ainrttFll ICam i'rliool IGtbtary 3 1924 065 511 283 Cornell University Library The original of tiiis bool< is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924065511283 NEW YORK LAW OF CONTRACTS BY BRISCOE BALDWIb\CLARK VOL.1 EDWARD THOMPSON COMPANY Northport, New York 1922 Copyright, 1922 by Edward- Thompson Company PUBLISHER'S FOREWORD This treatise on the New York Law of Contracts is designed to present your own intimate law, relieved of the generalities and superfluities incident to national works on this subject. For the first time the field of Contracts has been completely surveyed in the light of an exhaustive collection of New York decisions. Lit- erally thousands of New York cases which are not to be found in the general treatises on Contract Law are cited in this work. The wide range of the law of Contracts naturally precludes the treatment of many of tBs^ecSal^^^bjects which fall within the compass of this term. Particular pains have been taken to note the conflict of authority and the weight of authority. Changes in the Common Law rules as the result of statutory enactments are clearly pointed out. Throughout the text the reader will doubt- less be struck by the abundance of direct quotations from the leading and guiding cases, it having been thought desirable wher- ever possible to make statements in the language of the judges themselves. The writer, Mr. Briscoe Baldwin Clark, is well and favorably known to the legal profession. He has devoted many years to the preparation of legal treatises for the publications of this Company. Many of the most important articles in the Encyclopaedias, Ruling Case Law, and other of its publications are his contributions to the legal literature of the country. The pocket in the back cover of each volume is designed to hold a cumulative Supplement which will keep the work up to date and eliminate the necessity of frequent editions. This simple but effective supplemental service has proved markedly efficient in the case of McKinney's Consolidated Laws of New York. [Hi] TABLE OF CONTENTS Volume I CHAPTER I Introductoey section page 1. Contract Defined 1 2. Classification of Contracts; Executory and Executed Contracts ... . 1 3. — Express and Implied or Quasi Contracts 2 4. — Specialties and Simple Contracts 2 5. Requisites of Consensual Contracts Generally 4 6. Necessity that Contract Be in Writing. 4 7. Statement or Recital of 'Facts as Contract , 7 CHAPTER II Assent Gbneraixy Summary of Section Headings General Principles (§§ 8-23) Revocation or Withdrawal of Offer (§§24-34) Acceptance of Offer (§§ 36-59) General Principles 8. Necessity for Assent Generally " 10 9. Matters Left Open for Future Settlement » 13 10. Concurrent Assent 14 11. Conditional Assent 15 12. Intention to Contract Generally 16 13. Invitation to Negotiate Generally 19 14. — ' Request for Submission of Bids Generally 20 15. — Effect of Statute Requiring Letting of Contract to Lowest Bidder 22 16. Agreement to Execute Contract 23 17. Intention to Reduce Contract to Writing, 24 18. Offers to the. Public or a Class of Persons Generally 27 19. — Knowledge of Offer as Basis of Contract 28 20. .Signing Blank Paper or Incomplete Contract 29 21. Contracts by Letters and Telegrams Generally 29 22. — Testa as to Consummation of Contract 30 23. Contracts over Telephone 31 [V] VJ TABLE OF CONTENTS Revocation or Withdrawal of Offer SECTION FAOB 24. In General 32 25. Effect of Acceptance on Right to Withdraw 34 26. Competitive Bids Submitted on Eequest 36 27. What Constitutes Revocation Generally 36 28. Notice of Revocation 37 29. Death of Offeror .' 38 30. Rejection of Offer 38 31. Lapse of Time ; Continuing Offer 38 32. Expiration of Time Limited for Acceptance Generally 39 33. — Acceptance by Return Mail Requested 40 3i4. — Waiver of Delay in Acceptance 41 Acceptance of Offer 35. In General 42 36. Who Entitled to Accept 43 37. Conditions Precedent to Acceptance 44 38. Conditional Acceptance Generally 45 39. — Acceptance Requiring Acknowledgment or Confirmation 45 40. Manifestation of Acceptance Generally 47 "41. — Oral Acceptance of Written Offer 47 42. Implication of Acceptance Generally 48 43. — Implication of Acceptance Contrary to Express Refusal 49 44. Silence as Evidencing Assent Generally 50 45. — Effect of Silence where Contract Is Wholly Executory 52 46. Acting on Offer as Acceptance Generally 53 47. — Application of General Rule as to Acting on Offer 54 48. — Limitation of Rule as to Acting on Offer 56 49. Acknowledgment of Order or Offer 57 50. Signature of Promisee to Unilateral Contract 69 51. Communication of Acceptance Generally 59 52. — Communication by Mail or Telegram Generally. 61 53. — Implied Authorization for Acceptance by Mail or Telegram.. .. 61 54. — Mailing, Stamping and Addressing Letter of Acceptance 63 55. Conformance of Acceptance to Offer Generally 64 56. — Application of General Rule as to Conformance to Offer 65 57. — Restating Tferms of Offer 66 58. — Directory Request or Statement 67 59. Nonconforming Acceptance as New Offer 63 CHAPTER III Ceetainty 60. In (Jeneral i Yq 61. Oral Evidence to Correct Uncertainty in Written Contract .\ 72 62. Implications of Law Rend«ring Contract Certain \ 73 63. Conduct, etc., Removing Uncertainty 73 64. Indefiniteness as to Compensation or Price Generally I 74 65. — Quantum Meruit or Quantum Valebat \ 77 66. Uncertainty as to Duration 1 70 67. Uncertainty as to Time of Performance or Payment i 79 TABLE OF CONTENTS vii SECTION PAGE 68. Uncertainty as to Amount or Quantity Generally 81 69. — Agreement for Share of Estate on Death of Promisor 82 70. Description of Land Sold 83 CHAPTER IV Mistake 71. In General 85 72. Mistake of Fact Generally 86 73. Mistake of Law Gwierally 89 74. — Mistake of Law in Connection with Other Considerations 91 75. Mistake as to Subject Matter 92 76. Mistake as to Immaterial or Extrinsic Facts Generally 94 77. — Application of Rule 95 78. Mistake as to Identity of Party Generally 95 79. — Qualification of General Rule 97 80. Mistake in Reducing Contract to Writing Generally 98 81. — Degree of Proof Required as Basis for Reformation 100 82. Unilateral Mistake as Basis for Reformation 101 83. Unilateral Mistake as Ground for Rescission 102 84. Effect of Negligence in Ascertaining Facts 105 CHAPTER V Ignorance of Terms of Written Contract 85. Contract Signed by Party 107 86. Acceptance of Paper of Contractual Nature Generally 108 87. — Bill of Lading and the Like 109 88. — Passenger Ticket 112 89. Pravisions in Telegraph Blanks 113 CHAPTER VI DxroEss Summary of Section Headings Eifect Of Dmess (§§ 90-95) What Constitutes Duress (§§ 96-120) Effect of Duress 90. In General 115 91. Requiring One to Perform His Legal Duty 116 92. Right of Bona Fide Purchaser or Assignee 117 93. Ratification or Waiver 117 94. Duress as a Personal Defense 119 95. Pleading and Proof of Duress 120 viii TABLE OF CONTENTS What Constitutes Duress SECTION PAGE 96. In General 122 97. Ihiress, Fraud and Undue Influence Contrasted ; ... . 123 98. Involuntary Payments Generally 124 99. Necessity for Overcoming Free Agency 125 100. Character of Person Coerced 12fi 101. By Whom Duress Exerted 127 102. Duress by Imprisonment Generally 128 103. — Qualification of Rule as to Duress by Imprisonment 129 104. Threats as Duress Generally 130 105. — Time of Threats 132 106. Fear of Bodily Harm 132 107. Threat of Arrest or Criminal Prosecution . 133 108. Threat of Civil Proceedings 134 109. Abuse of Process 135 110. Threat of Injury to Property Kights Generally 136 111. Threat or Refusal to Perform Contract or Duty 136 112. —Withholding Payment of Claim , 158 113. Threat Affecting Domestic Peace and Happiness 139 114. Threat to Commit Suicide .140 115. Business Exigencies or Necessities as Duress 141 llfi. Invalid Statute or Ordinance as Duress - 143 117. Duress of Property Generally. 