188 A.D. 136 | N.Y. App. Div. | 1919
The complaint states a cause of action to recover damages for false and fraudulent representations, containing the essential elements of such an action, representation, falsity, scienter, deception and injury. (Brackett v. Griswold, 112 N. Y. 454, 467.) The answer admits the making of the agreement but denies the other material allegations of the complaint. The facts that the jury were justified in fin ding from the evidence are as follows: The plaintiff had been engaged in the business of fire insurance in the city of New York for twenty-five years; that on and before the 1st day
The complaint alleged that for the purpose of .inducing the plaintiff to enter into this contract the defendant represented that the John L. Dudley, Jr., Company was in all respects solvent; that it had ample assets to meet and pay its obligations and its capital stock was worth par and that it had a
Although the appellant’s counsel has given a full analysis of the testimony and calls attention to what he deems to be contradictions, he does not contend that the verdict was against the weight of the evidence. He predicates his appeal upon exceptions to the charge as to the measure of damages, and to the admission of evidence which in many instances involved the same question of law, as the evidence would have been admissible upon one measure of damage and immaterial if a different measure was to be applied. The court charged generally: “ If you are satisfied that the plaintiff has proved his case, as I have briefly described it to you, the plaintiff would be entitled to indemnity for the actual loss sustained as the direct result of the wrong complained of,” and specifically as to four items of alleged damages which will be considered later.
The respondent’s counsel states that this charge is in the exact language of the case of Ochs v. Woods (221 N. Y. 335, 340), and that prior to that ease there had been a conflict of decisions as to the rule of damages as typified by Krumm v. Beach (96 N. Y. 398) and Smith v. Bolles (132 U. S. 125), but that as the Court of Appeals in the Ochs case cites both of these cases as authorities for the proposition above stated, he argues that the rule stated in Smith v. Bolles has been adopted in this State, and, therefore, the plaintiff may elect under which rule he will claim his recovery. The learned
A contract induced by false and fraudulent representations is not void, but voidable. On discovery of the fraud the defrauded party has the election of several remedies: (1) He may rescind the contract by promptly tendering back all that he has received under it. He may then bring an action at law upon the rescission to recover back what he has paid, or (2) defend an action brought against him on the contract, setting forth the fraud and rescission as a defense. (3) He may bring an action in equity for rescission, the tender may be made in the complaint and must be kept good at the trial, and the court will adjust the relief as equity requires upon the facts established. (Davis v. Gifford, 182 App. Div. 99, 101.) These remedies are based upon a disaffirmance of the contract, in which the party rescinding or desiring to rescind in effect says, you have induced me to enter into this contract by fraud. I offer you what I received. Give me back that which you received, or if that be impossible pay me its value. (4) He may affirm the contract and sue for his damages. (5) If sued upon the contract, he may counterclaim his damages. There is this important distinction to be borne in mind. A contract may be rescinded for a mistake or innocent misrepresentation of a material fact. But an action for damage will only lie where the representation upon which it is based is shown not only to have been false and material, but that the defendant when he made it knew that it was false, or not knowing whether it was true or false and not caring what the fact might be, it was made recklessly, paying no heed to the injury which might ensue. (Kountze v. Kennedy, 147 N. Y. 124, 129.)
The measure of damages, where the defrauded party affirms the contract (4-5 supra), according to the general rule, is the difference in value of that received as it is, and what it fraudulently was represented to be. This is the settled rule in this State. (Whitney v. Allaire, 1 N. Y. 305, 312;
The rule of damages prescribed in that case, tersely stated, is, that the defrauded party is only entitled to recover the difference between the value of that with which he parted and the actual value of that which he received. This rule has been adopted by the following States: Maryland, Minnesota, New Jersey, Oregon, Pennsylvania and Washington.
The great weight of authority in this country is, therefore, in favor of the general rule which is the law in this State, and to my mind reason and justice sustain it.
The reason generally given in support of what we will term the Supreme Court rule is that the tort does not consist in the falseness of the representation, but in making the statement fraudulently, the result of the tort being not to change the value of the bargain but to cause the plaintiff to part with his property. Therefore, the direct result of the tort is the loss which the plaintiff sustained in paying a certain price for property which was worth less than he paid. His damage, therefore, is the difference in the value of that which he received and what he paid for it; that this loss is what the wrongdoer must have contemplated as the probable
Furthermore, this rule is said to be the logical outcome of the historical development of the various forms of action.
