McLeod v. Maloney — 20 N.Y. St. Rep. 468

Majority

p. 468

Edward J. McLeod, Resp’t, v. John Maloney and Patrick McCoy, App’lts.

(Supreme Court, General Term, Fifth Department,

Filed January 11, 1889.)

Headnote

1. Contract—Rescission op-^Fraud.

A party who seeks to rescind a contract on the ground of fraud, must first restore to the other party, whatever he has obtained by virtue of such contract before he can bring an action thereon. ■ ,

3. Same—Not void on the ground op pbaud.

It is well-settled that where a contract is induced by fraud that fact does not render it void, or prevent the property.from passing; the defrauded party can elect to treat the contract as binding or determine it and resume his property

S. Same—Rescission—Equity.

A defrauded party may bring an action in equity to have the contract rescinded and for relief; in such action it is sufficient if he offer to return what he has received or make compensation therefor in money.

4. Pleading—Construction op.

A construction of doubtful or uncertain allegations in a pleading, which enables a party by their pleading to throw upon his adversary the hazard of interpreting their meaning is no more allowable now than formerly. When a pleading is susceptible of two meanings, that shallbe taken which is most unfavorable to the pleader.

Appeal from a judgment entered on the verdict of a jury Tendered at the Niagara circuit for the sum of $325 damages, and from an order denying the defendant’s motion ior a new trial founded on the judge’s minutes.

E. M. Ashley, for app’lts ; John E. Pound, for resp’t.

The action is trover for the conversion of a quantity of ice. The defendants were the original owners of the ice, having secured and stored the same in an ice house owned by a third party. The defendants, by an instrument in writing, sold and conveyed the ice to the plaintiff for the ¡Drice of $325, who took possession of the same, and before the time of conversion complained of he had sold and consumed a portion of the ice. By the terms of the agreement the plaintiff was to make a cash payment of $100 and to give his time notes

p. 469

for the payment of the balance, to be indorsed by Michael McMahon. The plaintiff paid at the time of the execution of the contract $68.45 as part of the cash payment, the defendants waiving the immediate payment of the balance. Notes were prepared by the defendant for the remainder of the purchase price, and they were handed to the plaintiff to be executed by him, .and also for indorsement by McMahon. They were indorsed by McMahon and delivered unsigned by the plaintiff to the defendant, who received the same, believing that they had been properly signed by the plaintiff. Before ■either of the notes fell due, the defendants discovered that the notes were unexecuted by the plaintiff, and they immediately applied to him to sign and execute the same, with the approval of the indorser. On application being made to McMahon, he refused to give his consent that the plaintiff might sign the notes, and he remained liable thereon as indorser. The defendants thereupon, without consent of th,e plaintiff, took possession of the ice in the ice house. The defendants have not returned or offered to pay to the plaintiff any portion of the money paid on the contract at the time of its execution. The proof tended to show that the portion of the ice consumed by the plaintiff while the same was iii his possession, was equal in value to the money paid by him on the contract.

The defendants claim on the trial, and the proofs tended to show, that the plaintiff omitted to sign the notes, and delivered the same to the defendants in that condition, with the intent to cheat and defraud them, and to acquire the possession of the ice without delivering to them his notes duly indorsed by McMahon, so that he might be charged as indorser in the event that the same were not paid at maturity. These facts present the legal proposition, could the defendants rescind the contract of sale on the ground of fraud, without repaying or offering to do so, the money which .the plaintiff had paid thereon, as a portion of the purchase price.. It is a general rule that a party who seeks to rescind a contract into which he had been induced to enter by fraud, must restore to the other party whatever he had obtained by virtue of the contract. Gould v. Cayuga Co. Nat. Bk., 86 N. Y., 75 .

The reason of the rule as stated in Thayer v. Turner, 8 Metc., 550 , is, that the defrauded party, so far as it is in his power, shall put the other party in statu quo, by restoring to and revesting in him his former property, without putting him to an action to recover it before he can exercise his right to take back the property' sold, or bring an action for it.

