Opinion
November Term, 1901.
Udelle Bartlett and P.W. Cullinan, for the appellant.
George F. Quinn, for the respondent.
It is elementary, as a general proposition, that in order to rescind a contract on the ground of fraud, there must not only be a disaffirmance of it at the earliest practicable moment after the discovery of the fraud, but a return of all that has been received under it, and the restoration of the other party to the condition in which he stood before the contract was made. ( Cobb v. Hatfield, 46 N.Y. 533.)
In Masson v. Bovet (1 Den. 69) the court said: "The party who would disaffirm a fraudulent contract must return whatever he has received upon it. This is on a plain and just principle. He cannot hold on to such part of the contract as may be desirable on his part, and avoid the residue, but must rescind in toto if at all."
In Gould v. Cayuga County National Bank ( 86 N.Y. 75) it was held that a creditor who entered into a compromise of a disputed claim and thereunder received a payment, cannot maintain an action on his original claim on the ground that he was induced by fraud to make the compromise, without first returning or tendering, before bringing the action, the sum paid him, to the debtor, without qualification or condition.
It would seem to be the contention of the respondent that the rule adverted to does not apply to an action for negligence. We can conceive of no reason why the rule is not applicable to such actions, and we think no case can be found which holds to the contrary.
Shaw v. Webber (79 Hun, 307) was an action to recover damages for personal injuries alleged to have been sustained by the plaintiff through the negligence of the defendant. It was shown that the plaintiff had executed a release discharging the defendant from all claims for damages, at the time of the execution of which she was paid $100 by the defendant. The plaintiff did not return or offer to return the $100, and it was insisted by defendant that for that reason the action could not be maintained. The court held that the action was maintainable, but solely for the reason that there was evidence which would justify the jury in finding that the $100 was paid by the defendant to the plaintiff as a gift and not in settlement of the cause of action, and that the release was executed by the plaintiff in ignorance of its contents and through the fraud of the defendant. In other words, that case simply held that as there was evidence tending to show that the $100 was not paid or received in settlement of the cause of action, but as a gift, the plaintiff was entitled to retain it and recover the full amount of damages which she had sustained, wholly independent of such gift.
The case of Cleary v. Municipal Electric Light Co. (47 N Y St. Repr. 172; affd., 139 N.Y. 643) was an action of negligence, in which a release was executed by the plaintiff discharging the defendant from all claims on account of defendant's negligence. Upon the execution of such release the defendant paid to the plaintiff the sum of $250, and it was insisted that the plaintiff not having tendered back such sum the action could not be maintained. The jury found that the $250 was paid to the plaintiff, not in settlement for defendant's negligence, but for wages due and owing by it to the plaintiff, and that the release was executed by the plaintiff inadvertently and without knowledge of its contents. Upon those facts the court held that the plaintiff might recover the full amount of damages sustained by him on account of the defendant's negligence, and wholly independent of the amount paid him as wages. These cases and others to which reference might be made in no manner conflict with the general rule that a person who seeks to rescind a contract into which he has entered through the fraud of another, must return or offer to return whatever he has received under such contract.
In Lyons v. Allen ( 11 App. D.C. 543) it was held that in an action to recover damages for personal injuries, a party who seeks to avoid the effect of a release under seal on the ground that it was procured by fraud, must first restore the consideration, and that it was no answer that the amount received had been discounted from the verdict.
In Levister v. Southern Railway Co. ( 56 S.C. 508) it was held that in an action of negligence a person executing a release cannot maintain an action for damages without offering to return the money so received, although he alleges that the release was obtained by fraud. (See Och v. Missouri, Kansas Texas Ry. Co., 130 Mo. 27.)
The reason and justice of the rule thus laid down is so apparent that it would seem unnecessary to cite authorities in its support. Any other would permit a party to prosecute an action without taking any chances, and with means furnished by his adversary; would enable an unscrupulous plaintiff to obtain as large an amount as possible in settlement of his alleged cause of action through negotiation with the defendant, and with the funds thus obtained seek to secure a larger sum in an action brought upon the same cause of action, and without running any risk of losing what he first obtained. In the case at bar, if the jury had determined that the plaintiff had sustained only $400 damages by the death of his son, the defendant could not have recovered a judgment for the amount paid to the plaintiff in excess of that sum.
