Richard v. Credit Suisse

• Decision Date: 04 May 1926
• Citation: 152 N.E. 110,242 N.Y. 346
• Parties: RICHARD et al. .v CREDIT SUISSE.
• Court: New York Court of Appeals Court of Appeals

242 N.Y. 346

152 N.E. 110

RICHARD et al..vCREDIT SUISSE.

Court of Appeals of New York.

May 4, 1926.

Action by Oscar L. Richard and others against Credit Suisse. From a judgment of the Appellate Division (214 App. Div. 705, 209 N. Y. S. 909), affirming a judgment of the Special Term (124 Misc. Rep. 3, 206 N. Y. S. 150), entered pursuant to an order which granted plaintiff's motion for summary judgment, under Rules of Civil Practice rule 113 defendant, by permission, appeals.

Affirmed.

Lehman and Andrews, JJ., dissenting.

Appeal from Supreme Court, Appellate Division, Firstdepartment.

Joseph M. Hartfield, James Adam Murphy, and Henry Escher, all of New York City, for appellant.

Walter H. Pollak and J. Charles Weschler, both of New York City, for respondents.

CARDOZO, J.

The plaintiffs, bankers in New York, contracted by cable with the defendant, a Swiss bank, for the purchase of Polish marks to be paid by the defendant to the plaintiffs or the plaintiffs' nominee at a bank at Warsaw, Poland. Aggrieved by unreasonable delay in the execution of the orders, they have given notice of election to treat the contracts as rescinded, and have sued for the recovery of the money paid with interest. The defendant has answered their complaint with denials and defenses. The question is whether there is anything of substance to be tried. Curry v. Mackenzie, 239 N. Y. 267, 270,147 N. E. 173.

The first of three contracts was made on or about May 14, 1920. Its subject-matter was 10,000,000 Polish marks, to be paid at Warsawto one Stanislas Lesser, plaintiffs' nominee. The defendant gave an order by telegram to its Warsaw correspondent for the creation of the credit, but the order was disregarded. The plaintiffs rescinded in March, 1921, when they learned for the first time that payment had not been made. The second contract, made on June 1, 1920, was for 2,000,000 Polish marks, to be paid to the plaintiffs at the Commerz Bank at Warsaw. There was failure of performance as late as May, 1921, when restitution was demanded. The third contract, made on June 29, 1920, was for the same amount of marks as the second, the credit to be established in favor of the plaintiffs, once more at Warsaw, Poland. There was failure of performance as late as the following July.

[1] Defendant insists that the plaintiffs' allegations of default are placed in issue, at least formally, by the denials of the answer, and that the supporting affidavits upon the motion for summary judgment do not establish the breach with technical precision. We are unanimous in holding that this issue is unreal. There is no need to determine whether the books of the Warsaw bank and the admissions of its officers would serve without more, to charge the defendant with liability. Even if these were to be disregarded, enough would be left. We have the defendant's own letters, which are instinct with the admission that its correspondent was at fault. More than this, we have the affidavit of its attorney, which states in effect that the denials are merely formal and are to be interpreted and justified as conclusions drawn by the pleader from the affirmative defenses. The very object of a motion for summary judgment is to separate what is formal or pretended in denial or averment from what is genuine and substantial, so that only the latter may subject a suitor to the burden of a trial. The defendant is not aggrieved if we take it at its word.

Nonperformance being proved, there remains the question of the remedy. The plaintiffs ask for restitution. The defendant would limit them to damages. Rescission, it is said, is inequitable because of silence and inaction. Banking at Warsaw was impeded by a state of war between Soviet Russia and Poland. The defendant did not repudiate its contracts, nor refrain altogether from some effort to perform them. Its plight is due in part to the default of some one else, its chosen correspondent. Out of this predicament, there have emerged in the defendant's view new equities and duties that might not call for recognition if the default had been intentional. In such a situation, the plaintiffs, it is said, should have investigated for themselves the state of Lesser's credits and their own within the territory of war, and given warning to the defendant whether they rescinded or affirmed. We think the right to restitution continues unimpaired.