The argument runs thus: At common law there were three diEerent actions that could have been invoked: (1) Assumpsit on the imphed warranty. (2) Trespass on the case, in the nature of deceit for breach of warranty. (3) Trespass on the case for the deceit. All three had a common origin in trespass on the case. In the first two it was not necessary to allege scienter, while in the last scienter is the important element. In time, a mere representation, which in fact was untrue, gave rise to an action for breach of warranty and the action might be brought either in assumpsit or in trespass on the case, upon the warranty, and the measure of damages was the same. But in an action for deceit, the gist of which was the
¡ However persuasive this argument may appear in those States which still have the common-law pleading it has no force in this State, where the distinction between forms of action has been abolished and the relief is granted in accordance with the facts alleged and proved.
The general rale asks not what was the expectation of the person perpetrating the fraud, but what was the expectation of the defrauded party. He bought a certain thing which according to the representation of the other party was of a certain value. He gets something different. He is, therefore, entitled to the value of the thing he bought, which was the thing as it was represented to be, and his measure of damage is the difference between the actual value of that which he received and what .would have been the value had it in fact been as it was represented to be. If he does not want what he has received he has the option to rescind. But if he retains it he can recover the benefit of his bargain and the wrongdoer does not escape harmless, but he is required to make good his fraudulent representation by paying the difference in value of that which he delivered and what he represented he would sell. The reasons for this rale have been so clearly stated in the Court of Appeals cases above cited, especially in Krumm v. Beach (supra), that no further discussion of the subject is necessary.
In Ochs v. Woods (221 N. Y. 335) the plaintiff was induced to accept, in place of the defendant, a corporation as the
It is clear that in that case the plaintiff was not induced to enter into a contract whereby it was represented that he was getting something of -a larger value than that which he was giving to the defendant. He released the defendant from his claim to the commission, not on the representation that he by so doing would obtain a larger commission, but that he would receive the same commission. The fraud was in the defendant’s having "induced the plaintiff to release him and accept an insolvent corporation, whereby he lost the commission. It was a plain case of a deprivation of a right of action by deceit. There was no element of warranty in the case, hence the measure of damage would be the amount of the commission of which he was deprived less anything he may have received from the corporation. It clearly was not intended to change the settled measure of damage as declared in Krumm v. Beach (supra). The statement is entirely correct as to the basic principle underlying all rules for the measurement of damages for deceit. The cases of Krumm v. Beach and Smith v. Bolles both recognize this rule as the basic principle. They differ in the application of that principle to the case of a representation tending to induce the plaintiff to purchase something of a greater value than the price he is paying. In the Krumm case the defendant is held to his representation and must make good the difference between the value as represented and as the value actually was, while
In the instant case the learned justice laid down the basic principle and then charged specifically certain items of damage at the request of plaintiff’s counsel and submitted the written memorandum of these items to the jury. An error of $100 in subtraction in the first item was corrected in the charge but not in the memorandum, and is carried into the verdict as the verdict was for the total amount shown to be due by the memorandum, which was as follows:
1. Brokerage fees which he would have received on a business of
$50,000 at five per cent......... $2,500 00
Less amount received............ 300 00
--— $2,300 00
2. The amount earned on the business of the companies turned over by plaintiff to the John L. Dudley,
Jr., Company................... $8,534 70
Less pro rata share of expenses... 3,300 00
- 5,234 70
3. Amount expended by plaintiff to recover two of the five agencies turned over to the John L.
Dudley, Jr., Company,..................... 3,991 84
4. Note of the plaintiff to order of Atlas Insurance Company, which was assumed and payment guaranteed by the John L. Dudley, Jr.,
Company and the Suburban Agency Com-
pany, but which they failed to pay........ 6,552 19
Total.................................. $18,078 73
The difficulty with the specific charge that if the jury found that the plaintiff had sustained the burden of proof he was entitled to recover these specific items, is that there was
The respondent claims that the judgment is much less favorable to him than it would have been had the correct rale of damages been laid down for the guidance of the jury, and that if he is -willing to forego the advantage, the appellant has no cause to complain. The value of the business that he turned over upon the merger does not appear and we, therefore, have no means of arriving at a conclusion on that point. The appellant is here seeking a reversal, and demanding that the case be submitted upon the correct theory. This is his right. Such errors as were committed in the admission of evidence arose from the wrong theory of damages having been invoked and need no further discussion.
The judgment should be reversed and a new trial granted, with costs to appellant to abide the event.
Clarke, P. J., Laughlin, Dowling and Merrell, JJ., concurred.
Judgment and order reversed and new trial ordered, with costs to appellant to abide event.