Merry Realty Co. v. Shamokin & Hollis Real Estate Co.

• Decision Date: 01 March 1921
• Citation: 130 N.E. 306,230 N.Y. 316
• Court: New York Court of Appeals Court of Appeals
• Parties: MERRY REALTY CO., Inc., v. SHAMOKIN & HOLLIS REAL ESTATE CO., Inc., et al.

230 N.Y. 316

130 N.E. 306

MERRY REALTY CO., Inc.,

v.SHAMOKIN & HOLLIS REAL ESTATE CO., Inc., et al.

Court of Appeals of New York.

March 1, 1921.

Action by the Merry Realty Company, Incorporated, against the Shamokin & Hollis Real Estate Company, Incorporated, and others. From a judgment of the Appellate Division (186 App. Div. 538,174 N. Y. Supp. 627) affirming a judgment of the Special Term for named defendant, the plaintiff appeals.

Reversed, and new trial granted.Appeal from Supreme Court, Appellate Division, Second Department.

John M. O'Neill, of Brooklyn (Murray Hulbert and Benjamin F. Schreiber, both of New York City, of counsel), for appellant.

Herbert A. O'Brien, of Jamaica (Frederick N. Van Zandt, of Brooklyn, and George F. Hickey, of New York City, of counsel), for respondent.

CRANE, J.

The Shamokin & Hollis Real Estate Company, Incorporated, composed of people living in Shamokin, Pa., owned a block of lots at Hollis, Long Island. The plaintiff, the Merry Realty Company, Incorporated, owned No. 1057 Bergen street in the borough of Brooklyn. The companies exchanged their properties, the Merry Realty Company, Incorporated, acting through one Henry B. Martin, a mere dummy. The trial court found upon ample evidence that the Merry Realty Company, Incorporated, brought about the exchange by means of gross fraud and deception. These findings have been unanimously affirmed by the Appellate Division, and we have no desire to disturb them even if we had the power so to do.

A question has arisen, however, as to the practice followed by the trial court in the relief granted by the judgment.

Upon discovering the fraud the Shamokin & Hollis Real Estate Company, Incorporated, began an action against the plaintiff for rescission, which action was pending at the time this suit was begun.

The present action was commenced by the Merry Realty Company to foreclose a second mortgage of $6,000 which was part of the consideration for the exchange. The defendant Shamokin & Hollis Real Estate Company set up in its counterclaim the facts of the fraud and asked for a rescission of the exchange and a recovery of its Hollis lots.

The answer is not as specific in the demand for relief under this counterclaim as it might have been. The twenty-second allegation thereof reads as follows:

‘That by reason of all of these misrepresentations, fraud, and deceit on the part of the plaintiff, its officers and agents, the said defendant has been damaged to the extent of $29,000, and the said defendant hereby tenders to the plaintiff a deed for the property, 1057 Bergen street.’

The prayer for relief is as follows:

‘Wherefore the said defendant demands judgment against the plaintiff that the mortgage herein be set aside and canceled, and that the defendant the Shamokin & Hollis Real Estate Company have judgment against the plaintiff in the sum of $29,000 damages, together with the costs and disbursements of this action.’

Thus the defendant tenders back the property and asks the court to cancel the mortgage and to award it damages.

[1] It is quite evident from a tender of the deed made in the complaint and this prayer for cancellation that the counterclaim called for equitable relief. It was not a counterclaim for money damages for fraud and deceit, as no return of the property received can be made in such a case. Heckscher v. Edenborn, 203 N. Y. 210, 220,96 N. E. 441.Rescission and an action for damages are inconsistent remedies and cannot coexist, as one rests upon the avoidance of the contract and the other upon its affirmance.

[2] One of the findings of the court was that the Shamokin & Hollis Real Estate Company by its prior action had sued for rescission. An action to recover the property parted with is an election to rescind the contract. Powers v. Benedict, 88 N. Y. 605;Elevator Co. v. Union Pacific Ry. Co., 97 Iowa, 719, 66 N. W. 1059,59 Am. St. Rep. 434.