144 118. — Recovery of Payments 146 119. Against Whom Duress Directed Generally 147 120. — Application of Rule as to Threats against Near Relatives 148 CHAPTER VII Undue Influence 121. In General 151 122. By Whom Undue Influence Exercised 152 123. What Constitutes Undue Influence Generally 153 124. — Necessity for Overcoming Free Will or Agency 154 125. ■ — Weakness of Mind 155 126. Proof of Undue Influence Generally 156 127. Confidential and Fiduciary Relations Generally 158 128. — Particular Relations Considered Generally 159 129. — Remote Family or Business Relations ....■; 161 130. — Undue Influence by Parent. 163 131. — Undue Influence by Child 165 132. — Undue Influence by Husband 167 133. — Undue Influence by Wife I70 134. — Betrothed Persons I7I 135. — Confidential Business Relations Generally 172 13i6. — Attorney and Client I73 1 37. — Physician or Nurse and Patient I75 138. Ratification 275 139. Kights of Third Persons : I75 140. Pleading Undue Influence I77 TABLE OF CONTENTS CHAPTER VIII Fraud Summary of Section Headings General Matters (§§ 141-151) Constructive Fraud (§§ 152-154) Inadequacy of Consideration (§§ 155-1'5&) Mental Weakness and the Like (§§ 157-158) Nondisclosure or Concealment (§§ 159-167)'^ Failure to Perform Contract or Promise (§§ 168-170) Representations Generally (§§ 171-180) Statement of Opinion, Expectation or Hope (§§ 181-183) Representation as to Title (§§ 184^185) Representation as to Financial Condition (§§ 186-188) ■ Representation as to Value Generally (§§ 189^194) Representation as to Character and Condition of Property (§§ 1915-198) Intent to Deceive or Defraud (§§ 199-'200) Scienter or Knowledge of Falsity of Representation (§§ 201-203) Reliance on Representation (§§ 204-207) Time of Making Misrepresentation (§§ 208-209) Resultant Injury (§§ 210-211) To Whom Representation Made (§§ 212-215) By Whom Representation Made ('§§ 216-219) Ratification of Contract (§§ i220-223) Proof of Fraud (§§ 224-229) Pleading Fraud Generally (§§ 230^231) General Matters SECTION PAGE 141. Definition , 182 142. EflFect of Fraud Generally 183 143. Fraud in the Execution of Written Instruments 183 144. Gifts Procured by Fraud 187 145. Remedy by Way of Damages 188 146. Remedy by Way of Rescission 191 147. Necessity for Resort to Equity to Avoid Transfer of Property 194 148. Rights of Third Persons ; Bona Fide Purchasers 196 149. Who May Take Advantage of Fraud 199 150. " Wash " Sales as Basis of Charge of Fraud 202 151. Giving Check Without Having Funds in Bank 202 Constructive Fraud 152. In General 203 153. Particular Fiduciary Relations ,204 154. Principal and: Agent 205 Inadequacy of Consideration 155. In General 206 156. Catching Bargains; Sale of Expectancy, Reversion or Remainder.. 208 Mental Weakness and the Like 157. Mental Weakness 209 1'58. Belief in Spiritualism 209 i TABLE OF OONTKNTS Nondisclosure or Concealment SECTION PAGE 159. In General 210 160. Artifices to Conceal and Partial Disclosure 212 lei. Contracts Requiring Uberrima Fides Generally 2il4 162. Confidential Eelations 215 163. Particular Application of General Eule as to Nondisclosure 218 164. Sale of Chattels 219 165. Sale of Land 221 166. Sale of Chose in Action and Securities 281 167. Nondisclosure of Insolvency 223 Failure to Perform Contract or Promise 168. In General 225 169. Intent Not to Pay for Goods Purchased, or the Like, Generally. . . 227 170. Proof of Intent Not to Pay 228 Representations Generally 171. Falsity of Representation Generally 230 172. — Qualification of Rule as to 'Falsity 232 173. Materiality of Representation 233 174. " Dealers' Talk " 235 175. Representation as to Matter of Law Generally 235 176. — Qualification of General Rule 236 177. Promissory Representation 237 178. Representation as to Present Intention or State of Mind Generally. 239 179. -^ Application of General Rule 240 180. Representation by Agent as to Authority 243 Statement of Opinion, Expectation or Hope 181. General Rule 243 182. Application of General Rule 244 183. Representation on Which Charge of Fraud Sustained' 246 Representation as to Title 184. In General 248 186. Application of General Rule 250 Representation as to Financial Condition 186. In General 251 187. Particular Transactions Generally 252 188. Sales on Credit 254 Representation as to Value Generally 189. General Rule , 253 190. Qualification of General Rule 257 191. Representation as to Collateral Facts Afi'ecting Value Generally. . . 259 192. Representation as to Previous Offers 260 193. Representation as to Cost 261 194. Representation as to Rents and Profits 263 TABLE OF CONTENTS xi Representation as to Gha/racter and Condition of Property SECTION PAGE 195. Personal Property Generally 264 196. Sale of Choses in Action 265 197. Character and Condition of Land Sold or Leased Generally 268 198. Identity, Location or Acreage 270 Intent to Deceive or Defraud 199. In General 271 200. Pleading and Proof of Intent 273 Scienter or Knowledge of Falsity of Representation 201. In General 274 202. Qualification of General Rule as to Scienter 277 203. Pleading and Proving Scienter ; Instructions 280 Reliance on Representation 204. In General 231 205. Representation as Sole Inducement 284 206. Negligence in Relying on Representation 286 207. Pleading and Proof of Reliance on Representation 289 Time of Making Misrepresentation 208. In General 290 209. Representation after Transaction Compleited 292 Resultant Injury 210. In General 293 211. Inference of Injury; Rjescission 295 To Whom Representation Made 212. General Rule 298 213. Qualification of General Rule 299 214. Statemient of Financial Condition to Mercantile Agency; General Rule 301 215. Particular Matter in Connection with Report 303 By Whom Representation Made 2r67Gene'rarRule 307 217. Limitation of General Rule 309 218. Fraud of Principal as Affecting Liability of Surety or the Like. . . 310 219. Liability of Principal for Fraud of Agent 311 Ratitfication of Contract 220. In General 315 221. Particular Acts as Ratification 316 222. Knowledge of Fraud as Affecting Ratification 318 223. AflBrmance as Discharge of Claim for Damages 319 Proof of Fraud 224. In General 321 225. Effect of Parol Evidence Rule 322 - /^ xii TABLE OF CONTENTS SECTION PAGE 226. Proof of Other Transactions; General Rule '■ 325 227. Qualification of General Rule as to Proof of Other Transactions . . 327 228. Questions of Law and Fact 327 229. Quantum of Proof - 329 Pleading Fraud Generally 230. In General 331 23a. Variance . .^ 334 CHAPTER IX CONSIDEBAUON Summary of Section Headings Introductory (§§ 232^234) Necessity for Consideration (§§ 235-253) Source of Consideration (§§ 254-258) Sufficiency of Consideration Generally (§§ 259-261) Particular Subjects as Consideration (§§ 262-284) Settlement of Disputed Claims (§§ 285-289) Pre-existing Debt or Obligation as Consideration (§§ 290-295) Rescission of Contract {§§ 296-29^?) Forbearance to Exercise or Relinquishment of Right (§§ 298-306) Marriage (§§ 307-309) Mutual Promises and Mutuality of Obligation (§§ 31 0-324) Performance of Legal Duty or Obligation (§§ 325-336) Meritorious Consideration; Natural Love and Affection (§§ 337-338) Moral Obligation and Past Consideration (§§ 339^350) Adequacy of Consideration (§§ 351-363) Failu/re of Consideration (§§ 3i54-369) Pleading and Proof of Consideration Generally (§§ 360—3171) Sealed Contracts (§§ 378-379) Subscriptions (§§ 380^383) Introductory 232. Definition ~ T. . 341 2i33. Executed Transactions Generally 342 234. Bargain and Sale Deed 343 Necessity for Consideration 235. Simple Contracts Generally 346 236. Estoppel to Deny Consideration 347 237. Particular Transactions Generally 348 238. Contracts hetween Landlord and Tenant after Execution of Lease. . 