Bruce v. Davenport , 1 Abb. Ct. App. 233 ( 1867 )

Hunt, J.

We are not at liberty to deny the finding of the referee, that the defendants’ indorsement of the note in suit was obtained hy the false representation of Odell.

The representations were false, but they are not found to be fraudulent. Whether this question of fraud was one of fact which should be found by the referee, or whether it would be held to be a question of law under Bennett v. Judson, 21 N. Y. 238, is not, in my view of the case, a material question. Assuming that the transaction was fraudulent, and that the representations were such as might well have deceived a prudent man; assuming, also, that a representation to one partner of what his associate would do, if present, comes within the rule on this subject (as to which see 1 Story Eq. Jur. § 199), there is a further difficulty, which cannot be overcome.

' This arises from the failure of the defendants promptly to repudiate the indorsement, when informed of the means by which it was obtained. The absent partner returned to his place of business within, a few days after the indorsement was obtained, and was informed of the means and representations employed by Mr. Odell to obtain it. Great indignation was expressed by the partners, among themselves, at his conduct.

Ho disaffirmance, however, of the transaction, no offer to return the money and take back the note,, nor even a disapproval or complaint of the means employed, was made to the plaintiffs. The defendants, on the contrary, received and retained the proceeds of the note, and were content to remain as they were, for a period of nearly three months. The insolvency of the maker, at that period, occurred, and for the first time the defendants then communicated to the plaintiffs the complaint that their indorsement had been fraudulently obtained.

This will not do. It is the duty of a party who proposes to disaffirm, as fraudulent, a.contract entered into by himself, his partner, or agent, to do it at once, upon the discovery of the fraud.

He must be ready and prompt in such disaffirmance. It will not do to keep the money in his pocket for three months, to deprive the other party of the opportunity of protecting himself, to await the chances of a successful performance of the fraudulent contract, and only to repudiate when the danger of loss becomes imminent. “

Heither honesty, good faith, nor the principles of law, will justify such a course.

If the defendants deemed themselves injured by the representations of Mr. Odell, it was their duty, upon the return of the absent partner, when the real facts were made known to all of them, at once to have tendered to the plaintiff, the money received from them, and to have demanded a return of the note.

For illustrations of these principles, see Minturn v. Main, 7 N.Y. (3 Seld.) 220, 227, Saratoga & Schenectady R. R. v. Row, 24 Wend. 74; Lloyd v. Brewster, 4 Paige, 537; Conner v. Henderson, 15 Mass. 319 ; Cutler v. Gilbreth, 53 Me. 176.

Upon this ground, I think, the judgment of the referee should be affirmed, and that of the general term reversed.

That portion of the order directing that the testimony already taken might be read in evidence on the new trial was unauthorized and irregular. The new trial, as awarded by the general term, was his right. He was entitled to it, without condition or qualification.

A direction that evidence of a certain character should be admitted was not a 'legal condition.

All the judges concurred.

Order for new trial reversed, and judgment on the referee’s report affirmed with costs.