Crossman v. Universal Rubber Co.

The question presented in this case is whether, where the vendor of goods has elected to rescind a sale which was fraudulent, by commencing a proceeding in a court of justice, based upon such rescission, and in which proceedings the relief which such vendor asks was granted, and which judgment or decree granting such relief remains in full force and effect, there is any contract that can be after such an election enforced.

In this case plaintiff was the owner of goods sold to the defendant. He received the defendant’s notes for the purchase price. Such sale was induced by fraud. Plaintiff then had the right to rescind the sale as fraudulent, and reclaim the goods, and had also the right to insist that the sale was void, and recover the value of

These positions are based on the invalidity of the sale, and were inconsistent with the fact of the existence of a valid obligation of the vendee on the contract. The right to recover the possession of the goods could not exist with the right to recover on the notes; nor could the right to recover the value of the goods obtained by fraud on the sale of which the notes were given, exist with the right to recover on the notes.

If one of these positions was taken and enforced, it is clear that the other could not be. Plaintiffs having this right to proceed elected to rescind the agreement for the sale, for which the notes had been given, and declare that the amount was due, offering to return the notes. He did this by presenting to the chancellor of the state of New Jersey a petition in which he alleged the facts constituting the fraud, and thereby repudiated the contract; that the defendants were then indebted to the plaintiff for goods obtained by them by false representations to the value of $9,309, and asked the appointment of a receiver of the defendant’s property, and that such indebtedness be paid out of the property of the defendant. That application was granted. A receiver was appointed who took possession of the defendant’s property.

That such an election-was binding upon the plaintiff, and that the contract upon which the notes were given, namely, the sale of the goods, had been destroyed by the rescission of the sale by the plaintiff, is clear, and, there being no contract for the sale of the goods, there was no consideration for the notes, and no action could be maintained to recover the amount due thereon.

There has been no case cited that holds that where a party entitled to rescind a contract has elected to rescind it, and has upon such election enforced a remedy against the other contracting party, that said election has not been binding.

In Kenny v. Kiernan, 49 N. Y., 168 , Rapallo, J., says: “But after the plaintiff had made a valid election “to avoid the sale, and had asserted his title to the goods by bringing an action, the contract of sale was at an end. The fraud being established, neither Grill & Go. nor their vendees (other than bona fide purchasers) could claim any title under the sale, and the right of action of plaintiff against Grill & Go. upon the contract was gone.”

No subsequent act of the plaintiff alone could revive the contract, or the right of action thereon, which had thus been destroyed.”

And it was there held that bringing an action against Gill & Co., on the contract, and the recovery of a judgment in that action, did not affect the rights of the plaintiffs in the action previously commenced for the conversion. “ That such an action on contract could not debar the plaintiff from prosecuting his action for conversion, because the right of action no longer existed at the time the action on contract was brought.”

. Grover, J., in his dissenting opinion, page 174, says: “An election to rescind when distinctly made cancels and put an end to the contract in toto, and restores the vendor to his original title-’

There was no dissent by any member of the court from the rule thus stated, and I have been unable to find that this decision has ever been questioned.

In Moller v. Tuska, 87 N. Y., 169 , the same principle was distinctly asserted.

It was there said: “ The plaintiffs manifested their election by bringing their action. After that the other way of redress was not open to them. Hence they could never successfully assert a claim against the purchaser under the contract, for the election to disaffirm it had been manifested and to revoke it was not in their power. * * * The contract was at an end, and no act on the part of the plaintiff alone could revive it.”

In neither of these cases had the plaintiff obtained any benefit by the action brought in disaffirmance of the contract, but it was held that bringing such an action was of itself such a disaffirmance of the contract that the contract was at an end and that no act of the plaintiff alone could revive it.

Our attention has been called to many cases in which the effect of an action to recover the contract price of goods sold upon a subsequent action, in disaffirmance of the contract, has been discussed, and it is difficult to reconcile all that has been said in th& cases cited.

In many of the cases the decision is put upon the ground that the fraud was not known to the party seeking to rescind at the-time the action was commenced upon the contract. It has, however, sometimes been held that the mere commencement of an action to recover the contract price, which has not resulted in any advantage to the defrauded party, and which was discontinued before the contract was sought to be rescinded, was not such an election as would prevent such a rescission. The law on this subject has been determined in Conrow v. Little, 115 N. Y., 387 ; 26 N. Y. State Rep., 527. That case construes Foundry Co. v. Hersee, 103 N. Y., 26 ; 3 N. Y. State Rep., 100, and Hays v. Midas, 104 N. Y., 602 ; 6 N. Y. State Rep., 472, and holds that bringing an action on the contract, with a knowledge of the facts on which fraud is subsequently charged, is a definitive waiver of the right to proceed for fraud.

But in no case has it been held that an election to rescind, duly and deliberately exercised, could be recalled and an action subsequently maintained on the contract.

I think, therefore, that the action of the plaintiff was a rescission of the contract of sale; that after such a rescission the notes were in the hands of the plaintiffs without consideration, and no recovery could be based upon them. There was no judgment or decree of the chancellor that indicated that he did not base his action upon this election of rescission.

In that proceeding the plaintiff asked and obtained relief, and

Eower to grant the application, if the plaintiff’s debt was not due, e would not in the exercise of his discretion have appointed a receiver, if the notes had been outstanding and had had some time to run.

It is impossible to tell what effect the allegation in question in the petition presented to him had upon his judicial action.

