Ilion Bank v. Carver

By the Court, Pratt, J.

The complaint in this case charges that on the 5th day of January, 1855, Benjamin Carver, a director in the hank, pretended to sell to the defendant Amos H. Prescott, a person of little or no pecuniary responsibility, his stock therein, of the par value of $15,000, for the sum of $17,250; that Prescott, with the connivance of said Carver and the cashier, Benjamin F. Carver, immediately pledged the same to the bank, executing to it the instrument set out in the complaint, and received therefrom the sum of $17,250 in the bills of the bank. This is charged to have deen done in accordance with a conspiracy between the three to injure and cripple the bank in its business, and to enable Carver to impose his stock upon, the bank at a price much greater than it was really worth; and that in consequence of these proceedings the bank was greatly crippled and injured in its business, and Carver did receive for his stock a sum much greater than its actual value. The evidence upon the trial tended to establish these allegations of the complaint. It was also proved that the transaction came to the knowledge of the other officers of the bank on the 8th day of January, at which time resolutions were passed to make á loan, and a committee was appointed to investigate the coUdition of the bank. On the same day Carver, the cashier, resigned. On the 13th another meeting was held, át which vacancies in the direction, occasioned by the sale of their stock by Carver and other directors, were filled and measures were taker! for strengthening the condition of the bank. On the 1st of February resolutions were passed repudiating the whole transaction, and authorizing the attorney of the bank to tender back to Carver the stock and demand the amount of money received. A copy of the resolutions was not served upon the defendants until the 8th day of April. The defendants refusing to comply, the stock was sold at auction on the 30th of April, after due notice. This action was then brought, and the plaintiff was nonsuited at the circuit, on the ground that it had not been sufficiently prompt in repudiating the transaction.

That there has been a very gross fraud perpetrated upon the plaintiff is, upon the case as developed at the circuit, beyond question, and the inquiry now is, has the bank by its laches precluded itself from redress ?

An action on the case, if we may be allowed to use old terms, would generally lie in all cases where a wrong had been done to a person, from which he had suffered actual pecuniary loss. This principle is so elementary that it cannot be necessary to cite examples. It would therefore lie in all cases where a party had sustained loss in consequence of any fraud perpetrated upon him by the defendant, or of any willful violation of duty on the part of the defendant towards him, growing out of any relation between them, official or otherwise. (Broom’s Com. 658.)

In the case at bar, whether the transaction be treated as a willful violation of the duty which the two Carvers owed to the bank, growing out of their official relation to it, or whether it be treated as a direct conspiracy to cripple and defraud the bank, it would seem that upon the most obvious principles of elementary law, the defendants should be held liable for the damages which the bank has Sustained thereby. And in an action against them directly, for damages, I know of no laches on the part of the plaintiff, short of the statute of limitations, which would constitute a defense. The error in the ruling at the circuit, if any'was made> arose from not recognizing the distinction between the remedies which the law gives to the party defrauded, against the wrongdoer. Fraud, it is said, vitiates all contracts, and renders them not absolutely void, but voidable in the election of the party upon whom the fraud has been perpetrated. He therefore has two remedies. 1st. He may repudiate the transaction, and by restoring or offering to restore what he has received, call upon the tort feasor to restore also, and upon his refusal, may bring his action either in replevin or other form appropriate to effect such restoration. Thus in the sale of a horse, if the vendor is guilty of any fraud or deceit in regard to the condition or quality of the animal, the purchaser may return or offer to return the property and bring his action for the consideration paid. And if the party elects to resort to this remedy, he must do so in a reasonable time after he ascertains the fraud. But the party defrauded is not bound to repudiate the transaction. He has his election, and may treat it as valid, and bring his action to recover the loss he has sustained in consequence of the fraud practiced upon him. And this retnedy he may resort to at any time allowed by the statute of limitations. The sale of the horse presents a familiar example. If the vendor has defrauded the purchaser Upon such sale in knowingly misrepresenting the condition or equality of the horse, instead of repudiating the sale the sale the latter may retain the horse and bring his action for the damages which he has sustained. These principles apply to executed contracts only. The cases of executory contracts are governed by different principles. In these cases, although the party has been fraudulently induced to enter into the contract, if, after a knowledge of the fraud that has been perpetrated against him, he goes on and performs the contract on his part he will be deemed to waive all objections which he might have made on account of such fraud. The law will presume that he is perfectly satisfied with the contract, notwithstanding he may have been deceived in some particulars. In such case, after having performed without objection, he can neither repudiate nor sustain an action for damages. For example, take again a contract for the sale of a horse to be paid for and delivered at a future time. If, after ascertaining that the vendor has fraudulently misrepresented the condition or qualities of the horse the purchaser shall accept the delivery of him, he would be bound to pay the stipulated price, and could sustain no action for damages. The law would be very defective if it were otherwise. The purchaser had it in his power, by refusing to accept the horse, to protect himself amply against any loss. By going on and executing the contract, therefore, he would be deemed to be satisfied with the horse at the price, notwithstanding the defects which were unknown to him at the time of entering into the contract.

Beturning to the case under consideration, and assuming that by failing to give notice of the resolutions of February 1st until April, the bank lost the right of repudiating the transaction in foto, did it lose all remedy for the loss it sustained from the fraudulent conduct of the defendants ? The complaint is broad enough to cover a claim for damages, and in fact that is obviously the scope of the action. Unless, therefore, this is one of those executory transactions or contracts above referred to, the right of action cannot be affected by any imputed laches on the part of the bank. Neither the unjust steward nor the fraudulent conspirator, if this was an executed contract, can insist that his victim shall act instantly, or forfeit for ever all remedy against him. The law has no such tender regard for the rights and interests of the bold offenders whose frauds and defalcations have of late so frequently startled and shocked the moral sense of the community. The statute of limitations in process of time will come to the aid of the worst offenders, as against a civil action, but that is not invoked in this case.

Was this then an executed contract within the principles laid down ? It seems to me to be manifestly so. The sale of the stock was complete; the discount of that nondescript instrument was complete, and the pocketing of the exorbitant price for the stock by the senior Carver was complete. In fine, there was nothing more to be done to consummate the transaction as concocted between the parties. When it came to the knowledge of the other officers of the bank, the thing was accomplished. Carver had received his #17,250, the bank had the stock upon its hands, and Prescott, wjio had been from the beginning the mere instrument for working these nefarious purposes, had performed his mission and was left as he began, with neither liability nor responsibility resting upon him. There was therefore nothing to be done, so far as the guilty actors were concerned, for perfecting the entire object of the conspiracy. It is true the entire loss which the bank was to suffer had not been ascertained. The time for the payment of the instrument was executory, but that would not alter the rights of the parties, or make the transaction executory. If a note be given on the sale of a horse, payable at a future day, that does not render the contract of sale executory. The purchaser, if defrauded, might undoubtedly sustain an action, even before the note should become due. Or, to take a case more directly in point: suppose a note should be discounted by a bank upon a fraudulent representation as to the responsibility of the parties to it. Upon discovering the fraud, the bank would undoubtedly have its election to' repudiate the transaction at once, and bring an action against the wrongdoer for the money advanced; or it might wait until the note became due, make an effort to collect it, and then bring an action for the fraud, alleging as damages the amount unpaid.

[Oswego General Term, July 7, 1857.

Upon the whole, I think the nonsuit was improperly granted, and the judgment should be reversed and a new trial granted

Hubbard, Pratt, Bacon and W. F. Allen, Justices.]