Kinney v. . Kiernan , 1872 N.Y. LEXIS 150 ( 1872 )

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] Concurring in the conclusion of my learned associates, that at the time of the commencement of this action there had been a valid rescission of the contract of sale to Gill Co., and that the right of action of the plaintiff against the defendants for the conversion of the goods received by them from Gill Co. was then perfect, I cannot concur in the further conclusion that the subsequent suit and settlement between the plaintiff and Gill Co. necessarily constituted a bar to this action. So long as the contract of sale between the plaintiff and Gill Co. remained voidable merely, it was capable of ratification by any act of the plaintiff evincing a clear intention to affirm it. And at that stage the bringing of an action by the plaintiff against Gill Co., founded upon the contract, the plaintiff having acquired full knowledge of the fraud, would have been an unequivocal affirmation of the sale, binding upon the plaintiff, and effectual to preclude him from setting up his title to the goods against Gill Co. or any of their vendees. But after the plaintiff had made a valid election to avoid the sale, and had asserted his title to the goods by bringing this action, the contract of sale was at an end. The fraud being established, neither Gill Co. nor their vendees (other than bona fide purchasers) could claim any title under the sale, and the right of action of the plaintiff against Gill Co. 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. (Morris v. Rexford,18 N.Y., 552.) The rights of all the parties had become fixed, and were the same as though there never had been any contract of sale, but the goods had been tortiously obtained by Gill Co. (5 T.R., 214; 1 Stra., 165.) The mere bringing of an action upon the original contract against Gill Co., after such an avoidance of the sale, did not affect the rights of the defendants. Gill Co. had a perfect defence to the action on the contract. (Morris v.Rexford, supra.) A recovery in that action against Gill Co. might have had the effect of changing the title to the goods, as would a recovery in trover; but the simple institution of the action would not. It could not operate as an election which would debar the plaintiff from prosecuting his action for conversion, because the right of election no longer existed at the time the action on contract was brought. The institution by a party of a fruitless action, which he has not the right to maintain, will not preclude him from asserting the rights he really possesses. In Morris v. Rexford, the judgment turned upon the point that, at the time of bringing the replevin suit, the plaintiff had the right to reclaim his goods, and that therefore he was bound by his election so to do, and could not, after such election, sue upon the contract of sale; and it was expressly held in that case, that if, upon a second trial, it should appear that the plaintiff had not such right of election at the time of bringing the replevin suit, that suit would not interfere with his right of action on the contract.

It necessarily follows, from the principles laid down inMorris v. Rexford, that the mere bringing of the action on the original contract, after the contract had been annulled, could not affect the action for conversion.

After the contract of sale had been destroyed by the exercise of the plaintiff's right to avoid it, it was necessary, for the purpose of transferring to or vesting in Gill Co. a title to the goods which would enure to the benefit of the vendees of Gill Co., either that there should be a recovery by the plaintiff against Gill Co., for the value of the goods, embracing those which had been passed to the defendants, or that some new contract should be made by the plaintiff with Gill Co., embracing the same goods.

The receipt by the plaintiff, from Gill Co., of compensation in any form or upon any basis for that part only of the goods which Gill Co. had retained, would not affect the title to the residue, or the action then pending against the defendants for the conversion of such residue. The old contract was gone, and past ratification. The time for election had passed by. The doctrine that a ratification or affirmation of a contract in part operates as a ratification of the whole, was no longer applicable to the case. Whatever rights were acquired under the settlement of the action brought by the plaintiff against Gill Co., subsequent to the commencement of this action, sprang out of that settlement and not out of the original contract of sale, and were necessarily governed and limited by the terms of the settlement. The plaintiff was at perfect liberty, after the commencement of the present action, to make any settlement he could with Gill Co., without affecting his existing right of action against the defendants, provided they excluded from their new arrangement the goods which had come to the hands of the defendants, and which are the subject of this action. If the settlement embraced those goods, the defendants could, of course, claim the benefit of it. But if it was confined to the other portion of the goods, it was immaterial to the defendants in what form the plaintiff obtained satisfaction from Gill Co., whether in the form of a payment, as on a purchase, or of compensation for a conversion.

Neither was it material whether on the settlement with Gill Co. they took back the checks given on the original purchase and substituted other compensation, or whether as part of the compensation they allowed the plaintiff to retain those checks. If the settlement was confined to the portion of the goods which Gill Co. retained, it was not a revival of the old contract, but a new contract different from and embracing only a part of the subject of the original one. The application to such new contract of the checks formerly designed to apply on the first contract was in substance a restitution of those checks to Gill Co. It was an application of them to the use of Gill Co. with their consent, in discharge of a liability which the plaintiff could have enforced against Gill Co. separately, without in any manner impairing his rights against the defendants in this action.

