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App. Div.]

Fourth Department, March, 1910. the fraud, but those allowed under the statute (Code Civ. Proc. $ 1902 et seq.) for the death of the intestate ; that is, upon the original cause of action, which had been compromised, and upon the settlement of which the plaintiff had received the $500. At the close of the charge in chief, the defendant took exceptions thereto, and especially to the statement in effect that if the case was one for a verdict in plaintiff's favor as an action of negligence the plaintiff would not be deprived of her right to recover by the release if it was procured by fraud ; in other words, that if the release was procured by fraud it was no bar to this action at law upon the original cause of action — compromised — there having been no return or tender back of the money received under the compromise agreement. Later, the court said with reference to the damages : “If yon find a verdict in this case for the plaintiff you can make it $500 less than what you would [otherwise) make it. If you say you find a verdict for so much, why you can take $500 from it, so that the defendant cannot be injured by that performance; that is, through the release of their agent, who was unfaithful to them."

There was also an exception to the charge that damages under the statute might be awarded for the death of the intestate. There is no escape from the proposition that this trial proceeded upon the theory of prosecuting the original cause of action, the release being avoided by the finding of fraud in obtaining it. This cause of action, as we have already seen, could not be maintained so long as the compromise agreement stood, and it could only be gotten rid of by rescinding it and returning or tendering back the money received under it, and this must be done before the action was commenced.

The trial cannot be sustained as a recovery for damages for the fraud in securing the release, because the question of damages for such fraud was not submitted to or found by the jury. The theory of damages for such fraud may be appreciated by reading the opinion of Judge Finch in the second Gould case from which I quote, viz.: “ The $25,000 [the amount paid under the compromise agreement] obviously * * * was the agreed value of a disputed right of action, but an agreed value won out of Gould by a false and fraudulent statement of the facts upon which such value depended. If no falsehood had been told him that value would have been greater in his judgment and so in his demand as a term of the Fourth Department, March, 1910.

[Vol. 137 compromise made; and that such value was fixed at $25,000, and no more was the direct product and result of the fraud. * * * Gould did not receive just what he contracted for,' but contracting for the fair value of his disputed claim was induced by fraud to accept less than that fair value, and * * * he does 'seek by this action to have that consideration made equal' to what it would have been had no falsehood been told him. * * * There having been no rescission of the compromise agreement, that innst stand, and it discharges forever the original contract and extinguishes all right to any balance due upon it. * * * Such damages will compensate the fraud as make the compromise, which is to stand, an honest and fair one, instead of a dishonest and fraudulent one. Damages which leave it to stand but purge it of fraud are what should be recovered. What the plaintiff sold and the defendants bought was not a conceded but a disputed claim. * * * Upon a false statement of the facts material to the probabilities of success, and so affecting vitally the value of the disputed clairn in the compromise negotiation, the plaintiff was induced to take $25,000 for his resisted demand. If there had been no frand, how much more would he have got in the compromise ? When we know that, we know the loss and can measure the indemnity. * * * A dispute ending in a compromise implies mutual concession and loss borne by each party, and if the compromise is honest and fair, the loss thus resulting is beyond recovery by either against the other. But that portion of the loss of one which is put upon him in excess by the fraud of the other, and is due solely to that fraud, may be recovered. * * * That there is difficulty in ascertaining these damages is true, and much must be left to the sound judgment and good common sense of a jury, but that often occurs in actions ex delicto. The result will be that the plaintiff, affirming the compromise agreement and unable to recover the contract balance, is entitled in accordance with the general rule to have such compromise agreement made as good for him as it reasonably and fairly would have been if only the truth had been told instead of a falsehood asserted. When that is done the loss due to the fraud, and that only, is recovered; the true value of the disputed claim and not the false value; and so not at all the extinguished contract balance."

The rule where the action is for damages for fraud in the com. App. Div.] Fourth Departmeut, March, 1910. promise agreement is made so plain by these quotations that it cannot be mistaken. I have quoted as briefly as possible and refer to report itself for a more detailed statement of the language used.

Of course, we can readily see that no such question of damages as this was submitted to the jury in this case. The verdict was for $3,000, less $500, or $2,500. To recapitulate: This action was brought to recover damages for frand in a compromise agreement. As such an action it very likely could have been maintained. It was tried, however, as an action of negligence, and submitted to the jury as such, the compromise agreement being found by jury fraudulent and void, and, therefore, no bar to a recovery upon the original cause of action, the one compromised.

