Appellate Division of the Supreme Court of New York, First DepartmentJan 1, 1903
78 App. Div. 151 (N.Y. App. Div. 1903)
78 App. Div. 15179 N.Y.S. 699

January Term, 1903.

Charles B. Alexander, for the appellants.

H. Snowden Marshall, for the respondent.


So far as is material to the disposition of the present appeal, it is only necessary for us to determine the effect of the letter of May eighth, the rights and liabilities of the parties arising therefrom, and the determination of the court based thereon.

The plaintiff in his complaint stands squarely upon the agreement of March twenty-seventh, and from anything which appears in the complaint the later agreement of May eighth has no existence. This did not, however, eliminate it from the case. It being averred in the answer, as matter of defense, the plaintiff was required to meet it by showing that it was either legally insufficient, or that it had no effect as matter of fact. It was not necessary for the plaintiff to traverse the answer, either by a denial of the existence of the contract, or by an averment of affirmative facts by way of avoidance. The plaintiff is to be deemed to have replied to the answer, so far as to be permitted to interpose any defense which would have the effect of showing that no contract ever was made, or if it existed, of avoiding such contract. ( Kirchner v. New Home Sewing Machine Co., 135 N.Y. 182.) These being the relative positions of the parties, the plaintiff had the right to prove anything which would defeat the force and effect of the contract of May eighth, and to succeed in such defense, if the facts warranted. This was the course which the trial took, and the court has found that the evidence was sufficient to require the legal conclusion that such contract was not binding. We are, therefore, to examine the testimony in the case, and the decision based thereon, to see if the same may be supported under legal rules. The proposal contained in the contract of May eighth, and the acceptance of the same by plaintiff, are undisputed facts; nevertheless the court held that it did not constitute a contract between the parties, and was in legal effect only a statement that a certain amount was due to the plaintiff from the defendants, and an admission by him that such amount was due; that if it be otherwise treated, it was without binding effect for lack of consideration.

We do not find ourselves in harmony with these views. The contract itself refers in its first sentence to the former contract of March twenty-seventh between the parties. It then refers to a conversation had that day between the defendant Hyde and the plaintiff, and recites that, as agreed upon, the plaintiff will be entitled to receive 375 shares of preferred and 375 shares of the common stock of the Goodson Graphotype Company in the event of its formation, "which stock shall be in full for your services and all demands under my letter to you of March 27th, 1899." This was something more than a statement of an amount due to the plaintiff. It was not only that, but it was a statement that such amount due was in full for all services and demands which the plaintiff had against the defendants by reason of his former contract with them. When the plaintiff accepted that statement as satisfactory to him, as he did, then it became a binding acknowledgment upon his part that the whole amount he was entitled to receive under and by virtue of his former contract was the stock mentioned therein. Instead, therefore, of this being the statement of a partial account of what was due to the plaintiff, it was a binding contract that it was the whole amount due, and when discharged relieved the defendants from all liability. It is evident, therefore, that the decision cannot be upheld in this respect.

Was it invalid for other reasons? It is not made clear by the proof in the case just what sums of money and shares of stock the plaintiff was entitled to under his former agreement. It was not accurately known at the time when the agreement of May eighth was executed by any of the parties to the action. It is not yet known what the exact amount was to which the plaintiff was entitled, nor can it be established except by an accounting. The parties, therefore, at the time of their negotiations stood in relation to each other of dealing with respect to a matter where the defendants were required to pay and deliver either money or shares of stock, or both, to the plaintiff in compensation for services which he had rendered pursuant to the several contracts which had been made. As the particular amount of money and stock which plaintiff was entitled to receive was not accurately known, it was competent for the parties themselves to agree as to such amount, fix and specify the particular number of shares of stock which were to be delivered in full satisfaction of the whole amount of property and money due. And in the absence of mistake or fraud in making such agreement, it would be binding upon both, and conclusively fix the rights of the respective parties thereto. Such a contract is founded upon a good consideration, for the reason that each party renounces to the other his rights and liabilities under a former contract, and each abandons such rights in consideration that the other will do the like, and the mutual agreements furnish a consideration in law, recognized as binding. ( McIntosh v. Miner, 37 App. Div. 483; Hartwig v. American Malting Co., 74 id. 140.)