On the agreement, the rule and the reason of it was admitted by the learned counsel for the defendants. The

p. 470

defendants intended to part with the title to the ice, when they made their contract with the plaintiff and by the terms of it, the title to the property was transferred to their vendee, and it remained in him when this action was com-, menced, for the reason that the defendants had not rescinded the contract. It is well settled that, where a contract is induced by fraud, that fact does not render it void, or prevent the property from passing, but gives the defrauded party the right on discovering the fraud, to elect whether he will continue to treat the contract as binding, or determine it and resume his property. Powers v. Benedict, 88 N. Y., 609 .

But the defendants contend that as they had in fact regained possession of the property before this action was commenced, the rights of the parties-should be adjudicated upon equitable principles, the same as if they had before this action was commenced, brought an action in their own behalf in a court of equity for a rescission of the contract on the ground of fraud; and as the value of the ice consumed by the plaintiff was equal to the amount of the money paid on the contract, they were entitled to an affirmative judgment rescinding the contract -without restoring the money they had received on the contract of sale. The last part of this proposition is undoubtedly sound, but the question is, are they in a position to avail themselves of the equitable rule which they invoke ? I think not. The defrauded party may bring an action in equity to have the contract rescinded and have full relief granted to him upon equitable principles. Such an action does not proceed upon the ground that the contract has been rescinded, but is an option for the rescission of the contract. In such an action it is sufficient for the defendant to offer to return to the plaintiff whát he may have received on his contract, or if, for any reason, he cannot restore the identical property received, to make a just compensation therefor in money, and the rights of the parties can be fully regulated and protected in the judgment to be entered. Alberton v. Alberton, 50 N. Y., 670 ; Gould v. Cayuga Co. Bk., supra.

The defendants contend that by the provisions of section 507 of the Code of Civil Procedure, which provides that the defendant may set forth in his answer as many defenses or counterclaims, or both, as he has, whether they are such as were formerly denominated legal or equitable, and that he should be permitted in this action to avail hims.elf of his equitable right the same as if he had an action in equity for a recision of the contract, and as the plaintiff has consumed some of the ice, sufficient in value to repay him the money advanced on the contract, that fact should have defeated any recovery in this action if the jury found the charge of fraud was sustained.

p. 471

■In their answer the defendant did not ask for a recission of the contract, nor offer to refund the money paid thereon. Whatever may be the construction to be given to the answer with a view of ascertaining the precise nature and character of the defendant intended to be interposed thereby, it is clear that the defendants did not regard the •contract as rescinded, nor ask for a judgment that it be so declared.

The answer states, among other things, that after the defendants discovered that the notes had not been executed by the plaintiff, they represented the notes to the plaintiff and requested and demanded that he sign the same and thereby complete the purchase of said ice pursuant to the agreement, and the said defendant refused to sign the same or to pay the balance of $100, and complete the purchase of the said ice pursuant to the agreement and thereupon the defendants refused to allow the plaintiff to remove the ice until he should sign and execute said notes according to. his agreement and thereby complete the purchase of said ice.

■ They also allege that at the time they discovered that the motes had not been signed and executed as provided by the written contract, the plaintiff had removed a quantity of the ice which was of the value of seventy-five dollars, and that, the season for the sale of the ice had then passed and the defendants were unable to dispose of the same, and that it remained on their hands unsold and greatly wasted; and that by reason of the plaintiff’s failure to complete his purchase of the said ice as aforesaid they had been damaged in the. sum of $250, and demand judgment for that sum against the plaintiff, with costs.

If the defendants had suffered any damage by reason of the plaintiff’s fraüd, they would have constituted a good counterclaim for the reason that it would be connected with the plaintiff’s cause of action, within the rule as stated in Carpenter v. Manhattan Life Ins. Co ( 93 N. Y., 552 ), although the plaintiff’s action was in tort. For instance, if the plaintiff was insolvent and an indoi’sement of his note by a responsible party was necessary to secure to the defendants the payment of the purchase money, then they would have been entitled, on proving those facts, to have offset against the plaintiff’s demand, the damages arising from the failure to receive the security as agreed upon by the contract of sale. We think the ruling of the trial judge was correct, that the only question for the jury was the value of the ice.