The purpose of the counterclaim and the intention of the pleader were fully revealed early in the trial by the following statement made to the court:

‘Mr. O'Brien: I regret that I have got to ask your honor's indulgence in changing the relief demanded here.

‘The Court: What is that?

‘Mr. O'Brien: After the twenty-second paragraph, in the haste of preparation, we have a demand for $29,000 damages. We do not want $29,000 damages; we want the transaction set aside.

‘The Court: You want the thing put back?

‘Mr. O'Brien: And the lots restored to the defendant the Shamokin-Hollis Real Estate Company, together with what damages it has suffered in the way of expenses in the property, which are approximately $2,000.

‘The Court: That would be the relief you would ordinarily ask for, predicated upon the allegations in your counterclaim?

‘Mr. O'Brien: Yes.

‘The Court: You can be deemed to have your prayer amended in that regard.’

It was conceded by counsel that at the time of the trial the Merry Realty Company had title to the Hollis lots through a deed from its dummy, the defendant Martin.

On the trial the defendant in proving the fraud proved the relative value of the Bergen street property and the Hollis lots. This bore upon the fraudulent misrepresentations,which need not be referred to here, as they are immaterial to the point under discussion. The damages which the defendant sought to prove were the expenses which it was obliged to pay and the commissions.

In answer to the court's question, ‘What are you trying to prove?’ counsel replied, ‘Trying to prove the loss of approximately $1,500 in cash.’

We therefore have the case presented to us as follows: The plaintiff has brought action to foreclose a mortgage, taken in exchange of property as part consideration. The defendant having previously brought action for rescission, counterclaims by pleading the facts justifying rescission and asking that the exchange be set aside, that the Hollis lots be restored to it, together with $1,500 damages.

The trial proceeded upon this theory, no other claims were made for relief than those here stated, and the trial judge took the matter under advisement.

The judgment was not for rescission, but for $12,000 damages against the plaintiff for fraud and deceit. This represented the difference in the value of the equities between the properties exchanged. The court canceled the mortgage of $6,000 in part payment of these damages and gave judgment for the balance plus commissions paid, making $6,625. Was the court right in thus awarding money damages for fraud and deceit instead of rescinding the transaction and giving back the lots as prayed for?

[3] There is no doubt but that a court of equity, where it appears that rescission has become impossible, may grant money damages in lieu thereof, but that is not this case, as there is no finding and no evidence to show that the exchange could not have been set aside and the respective properties restored to their original ownership together with damages to adjust the equities. Valentine v. Richardt, 126 N. Y. 272, 277,27 N. E. 255;Dudley v. Congregation, Third Order of St. Francis, 138 N. Y. 451, 34 N. E. 281.

The remedies for fraud are stated to be: (1) An action for deceit in tort; (2) in proper cases an informal rescission of the contract at law and a recovery of what has been parted with thereunder; (3) in proper cases a formal decree a rescission or cancellation in equity and a recovery of what has been parted with thereunder; (4) a defense against the enforcement of the executory promise induced by the fraud. The election of one of these remedies is a waiver of the others. Page on Contracts, p. 539, § 339; Gould v. Cayuga Co. Nat. Bank, 99 N. Y. 333, 337,2 N. E. 16.

If rescission is the remedy selected, it must be in whole, and not in part. If there be an affirmance, it must be of all the terms and conditions of the transaction. Hayward v. Wemple, 152 App. Div. 195, 198,136 N. Y. Supp. 625;McNaught v. Equitable Life Assurance Soc. of U. S., 136 App. Div. 774,121 N. Y. Supp. 447;Gatling v. Newell, 9 Ind. 572.

[5] The defendant had elected to rescind before this action was brought. After the amendment of the answer at the trial full and complete rescission was demanded. The judgment was not for rescission, but for damages as in an action at law. The relief granted was inconsistent with the pleadings and the theory of the action. This, we think, was error.

In Bradley v. Aldrich, 40 N. Y. 504, 509, 511 (100 Am. Dec. 528), it was said:

‘It is...