Gould v. Cayuga Co. Bank

• Decision Date: 09 June 1885
• Citation: 99 N.Y. 333,2 N.E. 16
• Parties: GOULD v. CAYUGA CO. BANK, etc.
• Court: New York Court of Appeals Court of Appeals

99 N.Y. 333

2 N.E. 16

GOULD

v.CAYUGA CO. BANK, etc.

Court of Appeals of New York.

Filed June 9, 1885.

W. F. Cogswell, for appellant, Cayuga Co. Bank, etc.

H. V. Howland, for respondent, Benjamin Gould.

FINCH, J.

Upon the argument of this appeal, the learned counsel for the appellant expressed a regret that he had been unable to impress upon the general term the precise and accurate point which he desired to make. The suggestion warns us to study the argument now made attentively, and not to miss its force and direction, and to endeavor to hold firmly for analysis and examination the distinction sought to be drawn, however it may seem to us somewhat subtle and narrow.

Assuming, for the purposes of the discussion, that a fraud existed, the argument upon both sides proceeds for a long distance upon parallel lines, and without divergence. The previous action between the parties was upon the contract by which the bank, and Beardsley as its surety, agreed to return to Gould his government bonds loaned temporarily to the corporation. Whether these bonds or their equivalents had been actually returned to Gould so as to have become his property on special deposit at the bank before the embezzlement of the cashier, and so which party had been robbed, was the precise fact in controversy. The defense was an agreement of compromise, and the reply that such agreement was void for fraud. We decided that the action was upon the original obligation, which was extinguished by the compromise agreement, so long as the latter stood; that while it might have been rescinded on the ground of fraud, it could not be so rescinded without a return of the $25,000 received upon it; and since that had not been tendered, the compromise stood and operated to extinguish the original obligation. But that one guilty of a fraud obtained complete immunity, because time or circumstance had made impossible a restoration of the parties to their original condition, seemed such a reproach to the law that we added a statement of the settled and undoubted rule that though one situated like the plaintiff may not be able to rescind he still has ample remedies. ‘He may keep what he has received, and sue to recover damages for the fraud; or he may commence an action in equity to rescind, and for equitable relief, offering in his complaint to restore, in case he is not entitled to retain what he has received.’ 86 N. Y. 84. The language thus used accurately reproduced an early statement of the law, and a still earlier decision, called out by the complaint of one unable to rescind, that it was hard to lose all remedy, (Leake, Cont. 397; Clarke v. Dickson, El., Bl. & El. 148,) and is abundantly supported by authority in our own state. Whitney v. Allaire, 4 Denio, 554;Van Epps v. Harrison, 5 Hill, 63; Kerr, Frauds & M. 330; Krumm v. Beach, 96 N. Y. 406.

But the correctness of the rule as thus laid down seems not to be challenged by the appellants, and needs no special defense. Their counsel grants that a substantive action for the fraud may be brought, but insists that when brought it can only be for a fraud in the subject-matter of the fraudulent contract, and with damages confined to that; or, to state it negatively, that fraud in an extrinsic subject, and damages which enforce and revive an extinguished obligation, are not within the meaning or intent of the rule which permits an action for the deceit. And then it is further contended that the present action is not for a fraud in the subject-matter of the compromise agreement, but for the amount of the original contract obligation, disguised as damages for a fraud. Beyond this statement of the point raised, as we understand it, we may prudently repeat it in the careful language of the learned counsel's brief. He says: ‘What is it that the plaintiff contracted for in the compromise agreement? It was twenty-five thousand dollars, which he got. He received just what he contracted for. There is no question as to any fraud in reference to the consideration which he received for his release. He does not seek by this action to have that consideration made equal to what it was represented to be, because there is no complaint but what it was thus equal. The fraud for which an action for damages will lie must be some fraud with reference to the subject-matter which the defrauded party has received by virtue of the fraudulent contract. Where there is no fraud with reference thereto, there can be no action.’ Such is the language addressed to us, and such the argument. It takes the $25,000 received to be the subject-matter of the compromise agreement, and assumes that there was no fraud in that, because it was all fully paid. Exactly at that point we take issue. The $25,000 was in one sense the subject-matter of the new agreement, but in the same sense the fraud sued for inhered in that identical subject-matter, and was, in the learned counsel's own language, ‘with reference thereto.’ What was the $25,000, and how came it to be, in the negotiation, that defined amount, and neither less nor more? Obviously it was the agreed value of a disputed right of action; but an agreed value won out of Gould by a false and fraudulent statement of the facts upon which such value depended. If no falsehood had been told him, that value would have been greater in his judgment, and so in his demand as a term of the compromise made; and that such value was fixed at $25,000, and no more, was the direct product and result of the fraud. If we can see that the sum received as the then fair value of the disputed...