Wheaton v. Baker , 1853 N.Y. App. Div. LEXIS 7 ( 1853 )

By the Court, Marvin, J.

He who has been induced to part with his property on a fraudulent contract, may, on disclaiming the fraud, avoid the contract and claim a return of his property. Fraud destroys the contract, and the fraudulent purchaser acquires no title. A party who would disaffirm a fraudulent contract must act promptly, upon discovering the fraud, and he must return or offer to return whatever he has received upon it. He cannot retain what he has received, if it is of any value, and proceed to recover the property fraudulently purchased of him. He must rescind the contract in toto, and thus place the party in the position he was in before the sale. That such are the general principles governing this class of cases will be seen by reference to a few of the adjudged cases. (Masson v. Bovet, 1 Denio, 69. Cary v. Hotailing, 1 Hill, 311. Ash v. Putnam, 1 Id. 302. Root v. French, 13 Wend. 571. Voorhees v. Earl, 2 Hill, 288. Baker v. Robins, 2 Denio, 186. Hogan v. Weyer, 5 Hill, 390. Moyer v. Shoemaker, 5 Barb. 322, 3. Kimball v. Cunningham, 4 Mass. Rep. 502. Conner v. Henderson, 15 Id. 319. Coolidge v. Bingham, 1 Met. 547.)

In the present case, the plaintiffs, upon the sale of the stoves, received from Judd notes made by Mather amounting to over §1300, and Judd’s note for over §700. They were informed of the failure of Judd, and that his creditors were prosecuting him for a fraudulent disposal of his proserty. This was about the middle of October. The plaintiffs took no action until the middle of November, when they demanded the stoves, &c. of the defendant, who, in the mean time, had purchased them. Soon after this they commenced this action, to recover possession of the Stoves. They did not return or offer to return the Mather notes, received upon the sale to Judd, nor the notes taken of Judd; but on the contrary, soo.n after commencing this suit, they applied to Mather and obtained from him additional notes payable at bank, and afterwards prosecuted two of those notes to judgment. It is now claimed that the plaintiffs had the right to re-' tain the notes and make collections to indemnify themselves for the property which had been sold by Judd to his customers, and at the same time rescind the contract and take the. stoves not • sold. Ho case was cited upon the argument which sustains this proposition.

In Masson v. Bovet, (1 Denio, 69,) the defendant by fraud induced the plaintiff to purchase land at a sheriff’s sale, upon a judgment in favor of the defendant. The plaintiff paid the defendant the bid, in the note of a third person, amounting to more than the bid, and received the defendant’s note for the difference. He also took the sheriff’s certificate of sale to himself. Upon discovering the fraud he at once offered to assign the sheriff’s certificate to the defendant and to return to him his note. The action was replevin, for the note, and it was sustained. The plaintiff promptly rescinded the contract, and did all in his power to restore the defendant to the position he occupied before the contract. The defendant had by his fraud so entangled and complicated the subject of the contract as to render it impossible that he should be restored to his former condition, and for this reason, as the plaintiff had done all in his power, he was entitled to maintain the action.

In Ladd v. Moore, (3 Sandf. 589,) the defendant purchased fraudulently of the plaintiff some silver ware, and paid for it partly in cash and partly in his own note. On discovering the fraud, the plaintiff searched for the defendant, and not finding him, brought his action of trover. It was held that it was sufficient to surrender the note on the trial, and that he was entitled to recover the value of the property, deducting the amount of the money paid. The general rule, that it is necessary for the party rescinding a contract to return whatever he has received upon it, was recognized, with the qualification that it is upon condition that the party returning shall restore himself to his original condition. The action was trover; the plaintiff surrendered the note on the trial, and in that action damages only were to be recovered. There was no difficulty in adjusting the amount and abating the sum which the plaintiff had received in money, upon the sale.

The case was very different in its circumstances from the case under consideration. The court probably regarded the circumstances as not being inconsistent with the position that the plaintiff intended to and did rescind the contract in loto.

In Thurston v. Blanchard, (22 Pick. 18,) the action was trover, by the vendor, against the fraudulent vendee, who had given his negotiable note. The plaintiff, previous to the action, had not made any demand for the goods, nor had he offered to surrender the note. Upon the trial, however, he produced the note and offered to give it up. It was held that as it appeared that the plaintiff had not negotiated tíhe note, a delivery of it upon the trial was sufficient."