351 239. Contracts of Guaranty, Suretyship, etc., Generally 353 240. — Illustrations of General Rules 356 241. Promise to Pay from or Order on Particular Fund 358 242. Commercial Paper 358 243. Contract for Forbearance 3gl TABLE OE' CONTiaSfTS xiii SECTION PAGE 244. Contract to Make Will 363 245. Promise to Answer for Debt of Another 363 246. Release 364 247. Stipulation between Attorneys 365 248. Ratification of Acts of Agent 365 249. Voluntary Mandate; Effect of Commencing Performance 366 250. Waiver Generally 367 251. — Application of General Rule as to Waiver 368 252. Statutory Undertakings Generally 372 253. — 'Undertakings Not Conforming to 'Statutory Requirements 373 Source of Consideration 254. Consideration Moving from Promisee to Third Person 375 255. Consideration Moving from Third Person; General Rule 376 256. — Limitation of General Rule 378 257. Composition with Creditors 379 258. Promise by Legatee or Distributee to Decedent 380 Sufficiency of Consideration Generally 259. In Generax 382 260. Detriment to Promisee from Breach of Promise 384 261. Applications of General Rule 386 Particular Subjects as Consideration 262. Contracting with Third Person 391 263. Giving Credit 394 264. Assignment of Chose in Action or Contractual Rights 395 265. Defective or Invalid Claims to Land and Possessory Rights 396 266. Good Will 398 267. License to Use Patent and Sale of Patent Rights, and the Like .... 399 268. Support Furnished Third Person 402 269. Loans and Sales of Money 403 270. Original Purchase, Acceptance or Employment as Consideration for Collateral Promise 404 271. Continuance of Business or Business Relation 405 272. Introduction of Customers 407 273. Disclosure of Information 408 274. Care or Improvement of One's Own Property 408 275. Change of Residence, Name, etc , 409 276. Surrender of Custody of Child 410 277. Location of Public Buildings, Manufactories and the Like 411 278. Payment or Acceptance of Payment before Maturity of Debt 411 279. Giving Note or Other Obligation for Existing Debt. .' 413 280. Confession of Judgment 416 281. Taking Oath or the Like as to Claim; Procuring Order by Third Person 416 282. Surrender -of Security 417 283. Giving Security 419 284. Exercise of Discretionary Power by Court; Indemnity Bond 421 Settlement of Disputed Claims 285. General Rule 422 286. Application of Rule Generally 485 xiv TABLE OF CONTENTS SECTION PAGE 287. Good Faith of Claimant 42i8 288. Palpably Unfounded, Untenable or Illegal Claim 427 289. Compromise of Claim on Wtich Action is Pending 429 Pre-existing Debt or Obligation as Consideration 290. In General 431 291. Promise to Pay Pre-existing Debt to Third Person 432 292. Promise of Third Person to Answer for Pre-existing Debt 433 293. — New Consideration for Promise of Third Person 436 294. Mortgages and Conveyances 437 295. Pre-existing Debt as Basis for Protection as Purchaser for Value. . 439 'iescission of Contract 2m. General Rule 440 297. Limitation of Rule 442 Forbearance to Exercise or Relinquishment of Right 298. General Rule 442 299. Refraining from Bidding at Auction Sale 446 300. Forbearance to Contest Will 447 301. Forbearance to Enforce Claiim Generally 448 302. Refraining from Suing on Unenforceable Claim ; Compromise .... 449 303. Promise by Third Person to Answer for Debt Generally 449 304. Oral Agreement and Implication of Promise to Forbear 452 305. Necessity for Binding Agreement to Forbear 453 306. Failure to Specify Time of Forbearance 455 Marriage 307. In General 457 30i8. Effect of Existing Engagement to Marry 459 309. Promise after Marriage 461 Mutual Promises and Mutuality of Obligation 310. Mutual Promises €tenerally ■ 462 311. — Application of Rule Generally 465 312. Mutual Promises of Marriage 467 313. Exchange of Pecuniary Obligations 468 314. Implication of Mutual Promise; General Rule 469 315. — Application of Rule Generally 471 316. Mutuality of Obligation; General Rule 474 317. — Additional Consideration, Avoiding Necessity for Mutuality of Obligation 477 318. Unenforceable, Voidable or Void Promise as Consideration 480 319. Conditional Obligation; Option to Withdraw .' 481 320. Stock Subsicriptions Prior to Incorporation 482 321. Performance of Conditions of Offer; General Rule 485 322. — Application of Rule 487 323. — Effect of Subsequent Promise or Offer to Perform 488 324. Part Performance under Contract Wanting Mutuality 489 TABLE OF CONTENTS rv Performance of Legal Duty or Obligation SECTION PAGE 325. In General 491 326. Application of Rule Oenerally 494 327. Promotion of Domestic Peace 498 328. Performance by Carrier of Legal Duty 500 329. Restoration of Property to Owner 501 330. Continued Performance of Building Contracts 503 331. Part Payment of Debt Generally 505 332. — Recovery of Interest after Payment of Prineipial 507 333. — Part Payment in Connection witli Additional Consideration. . . . 508 334. Promise to Pay Interest, etc., as Consideration for Extending Time of Payment 509 335. Payment of iCosts 512 336. Performance of Contractual Duty to Third Person 513 Meritoriotis Consideration; Natural Low and Affection 337. General Rule 515 338. Application of General Rule 517 Moral Obligation and Past Consideration 339. Moral Obligation Generally 520 340. Application of Rule as to Moral Obligation 521 341. Past Consideration Oenerally 524 342. Past Services 527 343. Goods Sold and Services Rendered Persons under Disability 530 344. Released or Discharged Claim Generally 532 345. — 'Claim Discharged by Composition vpith Creditors 533 346. — Debt Barred by Statute of Limitations or Discharge in In- solvency or Bankruptcy 535 347. — ' Sufficiency of Promise to Pay Barred Debt 536 348. — Pleading; Declaring on Discharged Debt 538 349. — •Promise Made to Creditor; Assignment of Original Note 539 350. Payment of Debt of Promisor 541 Adequacy of Consideration 351. In General 7TT : 543 352. Services 545 353. Inadequacy as Viewed in Equity and as Evidence of Fraud 547 Failure of Consideration 354. Total Failure of Consideration Generally 548 355. Partial Failure of Consideration 550 356. Application of Rules Generally 552 357. Purchase Money for Land Conveyed or Chattels Sold 555 358. Pleading Defense of Total or Partial Failure 556 359. Against Whom Defense Available 558 Pleading and Proof of Consideration Oenerally 360. In General 558 3B1. Instruments Importing a Consideration Generally 561 362. Recital of Consideration Generally 562 363. — Recital of Consideration in Sealed Contract 564 xvi TABLE OF CONTENTS SECTION PAGE 364. Commercial Paper Generally 566 36i5. — Necessity that Paper be Negotia-ble, , , 568 366. — Indorsement of Commercial Paper ; Acceptance of Bill 670 367. Rebutting Importation of Consideration Generally 571 368. — 'Effect of Introduction of Evidence by Plaintiff to Show Con- sideration 572 369. Burden of Proof to Rebut Presumption ; General Statement 574 370. — Meaning of Phrase " Burden of Proof " 575 371. Necessity to Plead Want of Consideration 577 Sealed Contracts 372. Effect of Seal at Common Law 57'8 373. Statutory Modification of Common Law Rule Generally. . .'. 580 374. General Effect of Modification 581 375. Effect as to Antecedent Contracts 583 376. Mortgage 58.4 377. Release 584 378. Seal Still Presumptive Evidence of Consideration 586 379. Pleading Want of Consideration 688 Subscriptions 380. In General 590 381. Acts of Beneficiary Constituting Consideration Generally 592 382. Application of Rule 594 383. Mutual Promises of Subscribers as Consideration 697 CHAPTER X iLLBGALITy Summary of Section Headings General Matters (§§ 384-396) Contracts Violative of Statutes or Common Law (§§ 397-427) Contracts Detrimental to Public Service Cfenerally (§§ 428-431) Contracts to Influence Legislative Action (§§ 432'-4>35) Contracts to Influence Executive Officers (§§■ 436-438) Traffic in Public Offices (§§ 439-440) Public Service Corporation (§§ 441-442) Contracts Detrimental to the Administration of Justice Generally (§§ 443-448) Ousting Cowrts of Jurisdiction (§§ 449—456) Compounding Crimes (§§ 457-460) Champerty and Maintenance Generally (§§ 461-465) Sales and Conveyances of Land Claimed or Held Adversely (§8 466-481) Purchase of Chose in Action by Attorney (§§ 482^88) Giving Inducement for Placing Claim with Attorney for Enforcement (§§ 489-492) ^^^ontracts Contemplating Frauds Generally (§§ 493-504) Conveyances and Transfers in Fraud of Creditors or the Like (§§ 505-508) Composition with Creditors (§§ 509-1512) TABLE OF CONTENTS xvii Stifling or Puffing Competition at Sales or Letting of Contracts (§§ 513-520) Organization and Management of Corporation (§§ 521-526) Indemnity against Liability for Wrongful Act (§§ 527^29) Exemption from and Limitation of Liability for Negligence (§§ 530-542) Contracts in Restraint of Trade Generally (§§ 543^563) '— ^ Monopolies (§§ 564^574) -^ Restrictions on Alienation of Property (§§ 575-576) Restrictions on Use of Property (§§ 577-57S) Oambling Contracts Generally (§§ 57(^605) Lotteries (§§ 606-611) Contracts Affecting Marriage or Marriage Relation (§§ 612^23) Civio and Parental Duties (§§ 624-625) Waiver of Rights (§§ 626-627) War as Affecting Legality of Contracts (§§ 628-629) Immoral Contracts (§§ 630-632) Indirect Illegality (§§ 633^38), Contract Gromng Out of Prior Illegal Contract or Transaction (§§ 639-640) Enforcement of and Relief from Illegal Contracts Generally {§§ 641-655) Pa/rtial Illegality (§§ 656-638) Defense of Illegality Generally (§§ 659-064) General Matters SECTION PAGE 384. In Oeneral , 608 385. Foreign Contracts 609 386. Public Policy Generally 611 387. Power of Legislature in Fixing Public Policy 613 388. Necessity for Actual Detriment to Public 614 389. Unlawful Act in Performance of Contract 614 390. Devices to Hide Illegality 615 391. Extrinsic Evidence to Prove Illegality 615 392. Presumption and Construction in Favor of Legality of Contract. . 