Benedict v. National Bank of the Commonwealth

By the Court.^*—Larremore, J. [after stating the facts].—

The principal questions involved in the consideration of this case are:

1st. Did the plaintiff, after full knowledge of the fraud, affirm the contract ? '

2d. Is he entitled to the fund held by the bank,'or any portion thereof, as the property loaned by him to Gray & Go. ?

It is a well settled principle of law that an innocent party to a fraudulent contract may rescind it, and sue in tort for the recovery of the identical property with which he has parted possession. And the rule is of equal authority that he may affirm such contract and waive the tort. He cannot have both remedies, because they are inconsistent with each other. He must make his election, and having made it, must be held to it (Morris v. Rexford, 18 N. Y. 552, and cases there cited; Adams v. Sage, 28 Id. 103; Wilmot v. Richardson, 2 Keyes, 519). He cannot be allowed, even though mistaken in his remedy, to change it, especially when the rights of third parties have intervened. Judged by this theory, it will scarcely be claimed that the plaintiff had a meritorious cause of action.

On the 11th of December, 1869, with a full knowledge of the fraud committed upon him, he voluntarily commenced an action on the contract for money loaned, and procured an attachment against the property of Gray & Co. It is urged that plaintiff was then ignorant that the proceeds of his checks had been deposited and were then held by the Bank of the Commonwealth.

But it is admitted that on the same day he caused his attachment to be served on the bank where the moneys in question were deposited and which were held by the bank under the attachment, as the property of Gray & Co. Plaintiff must have known, after the process had been served, that the checks had been so deposited, and that Gray & Co. had a cash balance in the bank. Yet he continued the lien of his attachment upon the very fund in dispute, as the property of Gray & Co., and only consented to a dissolution of it when such a course became imperative by the proceedings in bankruptcy.

I think plaintiff exercised and manifested his election in bringing his action on the contract, and that the subsequent discontinuance of the proceedings then taken could not change the legal effect of his action. He had full knowledge of the fraud, and the decision then made, although it might have been influenced, could not be impaired, by his want of knowledge as to what disposition had been made of the proceeds of the checks.

Having, in the first instance, treated the fund as the property of the debtors, he cannot now escape the consequences of his own deliberate act, nor prejudice the rights of other creditors to the fund. It is not disputed that the assignee in bankruptcy is entitled to the moneys now held by the bank if they belonged to Gray & Co., and I think the finding of the court below upon this point was correct.

Having reached this conclusion, it can hardly be necessary to examine the second branch of the case.

It may be observed, however, in this connection, that the checks given by plaintiff to Gray & Co. were deposited by them in bank and mingled with a general fund from which various sums were drawn from time to time on their account. Whether the identical proceeds of those checks have already been drawn out, or any portion thereof, and if so, what amount, or what now remains, are questions of doubt and uncertainty. An inspection of the bank account shows the impossibility of ascertaining such a result by any process of reasoning or mathematical calculation.

The cases cited by the learned counsel for the appellant, do not meet the question of waiver and affirmance that was raised in bar of this action.

Graves v. Dudley (20 N. Y. 76) decides that on an executory contract upon which $250 in bills had been delivered, specific performance might be maintained for the recovery of the money; that there was nothing in the nature of money or bills to make a delivery work a change of ownership, when such was not the intention, or to prevent them from being specifically recovered when so identified that delivery might be made.

Gordon v. Hostetter (37 N. Y. 99) holds that where money is embezzled, an action for damages will lie without proving the specific property taken and converted.

In the Grand Trunk Railway Co. v. Edwards (56 Barb. 408), it was held that one who receives money from an agent, knowing that it belongs to the principal, is liable in an action for conversion where the money has not been mingled with other money, so as to render it incapable of being identified.

Silisbury v. McCoon (3 N. Y. 379) is an authority that property taken from the owner by a wilful trespasser, and by him converted into a thing of different species (such as corn into whiskey), may be recovered by and belongs to the owner of the original material.

Seymour v. Wyckoff (10 N. Y. 213) holds that pork packed in barrels, consigned to commission merchants for sale, does not lose its identity by being stowed with a large quantity of the same quality and brand.

It is obvious that the decisions in the cases referred to rest mainly upon the fact that the property sought to be recovered could be identified. They were cases also in which the parties injured sued the wrong-doer, and where it was clear that no absolute surrender of ownership was intended.

It was also claimed that in a case of felony there is no power to waive the tort; that the plaintiff would have no right to compound the forgery, and thereby prevent a criminal prosecution of it. This is undoubtedly true, but such a prosecution can in no way be prejudiced by a waiver of the tort in a civil action. Besides, the perpetration of the forgery, or the knowledge of it by Gray & Co., is not conclusively established. It is true that they absconded on the very day upon which the second check was given, but the loans were negotiated by the agent of Gray & Co., and it would still be competent for them to show in a criminal proceeding against them that they both took and pledged the bonds in question in the belief that they were genuine.

I think the judgment in this case should be affirmed.

Judgment affirmed.

* Present, Daly, Oh. J., Robinson, and Labbehobe, JJ.