New York Land Improvement Co. v. Chapman

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[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] The action was founded on alleged fraud, for which the plaintiff sought to recover damages. And the question presented is whether the complaint stated facts sufficient to constitute a cause of action. The view of the court below was that it did not, and Wemple v. Hildrith, (10 Daly, 481) was cited in support of such conclusion. In that case the alleged representations relied upon, as fraudulent, related to the pecuniary condition of the debtor, which induced the plaintiff to extend the term of credit for goods by him before then sold and delivered. It was not there alleged that the plaintiff parted with anything or that any purpose, which he then had or was proceeding to execute, was relinquished. The action was founded upon false representations which induced a mere extension of credit. And the court held that there was not the requisite certainty of any injury to the plaintiff in consequence of the representations, to furnish any basis for the estimate or recovery of damages. It is essential to the maintenance of an action for fraud that damages result from it as the proximate cause, but it is not necessary that the party guilty of the deceit derive any benefit from it. (Upton v.Vail, 6 John. 181; Hubbard v. Briggs, 31 N.Y. 518.)

In the present case the allegations of the complaint are to the effect, that the plaintiff by reason of the default of the lessees, had the purpose to terminate their tenancy by taking possession of the demised premises pursuant to the right to do so, and to avail itself of the opportunity, which it had, to rent them to other and solvent persons, and was induced by the fraudulent representations of the defendant to relinquish such purpose and to refuse to rent the premises to such other parties. This case is essentially distinguishable from that of Wemple v.Hildrith. Here, as it is alleged, there was not only an extension of credit for rent then due, but by permitting the lessees to remain in possession, credit was given to them for rent thereafter to issue out of the term. Thus they were allowed to incur liability to the plaintiff for the further use of the premises. In view of the allegations of the complaint, it must here be assumed that the subsequent occupation of the premises out of which arose the additional obligation of the lessees to pay rent, was permitted on the faith of the false representation of the defendant; and to that extent and by that means credit in their behalf was obtained. It is however urged that the exercise of the right of the plaintiff to take possession of the premises and rent them to others, rested solely in intention, which may or may not have been executed, and whether any damages resulted from the alleged fraud was uncertain and speculative, and, therefore, that on the facts alleged there is nothing to warrant a recovery. It is true that the plaintiff had taken no steps to dispossess the lessees, and relinquished nothing in that respect other than a purpose to do so, but the fact upon which the right to recover depends is that, if the representations had not been made, the plaintiff would have executed such purpose, and rented the premises to others who were solvent, and thus have realized something in place of the worthless liability of the lessees which arose from the occupation of the premises by them subsequently to the time the representations were made, which induced the plaintiff to refrain from exercising such right. The question of intention is involved in all cases of fraud founded upon alleged false representations in so far, that the maintenance of an action is dependent upon the influence of the deceit upon the party claiming to have been damnified. The representations known to be false in relation to the pecuniary condition of the party seeking credit, furnish no ground for action unless the person from whom it is sought is influenced by them in giving the desired credit. His purpose must have been governed by the deceit to his prejudice to afford a remedy in fraud. The right to deny credit, notwithstanding the representations or the reason to suppose that it would not have been denied if they had not been made to the plaintiff, presents a question no different, in legal effect, for the purpose of such remedy, than that which might arise in case of the sale of goods upon the faith of alleged fraudulent statements relating to the means and ability of the purchaser to pay.

In the case last supposed a contract of sale would be the product of the fraud, while here there was no new contract resulting from it. But the right of action for such cause does not rest in contract, but depends only upon the fact that an injury has been suffered resulting in damages to the party seeking redress, and that such damages are the legitimate consequence of the fraud. In Benton v. Pratt, (2 Wend. 385) a party who by agreement, within the statute of frauds and void, had promised to purchase plaintiff's hogs, was induced by the false representations of the defendants not to take them. A recovery for the alleged fraud was supported. And the court held that it was not material whether the contract for the sale of the hogs was binding or not, as it appeared that they would have been delivered and taken upon the promise to purchase but for the fraudulent representations of the defendants.

And in Rice v. Manley (66 N.Y. 82) the same principle was applied to support an action for fraud founded upon the false representation of defendant that the plaintiff did not want the cheese which the latter, by a like invalid agreement, had promised to purchase of a third party, who was induced by such representation to sell the cheese to defendant. In both those cases the performance of the void agreements to deliver and purchase the property rested in intention of the parties to them, supported by no legal right; yet, the court held that the fact whether the promise to sell and purchase would have been performed if the defendants had not intervened and by their false representations defeated such performance, was properly the subject of inquiry; and that the determination of that question of fact in the affirmative gave support to the actions and established the right to recover such damages as resulted to the plaintiffs from the defeated performance. In the present case the plaintiff, having, as alleged, the right to the possession of the premises and the opportunity to lease them to others able to pay the rent, was induced by the false representations of the defendant, who knew them to be false, to allow the lessees to remain in possession, refrain from re-entering and to refuse to lease the premises to such other persons. The allegations of the complaint were such as to permit evidence of a state of facts to justify the conclusion that but for the representations complained of, the plaintiff would have availed itself of such right and opportunity. And the damages resulting from the facts so established would be measured by the loss sustained, not exceeding the amount of the liability of the defendants, which subsequently accrued upon the lease. The difficulty suggested of establishing the facts essential to a recovery may have more relation to the evidence than it seems to have in its bearing upon the allegations of the complaint. The latter only have consideration on this review.

It seems that on the first of January, after the commencement of the term, the lessees sub-let the premises, and that the plaintiff accepted from them the tenancy so created for the residue of the term. This, it is urged, was a waiver of the alleged fraud and its consequences. By taking the benefit of the subtenancy the plaintiff relinquished whatever claim it may otherwise have had against the lessees accruing from and after the first of January, but it did not have the effect to relieve the defendant from any damages which the plaintiff had before then sustained by reason of the alleged fraud. The doctrine that any act in affirmance of a contract, after discovery of fraud, defeats the right of rescission is not necessarily applicable to an action for damages founded in fraud. (Gould v. Cayuga Co.Nat. Bank, 99 N.Y. 333.) It is also contended that the action and recovery by the plaintiff against the lessees of the amount of the rent for the time they remained in possession of the premises, was an election of remedy, within the doctrine upon the subject, which denied to the plaintiff any right of action against the defendant for the alleged fraud.

Such may have been the effect of that recovery if all the lessees had been chargeable with such fraud, as in that case their liability would have been merged in the judgment, embracing as it did the entire amount of rent for which they became liable upon the lease. The defendant was necessarily a party to the action upon the lease, which was made by the firm of which he was a member. The liability of the lessees was joint. But the liability of the defendant for the alleged fraud was his only, and collateral to that of the firm. The remedy against him for the fraud, was not inconsistent with that against the firm as both remedies proceed in affirmance of the lease; and because the remedy furnished by the fraud is against the defendant alone and collateral to that upon the undertaking of the lessees jointly, it was not merged in the recovery against the latter. (Morgan v. Skidmore, 3 Abb. [N.C.] 92; affirming 55 Barb. 263; Bowen v. Mandeville, 95 N.Y. 237, 240.)

The defendant being a necessary party to the former action by which the plaintiff was enabled to charge the firm, was not by the recovery had upon the lease relieved from liability upon the charge of fraud. That liability of the defendant was his, severally, and distinct from that of the firm, and the remedy was concurrent with that against it.

No other question requires consideration.

The judgment should be reversed and a new trial granted, costs to abide the event.

All concur.

Judgment reversed.