Hearn v. Schuchman

Kelby, J.

The corrupting of employees by secret bribes and presents, to influence the placing of the employers’ trade, which prior to 1905 was a moral wrong and .an evil business practice, was by section 384r of the Penal Code (now section 439 of the Penal Law) made a crime, punishable by fine and imprisonment. In the case of Sirkin v. Fourteenth St. Store, 124 App. Div. 384, it was held that this statute implied a prohibition, and that contracts procured by such bribes or presents were void, so that the briber would not be aided by the courts in any effort to recover, upon or otherwise enforce them.

The theory of the. complaint in this case is that because the bribery of the plaintiffs’ employees was prohibited, and, if known before they had paid defendant, would, under the decision in the Sirkin case, have been sustained as a complete defense, they may now,, after discovery of the fact, have the transactions declared wholly void and recover the entire sum of the payments which they made. They claim that they are excused from the usual duty of suitors, who seek rescission, of restoring what they have received because the labor and materials which defendant furnished became an integral part of their vehicular plant, and have from necessary wear and tear become obsolescent and valueless, and that the only parties who might aid them to fix the reasonable value, so that they might tender it, were those in corrupt collusion with the defendant. The complaint does not specifically mention the statute, but it uses its very phraseology, in the 6th and 14th paragraphs, and the plaintiffs’ reliance upon it is undisputed.

In a prior action between the parties, brought in the first department, it was held that plaintiffs were not entitled to recover the whole amount paid, in an action proceeding on the common law principle of money had and received. Hearn v. Schuchman, 150 App. Div. 476. With some changes in the facts pleaded, the present effort is to obtain that relief under the exercise of the equitable jurisdiction of the court. From prior proceedings in the case, the court has judicial knowledge that the defendant has undergone conviction and punishment, by fine and imprisonment, for his offense, and if he is also compelled; in addition to the ten per cent, of bis bills which he used in the bribery, to surrender the ninety per cent, for which, it is not directly questioned, there was value received from him, the result would hardly seem, in general understanding, to be equitable in fact. I am of the opinion that plaintiffs are not entitled to the remedy they seek, and should be restricted to the recovery of their actual damage, that is, the difference between-what they can show they ought to have paid, and what in fact they did pay for the work done.

What the court has here to deal with are fully executed contracts, concededly in their inception wrongful by the condemnation of the penal statute, and voidable but never wholly void so far as the plaintiffs are concerned. Statutes prohibiting and punishing certain sorts of contracts as public evils sometimes add to their prohibitory force by declaring such . contracts utterly void as to both parties, or by establishing, in addition to the criminal penalties, new civil remedies to any one directly wronged thereby, being penal, as to the wrongdoer but remedial as to the party wronged. Suth. Stat. Const., § 359; Endl. Stat., §§ 331-333. Examples easily instanced are usury laws, under which the borrower may keep his principal, and gaming laws, which, by abrogating the maxim that between wrongdoers the defendant is in the better position, permit the loser to recover his loss. The statute under consideration is not, however, of that character. It is purely penal, designed not to civilly redress a private injury,

but to criminally punish a public evil. It does not declare that contracts induced by its violation are void utterly, or for every purpose and to every party. It is true that in the Sirkin case, upon which plaintiffs principally rely, it was held that such contracts were void, but the court was in that case considering only the wrongdoer, and was under no necessity of directly drawing the distinction that contracts procured by violating the statute, while void as to the wrongdoer, would be merely voidable as to the party wronged. A contract may, either by statutory prohibition or by common law prohibition, have that effect. Inlow v. Christy, 187 Penn. St. 186, 190; Blinn v. Schwarz, 177 N. Y. 252, 259.

By this statute the party wronged is left in the civil courts, as is also the wrongdoer, in the same position in which the law might find him. The law will not aid the briber to recover upon the contract, but, if it has been executed, it will not take from him all that he has received and restore it to the other party. There is no new species of actionable .civil fraud declared. The terms “fraud ” and “ fraudulent ” used in the opinions in the Sirken ease were used only in a sense ethically denunciatory and not legally definitive. The employer is left to pursue the remedies he had before. It is not to be doubted that, if the corityact were executory, he could suo for cancellation or to compel the briber to perform, as he thought one or the other would benefit him, and equally it is not to be doubted that where it is executed he has but the ordinary forms of redress in case of fraud perpetrated, which are enumerated in Vail v. Reynolds, 118 N. Y. 297. These do not extend to absolute rescission and complete repayment of all moneys received, unless there is restitution before action, or offer to restore and actual tender thereof made at the trial. Vail v. Reynolds, supra; Gould v. Cayuga County Nat. Bank, 86 N. Y. 75. The cases cited by plaintiffs where the rescission was asked of unexecuted or partially executed contracts are clearly distinguishable. Furthermore, this case is, in substance, a prayer for the repayment of the whole amounts paid by the plaintiffs without any tender of, or allowance for, the value of the work admittedly done by defendant and used by plaintiffs, and without any claim by them of any-actual damage, or subjection to any limitation therein. The law takes cognizance of fraud, generally speaking, only when it has succeeded, completely or partially, that is, in the language of the law, only upon proof of “ damages ” caused by it. “ It was long since laid down that fraud without damage afforded no ground of redress in a suit for damages, and, it might be added, no ground of defense or of relief in equity, except by way of rescinding an executory contract.”—Bigelow on Fraud, 540-541. Pomeroy expresses this positively, and as a familiar principle, “ Fraud without resulting pecuniary damage is not a ground for the exercise of remedial jurisdiction, equitable or legal.” 2 Eq. Juris. (3d ed.) 898.

The difficulty which plaintiffs say should relieve them from the burden of ‘ ‘ overcoming the presumption that no unproved damages were sustained which the law raises between ordinary litigants,” and which difficulty they also allege stands in the way of their making any tender of the reasonable value of what they received, rests wholly upon the assumption that the defendant, and the employees in the corrupt collusion with him, will on the trial continue to collude and still persist in their original dishonesty. It may be entirely possible that they will do so, but there would then be presented no more than the difficulty commonly experienced, of extracting essential facts from hostile or reluctant witnesses. The damages sustained could be approximated by proof in support of allegations such as were made in the complaint in the action in the first department (150 App. Div. 476), to the effect that unnecessary materials and work were ordered,' and excessive prices paid, but such allegations are in the present complaint completely omitted. The inference that defendant overcharged plaintiffs to the amount he paid in bribes is thus excluded. Indeed any claim for any damage is excluded by the logic of the theory of their rights which plaintiffs have elected to adopt and affirm. This is that the statute has, in effect, created a new remedy or cause of action, based solely upon its violation, irrespective of actual damage, upon which they can exclusively rest. I do not think it has.

Plaintiffs7 motion should be denied, with ten dollars costs and leave to plaintiffs to amend their complaint on payment of such costs, the order to be settled on notice.

Motion denied, with ten dollars costs and leave to plaintiffs to amend complaint on payment of costs.