616 39i3. Effect of Seal 618 394. Particular Classes of Contracts . .• 618 395. Miscellaneous Contracts Generally 619 396. Performance Dependent on Death; Post Obit Agreements 621 Contracts Violative of Statutes or Common Imw 397. In General 622 398. Municipal Charter or Ordinance 623- 399. Ignorance of Law 624 400. Foreign Law 625 401. Unconstitutional Statute 626 402. Effect of Change or Repeal of Law 626 403. Application of- Rule to Particular Statutes Generally 62'8 404. Revettne Statutes Generally 630 405. — Federal Sta.mp Acts 632 406. — Stock Transfer Tax Generally ©32 407. — Effect of UnetMnped Executed Contract on Title to iStock 634 408. — Enforcement of Unstamped Executory Contract 634 xviii TABLE OF CONTENTS SECTION FAGE 409. Election Laws 636 410. Statutes of Descent and Distribution 637 411. Sunday Laws 638 412. Patent Right Notes 640 ^~^13. Statute Prohibiting Corruption of Agents Grenerally 641 414. — Transactions within Prohibition and Proof of Bribery of Agent. 643 415. Statutes Regulating Insurance Business 644 416. Statutes Regulating Banking Business 646 417. Statutes Requiring License to Engage in Trade or Businessi Generally 648 418. — •Application of Rule to Particular Business or Trade Generally. 649 419. —Plumbers 651 420. -•- Practice of Medicine and Dentistry 654 421. — Subsequent Acquisition of License; Remedying Defective Regis- tration of Physician 656 422. — 1 Proof of License 657 423. Statute Relating to Real Estate Agents 659 424. Conducting Business under Fictitious Name 660 425. Ultra Vires Acts of Corporations 662 426. Statute Prohibiting Purchase by Corporation of Its Stock 664 427. Statute Relating to Foreign Corporations 665 Contracts Detrimental to Public Service Oenerally 428. In General 667 429. Obligations Exacted Colore Ofiicii 669 430. Compensation of Officers for Performance of Duty 672 43il. Assignment of Salary, Fees or Emoluments of Office 673 Contracts to Influence Legislative Action 432. General Rule 676 433. Qualification of General Rule 678 434. Relation and Party Affiliations ; Contingent Compensation 680 435. Proof of Character of Services Contemplated 680 Contracts to Influence Executive Officers 436. In General 681 437. Matters Affecting Selection of Agent 683 438. Contingent Compensation 684 Traffic in Public Offices 439. In General 685 440. Division of Fees between Officer and Deputy 686 Public Service Corporation 441. In General v; 688 442. Location and Extension of Railroad or the Like 690 Contracts Detrimental to the Administration of Justice Generally 443. In General 690 444. Influencing Judicial Action; Imposition on Court : 691 445. Indemnification of Bail , 693 TABLE or CONTENTS xix SECTION p^^jj, 446. Compensation of Witnesses ; General Rule 694 447. — Compensation Contingent on Result [ ggg 443. Agreements for Procurement of Evidence 696 Ousting Courts of Jurisdiction 44i9. In Oeneral gng 450. Restriction to Particular Court 701 451. Limiting Time for Commencement of Action 702 452. Arbitration Agreements; Common Law Rule 704 453. — 'Condition Precedent to Right of Action 705 454. — Statutory Sanction of Arbitration Agreement 707 455. Agreement Not to Sue on Existing Claim 710 4i56. Stipulations as to Conduct of Proceedings or Remedy 710 Compounding Crimes 457. General Rule 712 458. Particular Matters AfiFecting Illegality of Agreement 714 459. Qualification of General Rule 715 460. Recovery of Money Paid or Property Transferred 717 Champerty and Maintenance Generally 461. In General 7I8 462. Stipulation with Attorney against Settlement of Claim 720 463. Agreement for Part of Fruits of Litigation Generally 722 464. — Retainer of Attorney on Contingent Fee 723 465. Assignment of Chose in Action 725 Sales and Conveyances of Land Claimed or Held Adversely 466. In General 725 467. Exception as Regards State 727 468. General Operation of Statutes 728 469. Conveyances of Particular Rights and Interests 729 470. Mortgages 73I 471. Judicial Sale; Devise; Assignment for Benefit of Creditors 732 472. Character of Possession Generally 733 473. — " Actual Possession " Required 735 474. — Possession Required to be Adverse 736 475. Necessity for Color of Title Generally 738 476. — Application of Rule 740 477. Good Faith of Adverse Claimant 740 478. Effect of Conveyance as against Adverse Claimant Generally 742 479. — Action by Grantor or by Grantee in Name of Grantor 744 480. — Effect of Subsequent Conveyance by Grantor to Adverse Claimant 746 481. Effect of Conveyance as between Parties or as against Stranger . . . 747 Purchase of Chose in Action by Attorney 482. In (Jeneral 748 483. Express Statutory Exceptions 749 484. Operation of Statute Generally 750 485. Intent with Which Purchase Is Made Generally 752 486. — Purchase of Judgment or 'Claim against Decedent's Estate 754 487. — Proof of Intent 755 488. Effect of Purchase in Violation of Statute 755 XX TABLE OF CONTKNTS Chiving Inckioement for Placing Claim with Attorney for Enforcement SECnON PAGE 489. In General • • ■ • 757 490. Agreement by Attorney to Pay or Advance Expenses of Litigation; General Rule 760 491. — Qualification of General Rule 761 492. Division of Fees between Attorneys 763 Contracts Contemplating Frauds Generally 493. In General 763 494. Contract for Secret Use of Influence 765 495. 'Contract Tending to Breach of Trust Generally 767 496. — Person Acting in Matter of Common Interest 769 497. —Attorneys 770 498. — Agents 770 499. Wrongful Disclosure of Information 773 500. Fraud on Public Generally 774 50X. — Sale of Deleterious or Misbranded Merchandise 775 502. — " Bohemian Oats " Contracts or the Like 777 503. Agreeihenit in Fraud of Insolvency Laws 779 504. Agreement in Fraud of Federal Bankruptcy Laws 779 Conveyances and Transfers in Fraud of Creditors or the Like 505. General Rule 781 606. Particular Matters Affecting Application of Rule 783 507. Parties Not in Pari Delicto; General Rule as to Granting Relief. . 784 608. — Application of Rule 785 Composition with Creditors 509. Agreement for Secret Preference Generally 786 510. Agreement by Third Person Giving Preference 788 511. Relief against Preferred Creditor Where Agreement Is Executed. . 789 512. Effect of Illegal Agreement on Composition 790 Stifling or Puffing Competition at Bales or Letting of Contracts 513. General Rule as to Public Sales 791 514. — Qualification of General Rule 794 515. — Illustrative Examples of Qualification 795 516. Stifling Competition at Letting of Public Contracts 797 517. Leasing of Municipal Property at Auction 798 518. Effect of Illegal Combination on ;Sale or Contract Let 798 519. Restraint of Competition at Private Sales 799 520. Combination to Secure Private Contract Let on Competitive Bid- dings 799 Organization and Management of Corporation 521. Organization 800 522: Subscriptions to Stock 801 523. Contracts Affecting Duties of Officers 803 524. Contracts Affecting Duties of Stockholders Generally 806 525. Traffic in Corporate Offices 807 526; Proxies 810 TABLE OF CONTENTS xxi Indemnity against Liability for Wrongful Act SECTION 527. In General g™ 528. Want of Knowledge of Wrongful Character of Act !!!.'