New York Land Improvement Co. v. Chapman — 28 N.Y. St. Rep. 780

Majority

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The New York Land Improvement Co., App’lt, v. William S. Chapman, Resp’t.^[1]

(Court of Appeals, Second Division,

Filed January 14, 1890.)

Headnote

2. Landlord and tenant—Fraudulent representations by tenant.

Where the allegations of a complaint are to the effect that a landlord, bjr reason of the default of lessees, had the purpose to terminate their tenancy by taking possession of the demised premises pursuant to the right to do so, and to rent them to other and solvent persons who were ready to take, and that he was induced by fraudulent representations of one of the lessees to relinquish such purpose and to refuse to rent to such other parties, it states facts sufficient to constitute a cause of action.

3. Same—Waiver.

Where the lessees, at a later date, sublet the premises and the landlord accepted from them the tenancy so created for the residue of the term, the landlord relinquishes whatever claim he may have had accruing after such date of subletting, but this does not relieve the defendant from the damage which the landlord had then sustained by the alleged fraud.

8. Same—Election on remedies.

An action and recovery by the landlord against the lessees for rent while in possession is not an election of remedy so as to prevent the former from bringing an action against one of the lessees through whose separate fraudulent representations the landlord was damaged.

Appeal from judgment of the general term of the superior court of the city of New York, affirming judgment in favor of the defendant upon dismissal of the complaint.

The plaintiff in the complaint alleged that being the owner of certain premises in the city of New York, the plaintiff rented them to the firm of Grroot & Chapman, composed of the defendant and two other persons named, for the term of one year from May 1, 1882, at the rent of $4,500, payable quarterly, and, in addition, twelve dollars monthly, janitor’s fees; that, by the terms of the lease, the plaintiff, on default in payment of the rent, should have the right to enter and take possession of the premises; also to-dispossess the lessees, as provided by the statute, and to demise them to others; that on August 1,1882, there became due $1,125,. and some amount of janitor’s fees, and that, thereafter, in that month, the defendant, to induce the plaintiff not to re-enter and take possession of the premises and allow the lessees to remain in possession, falsely and fraudulently represented to the plaintiff that they were entirely solvent and amply able to pay the rent; that they had not failed in business; that they owed no debts; that the only reason they were not able to pay the rent was that in legal proceedings for the winding up and settlement of the estate of a deceased person, who formerly had an interest in their firm, an injunction had been obtained and served against their bank account, and thus they were prevented from drawing a check for the rent, which was the only reason why they did not pay it. The plaintiff further alleged that he could then have rented the premises to responsible persons for the remainder of such term at a rent as large as that reserved by the lease, and had applications at that time for a lease of the premises, and so informed the de

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fendant, and that the defendant, for the purpose before mentioned, on several occasions repeated such representations to the plaintiff; that they were false and made with the fraudulent design of deceiving the plaintiff; and that he believed such statements to be true, relied upon them, and as the consequence allowed the lessees to remain in possession, refrained from re-entering and dispossessing them, and refused to lease to such other parties. And alleged that the statements so made by the defendant were false and by him known to be so, and then proceeded to negative such representations by allegations that the lessees then owed a large amount of debts, had but a small amount of assets, and were hopelessly insolvent ; that they had virtually suspended payment in June, 1882, and that no injunction had been obtained against their bank account.

He also alleged that the lessee sublet the premises on January 1, 1883, to other parties who from that time until the end of the term paid rent to the plaintiff ; and that the plaintiff in an action against the lessees upon the lease, recovered a judgment against them for the unpaid rent and janitor’s fees amounting to $3,072, and interest, upon which execution was issued and returned unsatisfied, and that they declare that they have no property.

The defendant by his answer put in issue the allegation of fraud and of the alleged opportunity or ability of the plaintiff to rent the premises to other parties for the residue of the term. When the action came on to trial the court dismissed the complaint upon the pleadings.

F. K. Pendleton, for app’lt; Hector M. Hitchings, for resp’i.

The action was founded on alleged fraud, for which the plaintiff sought to recover damages. And the question presented is whether the complaint stated facts sufficient to constitute a cause of action. The view of the court below was that it did not, and Wemple v. Hildreth, 10 Daly, 481 , was cited in support of such conclusion. In that case the alleged representations relied upon as fraudulent related to the pecuniary condition of the debtor, which induced the plaintiff to extend the term of credit for goods by him before then sold and delivered. It was not there alleged that the plaintiff parted with anything, or that any purpose which he then had, or was proceeding to execute, was relinquished. The action was founded upon false representations which induced a mere extension of credit. And the court held that there was not the requisite certainty of any injury to the plaintiff in consequence of the representations to furnish any basis for the estimate or recovery of damages. It is essential to the maintenance of an action for fraud that damages result from it as the proximate cause, but it is not necessary that the party guilty of the deceit derive any benefit from it Upton v. Vail, 6 Johns., 181 ; Hubbard v. Briggs, 31 N. Y., 518 .

In the present case the allegations of the complaint are to the effect that the plaintiff by reason of the default of the lessees had the purpose to terminate their tenancy by taking possession of the •demised premises pursuant to the right to do so, and to avail itself

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of the opportunity, which it had, to rent them to other and solvent persons, and was induced by the fraudulent representations of the defendant to relinquish such purpose, and to ■ refuse to rent the premises to such other parties. This case is essentially distinguishable from that of Wemple v. Hildreth. Here, as it is alleged, there was not only an extension of credit for rent then due, but by permitting the lessees to remain in possession credit was given-to them for rent thereafter to issue out of the term. Thus they were allowed to incur liability to the plaintiff for the further use of the premises.

