City of Ironwood v. Wickes

This appeal is from a judgment dismissing a counterclaim after trial before-a referee. There is no dispute as to the facts, which, so far as material, are substantially as follows: In October, 1893, the firm of Coffin & Stanton, brokers doing business in the city of New York, purchased for $145,275 from the city of Ironwood, a municipal corporation organized under the laws of the state of Michigan, its bonds of the par value of $150,000. $25,000 of the purchase price was paid to the city at the time the bonds were delivered, and the balance agreed to be tiiereafter paid in installments at different times between the delivery and the 15th of May, 1894. Coffin & Stanton having defaulted in the payment of all' of the installments, on the 19th of September, 1894, this action was brought against them to rescind the sale and recover possession of the bonds. The plaintiff alleged a tender to Coffin & Stanton, prior to the commencement of the action, of the sum of $30,000; a demand for the return of the bonds, and the refusal of Coffin & Stanton to comply therewith. On the 3d of October, 1894, Coffin & Stanton interposed an answer, in which they denied that at the time the action was commenced any of the bonds were in their possession. On the day following, in an action brought by Stanton for the dissolution of the firm of Coffin & Stanton in the United States Circuit Court for the Southern District of New York, one Erb was appointed receiver of all the assets of that firm, and he continued to act as such until the 12th of July, 1896, when he resigned, and the appellant, Wickes, was duly appointed in his

At the trial the plaintiff proved that at the time the action was commenced and the receiver appointed Coffin & Stanton had sold or disposed for value of all of the bonds referred to in the complaint. Having made this proof, it consented to a nonsuit. The receiver thereupon proved the material facts set up in his counterclaim—i. e., the payment of the $25,000 by Coffin & Stanton to the plaintiff; the use by it to pay an antecedent indebtedness; his appointment as receiver of that firm; the judgment rendered in the action brought by the Manhattan Company of the city of New York against the city of Ironwood in the Circuit Court of the United States for the Western District of Michigan, in which it had been determined that certain of the bonds referred to in the complaint were invalid, and the affirmance of the judgment on appeal to the Circuit Court of Appeals for the Sixth Circuit. 74 Fed. 535 , 20 C. C. A. 642 . He also produced and offered to surrender to the plaintiff said bonds of the par value of $132,000, with coupons attached, and to release it of and from all claims with reference thereto, provided judgment was rendered in his favor on his counterclaim; and in connection with such offer proved an agreement, and an order of the Circuit Court of the United States approving it, entered

Upon the foregoing facts the referee reached the conclusion, as appears from his report and the opinion delivered, that the right of action, if any, to recover the consideration paid by Coffin & Stanton, passed to and was vested in the persons to whom such bonds were sold or pledged prior to the appointment of the receiver of that firm; that the receiver took no title to such cause of action; that the agreement with the trustee of bondholders representing bonds of the par value of $132,000 was ineffectual to. vest in the receiver any right to recover;' and he thereupon dismissed the complaint and the counterclaim, without costs.

I think the judgment appealed from should be affirmed, but not for the reasons assigned by the referee in granting it. If the receiver had been rightfully in possession of, and had surrendered at the trial, all the bonds delivered to Coffin & Stanton, then, it seems to me, he would have been entitled to a judgment establishing his counterclaim. The action on the counterclaim was, in effect, one for a rescission of the contract between Coffin &.Stanton and the city of Ironwood, and’ to recover from the latter the $25,000 paid to it for money had and received. The receiver represented Coffin & Stanton, and occupied precisely the same position they would have occupied had they brought an action to recover this money. They could not have recovered without returning to the city all—not a part—of the bonds received. In every action to rescind a contract it is incumbent upon the party seeking to rescind, in the absence of fraud, as a condition precedent to the right to the relief asked, to have' made restoration of the benefits received, or else, upon the trial, to offer to restore such benefits. Where such restoration has not been made prior to the commencement of an action, then willingness and ability to restore must be alleged, and such allegation complied with at the trial. Gould v. Cayuga County National Bank, 99 N. Y. 333 , 2 N. E. 16 ; Nelson v. Hatch, 56 App. Div. 149 , 67 N. Y. Supp. 570 . Here there is no allegation in the counterclaim to the effect that the receiver had either the willingness or ability to return all of the bonds delivered to Coffin & Stanton.. This, however, was obviated by the reply, inasmuch as this omission in the pleading of the receiver was expressly waived. But the city did' not waive the defense that all of the bonds must be produced and surrendered at the trial; on the contrary, it alleged that the receiver did not have the ability to do so, inasmuch as the bonds were not owned or' held by him. "This fact was established at the trial, where it appeared, and was uncontradicted, that there were bonds of the par value of $18,000 which were then owned by others, and of which the receiver-conceded his inability to obtain possession. This being so, he was not. upon any principle of which I am aware, entitled to a judgment. The

I am therefore of the opinion that the judgment appealed from should be affirmed, with costs. All concur; VAN BRUNT, P. J., in result.