The controlling question upon which the plaintiff's right to maintain this action depended was, whether the settlement between the plaintiff and Gill Co. in fact embraced all the goods which were included in the original purchase, or was restricted to that portion of them which had not been transferred to the defendants.

The plaintiff, it is true, brought an action against Gill Co. for the contract price of all the goods purchased, and the attorney for the plaintiff in that action received from Gill Co. their four notes for $250 each, and gave them a written stipulation that on payment of those notes the action should be settled and discontinued; but that if either of the notes should not be paid when due, the action should proceed, and that the stipulation should not prejudice any claim of the plaintiff against Nat. Wood.

This settlement, if authorized, would, in the absence of explanation, be deemed to embrace the whole of the original purchase, which was the subject of the action settled. But evidence was given tending to show that by the actual agreement the property and matters involved in this action were excepted from their settlement, and that a provision to that effect was omitted from the stipulation through the mistake of the attorney. On the trial the judge was requested to submit that question to the jury, but refused, and decided that a settlement having been made and payment received for a portion of the goods, this action could not be sustained, and directed a verdict for the defendant on the ground that by the suit and settlement the plaintiff had affirmed and ratified the sale made to Gill in December, 1867.

According to the views before expressed, if the original contract had been rescinded before the suit against Gill Co. was brought or settled, that suit and settlement did not affect the title to any property excepted from the settlement, and the ruling that payment by Gill Co. for a portion of the goods was a bar to this action was not correct.

The court at General Term do not in their opinion sustain that ruling, but rest their decision affirming the judgment for the defendants upon the ground that there never was any valid rescission of the contract of sale, the plaintiff not having returned the Wood checks, and they cite the case of Wheaton v.Baker (14 Barb., 594), and other cases holding that, to entitle a vendor to rescind the contract of sale on the ground of fraud, and reclaim his goods, he must surrender what he has received under the contract.

The case of Wheaton v. Baker is more analogous to the present case than any of the others cited. There the action was trover, brought against the assignee of the fraudulent vendee for the recovery of the value of part only of the goods which had been obtained by the fraud. The vendor had received in part payment for the whole of the goods the notes of a third party, which he retained, and after the discovery of the fraud and the bringing of the action of trover, he obtained judgment against the maker of the notes. The material distinction between that case and the present is, that in that case the vendor appropriated and enforced securities obtained under the original contract of sale, without having made any new arrangement or settlement with his vendee by which those securities had been applied and devoted exclusively to the satisfaction of the claim of the vendor for a portion of the goods other than that which was the subject of the action of trover.

The enforcement of these securities by the vendor without any new arrangement with the vendee was inconsistent with the vendor's allegation of rescission. He had no title to them independent of the original contract of sale. They embraced in part the price of the same goods for which the action of trover was brought. By obtaining judgment upon them he precluded himself from obtaining a second judgment in trover for the same goods. By obtaining judgment upon securities to which he had no title except under the original contract of sale, he conclusively negatived his allegation that he had ever in fact rescinded the sale. If he had rescinded, the title to the securities had reverted to the fraudulent vendee from whom they were received; and although as against a third party claiming under the fraudulent vendee, according to the doctrine of Stevens v.Austin (1 Met., 558), and Pearse v. Pettis (47 Barb., 276), it was not necessary to prove an offer to return the securities to the original vendee, yet it was essential to a valid rescission that the vendor should refrain from the assertion of any title to those securities founded upon the original contract. In the present case the plaintiff is not shown to have claimed to retain or enforce the checks of Wood under or by virtue of the original contract, but only under the subsequent settlement with Gill Co., and, if the fact in respect to the subject embraced in that settlement was as claimed by the plaintiff, the agreement to retain the Wood checks in satisfaction of the claim against Gill Co. for part of the goods was not inconsistent with a rescission of the original contract, and was in fact equivalent to a return of the checks to Gill Co.

The suit which was agreed to be withdrawn as part of the settlement was inconsistent with the rescission, but that suit the plaintiff had no right to maintain, and by withdrawing it in consideration of a settlement which was consistent with a rescission, and which recognized the plaintiff's right to continue the prosecution of this action, the plaintiff cannot be held to have abandoned his rescission or to have reinstated the title of Gill Co. to all the goods embraced in the original purchase. For these reasons I think there should be a new trial.