Callanan v. . K., A.C. L.C.R.R. Co.

Oct 11, 1910

Reporters:: , ,
Before:: Vann

[EDITORS’ NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.]

The defendants ask us to settle the practice relating to the certification of appeals and to hold that when an application is made for leave to appeal and the Appellate Division certifies questions to be passed upon by the Court of Appeals, it should certify such questions as will finally determine the litigation, no matter by whom they were suggested.

We cannot control the right or form of certification, as the power to certify is ‍‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‍conferred upon the Appellate Division by the Constitution, and it is the sole judge of the proper method of exercising that power, although we can decline to answer the questions certified under certain circumstances, as we frequently do. An appeal by permission is not a right but a privilege. If the questions certified are not satisfactory to the party who desires to appeal, he need not avail himself of the privilege extended, but in a case like this can wait until final judgment is entered, and by his appeal from that judgment, with notice of an intention to review the interlocutory judgment, can bring up every question in the case. If the defendants were of the opinion that questions were not certified which they deemed essential, they should not have appealed as a matter of privilege, but should have waited until they could have appealed as matter of right. They had the option to appeal or not as they saw fit under the leave granted by the Appellate Division. By availing themselves of the option they waived, not temporarily but finally, the right to any review of the interlocutory judgment, except such as can be had by virtue of the questions certified. That judgment cannot be reviewed in sections, some questions on appeal by permission and others on appeal as matter of right, when both appeals are brought by the same party. Such a course would lead to confusion and greatly increase the labor of review. The appeal from the final judgment, therefore, if one is taken, either with or without notice of an intention to review the interlocutory judgment, will bring up no question relating to the latter, but only such as may arise upon the accounting. These are our views upon the subject, and while the question may not be raised in due form, owing to the request of the defendants that we should settle the practice, we have thought best to express them at this time.

The first question certified in behalf of the defendants is as follows: “Was the judgment authorized by the evidence and findings of the referee?”

The question is not whether the evidence supports the findings or the findings support the judgment, but whether the evidence and findings together support the judgment. We cannot find facts, but where the evidence is undisputed we may presume that certain facts were found although not expressed. The rule is that when a fact is not expressly found and no request is made upon the subject, an appellate court will presume in support of the judgment but not to reverse it, that such fact was found provided it was conclusively proved and tends to support the express findings. Only to this extent can findings be implied and, hence, we construe the first question as asking whether the judgment is authorized by the express findings and by those implied in support of the judgment according to the rule already stated. By reading the question with this meaning, and not otherwise, can we answer it effectively.

The findings prepared for the judgment roll are but few in number for so complicated an action, but after they were signed and filed, pursuant to an order of the ‍‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‍Special Term inadvertently made but not appealed from, many proposed findings, consisting mainly of evidential facts passed upon by the referee, were added and these additional findings cover about one hundred pages of the appeal book. He rendered judgment rescinding the contract on the theory that it had been continuously violated in all essential particulars by Powers and Mansfield and that they had repudiated from the outset a binding part thereof. He had power to decree rescission on either of these grounds without finding fraud. While the complaint alleged both fraud in making the contract and a continuous breach and repudiation thereof as the grounds upon which it should be rescinded, the referee rejected the allegations of fraud and proceeded to judgment upon the allegations of breach and repudiation. Rescission was the object of the action, and the plaintiff had the right to allege as many grounds for rescission as he saw fit. He could allege in the same complaint fraud in entering into the contract as one ground for rescission, the continuous and substantial breach of the contract as another ground, and the repudiation of a material stipulation as a third ground. In other words, he could allege as many grounds as he thought he could prove, and the defendants take nothing from the fact that he failed as to fraud when he succeeded upon the other grounds. It is not essential that the repudiation as to the extension of the road to Lake Placid should be a valid ground of rescission, as held below with the support of a strong argument by the presiding justice, provided the constant and substantial breaches in other respects were sufficient to authorize the judgment rendered. The referee found, as separate and distinct grounds upon which rescission should be predicated, the failure to transform the steam road into an electric road, to connect it with the dock on Lake Champlain and to extend it to the upper bridge in Keeseville.