Nor does the fact that the agreement of May eighth was executory in its character change its effect. It was said by ANDREWS, J., in Morehouse v. Second Nat. Bank of Oswego ( 98 N.Y. 503): "If the subsequent agreement is accepted in satisfaction, and this appears expressly or by implication, the original cause of action is merged and extinguished. ( Kromer v. Heim, 75 N.Y. 574, and cases cited.) It is plain, also, that if one having a debt or claim against another satisfies or releases it in consideration of an executory promise by the party owing the debt or duty, he cannot afterward enforce his original cause of action upon a mere failure by the other party to perform his promise, `for he has a remedy to compel performance.'" ( Nassoiy v. Tomlinson, 148 N.Y. 326.) The decision, therefore, cannot be supported upon this ground.

Upon the trial evidence was given which the plaintiff claimed tended to show that the defendant Hyde had been guilty of fraud in making false representations as to the amount and extent of the plaintiff's interest in the pool; that the plaintiff was ignorant in respect of such matters, relied thereon and was misled thereby, in consequence of which the contract of May eighth is void for fraud. There was a sharp conflict in the testimony upon this question. The defendant Hyde denied that he had ever made any misrepresentations, and adduces testimony from other witnesses in support of his contention. The court, however, has not found upon such question. It is stated in the decision that prior to the acceptance by the plaintiff of the contract of May eighth the defendant Hyde made statements to the plaintiff as to the amount of profits coming to the plaintiff, which statements were not true; that they were relied upon by the plaintiff, who was ignorant of the actual facts. This falls far short of a finding that the defendants made the representations, knowing them to be untrue, with the intent that they should be acted upon by the plaintiff, and that in reliance thereon he so acted. This the law requires in the establishment of fraud. ( Oberlander v. Spiess, 45 N.Y. 175; Kain v. Larkin, 131 id. 300; Cooley Torts [2d ed.], 580 et seq.)

It is sufficient to say that even though the proof upon the part of the plaintiff was sufficient from which every element necessary to a finding of fraud could be based, the court has not made such finding, and, consequently, the evidence may not be resorted to for the purpose of sustaining the judgment, although such a finding might have been authorized. It is quite evident that in reaching a conclusion upon this subject the court will be confronted with several questions which easily suggest themselves. One as to the proper construction of the contract of March twenty-seventh, and the rights of the plaintiff thereunder. If the defendants, acting in good faith, construed such agreement as limiting the plaintiff's rights to a participation in the proportionate amount of the 10,100 shares of stock in the new company and not in all of the profits which should arise from the pooling of the 10,100 shares of stock of the old company, no fraud could be predicated of representations to the plaintiff that his interests and shares of stock amounted to only 361 shares each of preferred and common stock. If such be the construction of the contract, the representations might be true. If the defendants made the representation merely as the expression of an opinion as to the amount which plaintiff's interest would realize or ought to realize, and the extent of the plaintiff's interest was not accurately determined, no fraud could be predicated of such fact, even though the statement of amount was less than the plaintiff was entitled to receive. It is evident that the court has not considered these questions, or at least has not expressed any views thereon in the finding which it made. The defendants are entitled, before they can be charged with fraud, to have these elements considered and a finding made thereon. This has not been done, in consequence of which the judgment may not be sustained upon this ground. It is not essential in the consideration of the present case that we express any opinion respecting the proper construction of the contract of March twenty-seventh and the rights of the plaintiff thereunder. If he be correct in his construction of such contract, then a clear basis exists entitling him to recover the profits of the pool stock of the old company, but even though this be the fact, it was still competent for him to make the agreement of May eighth, and he cannot avoid it if it was not the product of fraud or mistake, or if he had full knowledge upon the subject.

If the defendants' construction of the contract of March twenty-seventh is to obtain, then, under the agreement of May eighth, the plaintiff may have received more than the exact amount to which he is entitled. These questions will all arise upon a new trial, and until all of the facts are before us we are not called upon nor would it be proper to announce a construction as binding upon either party to this litigation.

It is evident that the present judgment cannot be sustained. It should, therefore, be reversed and a new trial granted, with costs to the appellants to abide the event.

VAN BRUNT, P.J., O'BRIEN and McLAUGHLIN, JJ., concurred.