Browning v. Bancroft, (8 Met. 278,) proceeded upon an entire rescission of the contract. The vendee had sold a part of the goods and the vendor brought an action for money had and received, to recover from the vendee the amount received by him for the goods he had sold, and also an action of replevin against an officer who had attached the goods, for the 'goods remaining unsold. This was entirely consistent with a total rescission of the contract. As the vendor could have brought •trover for the goods, he could waive the tort and sue-for the money received by the wrongdoer upon a sale of them.

It is also argued by the plaintiff’s counsel, that whatever may be the rule between vendor and vendee, the defendant in this action cannot make the objection that the notes were not returned to Judd. That the question can only arise between the plaintiffs and Judd; and Stevens v. Austin, (1 Met. 557,) and Nellis v. Bradley, (1 Sandf. 560,) are cited in support of the proposition. In Stevens v. Austin the action was trover. The defendant purchased the property with notice, of the fraudulent vendee, who upon the purchase from the plaintiff gave his own note, some money, and a bill issued by a bank. The plaintiff on the trial produced the note, cash and bank bill, and offered to leave them on the files of the court, for the use of his vendee. The " position taken by the defendant, at the trial, was that the plaintiff could not maintain the action without showing that he had restored, or offered to restore, the note, cash and bank bill, before the commencement of the action. This position was overruled. The plaintiff recovered, and the ruling upon the trial was sustained in banc, and the court say, “ the plaintiff was not bound to tender back the note and money before he could bring his action ; not to the defendant, for the plaintiff had received nothing of him.” And it is added, “nor could the defendant raise the question whether the plaintiff had made restitution to his vendee or not. It was res inter alios, with which the defendant had no concern, and was wholly irrelevant to the issue between the parties.” The concluding remarks were not necessary to the decision. The court had held in Thurston v. Blanchard, above cited, that it was not necessary in an action by the vendor against the fraudulent vendee, to demand the property or to return the note, before suit; that the note could be surrendered upon the trial. Stevens v. Austin rested upon the same principles, and the plaintiff did, upon the trial, offer to do what was equivalent to a surrender of the note and money. Ho doubt was left upon the question of rescission of the contract, and that is the important question in all the cases; and the party who claims rights resting upon, the rescission must show facts establishing the rescission of the contract. In Nellis v. Bradley, (1 Sand. 560,) the party claiming under a rescission of the contract had a verdict. He had omitted to produce and tender the note at the trial, and he was permitted to produce and surrender the note upon the argument in banc, and retain his verdict. These cases do not militate against the general rule that the party who seeks to rescind the contract must restore what he has received.

The plaintiffs also insist that the question of the rescission of the contract or affirmance of the sale should have been submitted to the jury, and Browning v. Bancroft, (8 Met. 278,) and Green v. Russell, (5 Hill, 183,) are cited.

It is a general rule, that where there is no dispute about the facts bearing directly upon the issue, the case presents a question of law to be decided by the court; and where the evidence is so decisive and preponderating that the court, in case the jury should find a verdict against it, would set their verdict aside, the court may direct a verdict, and it will not for this cause be set aside. In the present case there was no dispute about the facts, and those facts proved that the plaintiffs not only did not attempt to rescind the contract, as the law requires, but they, by their acts, affirmed it. They did no act evincing an intention to rescind, except demanding the property of the defendant a month after they were apprised of the failure of Judd; the defendant having purchased the property some time after the plaintiffs were notified of the failure; and then bringing this suit. At the same time they retained the note given by Judd and the notes they received from Judd against Mather, and subsequently took active measures to collect the demands against Mather. Had a jury, under these circumstances, rendered a verdict for the plaintiffs, the court would have set the verdict aside. The acts of the plaintiffs were inconsistent. They could not proceed as upon a disaffirmance of the contract, and at the same time avail themselves of the contract, by retaining and attempting to collect the notes received upon the sale of the property. (See cases first above cited, and Whitney v. Allaire, 4 Denio, 554; Hogan v. Shorb, 24 Wend. 460; Floyd v. Brewster, 4 Paige, 537.)

[Niagara General Term, February 7, 1853.

Taggart, Marvin and Mullett, Justices.]

The case of Green v. Russell, (5 Hill, 183,) cited by the plaintiffs’ counsel, was peculiar, and under the circumstances there stated, the court held that the evidence tending to show an acquiescence in and confirmation of the sale, after full notice of the fraud, should have been submitted to the jury, like all other material evidence relating to a disputed fact in the case. In the present case there was no disputed fact, the evidence was decisive, and the direction of the judge was correct. A new trial should be denied.