!!!! 813 529. Indemnity against Past Wrongful Act ......... 814 Exemption from and Limitation of Liability for Negligence 530. In General ojc 531. Liability of Master to Servant ' gj^g 532. Limitation of Liability of Telegraph and Telephone Companies Generally aj^ 533. — General Rule in Our State as to Limitation of Liability 818 534. — Qualification of General Rule; Gross Negligence S21 535. — Proof of Gross Negligence 822 536. — Creneral Requisites and Construction of Contract 823 537. Limitation of Liability of Carrier Generally 824 538. — Carrier of Passengers g27 539. — ^Statutory Provisions; Public Service Commission Lavi^ 82'8 540. — Essentials of and Construction of Contract vrith Carrier 831 541. — Interstate Carriage Generally 833 542. — Transactions Not within Federal Statutes ; Conflict of Laws ... 836 Contracts in Restraint of Trade Generally 543. In General 8,38 544. General Classification of Valid Restraints 839 545. Reasons for Rule against General Restraints 841 54ff. Restraints Ancillary to Sale of Trade, Business or Professional Practice 842 547. iSale of Patent or Secret Process of Manufacture 843 548. Agreement by Employee Not to Compete 844 549. Restriction Ancillary to Sale of Property 847 550. Restriction Ancillary to Partnership and the Like 849 551. Agreement for Exclusive Use of Patent r ■' • • • 851 552. Necessity that Restraint Be Ancillary to Other Contract. . . , . . . . . 851 553. — Agreement for Removal or Prevention of Competition 852 554. Tests as to Reasonableness of Restraint Generally 854 555. — Time Limit as Test 856 556. — Territorial Extent of Restriction as Test ; Early View 857 557. — Modern View as to Territorial Extent of Restriction 858 558. — Creation of Monopoly as Test 860 559. — Sherman Anti-trust Act 860 560; Consideration for Restriction 861 561. General Construction of Contracts in Restraint of Trade 862 562. Assignment of Restrictive Contract 864 563. Remedy by Way of Injunction 865 Monopolies 564. In General 866 565. Combinations and Agreements to Fix Prices Generally 866 566. Contract in Aid of Monopolistic Scheme 868 567. Contracts to Corner Market 870 568. Necessity for Undue Advance of Price 871 569. Partial Restraints on Trade 872 370. Price Fixing Agreement by Single Manufacturer 873 xxii TABLE OF C02SrTENTS SECTION PAGE 571. Labor Unions 874 572. Labor Union and Employers' Association Agreements 875 673. Copyrighted Books and Patented Articles; Manufactures under Secret Process 877 574. Belief from and Enforcement of Agreement 880 Restrictions on Alienation of Property 575. In General 882 57i6. Theatre Tickets 883 Restrictions on Use of Property 577. Real Property 884 578. Personal Property 886 Gambling Contracts Generally 579. In General 887 580. Statutory Prohibitions Generally 889 581. Stock Jobbing Act 890 582. Foreign Contracts 892 583. Devices to Evade Prohibition 893 584. Stipulation for Forfeiture or Liquidated Damages 894 585. Races or 'Contests for -Sweepstakes or Purses 894 586. Pool Selling 895 587. Speculative Purchases or Sales Generally 896 588. — Sales for Future Delivery 896 589. — Option Contracts ; Puts and Calls 897 500. — Intent to Settle without Completion of Sale Generally 898 691. — Proof of Intention 900 592. Recovery of Money Lost Generally ; Common Law Rule 902 693. — 'Statutory Liability of Winner Generally 902 594. — Persons Liable Generally 904 595. — Liability of Stakeholder ; Common Law Liability 906 596. — Statutory Liability of Stakeholder 907 597. — Consent of Loser to Payment over by Stakeholder 908 598. —^General Nature of Statutory Liability 909 599. — Assignment of Right of Recovery 910 600. — Wagers Made through Agents ; Who May Sue 911 601. — Limitation of Actions 912 602. — Form of Remedy and Pleadings 913 603. Money Borrowed for Gaming 914 604. Securities for Money Lost at Gaming Generally 915 605. Conveyances and Mortgages Given for Gaimbling Debts 916 Lotteries 606. What Constitutes Lottery Generally 917 607. Chance as Affecting Distribution 919 608. Bonds for Money Borrowed with Prize Privileges.; Determination of Maturity by Lot 920 609. General Legality of Contracts 923 610. Foreign Lotteries and Foreign Contracts 924 611. Recovery of Money, etc., Paid for Lottery Tickets 926 TABLE OF CONTENTS xxiii Contracts Affecting Marriage or Marriage Relation SECTION PAOB 612. In General 927 613. Marriage Brokerage Contracts Generally 929 614. — Enforcement of and Relief from Contract 930 615. Resumption of Marital Relations 931 616. Dissolution of Marriage; General Rule 933 617. — Application of General Rule 935 618. — Agreements as to Alimony 936 619. Separation Agreements'; Continued or Immediate Separation 93'7 620. — Future Separation 940 621. — Contract without Intervention of Trustees 943 622. — Effect of Statute against Dissolution of Marriage by Comtraict. . 944 623. — Effect of Statute against Relief of Husband for Support of Wife. 945 Civic and Parental Duties 624. Civic Duties 947 625. Parental Duties »49 Wadver of Rights 626. General Rule 949 627. Exceptions to General Rule 950 War as Affecting Legality of Contract 628. In General 952 629. Effect on Existii^ Contracts 954 Immoral Contracts 630. In General '956 631. Sexual Immorality Generally .' ^ 958 632. Fast Cohabitation; Intercourse Incidental to Contract 959 Indirect Illegality 633. In General ; , 9C0 634. Obstruction of Highway 963 635. Participation by Seller in Hlegal Purpose of Buyer 963 636. Services Rendered and Advances '^'h.M by A^pnt, "te 965 637. Effect of Knowledge of Unlawful Purpose of Ot'iier Party Generally. 967 638. — AppHcation of Rule 968 Contract Oromng Out of Prior Illegal Contract or Transaction 639. In General 970 640. Application of General Rule 971 Enforcement of and Relief from lUegal Contracts Generally 641. In General 972 642. Recovery on Implied Contract 976 643. Effect on Prior Contract 976 644. Relief in Equity; Judgment Recovered on Illegal Contract 977 645. Locus Poenitentiae 978 646. Person Not in Pari Delicto; General Rule 980 647. — Application of General Rule 981 648. Justice and Public Interest Advanced by Granting Relief 983 xxiv TABLE OF CONTENTS SECTION PAGE 649. Effect of Illegality of Securities Taken 986 650. Securities for Performance of Illegal Contract. . . , , 986 651. Rights of Assignees of Illegal Contracts; Negotiable Paper , 9S6 652. Accounting between Partners and. Joint Adventurers 988 653. Accounting by Agent; Agent a Participant in Illegal Transaction. 990 654. — ■ Agent Not a Participant in Illegal Transaction 991 655. Application of Payments 9S2 Partial Illegality 656. Indivisible Contracts Generally 993 657. Divisible Contracts Generally 994 658. Provision in Restraint of Trade 996 Defense of Illegality generally 659. Who May Raise Question 998 660. Necess'ity to Plead Defense Generally 999 661. —Where Complaint Shows Illegality 1002 662. — i Illegality Appearing from Plaintiff's Case 1003 663. Denial of Relief by Court Sua Sponte; Raising Question on Appeal. 1006 664. SufBciency of Plea of Illegality 1007 NEW YORK LAW OF CONTRACTS CHAPTER I Inteoductory § 1. Contract Defined 2. Classification of Contractsj Executory and Executed Con- tracts 3. — Express and Implied or Quasi Contracts 4. — Specialties and Simple Contracts 5. Requisites of Consensual Contracts Generally 6. Necessity that Contract Be in Writing 7. Statement or Recital of Facts as Contract § 1. Contract Defined. — A contract may be defined as an agree- ment, on a sufficient consideration, to do or not to do a particular tiling.^ Other definitions given by the text writers are as follows : "An agreement enforceable at law, made between two or more per- sons, by which rights are acquired by one or more to acts or for- bearance on the part of the other or others. " ^ "A contract or agreement not under seal may be defined to be an engagement entered into between two or more persons, whereby, in considera- tion of something done or to be done by the party or parties on the one side, the party or parties on the other promise to do or omit to do some act."