In view of the allegations of the complaint, it must here be as-' sumed that the subsequent occupation of the premises, out of which arose the additional obligation of the lessees to pay rent, was permitted on the faith of the false representations of the defendant ; and to that extent and by that means credit in their behalf was obtained. It is, however, urged that the exercise of the right of the plaintiff to take possession of the premises and rent them to others rested solely in intention, which may or may not' have been executed, and whether any damages resulted from the alleged fraud was uncertain and speculative, and therefore that on the facts alleged there is nothing to warrant a recovery. It i$ true that the plaintiff had taken no steps to dispossess the lessees and relinquished nothing in that respect other than a purpose to-do so, but the fact upon which the right to recover depends is that, if the representations had not been made, the plaintiff would have-executed such purpose, and rented the premises to others who were solvent, and thus have realized something in place of the worthless liability of the lessees which arose from the occupation of the premises by them subsequently to the time the representations were made which induced the plaintiff to refrain from exercising such right. The question of intention is involved in all cases of fraud founded upon alleged false representations in so far that the support of an action is dependent upon the influence of the deceit upon the party claiming to have been damnified. The representations known to be false in relation to the pecuniary condition of the party seeking credit furnish no ground for action unless the person from whom it is sought is influenced by them in giving the desired credit. His purpose must be governed by the deceit to his prejudice to afford a remedy in fraud. The right to deny credit notwithstanding the representations or the reason to suppose that it would not have been denied if they had not been made to the plaintiff, presents a question no different, in legal effect for the purpose of such remedy, than that which might arise in case of the sale of goods upon the faith of alleged fraudulent statements relating to the means and ability of the purchaser to pay.

In the case last supposed a contract of sale would be the product of the fraud, while here there was no new contract resulting from it. But the right of action for such cause does not rest in contract, but depends only upon the fact that an injury has been suffered resulting in damages to the party seeking redress, and that such damages are the legitimate consequences of the fraud.

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In Benton v. Pratt, 2 Wend., 385 , a party who, by agreement within the statute of frauds and void, had promised to purchase plaintiff’s hogs, was induced by the false representations of the defendants not to take them. A recovery for the alleged fraud was supported And the court held that it was not material whether the contract for the sale of the hogs was binding or not, as it appeared that they would have been delivered and taken upon the promise to purchase but for the fraudulent representations of the defendants.

And in Rice v. Manley, 66 N. Y., 82 , the same principle was applied to support an action for fraud founded upon the false representation of defendant that the plaintiff did not want the cheese which the latter by a like invalid agreement had promised to purchase of a third party, who was induced by such representation to sell the cheese to defendant In both those cases the performance of the void agreements to deliver and purchase the property rested in intention of the parties to them, supported by no legal right; yet, the court held that the fact whether the promise to sell and purchase would have been performed if the defendants had not intervened, and by their false representations defeated such performance, was properly the subject of inquiry, and that the determination of that question of fact in the affirmative gave support to the actions and established the right to recover such damages as resulted to the plaintiffs from the defeated performance. In the present case the plaintiff, having, as alleged, the right to the possession of the premises and the opportunity to lease them to others able to pay the rent, was induced by the false representations of the defendant, who knew them to be false, to allow the lessees to remain in possession, refrain from re-entering and to refuse to lease the premises to such other persons.

The allegations of the complaint were such as to permit evidence of a state of facts to justify the conclusion that, but for the representations complained of, the plaintiff would have availed itself of such right and opportunity. And the damages resulting from the facts so established would be measured by the loss sustained, not exceeding the amount of the liability of the defendants which subsequently accrued upon the lease. The difficulty suggested of establishing the facts essential to a recovery may have more relation to the evidence than it seems to have in its bearing upon the allegations of the complaint. The latter, only, have consideration on this review.

It seems that on the 1st of January, after the commencement of the term, the lessees sublet the premises, and that the plaintiff accepted from them the tenancy so created for the residue of the term. This, it is urged, was a waiver of the alleged fraud and its consequences. By taking the benefit of the sub-tenancy the plaintiff relinquished whatever claim it may otherwise have had against the lessees accruing from and after the 1st day of January, but it did not have the effect to relieve the defendant from any damage which the plaintiff had before then sustained by reason of the alleged fraud. The doctrine that any act in affirmance of a

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contract after discovery of fraud defeats the right of rescission is not necessarily applicable to an action for damages founded in fraud. Gould v. Cayuga Co. National Bank, 99 N. Y., 333 .

It is also contended that the action and recovery by the plaintiff against the lessees of the amount of the rent for the time they remained in the possession of the premises was an election of remedy, within the doctrine upon the subject, which denied to the plaintiff any right of action against the defendant for the alleged fraud. Such may have been the effect of that recovery if all the lessees had been chargeable with such fraud, as in that case their liability would have been merged in the judgment, embracing as it did the entire amount of rent foi’ which they became liable upon the lease. The defendant was necessarily a party to the action upon the lease, which was made by the firm of which he was a member. That liability of the lessees was joint. But the liability of the defendant for the alleged fraud was his only, and collateral to that of the firm.

The remedy against him for the fraud was not inconsistent with that against the firm, as both remedies proceed in affirmance of the lease; and because the remedy furnished by the fraud is against the defendant alone and collateral to that upon the undertaking of the lessees jointly, it was not merged in the recovery against the latter. Morgan v. Skidmore, 3 Abb. N. C., 92 , affirming 55 Barb., 263 ; Bowen v. Mandeville, 95 N. Y., 237 , 240.

The defendant being a necessary party to the former action by which the plaintiff was enabled to charge the firm, was not by the recovery had upon the lease relieved from liability upon the charge of fraud. That liability of the defendant was his, severally and distinct from that of the firm, and' the remedy was concurrent with that against it. ¡No other question requires consideration.

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

All concur.