The defendants asked the court to submit to the jury, as a question of fact for them to decide whether or not the transactions between the plaintiff and the defendants was-with the mutual intention, that is, at the time of the de

p. 472

livery of the bill of sale, of transferring the title of the property to the plaintiff.

This the court declined to charge, and the defendants excepted. This ruling presents the question whether the defendants’ answer put in issue any of the material aver-' ments of the complaint. The complaint states a perfect cause of action in tort/ It alleges that the plaintiff purchased of the defendants, all the ice in the store house mentioned, for the sum of $325; and that they signed and delivered to him, a bill of sale of the ice, setting out a copy thereof, which recites, that for and in consideration of the sum of $325, to them in hand paid, “We herby sell, assign and set over to Edward McLeod * * * the ice now stored in the ice house * * * together with the free use of the building in which the said icéis now stored, Until the l'5th day of November, 1887, to have, hold, and own said ice and every part thereof; and the use of said ice house, and all our rights and privileges therein for and during the time aforesaid.”

By the terms of the contract, the plaintiff was to pay $100 in cash, and the balance to be secured by two notes as already stated, and that he paid on and towards the $100, the sum of $08.45, and made the promissory notes as stipulated in the contract, and delivered them to the defendants, and they received the same in payment for the' ice and the privileges of the ice -house, and then and there surrendered up and delivered said ice to the plaintiff, and that he"then and there received the same. It then alleged the wrongful conversion and taking of the ice by the defendants, and the value thereof. The defendants' in the first clause of their answer, “ deny each and every allegation contained therein, and not hereinafter specifically admitted or explained.” In their second answer, they recite the negotiations between themselves and the plaintiff, which led to the making of the written agreement, “as staled in said complaint,” and thereupon, the defendants caused to be prepared a bill of sale containing the substance of the said agreement, and that they signed and executed the same, and .presented it to the plaintiff with the promissory notes, and requested him to execute the notes and pay the money as provided in such* agreement; that the plaintiff, with the intention of deceiving the defendants, delivered the notes to the defendants unexecuted, indorsed 1 y McMahon, with the intent of defrauding the defendants, and of obtaining possession of the ice, and that they received the notes inadvertently, believing that they had been signed and executed by the plaintiff, in accordance with the agreement, and were good and valid legal paper. The other parts of the answer have been already substantially stated

p. 473

This answer presented no issue for trial except the one of fraud alleged therein. All technical rules of pleadings are abolished by the Code and the form of denial adopted by the defendants in their answer, is permitted, but it cannot be commended as it often leads to doubt and uncertainty as to the averments in the complaint, which are intended to be denied. We' think that the answer constitutes an explanation of every fact stated in the complaint relative to the making and delivery of the contract as well as the delivery of the possession of the ice and ice house-to the plaintiff, and also as to the circumstances,connected with the making and delivery of the notes,, and gives a reason for their action, in resuming possession of the ice and ice house, and therefore the material allegations in the complaint. are excepted from the denial contained in the answer. The allegations whicli are denied by this answer are those only which are not explained by the statements contained therein as to the circumstances connected with the making of the contract and the delivery of the property which was the subject of- the sale. A construction of doubtful or uncertain allegations in a pleading, which enables a party by thus pleading to throw upon his adversary the hazard of interpreting their meaning, is no more allowable now than formerly, and when a pleading is susceptible of two meanings, that shall be taken which is most unfavorable to the pleader. Every allegation in the complaint is alluded to and explained by the answer. It was not contended on the trial by the defendants, that they had not in fact delivered the ice to the plaintiff under and by virtue of the contract. The construction which we have put upon the answer is fully supported by the case of Clark v. Dillon ( 97 N. Y., 370 ).

If these views are correct as to-, the effect of ,the answer then none of the exceptions which have been argued were well taken. . „

Judgment affirmed.

All concur.