^ "A contract is a promise from one or more persons to another or others, either made in fact or created by law, to do or refrain from some lawful thing. " ^ " Every agree- ment and promise enforceable by law is a contract. ' ' ^ § 2. Classification of Contracts ; Executory and Executed Con- tracts. — Contracts are sometimes classified as (1) executory and (2) executed. A transaction, however, though the result of agreement, which is whoUy executed, such as a gift or a convey- ance, not containing executory promises, is not as a general rule 1. Justice V. Lang, (1870) 42 N. Y. and Parsons also practically adopts 493, 496; Komp v. Raymond, (1903) it (1 Pars. Cont. 6). 175 N. Y. 102, lOS, 67 N. E. 113. 2. Anson Cont. 9. This is the definition given by 3. Chit. Cont. 7. Blackstone and approved by Kent 4. Bish. Cont. § 22. (Bl. Com. 442; 2 Kent Com. 449), 6. Pollock Cont. 1. 2 NEW YORK LAW OF CONTRACTS [§§ 3, 4 denominated a contract, and it is of the former kind of contracts that this work is principally to treat. § 3. Express and Implied or Quasi Contracts. — Contracts are also classified as (1) express and (2) implied or quasi con- tracts, and the latter are again classified as (1) contracts implied in fact and (2) contracts implied in law. Express contracts are those arising from the express agreement of the parties. Contracts implied in fact are those which arise from the implied assent of the parties as evidenced by their conduct rather than by express words of agreement, and are contracts in the true sense. Con- tracts implied by law, however, are not in the proper sense con- sensual contracts, but are created or imposed by law, in some instances against the will of the party to be charged, for the pur- pose of justice, and by reason of a fictitious promise created by law have for the purpose of the remedy the semblance of a contract obligation. § 4. — . — Specialties and Simple Contracts. — The common law distinguishes contracts into agreements by specialty and agreements by parol.* Specialties are contracts executed under the hand and seal of the party or parties to be charged. If merely written, however, and not under seal, they are considered as parol con- tracts merely ; oral and written contracts in this respect standing on the same footing.'' The solemnity and deliberation observed in the execution of a specialty give the transaction an importance and a character which are withheld from simple contracts. If the contract is under seal no consideration to support it is required to appear in the instrument or to be proved aliunde. The seal affixed to the instrument is itself evidence of a sufficient considera- tion.^ But if the contract is by parol, it is still necessary to prove in the first instance a consideration, unless the instrument is such as imports a consideration, and even though it is of such a character the prima facie presumption of a consideration may be rebutted and an action to enforce the contract defeated by proof of a want of consideration.' A different period of limitations also exists in 6. Wilson V. Baptist Educational statute modifying this common law Soc, (Sup. 1851) 10 Barb. 308, 3il. rule. 7. Wilson V. Baptist Educational 9. As to the necessity for a con- Soc., (Sup. 1851) 10 Barb. 308. sideration generally, see infra, sec- 8. See infra, section 372 et seq., as tion 235 et seq.; and as to instru- to the presumption at common law of ments not under seal importing a con- a consideration in case of contracts sideration, aee infra, section 361 et under seal and the effect of our seq. § 4] INTRODUCTORY case of simple and sealed contracts.^" To constitute a contract one under seal it is not necessary that there be inserted in the body of the instrument a recital that it is executed under the seal of the obligor; it is held sufficient if a seal is, at the time of execution, affixed to the signature.^! If the instrument contains the usual words " witness my hand and seal," 12 or has an attestation clause " sealed and delivered, " ^^ and has a seal attached, tliis is proof that it was in fact sealed before execution and delivery. If, how- ever, the recital in the instrument is merely " witness my hand," the presumption is that it was not sealed." The view has been taken that where a note is sued on, the body of which contains nothing to indicate whether it was intended to be sealed or not, proof of the maker's signature is presumptive evidence that it was also sealed, if a seal appears at the end of the maker's name." This is especially true where the action is brought within the period fixed for actions on simple contracts." Where the issue is raised by the pleading as to whether the note on which the action is based was altered after execution by the wrongful affixing of a seal, and the defendant has introduced evidence tending to support such defense and overcome the presumption that it was afSxed at the (Com. PI. (Com. PI. (Com. PI. V. 63 10. See Code Civ. Proe., §§ 381, 382. 11. Anthony v. Harrison, (Sup. 1878>) 14 Hun 198. 12. Merritt v. Cornell, 1852) 1 E. D. Smith 335. 13. Merritt v. Cornell, 1852) 1 E. D. Stoith 335. 14. Merritt v. Cornell, 1852) 1 E. D. Smith 335. 15. Farmers' loan, . etc., Co. Siefke, (1895) 144 N. Y. 354, State Rep. 662, 39 N. E. 358. In Anthony v. Harrison, (Sup. 1878) 14 Hun. 198, 200, it is said, however, in the report of the referee: " Independently of authority, I should think that in an action on an instru- ment, in the body or attestation clause of which there was nothing tending to show that it was intended to be under seal, and which was not of such a character that it was re- quired by law to be sealed in order to be operative for the purpose for which it was evidently intended, and where the right of recovery depended upon its being held to be a specialty, for instance where the statute of limitations was pleaded, evidence should be given to prove the affixing of a seal at the time of the making of the instrument, or at least that it was on the instrument before the six years limitation had expired, or if no statute had been passed in this state changing the rule of the common law as to inquiring into the consideration of sealed instruments, and objections should be made to evidence offered to prove a want of consideration on the ground that the instrument was a specialty, it may well be doubted whether a court should not require proof that the seal was actually at- tached at the time of signing." IG. Merritt v. Cornell, (Com. PI. 1852) 1 E. D. Smith 335. The neces- sity for proving the seal in this case was due to the fact that the action was one of debt and was before our Code form of practice. 4 NEW YORK LAW OF CONTRACTS [§§ S, 6 time of execution, the burden on the whole case rests on the plain- tiff to establish that the seal was afiixed at the time of execution. When evidence of the alteration is introduced, which goes to the identity of the instrument, it controverts a fact which the plaintiff is bound to prove in the first instance, viz., that the sealed instru- ment was the act of the defendant ; and the prima facie case made by the proof of the defendant's signature does not shift the burdep of proof on the evidence as a whole." § 5. Eequisites of Consensual Contracts Generally. — The essen- tial elements of a consensual contract are: (1) The assent of the parties, usually evidenced by an offer and its acceptance.^* This assent must be real, and a seeming assent may be rendered ineffec- tual to impose a legal obligation by reason of its unreality due to uncertainty as to the terms of the agreement,^' or where induced by mistake,^" ignorance of the terms of the agreement,^": duress,^^ undue influence,^ or fraud.^* (2) In case of all executory con- tracts there must be a consideration for the promise sought to be enforeed.^^ (3) The subject matter or object of the contract must be lawful and not opposed to public policy .