Palmer v. Frost , 86 Conn. 100 ( 1912 )

I am unable to agree with that part of the opinion which treats of the proper measure of recovery in the case. The pleadings present this case, which the jury might have found proven: —

The plaintiff sues upon a note. The defendant defends upon the ground that the plaintiff proposed to the defendant to form an equal copartnership in the livery business with the defendant's son, and to contribute toward the capital of the copartnership his own stock of goods in use in a similar business, which he fraudulently represented worth $8,000, if she would contribute in behalf of her son toward his share of the capital a stock of goods belonging to the estate of her deceased son, and give the plaintiff her note for $4,500, and give the copartnership a lease of the premises known as the Metropolitan Stables. The defendant purchased for $3,500 the said stock of her deceased son. The copartnership was formed. The defendant turned over to it said stock in part payment of the share of her son toward the capital, and executed to the copartnership said lease, and gave the plaintiff the $4,500 note. The plaintiff turned over his said stock and good will to the copartnership. The defendant has not returned nor offered to return to the plaintiff the goods which he contributed to the copartnership, nor rescinded, nor offered to rescind, the copartnership agreement.

The court charged the jury: "It is not necessary for the defendant to prove all the alleged false and fraudulent representations set forth in her answer. If she prove by a fair preponderance of the evidence any one, or more of them, and that she was induced thereby to give the note in question, and she would not have given it but for such representation, then, in such case, . . . the defendant would be entitled to a verdict."

In this, and in other parts of the charge, the jury were told that, if they found any material representation fraudulent, there could be no recovery. So that under the charge, if the jury found the plaintiff made any material fraudulent representation, regardless of the value of the stock of goods which the plaintiff contributed to the partnership, they must find the note absolutely void.

The consideration of the note was the plaintiff's stock of goods. Though the consideration of the note was complete, and the value of the plaintiff's stock $8,000, and no rescission of the contract made or attempted to be made, and no tender made to the plaintiff of the stock, or the interest of the son in the stock, contributed by the plaintiff to the copartnership, the note under this charge is wholly void. The evidence was such that the jury might have found this exact situation.

The case is made to rest on a single material fraudulent representation, and the question of the value of the goods contributed by the plaintiff is allowed to have no effect upon the amount of the recovery. Nor has the loss to the defendant any relation to the recovery. That this stock was contributed for the benefit of her son does not differentiate the case from one where the direct benefit had gone to the defendant.

Had the plaintiff fraudulently induced the defendant to give him her note for $4,500 in consideration of the transfer of Blackacre, represented as worth $4,500, to her son, and the transfer was accordingly made and the note given, could the son be permitted to keep Blackacre and the defendant avoid payment of the note because of the fraud? Manifestly not. That is substantially this case.

The defendant, induced to enter into the contract by fraudulent representation, might rescind the contract if she acted seasonably; or, if she elected to keep Blackacre, might reduce the recovery on the note by the amount of the difference between the actual value of Blackacre and its value as represented.

The charge in this case fails to distinguish between the fraud by which legal agreement in the supposed contract is prevented, and that fraud in its more common form of misrepresentation of facts, which does not prevent the contract, but merely makes a case "in which it is or may be probable that there would have been no such contract as took place," had the misrepresentation been known. "Fraud of that kind creates an equity only, not an absolute defense." Bigelow on Bills (2d Ed.) p. 205, § 2.

In Wilson v. Nichols, 72 Conn. 173, 180, 43 A. 1052, we say: "One who has been induced by deceit to enter into a contract and thereby part with property, has at least two modes of redress. He may, acting seasonably, rescind the contract, and giving or tendering back what he received under it, and so restoring or offering to restore the other party to his former position, may recover back his property; or he may elect to retain what he received under the contract, and bring suit to recover the damages occasioned by the deceit. Gustafson v. Rustemeyer, 70 Conn. 125, 135, 39 A. 104. . . . In the former case he seeks to be relieved from the contract and all its consequences; in the latter he seeks merely to recover the damages occasioned by his having been induced by deceit to enter into such a contract." So one, instead of suing to recover his loss through the fraud, may, upon being sued on the contract, counterclaim his loss. In Smith on Fraud, § 133, it is said: "A party cannot resist the recovery of a judgment on a promissory note given for property on the ground of fraudulent representations unless within a reasonable time after the discovery of the fraud he offers to return the property and rescind the contract, if it is of any value. Id. § 135, and cases cited; Joyce on Defenses to Commercial Paper, § 210.

There are exceptions to this general rule, as for instance, when the property received is of no value there need be no return or offer to return before rescinding or defending for total failure of consideration.

When an action is upon a note given through fraudulent representations, the defendant, except in certain exceptional cases, cannot defend for failure of consideration unless he rescinds or offers to rescind. Joyce on Defenses to Commercial Paper, § 122, says: "But a misrepresentation as to the quality or quantity of the property in payment of which a note was given will not operate as a complete defense to an action thereon where the plaintiff has not rescinded or offered to reconvey but still retains possession thereof."Morgan v. Nowlin, 126 Mich. 105, 106, 85 N.W. 468, and Eskridge v. Barnwell, 106 Ga. 587, 32 S.E. 635, which are cited in support, sustain this doctrine. While the total failure of consideration of a note cannot be availed of without rescission or offer to return, a partial failure can be of a sum liquidated or capable of liquidation.McAlpin v. Lee, 12 Conn. 129.

In this case the defendant elected to hold to her agreement. She was therefore entitled to reduce the recovery by as much as she had lost, which would be the difference between the actual value of the stock contributed by the plaintiff and the value at which it went into the copartnership.

The assignment of error which the court quotes was not adapted to the case and was incorrect, as the opinion holds, but another assignment of error fairly raises the question of the proper measure of recovery.

Fraud does vitiate a contract; but that means that the defrauded party by acting seasonably has the option of rescinding the contract, or he may accept its benefits and either recover the loss arising from the fraud, or counterclaim his loss against the recovery sought against him.

The defendant was permitted to avoid her note and keep its consideration. I know of no authority, except the opinion of the court, which has ever adopted such a measure of recovery. In my opinion there was error.