concurred; Laughlin, J., dissented.