^^ (4) The party sought to be charged must have the requisite capacity to contract.^' § 6. Necessity that Contract Be in Writing. — The common law does not require that executory contracts be reduced to writing 17. Farmers' Loan, etc., Co. v. the whole evidence, that for and that Siefke, (1895) 144 N. Y. 354, 63 against the fact asserted hy the plain- State Rep. 662, 39 N. E. 358, dis- tiff, is submitted to court or jury, tinguishing and explaining Williams- then the question of the burden of burgh Sav. Bank v. Solon, (1893) proof as to any fact, in its proper 136 N. Y. 465, 49 State Rep. 840, 32 sense, arises, and rests upon the N. E. 1058. In this case, supra, party upon whom it was at the out- Andrews, C. J., (144 N. Y. 359) says: set, and is not shifted by the course " There is confusion sometimes in of the trial, and the jury may be treating of the burden of proof, aris- properly instructed that all material ing out of unexact definitions. The issues tendered by the plaintiff must burden is upon a plaintiff to estab- he established by him by a preponder- lish his cause of action when it is in ance of evidence." proper form denied by the other 18. See infra, section 8 et seq. party. . . . Tt is very common to 19. See infra, section 60 et seq. say in such cases that the Jjurden 20. See infra, section 71 et seq. is upon the defendant to establish the 21. See infra, section 85 et seq. fact relied upon. All that this can 22. See infra, section 90 et seq. properly mean is that when the plain- 23. See infra, se,ction 121 et seq. tiff has established a prima facie 24. See infra, section 141 et seq. ease, the defendant is bound to con- 25. See infra, section 232 et seq. trovert it by evidence, otherwise he 26. See infra, section 384 et seq. will be cast in judgment. When such 27. The capacity of parties to con- evidence is given, and the case upon tract is treated later. § 6] INTRODUCTORY 5 in order that they may be binding on the parties, and therefore, in the absence of any statutory requirement to the contrary, oral contracts are valid to the same extent as written contracts,^* and consequently an oral contract of insurance is upheld.^'' As said by Comstock, J. : " The common law, with certain exceptions, having regard to age, mental soundness, etc., concedes to every person the general capacity of entering into contracts. This capac- ity relates to all subjects alike concerning which contracts may be lawfully made, and it exists under no restraints in the mode of contracting except those which are imposed by legislative author- ity. There is nothing in the nature of insurance which requires written evidence of the contract. To deny, therefore, that parol agreements to insure are valid, would be simply to affirm the incapacity of parties to contract where no such incapacity exists, according to any known rule of reason or of law. The Supreme Court of the United States, in a recent case in which the question directly arose, has determined that a parol agreement to make and deliver a policy of insurance need not be in writing. (Commercial Mut. Marine Ins. Co. v. The Union Mut. Ins. Co., 19 How. 318.) We do not hesitate to adopt that conclusion, and it follows that the objection made at the trial to the agreement offered to be proved, so far as it rests upon this ground, cannot be main- tained. " ^^ A contract though in writing may be modified by a subsequent oral agreement," and the fact that the parties stand in the relation to each other of landlord and tenant in no way affects the validity of an oral contract as to the repair or the like of the demised premises.^^ During the reign of Charles II, statutes were enacted commonly known as the statute of frauds, which required certain classes of 28. First Baptist Church v. Brook- 30. First Baptist Church v. Brook- lyn F. Ins. Co., (1859) 19 N. Y. 305, lyn F. Ins. Co., (1859) 19 N. Y. 305, 308; Fish V. Cottenet, (1871) 44 N. 308. y. 538. 31. Ludwig v. Jersey City Ins. Co., 29. First Baptist Church v. Brook- (1872) 48 N. Y. 379, 383; Orguerre lyn F. .Ins. Co., (1859) 19 N. Y. 305; v. Luling, (Com. PI. 1857) 1 Hilt. Fish V. Cottenet, (1871) 44 N. Y. 383. The question as to the modlfica- 538; Ludwig v. Jersey City Ins. Co., tion of contracts generally is dis- (1872) 48 N. Y. 379, 383; Inter- cussed later. national Ferry Co. v. American 32. Post v. Vetter, (Com. PI. 1863) Fidelity Co., (1913) 207 N. Y. 350, 2 E. D. Smith 248; Oettinger v. Levy, 101 N. E. 160; Struzewski v. Farm- (Com. PI. 1855) 4 E. D. Smith 288. ers' F. Ins. Co., (Sup. 1917) 179 App. Div. 318, 166 N. Y. S. 362, 6 NEW YORK LAW OF CONTRACTS [§ 6 contracts to be in writing and signed by the party to be charged or his duly authorized agent ; and these provisions were at an early date incorporated into our statutes. The provisions in regard to this matter are now incorporated in the Consolidated Laws and J their effect is to render unenforceable, if the defense is properly raised, the following classes of contracts: (1) the creation of an estate or interest in land or any trust or power over or concerning real property, excepting trusts arising by implication or operation of law and leases for a term not exceeding one year, unless the deed or conveyance is in writing subscribed by the person creating, etc., the estate, or by his lawful agent thereunto authorized by writ- ing ;^^ (2) a contract for the leasing for a longer period than one year, or for the sale, of any real property or an interest therein, unless the contract or some note or memorandum thereof express- ing the consideration is in writing, subscribed by the lessor or — grantor or by his lawfully authorized agent ;^* (3) every agree- ment, promise or undertaking, unless it or some note or memo- randum thereof is in writing and subscribed by the party to be charged therewith or his lawful agent, if such agreement, etc., (a) by its terms is not to be performed within one year from the making thereof, (b) is a special promise to answer for the debt, default or miscarriage of another person, (c) is made in considera- tion of marriage except mutual promises of marriage, (d) is a conveyance or assignment of a trust in personal property, (e) is a subsequent or new promise to pay a debt discharged in bank- ruptcy;^' (4) a promise by an executor or administrator to answer damages or to pay the debts of the testator or intestate out of his own estate, unless the agreement for that purpose or some memo- randum or note thereof is in writing and signed by such executor or administrator, or by some other person by him thereunto spe- cially authorized;^* (5) a contract for the sale of any goods or chose in action of the value of fifty dollars or upwards, unless the buyer shall accept part of the goods, etc., and actually receive the same or give something in earnest to bind the contract or unless some note or memorandum in writing of the contract or sale is signed by the party to be charged or his agent in that behalf." 33. Real Property Law, § 242; 49 36. Decedent Estate Law, §.113; McKinney's Cons. Laws, p. 254. 13 McKinney's Cons. Laws, p. 172. 34. Real Property Law, § 259; 49 37. Personal Property Law, § 85; McKinney's Cons. Laws, p. 298. 40 McKinney's Cons. Laws, p. 117. 35. Personal Property Law, § 31; 40 McKinney's Cons. Laws, p. 53, § 7] INTRODUCTORY 7 § 7. Statement or Recital of Facts as Contract. — As a general rule a transaction to constitute a contract must expressly or impliedly import a promise to do or to refrain from doing some particular thing, and therefore an instrument which merely pur- ports to contain a statement or recital of a state of facts is not a contract between the parties, as it lacks this essential element.^^ Thus an ordinary receipt acknowledging merely the acceptance of a sum of money or property by one party from the other is not in the proper sense a contract, and therefore the general rule that a written contract cannot be varied or contradicted by oral evidence does not apply, and it has been settled from an early date that an entry in a depositor's bank book is in the nature of a receipt, and oral evidence is admissible to contradict its truth at the instance of either party.