Such v. Bank of State of New York

• Decision Date: 02 January 1904
• Citation: 127 F. 450
• Parties: SUCH v. BANK OF STATE OF NEW YORK.
• Court: U.S. District Court — Southern District of New York

127 F. 450

SUCH v. BANK OF STATE OF NEW YORK.

United States Circuit Court, S.D. New York.

January 2, 1904

Robt. Ludlow Fowler, for demurrer.

Robt. L. Harrison, opposed.

WALLACE Circuit Judge.

Upon the facts set forth in the bill, the complainant has an adequate remedy at law by an action of trover or replevin to redress the conversion by the defendant of the 1,500 shares of stock pledged by the complainant, and sold by the defendant, as is alleged, in violation of the conditions of the pledge, unless he is precluded from assailing in an action at law, upon the ground of fraud and misrepresentation, the settlement made by him with the defendant.

The bill alleges that the complainant, relying upon certain statements made on behalf of the defendant, that 'said stock had been actually sold on the New York Stock Exchange and had not been purchased by any one connected with said bank, and that said bank was acting within its rights in the sale of said stock,' and believing that he would otherwise lose the sum of $48,000, accepted and received from the defendant the sum of $24,000, and 'signed and delivered to said defendant a receipt in full settlement of all transactions with the bank to date,' and amongst other relief, prays that the settlement be declared null and void.

If the receipt thus alleged to have been given had been a release under seal, it is plain that upon the authorities which control in this court the complainant would have to resort to the equity side of the court to avoid its effect upon the ground of fraud. In Hartshown v. Day, 19 How. 222 15 L.Ed. 605, the court said:

'The general rule is that, in an action upon a sealed instrument in a court of law, failure of consideration or fraud in the consideration, for the purpose of avoiding the obligation, is not admissible as between the parties and privies to the deed, and more especially where there has been a part execution of the contract. The difficulties are in adjusting the rights and equities of the parties in a court of law; and hence in the states where the two systems of jurisprudence prevail-- of equity and the common law-- a court of law refuses to open the question of fraud in the consideration, or in the transaction out of which the consideration arises, in a suit upon the sealed instrument, but turns the party over to a court of equity, where the instrument can be set aside upon such terms as, under all the circumstances, may be equitable and just between the parties.'

In George v. Tate, 102 U.S. 564-570, L.Ed. 232, the action was upon a bond, and the defendant sought to establish that its consideration was induced by false and fraudulent representations. The court said:

'It is well settled that the only fraud permissible to be proved at law in these cases is fraud touching the execution of the instrument, such as misreading, the surreptitious substitution of one paper for another, or obtaining by some trick or device an instrument which the party did not intend to give. The remedy is by a direct proceeding to avoid the instrument.'

These are the only cases in which the question has been considered by the Supreme Court. Following these decisions, the rule obtains in this circuit that to avoid the effect of a release under seal by one who alleges that it was obtained by fraud relating to the consideration, and not merely to the execution of the instrument, resort must be had to a court of equity. Shampeau v. Connecticut River Lumber Co (C.C.) 42 F. 760; Kosztelnik v. Bethlehem Iron Co. (C.C.) 91 F. 666. A contrary decision by the Circuit Court of Appeals for the Sixth Circuit (Wager v. National Life Insurance Co., 90 F. 395, 33 C.C.A. 121), and another by Judge Shiras (Vandervelden v. Chgo. & Northwestern Ry. Co. (C.C.) 61 F. 54), have been cited. If...