We think the facts found expressly, without aid from implication, support the judgment, and that the evidence supports the findings. There is no hard and fast rule on the subject of rescission, for the right usually depends on the circumstances of the particular case. It is permitted for failure of consideration, fraud in making the contract, for inability to perform it after it is made, for repudiation of the contract or an essential part thereof and for such a breach as substantially defeats its purpose. It is not permitted for a slight, casual or technical breach, but, as a general rule, only for such as are material and willful, or, if not willful, so substantial and fundamental as to strongly tend to defeat the object of the parties in making the contract. Failure to perform in every respect is not essential, but a failure which leaves the subject of the contract substantially different from what was contracted for is sufficient. If the party who seeks rescission has an adequate remedy at law, ordinarily he is not entitled to rescind, but in case of repudiation, or of a breach going to the root of the contract, unless the damages can be ascertained with reasonable certainty, rescission is a ‍‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‍matter of right, with restitution instead of compensation. In this case the failure to perform was of a most substantial character and pervaded almost the entire contract. The road was not transformed into an electric road, nor extended to Keeseville, nor connected with the dock at Port Kent. It was still a steam road and for all practical purposes in the same condition as before the contract was made, but it had been incumbered for nearly three times the amount of the original issue of stock and bonds and the proceeds converted to their own use by Powers and Mansfield. There was such a failure to perform the substance of the contract as to defeat its purpose in nearly every essential respect. Even if an action at law were possible to a plaintiff suing in a representative capacity, it is obvious that the damages for such breaches of such a contract could not be estimated with precision. Whether the road would make or lose by the transformation and extension, and what the profits would be, if any, depended on so many unknown circumstances that the subject necessarily rested on conjecture and speculation. The railroad company and the plaintiff waited long for performance, but after more than a reasonable time had elapsed an election to rescind was made. After that nothing was done by way of negotiations or otherwise to keep the matter open. The plaintiff assuming to act in a representative capacity elected to rescind and stood by his election and what the defendants have done since is immaterial except as equity may require such restitution of subsequent additions or improvements as can be made without injury to the plaintiff or the company. Tender of restitution in the complaint is sufficient in an action in equity brought for a rescission. (Vail v. Reynolds, 118 N.Y. 297.) There was no remedy at law open to the plaintiff, for a representative action, brought to compel a corporation to do something which it ought to do but cannot do because it is under the control of the other defendants, is necessarily an equitable action. The plaintiff had no standing except in equity, for he could not represent other stockholders or the railroad company in any other forum. An express finding that he had no remedy at law was unnecessary, for that is a legal conclusion flowing from the nature of the action.

The first question certified in behalf of the defendants, as already construed, should be answered in the affirmative.

The second question presented by the defendants’ appeal, “Is the judgment secundum allegata,” requires brief attention. While every fact found is alleged, it cannot be said that the judgment accords with all the allegations of the complaint, for it was not according to the allegation of fraud. As already appears, however, it is in accord with the allegation of repeated and fundamental breaches of the contract sought to be rescinded. As we have shown, this is sufficient to authorize a judgment of rescission, which, although demanded upon various grounds, must stand if based on but one adequate ground. This question, therefore, should also be answered in the affirmative.

The defendants’ third question relates to conversations between Powers and Mansfield and the officers and directors ‍‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‍of the railroad company before and at the time of making the contract. It is claimed that these conversations were incompetent, because they were merged in the written contract, according to the familiar rule. The plaintiff, however, had alleged fraud as a ground of rescission, and he had a right to prove the existence of fraud if he could. On that issue the contemporary and preceding conversations, both those involving representations and those tending to show that the directors relied upon them, were competent, and although the plaintiff did not succeed on the issue of fraud, still the receipt of that evidence was not error. (Thomas v. Scutt, 127 N.Y. 133, 137.) Moreover, the evidence could not have injured the defendants, because the judgment did not change or modify the contract in any way. It acted on the contract as made and rescinded it for causes occurring after it was made. The third question, therefore, should be answered in the negative.

The question certified in behalf of the plaintiff is as follows: “Was the relief properly conditioned on payment or provision for payment of the expenditures made after the action was brought?”

By the original judgment the plaintiff was required to pay back all that had been expended prior to the commencement of the action and to restore or permit the removal of all property delivered to the railroad company after that date, which could be removed without injury to the plant. This left the parties in statu quo as far as possible. By the modified judgment he was required to pay in addition to the amount expended before the commencement of the action all that was expended thereafter and down to the date of judgment. This placed a burden on the plaintiff that the law does not require.

The right to rescind depends on the situation at the time the action is commenced, and if the right exists then, no subsequent act of the party in default without the consent of the plaintiff can defeat it. When rescission is decreed, the judgment of rescission relates back to the commencement of the action and the rights of the parties depend on the facts as they then existed. Anything done by the party in default toward performance after that date is at his peril, for, as subsequently adjudged, there was then no contract to perform and nothing done could be attributed to the contract. If complete restitution of benefits conferred by partial performance after suit was brought cannot be had, the party in default has only himself to blame, for acting with full knowledge he could not deprive the plaintiff of what he was lawfully entitled to. Whatever the defendants expended after the commencement of the action was expended with notice that the plaintiff had elected to rescind the contract and had brought an action to effect rescission. With this notice they ran the risk of having any expenditures made after that date restored to them. As the plaintiff comes into a court of equity, however, he should do equity and it is equitable that, as a condition of relief under the circumstances of this case, he should pay for the actual benefits received by the road as a steam road, ‍‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‍but only to the extent that they increase the value of the road as a steam road. The company should not be allowed to retain reasonable additions and improvements costing but little and of permanent value to it as a steam road without paying, not what they cost, but what they are worth to it as a steam road. The amount cannot be large and may be so trifling that it might be overlooked, but exact justice requires it to be paid. Removal of all that could be removed without injury to the property was allowed by the referee, and whatever cannot be removed should be paid for to the extent that it is beneficial to the road as a steam road, such as it was when the contract in question was made and no farther.

The order of the Appellate Division should be reversed and the interlocutory judgment entered upon the report of the referee modified so as to require as a further condition of relief, in addition to those specified by the referee, that the plaintiff or the railroad company should account for the value of such reasonable improvements to its realty, if any, as are of permanent benefit to the road as a steam road, and which cannot be removed without injury to the realty, and that as so modified the interlocutory judgment be affirmed, with costs of this appeal in favor of the plaintiff and against the defendants Joseph A. Powers and Walter H. Mansfield, and questions answered as stated in this opinion.

CULLEN, Ch. J., GRAY, HAIGHT, WERNER, HISCOCK and CHASE, JJ., concur.

Ordered accordingly.