[2] There is a distinction between rescission for fraud, which goes upon the theory that a contract is to be treated as nonexistent for lack of true assent, and rescission for abandonment, which goes upon the theory that a contract is avoided for nonperformance though valid in its origin. In the one situation, notice of rescission must follow promptly upon discovery of the fraud. This at least will be assumed, though there may be exceptions even here. Cf. Ripley v. Hazelton, 3 Daly, 329; Wolf v. Nat. City Bank, 170 App. Div. 565, 570, 156 N. Y. S. 575. ‘What promptness of action a court may reasonably exact * * * must depend in large measure upon the effect of lapse of time without disaffirmance, upon those whose rights are sought to be divested.’ U. S. Supreme Court, per Stone, J., in Barnette v. Wells-Fargo Nat. Bank (decided March 15, 1926) 46 S. Ct. 326, 70 L. Ed. 669. In the other situation, which in the view of learned authors is not properly to be characterized as an instance of rescission at all (Woodward, Quasi Contracts, § 260; Anson, Contracts [Corbin's Ed.] § 402, p. 465, note), notice may be given at any time within the period of the statute of limitations unless delay would be inequitable (Williston, Contracts, § 1469; Woodward, Quasi Contracts, §§ 260-267; Richter v. Union Land Co., 129 Cal. 367, 374, 62 P. 39). Such inequity will result, for instance, if there is property to be returned, or if reliance upon apparent acquiescence will result in hardship or oppression. ‘Indeed it is probable that some element either of ratification or of estoppel is at the root of most cases, if not all, in which an election of remedies, once made, is viewed as a finality’ (Schenck v. State Line Telephone Co., 238 N. Y. 308, 312, 144 N. E. 592, 35 A. L. R. 1149). Inaction without more is not tantamount to choice. If the defendant had promised to make delivery of cotton at a designated warehouse within a reasonable time, the plaintiffs would have been under no duty to rescind when first they discovered that delivery had been unreasonably delayed. They might postpone the election until their patience was exhausted by aggravation of the wrong. Trainor Co. v. Amsinck & Co., Inc., 236 N. Y. 392, 140 N. E. 931;Murray Co. v. Lidgerwood Mfg. Co., 241 N. Y. 455, 150 N. E. 514. In the absence of special circumstances, the rights of the parties are not different where the subject of the contract is a sale of foreign money, or, what is substantially equivalent, the creation of a foreign credit. Rescission is not barred because indulgence has been shown. Rose v. Foord, 96 Cal. 152, 155, 30 P. 1114; Richter v. Union Land Co., supra.

[4] Election presupposes knowledge, or at least the omission to fulfill some duty of inquiry from which knowledge would have followed. There is no claim by the defendant that the plaintiffs failed to rescind promptly after knowledge of the breach. The claim is merely that diligent inquiry would have brought knowledge to them sooner. The duty to make inquiry has a foundation, it is said, in custom. The answer pleads a custom whereby the purchaser of the foreign credit inquires within a reasonable time whether the credit has been established in accordance with the contract. Inquiry is addressed not only to the bank that is to open the account, but also to the beneficiary for whose benefit it should be opened. A supporting affidavit informs us that by the exactions of the custom a duty of inquiry rests upon the seller of the credit as well as upon the buyer, though the receipt of a debit note from the correspondent bank may dispense with further inquiry where there is no reason to suspect that performance has been withheld. The custom is assailed as unreasonable and in other respects invalid. We leave that question open. For the purpose of this appeal, we assume in favor of the defendant that in possible situations the failure of the buyer to make the prescribed inquiry will be a bar to restitution. We cannot doubt, however, that it fails of that effect where the seller has made inquiry for himself and ascertained the truth, or would have ascertained the truth if his own duty had been fulfilled. In the light of these principles, the three causes of action will be successively considered.

[5] 1. The first cause of action is based upon the plaintiff's order of May 14, 1920, for 10,000,000 Polish marks to be paid to Mr. Lesser at Warsaw, Poland. In execution of that order, the defendant telegraphed its Warsaw correspondent, the Commerz Bank, on May 17, and on May 21 wrote a confirmatory letter. The letter reached its destination, but the telegram miscarried, and so the defendant was advised. Apparently this advice was delayed until July 16, for the defendant states that on that day, and at once upon being informed of the miscarriage of the first telegram, it telegraphed the Commerz Bank again to set up the credit, valued as of May 19. To this on July 20 it received an answer to the effect that, since Lesser had no account with the bank, the order could not be executed beyond the value at the date of payment. There was a request at the same time for instructions as to the disposition of the interest. A few days afterwards (August 1) a moratorium was declared, and the credit was no longer available except for ten per cent. monthly of the previous balance. On July 20, if not before, the defendant knew that the credit had not been established within a reasonable time after May 14. Then, if not before, it knew itself in default. With that knowledge, it gave no notice to the plaintiffs to...