Hyperlawhypertext legal database Citizens' National Bank v. Wetsel 96 A.D. 85

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Citizens' National Bank v. Wetsel

96 A.D. 85 Court N.Y. App. Div. English

Delivered by Chase, J.:

Contents

Majority

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Citizens’ National Bank of Saratoga Springs, N. Y., Appellant, v. John J. Wetsel, Respondent.

Headnote

Election of remedies—an action on a note is not inconsistent, haring leen discontinued, with an action alleging that its discount was procured ly false representa tions— the second action is on contract.
Where a person with knowledge of all the facts elects to invoke the aid of the court to enforce one of two or more coexisting but inconsistent remedies, he is bound by his election, and is thereafter barred from resorting to the other. One cannot invoke the aid of the court in affirmance of an entire contract and at the same time or thereafter in disaffirmance thereof.
A bank which had discounted a note brought an action against an indorser thereof to recover a balance due on said note. The indorser having filed a petition in bankruptcy during the pendency of the action, the bank discontinued it. Subsequent to the indorser’s discharge in bankruptcy the bank brought a new action against the indorser. The complaint in such action, in addition to the ordinary allegations contained in a complaint on a promissory note, alleged that the defendant, for the purpose of procuring the discount of said note, had made false representations to the plaintiff on the faith of which the note had been discounted. Prior to bringing the first action the plaintiff had been informed in a general way or by rumor that the representations made to it at the time of the discount of said note were false, but did not have knowledge thereof other than such as it had obtained by such general statements and rumors.
Meld, that notwithstanding the allegations of false representations contained in the complaint therein, the second action was an action upon contract;
That the second action was consequently not inconsistent with the first action and was not barred by the first action;
That subdivision 4 of section 549 of the Code of Civil Procedure is authority for the maintenance of an action on contract with the right, as a collateral and further remedy, where the facts warrant it, to allege and prove fraud in the inception of the contract and obtain an order of arrest and an execution against the person of the defendant.
Appeal by the plaintiff, the Citizens’ National Bank of Saratoga Springs, N. Y., from a judgment of the Supreme Court in favor of the defendant, entered in the office of the clerk of the county of Saratoga on the 16th day of October, 1903, upon the dismissal of the complaint by direction of the court after a trial at the Saratoga Trial Term, and also from an order entered in said clerk’s office on the 2d day of November, 1903, denying the plaintiff’s ■ motion for a new trial made upon the minutes.
On the 13th day of February, 1897, the plaintiff, a banking cor
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poration, discounted for the defendant a note of $10,000, made by one Barker, and indorsed by the defendant. Said note was renewed from time to time. A note so given in renewal February 11, 1898, was not fully paid, and on the 24th day of October, 1899, the plaintiff brought an action against the defendant on said note and demanded judgment for $7,289, with interest from June 30, 1899, as the balance due on said note. On November 10, 1899, the defendant filed a petition in bankruptcy, and on November 14, 1899, an order was. granted by a referee in bankruptcy restraining the plaintiff for twelve months, from November 10, 1899, from entering judgment in its said action. On August 16, 1901, the plaintiff obtained an order at a Special Term granting it leave to discontinue said action “ without passing upon the right of the plaintiff to institute such other action or proceeding against the defendant as it may be advised.” The action was thereupon discontinued. On December 15, 1902, this action was commenced by the service of a summons. On March 25, 1903, a complaint was served alleging the making of said note of February 11, 1898, and the failure of the defendant to pay the same, which complaint' was in the ordinary form of a complaint on a promissory note. The defendant served an answer to said complaint, and the plaintiff then served an amended complaint, in which he repeated the allegations of the original complaint, but added further allegations in which he stated •that the defendant for the purpose of procuring the discount of said note had made false representations to the plaintiff on the faith of which the notes had been discounted, and also further allegations in which he stated that the defendant had transferred property subsequent to the making of said note with intent to defraud the plaintiff. The answer of the defendant to the amended complaint admits the making of the note and its protest and the amount claimed to be due thereon, but denies the allegations relating to false representation and fraudulent transfers, and also alleges the "defendant’s discharge in bankruptcy,, and that the plaintiff had by bringing the action of October 24, 1899, and by the original complaint in this action elected to proceed in affirmance of the contract and could not now recover in an action alleging the fraud and fraudulent transfers. .
The evidence received on the trial is sufficient from which a jury
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might have found that the defendant had made the false representations alleged in the complaint and that the plaintiff discounted said note in reliance thereon. The evidence- offered by the plaintiff relating to the alleged fraudulent transfers of property was excluded. Prior to the plaintiff’s bringing the action of October 24, 1899, the plaintiff had been informed in a general way or by rumor that the representations made to it at the time of the discount of said note were false, but did not have knowledge thereof other than such as it had obtained by such general statements and rumors. The plaintiff knew of the fraud before this action was brought. On the trial at the close of the plaintiff’s evidence a motion was made by the defendant to dismiss the plaintiff’s complaint, and in ruling thereon statements were made by the plaintiff’s counsel and by the court as follows: “ Plaintiff contended that the remedies sought were not inconsistent ones. The Court: You ask for judgment on the note or damages for the deceit, which is it? Plaintiff’s counsel: We have set out the note, and then we set out as one of the incidents the fraud connected with it. The Court: You alleged in the complaint that you were damaged by reason of the fraudulent acts of defendant and at the same time you set out the note and ask judgment for the amount. If you will disclaim the damages by reason of the fraud or the cause of action based on the note—if you can determine which one you want to rely on I will be in a position to dispose of thé question. Plaintiff’s counsel: We are trying to get judgment enforceable against the person, and if we'fail to show fraud we cannot recover. The Court: Then you have an action for deceit pure and simple. And if you have that action why is it not true that when you did sue in March last upon.the note, you had elected to proceed upon the note and waived the fraud ? Plaintiff’s counsel: We are not asking for any damages except wliat is due on the note. We want judgment for the amount due us which will be enforceable against the person or the property. The Court: I think that last March when you made the complaint you knew then whatever there was of the facts just as well as you know now, and knowing that you sued on the note. I think the motion must.be granted and the complaint dismissed upon the ground that you made an election of inconsistent remedies and waived the fraud. Plaintiff excepted to the ruling of the Court.”
p. 88
Nash Rockwood, for the appellant.
Edgar T. Brackett, for the respondent.