I concur with Mr. Justice HATCH, except so far as it seems to be intimated in his opinion that there was evidence which would justify a finding that the defendants were guilty of any false misrepresentations which would justify the plaintiff in repudiating the contract of May 8, 1899. The only representation testified to by the plaintiff which he said induced him to agree to the contract of May eighth was the defendant Hyde's statement that the pool profits amounted to 2,475 shares of stock, and that the plaintiff's share, under the contract of March 27, 1899, would amount to 361 and a fraction shares. He testified that he told Hyde that he would accept 361½ shares upon the representation that 2,475 shares was the only profit that there was belonging to the pool, and Hyde then drew up the contract of May eighth which was clearly intended as a substitute for the prior contract as to the compensation that plaintiff was to receive. The plaintiff's action was based upon the contract of March twenty-seventh and he asked for an accounting. In answer to this cause of action the defendants plead that the contract of March twenty-seventh was modified by the contract of May eighth, and that under that contract the plaintiff was entitled to receive a certain number of shares of stock which had been tendered to him and which they still hold for his account.

Assuming that the plaintiff was, upon proof by the defendants of the contract of May eighth, entitled to prove that that contract was obtained by fraud, the burden was upon him to prove that the representations were made to him upon which he relied in executing the contract of May eighth; and that those representations were false and were known to be false by the person making them. I can find no evidence that the representations that Hyde was alleged to have made were false. The representations were that the pool profits were a certain number of shares of stock. There was proof that two days before a contract had been made in relation to the sale of 9,000 shares of the stock at seventy-five per cent; but it does not appear that this 9,000 shares was pool stock. From the statements furnished by defendants it appears that the pool had bought 440 shares of stock at fifty-five and 5,000 shares at seventy-five, in addition to the 10,100 in which plaintiff was interested, and that at some time 9,000 shares had been sold at seventy-five; but under the contract of March twenty-seventh the plaintiff's interest was confined to the 10,100 shares of stock of the old company that the defendants had purchased at twenty-two dollars and fifty cents a share, and for which there had been substituted stock of the new company. In the contract of March twenty-seventh the defendants agreed to set apart for the plaintiff "15 per cent of whatever net profits estimated on the above basis may be found to have been realized from the sale of the pooled stock after the entire 10,100 shares have been pooled and sold. It is understood, however, that this 15 per cent interest relates only and applies solely to the 10,100 shares of stock of the new company and to the net profits, if any, to be derived from the sale thereof on the basis as above stated." The fact that the members of this pool subsequently bought other shares of stock which they sold at a profit, has nothing to do with the plaintiff's right to share in the profits realized from the sale of the 10,100 shares of the stock with the purchase of which he was concerned. The contract between Hyde and Taylor Co. which was introduced in evidence provided for the sale of 9,000 shares of stock to Taylor Co. by Hyde in the event that Taylor Co.'s examination into the validity of the patents and the efficiency of the machines was satisfactory, this sale being, however, conditioned upon such an examination proving satisfactory to Taylor Co., and the consideration was to be paid in installments extending to November 1, 1899. Hyde agreed to pay to the new company to be organized $374,000 in cash, and to acquire by purchase or exchange 9,000 shares of the capital stock of the new company which he agreed to sell to Taylor and to perform other obligations provided for in the contract. This contract was made on May 6, 1899, two days before the agreement with the plaintiff was made, and as the sale of the stock to Taylor was based upon Taylor Co.'s satisfaction with the examination of the patents and machines and imposed large obligations upon Hyde, with no money to be received for some time thereafter, it was not proof that at that time there were profits which could be said to have accrued, to any portion of which the plaintiff would be entitled. By the modification of May eighth it was proposed to divide the stock instead of waiting to sell it and divide the profits, and to this the plaintiff agreed. I think that a finding that there was fraud in procuring this contract of May 8, 1899, would be opposed to the evidence. The court below proceeded upon the construction of the letter of May eighth, which we all agree was not justified, and I quite agree with Mr. Justice HATCH that for that reason the judgment should be reversed; but I do not agree with his statement that there was any basis in the testimony for a finding that the defendants were guilty of fraud.

I concur, therefore, in the reversal of the judgment.

Judgment reversed, new trial ordered, costs to appellant to abide event.