I do not think that under the conceded facts in this case the plaintiff can recover upon the notes, and that the exception of the plaintiff should be overruled, and judgment ordered on the verdict, with costs.

I agree with Judge Ingraham and wish to point out, that beside the election to avoid the notes, in the mere bringing of the proceeding in chancery in New Jersey, the plaintiff, by means of that proceeding, gained an advantage and the defendants suffered a disadvantage. This of itself made the election final.

That proceeding was begun by a bill of complaint. It alleged that the defendants by false and fraudulent representations, particularly set forth, induced the plaintiffs to sell and deliver to defendants certain goods, for the price of which the defendants delivered their promissory notes to the plaintiff, “ which notes your orators bring into court and tender themselves willing to surrender under the direction of the court,” “ and your orators, therefore, repudiate the contract and would take back the materials delivered if it were possible to do so at this length of time.”

The petition showed that at the time of the bill the promissory notes were not due, that the defendants were a corporation formed under the laws of the state of New York, that it owned property situated within the state of New Jersey, and that it was insolvent. The bill prayed that a receiver be appointed of the property of the defendants.

An order to show cause why such a receiver should not be appointed was argued, the defendants appearing by counsel, and it was then ordered that Henry T. Hopper, Esq., “ be appointed, and he is hereby appointed receiver with full power to demand, sue for, collect and receive and take into his possession all the goods, etc., of any and every description belonging ” to the said company.

It appeared on the trial that it became the duty of the receiver to turn the property taken by him in the proceeding into money and to distribute that among such persons as should prove any claim against the company. This duty had not as yet been performed, but that the receiver was about to perform it in the future.

It would seem clear that if this were all the evidence, that an election had been made and that under it having procured a transfer of defendants’ property in New Jersey and that too, at a time

The learned counsel for the plaintiffs claim that the court below erred- in excluding the evidence offered by plaintiffs to show that the action of the court in chancery in appointing a receiver was not based at all on the allegation in the bill charging fraud against the defendants and to show that the charge of fraud was withdrawn.

The evidence excluded was in part an order made upon the motion of the defendants in the chancery proceedings, that the promissory notes in question be surrendered in accordance with the tender in the bill, or that the same be impounded with the •clerk of the court. The order recited that the complainants did not intend to rely on the statement of fraud on the defendants’ part set up in the bill and proceeded to state that the chancellor being of the opinion for divers reasons him thereto moving that said motion should be denied, ordered that the same be denied, with costs.

Whatever might be the effect of the declaration of the counsel for complainant, that effect concerned the future and did not annul the legal effect of what had already happened on the filing of the bill and the appointment of the receiver. Indeed the withdrawing -of the allegations of fraud would have left the prayer for the appointment of a receiver without any ground for, as has been shown, there would have been left no allegations of fact that would show that the complainant claimed that the defendants were in-. debted in contract. And several months after the order that was excluded from the testimony was made, the plaintiff here recognized the authority of the receiver as continuing by entering an •order of the discontinuance of an action against the corporation upon the consent of the receiver. I am of opinion that the exclusion of the order did not injure the plaintiff. If it had been admitted as evidence, the conclusion of the court upon the testimony admitted should not have been changed.

The defendants on the trial below proved, without objection, for the purpose of supporting their defense, that the plaintiff had elected to avoid the notes and to proceed against defendants for fraud; that the plaintiff had begun an action in the state of Hew Jersey, by attachment, which the sheriff had levied upon the defendant’s property in that state.

The attachment proceeded upon an affidavit that the defendants were indebted on contract. The defendants gave extrinsic evidence to show that the claim in the attachment was upon the sale of the goods for which the promissory notes in action were given and argued that the notes must have been avoided for fraud by the plaintiff, because the claim in the attachment was treated as maturing before the notes matured. The plaintiffs were not permitted to show that the attachment suit had been discontinued by order. The order proposed for testimony, and the papers on. which it was founded appear in the case, and, in my opinion, if treated as admitted they do not change the result of the decision

The court on the trial below did not allow the defendant to-show that at the time of the appointment of the receiver, the counsel for defendants here, who were complainants there, made a certain statement. The counsel offering the testimony did not explain the nature of this statement. The court m excluding the statement permitted the defendants to prove what ruling the chancellor made, if verbal or written. The court was right, as prima facie the statement of a counsel is not evidence of the existence of any fact

The result below should not be changed because in the chancery suit the defendants did not answer and no judgment had been entered. The effect of not answering was that the defendants conceded the correctness of the charge made in the bill, and if no judgment was entered, that was because the plaintiffs did not apply for judgment. The election was effectual upon the earlier appointment of the receiver.

The same considerations are relevant to the position of plaintiffs that they had not proved any claim before the receiver, and that the time for proving claims had expired. The receiver had possession of the property lawfully as against the parties to this action. That property had been appropriated to the satisfaction of claims against the defendants, and among them of plaintiffs’ claim. If plaintiffs omitted to secure their part of the benefit of that appropriation, none the less had the appropriation been made. As the appropriation had been made at the instance of the plaintiffs solely upon the position they took in the bill that goods had been obtained by fraud, they were at least from the time of the appointment of the receiver held to the election then made, On the record it appears that the only right they claimed to become complainants was that they had been defrauded by the defendants.

The judgment should be for defendants, plaintiffs’ exceptionsJ being overruled, with costs.

Freedman, J.¡ concurs.