Where a'person with knowledge of all the facts elects to invoke the aid of the court to enforce one of two or more coexisting, but inconsistent remedies, he is bound by his election, and is thereafter barred from resorting to the other. One cannot invoke the aid of the court in affirmance of an entire contract and at the same time or thereafter in disaffirmance thereof. The principles stated are well known and unquestionably established. Assuming that the plaintiff in bringing his action of October 24, 1899, elected irrevocably to affirm the Contract with the defendant the question now arises as to whether this action is a disaffirmance of the contract or an act inconsistent with the former action. Subdivision 4 of section 549 of the Code of Civil Procedure provides that a defendant may be arrested as follows : “ In an action upon contract express or implied, other than a promise to marry, where it is alleged in the complaint that the defendant was guilty of a fraud in contracting or incurring the liability or that he has since the making of the contract or in contemplation of making of the. same removed or disposed of his property with intent to defraud his creditors or is about to remove or dispose of the same with like intent, but where such allegation is made the plaintiff cannot recover unless he proves the fraud on the trial of the action, and a judgment for the defendant is not a bar to a new action to recover upon the contract only.”

Such subdivision of said section was not a part of section 549 of, the Code of Civil Procedure as originally enacted as the Code of Remedial Justice (Laws of 1876, chap. 448). The section as enacted in 1876 contained three subdivisions, and following said subdivisions it provided as follows: “ The cases provided for in this section are described in this act as cases where the right to arrest the defendant depends upon the nature of the action.”

Subdivision 2 of section 550 of said act of 1876 provided: “ Where it appears from the complaint that the action is to recover damages for the breach of a contract, express or implied,.other .than a promise to marry, and, by allegations, extrinsic to the complaint, that the defendant has been guilty of a fraud in contracting the

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debt, or incurring the liability, or that he has, since the making of the contract, removed or disposed of his property, with intent to defraud his creditors, or that he is about to remove or dispose of the same with like intent.”

The last sentence of said section 549 quoted supra was stricken out by chapter 416 of the Laws of 1877, Chapter 542 of the Laws of 1879 added a 4th subdivision to said section • 549 as follows : “ In an action upon contract express or implied, other than a promise to marry, where it is alleged in the complaint that the defendant was guilty of a fraud in contracting or incurring the liability. Where such an allegation is made the plaintiff cannot recover unless he proves the fraud, and a judgment for the defendant is not a bar to a new action to recover upon the contract only.”