We then have the anomalous situation of a jury being instructed in effect to credit the defendant with the amount paid by it to the plaintiff, in case such sum equals or is less than the amount of damages sustained by the plaintiff, but if the sum so paid is greater than the damages thus sustained, no credit can be given for the excess, and a final judgment as to it cannot be given. In such case a plaintiff must offer to return the amount received upon the settlement of a cause of action, which he repudiates for fraud, before he will be permitted to enforce the same in an action at law.
It is, however, urged that the settlement of the cause of action by John Doyle was ineffectual for any purpose, because made by him individually before he was appointed administrator, and before he was substituted as plaintiff in the action; that as administrator he was not required to tender to the defendant the $800 which he as an individual received from it. The proposition is untenable. The plaintiff being the only heir at law and next of kin of the deceased, the cause of action belonged to him. By section 1903 of the Code of Civil Procedure the entire recovery belonged to the father, the mother being dead. Under such circumstances John Doyle had an absolute right to settle his cause of action; had a right to release the defendant from any damages which belonged solely to him. Independent of any question of attorneys' fees and the costs and expenses of the preceding administrator, plaintiff's right to settle his cause of action is beyond question. Such claims are not involved upon this appeal, for the action was not continued or prosecuted to recover such costs or upon any such theory, but solely for the purpose of recovering the damages sustained by the plaintiff by the death of his son. In order that the trial might proceed for the purpose of determining the rights of plaintiff's attorneys as to costs, an order of the court authorizing it should have been obtained. ( Oliwill v. Verdenhalven, 26 N Y St. Repr. 115; Randall v. Van Wagenen, 115 N.Y. 527; Lee v. Vacuum Oil Co., 126 id. 579; Coughlin v. N.Y.C. H.R.R.R. Co., 71 id. 443; Quinlan v. Birge, 43 Hun, 483.)
In the latter case it was said: An attorney "cannot proceed in the action after settlement for the purpose of enforcing his lien, without leave of the court, which in a proper case it is the practice of the court to grant on notice to all interested parties."
John Doyle, the only person interested in the recovery in this action, having been appointed administrator, such appointment relates back to the death of his intestate. Under such circumstances his acts in respect to the estate were legalized by his appointment, and have the same force and effect as if done after the appointment was made.
In Smith v. Robinson (30 Hun, 269), which was an action by an administrator to foreclose a mortgage owned by his intestate, it appeared that before the administrator was appointed he executed a formal discharge of the bond and mortgage in suit. It was held that upon the appointment of the administrator the discharge became valid and effective, and binding on all persons interested in the estate of the deceased. The court said: "Letters of administration, when properly granted by the appropriate tribunal, have relation to the time of the death of the intestate, and legalize all of the intermediate acts of the administrators. After being clothed with the authority thus bestowed upon him, he is not permitted to question the validity of his own agreements and contracts, which he may have entered into in good faith prior to his appointment, concerning the property and debts of the intestate. The effect of this rule of law is very broad, and is so applied as to confirm and legalize the acts which he may have done, as administrator de son tort, both for and against himself. * * * Upon his appointment he becomes charged in his representative capacity, the same as if his dealings with the estate had occurred after he was vested with the legal right, and the sureties on his bond are liable to the same extent as their principal."
In Priest v. Watkins (2 Hill, 225) one of the two administrators, before letters granted, having a note in his possession belonging to the intestate, received pay thereon from the debtor, and this act was held to bar a suit by the administrators after their appointment. (See, also, Vroom v. Van Horne, 10 Paige, 549.)
In Gottsberger v. Taylor ( 19 N.Y. 150) it was held that the sureties of an administrator were liable for the money belonging to the estate received by him before his appointment.
The conclusion is reached that the settlement made by John Doyle, he being the only person entitled to the damages recoverable in this action, although made before he was appointed administrator and before he was substituted as plaintiff, had the same force and effect as if made by him after such appointment and substitution, and that not having paid back or tendered to the defendant the amount received by him upon such settlement, the defendant was entitled to a dismissal of the complaint.
It follows that the judgment and order appealed from should be reversed and a new trial granted, with costs to the appellant to abide event.
All concurred.
Judgment and order reversed and new trial ordered, with costs to the appellant to abide event.