This form of action could not be maintained, because the compromise agreement was not rescinded and money returned thereunder or tendered back before the action was brought. While the agreement remained unrescinded the original cause of action was absolutely discharged, and no action could be maintained thereon, and by reason of the Statute of Limitations. And certainly the action and trial could not be sustained as one for damages for fraud in the compromise agreement, because no such question of damages was submitted to or passed upon by the jury.

I further suggest. The court held no action could be maintained without proof by plaintiff of a valid claim to be compromised. This can hardly be true. All the plaintiff had to do was to prove that an accident occurred, a death resulted and then that a claim of liability on the part of the defendant was made.

It was a disputed, resisted claim that was compromised, not necessarily a valid claim. A compromise involved an uncertainty as to whether the claim could be enforced. If certainty existed a compromise would not ordinarily be made.

All concurred.

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

Fourth Department, March, 1910.

[Vol. 137.


Hudson River Railroad COMPANY, Appellant.

Fourth Department, March 9, 1910.

Fraud — release obtained by fraud — remedies.

One who has been induced to release a cause of action for negligence on the

payment of a certain sum by reason of the fact that the defendant's agent although in possession of a larger sum given him by the defendant to pay to the plaintiff, represented that the smaller sum was all the defendant would pay and converted the difference, may maintain an action based on fraud to

recover of the defendant the sum retained by the agent. Under such circumstances the defrauded party has three remedies: (1) He may

rescind the compromise and seek a recovery upon the original claim, in which case he must tender the sum received before action brought; (2) he may affirm the compromise, retain the money received under it and recover damages for the fraud; (3) he may sue in equity to rescind the compromise and for equitable relief, offering to restore in his complaint the amount received if he be not entitled to retain it.

APPEAL by the defendant, The New York Central and Hudson River Railroad Company, from a judgment of the County Court of Jefferson county in favor of the plaintiff, entered in the office of the clerk of said county on the 29th day of June, 1909, upon the ver. dict of a jury for $174, and also from an order entered in said clerk's office on the 1st day of July, 1909, denying the defendant's motion for a new trial made upon the minutes, with notice of an intention to bring up for review an order entered on the 29th day of June, 1909, denying the defendant's motion for a nonsuit.

Ilenry Purcell, for the appellant.

F. B. Pitcher, for the respondent. WILLIAMS, J.:

The judgment and order should be affirmed, with costs.

The action was brought to recover damages for fraud in the compromise of a claim for injuries alleged to have been caused by defendant's negligence.

The compromise was made between the plaintiff and the claim agent of defendant, one McCormick. The fraud alleged was the

App. Div.]

Fourth Department, March, 1910. statement made by McCormick to plaintiff that the defendant would pay only $151 when it had already consented to pay $325, and had placed that sum of money in McCormick's hands to make the compromise with. The plaintiff accepted the $151, and signed release and McCormick pocketed the difference, $174. A year or two later the defendant discovered this and other like transactions, in which McCormick had misappropriated large sums of money. He paid the money back to the defendant, and was sent to State's prison for the crimes committed, and is now serving his term. The plaintiff upon discovery of the fraud practiced upon himn brought this action.

The questions involved are really legal in their nature. The plaintiff relied upon the cases of Gould v. Cayuga County Nat. Bank (86 N. Y. 75 and 99 id. 333). The plaintiff there was defeated in the first action, and then brought the second one, in which he succeeded.

In those cases the plaintiff sought to recover by reason of fraud in a compromise agreement, under which he received $25,000. The plaintiff did not return or tender back the money received. In the first case the action was at law upon the original claiin compromised, and the court held that the action was based on a rescission of the compromise agreement, and no recovery could be had because there had been no return or tender back of the money received before the action was commenced. In the second case the action was for damages by reason of the fraud in the compromise agreement, and it was held such action was based upon an affirmance of the agreement and could be maintained without the return or tender back of the money received on the compromise. The original claim, the one compromised, was for breach of an agreement to return bonds loaned by Gould to the defendant bank. The amount of bonds loaned does not appear in the report of either case but we may assume it was largely in excess of the $25,000 paid upon the compromise. The plaintiff had the bonds on deposit with the bank for safekeeping. He loaned them to the bank upon an agreement that the bank would return or replace them before interest became due thereon. Plaintiff thereafter applied for his bonds, and was told there were none on deposit belonging to him. He made a claim under the agreement and the bank alleged the bonds had been returned or replaced by others and put in its vault, and the loss of

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