And section 550 was thereby amended by omitting therefrom said provision so added to section 549.

By chapter 672 of the Laws of 1886, sections 549 and 550 were amended to read as they read at this time.

The changes mentioned indicate an intention to authorize allegations in a complaint on contract which were formerly referred to in section 550 as “allegations extrinsic to the complaint,” without thereby affecting the nature of the action. Plaintiff brings this action pursuant to subdivision 4 of said section 549. That subdivision refers to and designates the action as one “ upon contract express or implied.”

Frey v. Torrey ( 70 App. Div. 166 ) was an action “ for money Obtained by fraud.” The answer was a general denial and a plea of discharge in bankruptcy. It appeared in that action that plaintiff had filed proof of his claim for “ money deposited ” with the defendant “ while acting in the capacity of banker.” The defendant claimed that the plaintiff having proved his debt upon contract, waived his right to recover on the ground of fraud. The court, in the course of its opinion, say: “ The appellant’s contention that the respondent is estopped from prosecuting this action by his election to prove his claim in bankruptcy remains to be considered. A binding election can only be made where a party, with full knowledge of all .the material facts, adopts a remedy which is inconsistent with another remedy then open to him. (Crossman v. U. R. Co., 127 N. Y. 34 .) We fail to discover any inconsistency between the remedy

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pursued by the respondent in the bankruptcy court and that adopted by bringing this action. It does not necessarily appear that the respondent - waived the tort by filing proof of his claim in bankruptcy. If not, merely proving the indebtedness which concededly existed and which was induced by fraud, would not be inconsistent with subsequently bringing an action to recover the money obtained by the fraud. (Stokes v. Mason, 10 R. I. 261 ; Sheldon v. Clews, supra ;[1] Bickford v. Barnard, 8 Allen, 314 .) But if the necessary inference from the record be that he waived the cause of action for the tort, still this Case may be treated' as an action on contract to recover the money on an implied promise to repay the same. The mere fact that it appears to have been alleged that the money was obtained by fraud is not decisive that the action is' not' upon contract. Subdivision 4 of section 549 of the Code of Civil Procedure classifies an action to recover a debt induced by fraud as an action on contract. The allegation of fraud is essential only for the purpose of obtaining an order of arrest or body execution.1 (Ewart v. Schwartz, 48 N. Y. Super. Ct. 390 .)”

Frey v. Torrey (supra) was affirmed in the Court of Appeals ( 175 N. Y. 501 ) on the opinion in the court below.

The following cases are also authority for saying that this action is one, on contract.: Bussey & McLeod Stove Co. v. Wilkins ( 1 App. Div. 154 ) McDonough v. Dillingham ( 43 Hun, 493 ); Wheadon v. Huntington (83 id. 371).

The Appellate Division, second department, has held that if an order of arrest is not obtained in an action on contract where it is alleged that the defendant was .guilty of fraud in contracting or incurring the liability a judgment may be rendered notwithstanding the fraud is not proven, and the court, referring to the provision of subdivisions 2 and 4 of section 549 of the Code of Civil Procedure to the effect that the plaintiff cannot recover unless he proves the fraud, say : “We conceive that this is intended merely - as a condition precedent to the right to arrest the defendant and .that it has nothing to do with a cause of action where the allegations of fraud are unnecessary asm the case at bar.” (McGuire v. Bausher, 52 App. Div. 276 .)

Subdivision 4 of said section 549 seems to be express authority

* 13 Abb. N. C. 41 .— [Rep.

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for an action on contract with the right as a collateral and further remedy where the facts warrant it to allege and prove fraud in the inception of the contract and obtain an order of arrest and an execution against the person of the defendant. 3STo previous judgment had been entered against the defendant and the allegations were added to the complaint for the purpose of avoiding the discharge in bankruptcy, and also for the purpose of obtaining the further rights afforded by said section 549.

This action is not in repudiation of the contract, but in affirmance thereof, and as it is not inconsistent with the former action, the plaintiff is not barred from maintaining the same. The complaint should not have been dismissed, but the issues joined by the pleadings should have been tried and determined on their merits.

The judgment and order should be reversed and a new trial granted, with costs to the appellant to abide the event.

All concurred; Houghton, J., not sitting.

Judgment and order reversed and new trial granted, with costs to appellant to abide event.

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