^* Though a receipt purports to be in full pay- ment of a certain account, it does not conclusively import a con- tract of accord and satisfaction with respect to such account,** and the fact that a receipt purports to be in full payment of a sale does not make it the contract of sale so as to preclude oral evidence of the actual terms of the sale/"- " Eeceipts and admissions, as such, are always open, as between the parties, to explanation, and are impeachable for mistake, error or false statement contained in them; in a word, they may always be contradicted, varied or explained by parol testimony. " *^ In reference to a receipt pur- porting to be in full payment of an account, Martin, J., says: " There are in the receipt no words importing a promise or con- tract to do anything, nor to refrain from doing anything. It at most is a mere admission upon the part of the plaintiff that he has received a certain amount of money in full for certain services and allowances which closed his account. Treat the language of this receipt as you may, admit all that is possible to be implied by or inferred from its terms, still it does not contain the necessary elements required to constitute even a promise and certainly is not sufficient to constitute a contract or agreement. It is a plain admis- 38. Komp V. Raymond, (1903) 175 wliicli followed the decision on a N. Y. 102, 67 N. E. 113. prior appeal, 42 App. Div. 32, 58 N. 39. Manhattan. Co. v. Lydig, (Sup. Y. 8. 909. 1809) 4 Johns. 377; Mechanics', etc., 41. Seeley v. Osborne, (1917) 220' Bank v. Smith, (Sup. 1821) 19 K Y. 416, 116 N. E. 97, reversing 161 Johns. 115. App. Div. 844, 147 N. Y. S. 116. 40. Komp v. Raymond, (1903) 175 42. Ellis v. Willard, (1854) 9 N. N. Y. 102, 67 N. E. 113, reversing 71 Y. 529, 531, per Allen, J. App. Div. 612, 76 N. Y. S. 1018, C, NEW YOEK LAW OF CJONTEACTS [§ 7 sion of the receipt of a certain amount of money in full payment and nothing more. Consequently, under every definition of a contract, it is defective and contains practically none of the ele- ments necessary to constitute such an instrument. But it is said that it is an agreement to receive the sum named in full payment of his contract. That statement, however, is incorrect, for it does nothing of the sort. Nothing is promised. Nothing agreed to be done or omitted. At most it is a mere admission of a past trans- action or of an existing fact. It is a mere acknowledgment that an amount of money has been received by the plaintiff in full pay- ment of his account. Hence, it must be regarded as a receipt only and not as a contract. " *' A writing in the form of a receipt may embody in it a contract as well as a mere receipt, and when such is the case effect will be given to the contract so embodied.^* 43. Komp V. Eaymond, (1903) 175 402; Ryan v. Ward, (1872) 48 N. Y. N. Y. 102, 108, 67 N. E. 113. 204. 44. Coon V. Knap, (1853) 8 N. Y. CHAPTER 11 Assent Generally Summary of Section Headings General Principles (§§ 8-23) Revocation or Withdrawal of Offer (§§ 24^34) Acceptance of Offer (§§ 35-59) General Principles i 8. Necessity for Assent Generally 9. Matters Left Open for Future Settlement 10. Concurrent Assent 11. Conditional Assent 12. Intention to Contract Generally 13. — Invitations to Negotiate Generally 14. — Request for Submission of Bids Generally 15. — Effect of Statute Requiring Letting of Contract to Lovr- est Bidder 16. Agreement to Execute Contract 17. Intention to Reduce Contract to Writing 18. Offers to the Public or a Class of Persons Generally 19. — Knowledge of Offer as Basis of Contract 20. Signing Blank Paper or Incomplete Contract 21. Contracts by Letters and Telegrams Generally 22. — Tests as to Consummation of Contract 23. Contracts over Telephone Revocation or Withdrawal of Offer I 24. In General ' ^ 25. Effect of Acceptance on Right to Withdraw 26. Competitive Bids Submitted on Request 27. What Constitutes Revocation Generally 28. Notice of Revocation 29. Death of Offeror 30. Rejection of Offer 31. Lapse of Time ; Continuing Offer 32. Expiration of Time Limited for Acceptance Generally 33. — Acceptance by Return Mail Requested 34. — Waiver of Delay in Acceptance [9] 10 NEW YOEK LAW OF CONTRACTS [§ 8 Acceptance of Offer § 35. In General. 36. Who Entitled to Accept 37. Conditions Precedent to Acceptance 38. Conditional Acceptance Generally 39. — Acceptance Eeqniring Acknowledgment or Confirmation 40. Manifestation of Acceptance Generally 41.' — Oral Acceptance of Written Offer 42. Implication of Acceptance Generally 43. — Implication of Acceptance Contrary to Express Refusal 44. Silence as Evidencing Assent Generally 45. — Effect of Silence where Contract Is Wholly Executory 46. Acting on Offer as Acceptance Generally 47. — Application of General Eule as to Acting on Offer 48. — Limitation of Eule as to Acting on Offer 49. Acknowledgment of Order or Offer 50. Signature of Promisee to Unilateral Contract 51. Communication of Acceptance Generally 52. — Communication by Mail or Telegram Generally 53. — Implied Authorization for Acceptance by Mail or Telegram 54. — Mailing, Stamping and Addressing Letter of Accept- ance 55. Conformance of Acceptance to Offer Generally 56. — Application of General Eule as to Conformance to Offer 57. — Eestating Terms of Offer 58. — Directory Eequest or Statement 59. Nonconforming Acceptance as New Offer General Principles § 8. Necessity for Assent Generally. — ^Assent, or a meeting of the minds of the parties to be bound, is essential to all consensual contracts.^ As a general rule every person has the natural right 1. McCotter v. New York, (1867) 1860) 38 Barb. 528, affirmed 23 N. Y. 31_N\ Y. 325, affirming 35 Barb. 609; 564; Mundy v. Matthews, (Sup. Dutchess; etc., County K. Co. v. Mab- 1884) 34 Hun 7'4; Marschall v. Eiaen bett, (1874) 58 N. Y. 397; Scheneo- Vineyard Co., (Com. Fl. G. T. 1894) tady Stove Co. v. Holbrook, (1885) 7 Misc. 674, 58 State Eep. 375, 28 101 N. Y. 45, 4 N. B. 4; Jackson v. N. Y. S. 62; Treat v. TJlIman, (Sup. Stone, (Sup. 1900) 48 App. Div. 628, App. T. 1901) 34 Misc. 553, 69 N. Y. 64 N. Y. S. 820; Bell V. Mills, (Sup. S. 974; Baxter v. Iglesias, (Sup. 1902) 78 App. Biv. 42, 80 N. Y. 8. App. T. 1920) 183 N. Y. 8. 35; Des- 34; Brooklyn Cent. E. Co. v. Brook- son v. Antony, (Com. PI. 6. T. lyn City E. Co., (Sup. 1860) 32 Barb. 1891) 37 State Rep. 254, 13 N. Y. S. 358, 369; Dana v. Munro, ('Sup. 890. § 8] ASSENT G-ENEEALLY H to select the persons with whom he will contract,^ and aside from certain quasi contracts, custom or usage cannot make an agreement binding on a person who declines to contract.^ No con- tract arises from the fact that the parties may have supposed that a binding contract existed between them, unless such an agreement had in reality been made ; that is, unless their minds had met by an offer and an unqualified acceptance.^ It is essential that the minds of the parties should meet in respect to the nature and extent of the obligations assumed. If the terms of the contract are not fully settled or if the minds of the parties are at variance in this respect, through mistake or otherwise, no valid contract is createdi^ " If one of the parties," says Blackburn, J., in a lead- ing English case, " intends to make a contract on one set of terms, and the other intends to make a contract on another set of terms, or as it is sometimes expressed, if the parties are not ad idem, there is no contract, unless the circumstances are such as to preclude one of the parties from denying that he has agreed to the terms of the other. "^ But it is also said: " If, whatever a man's real inten- tion may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the con- tract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party's terms." ' 2. Connnercial Telegram Co. v. Dress Co. v. Kransliar, (Sup. App. T. Smith, (Sup. G. T. 1888) 47 Hun 1917) 164 K Y. S. 779; Harris v. 494, 506, 15 State Rep. 19; Tanen- "Walker M. Levett Co., (Sup. App. T. baum V. New York F. Ins. Exch., 1917) 165 N. Y. S. 317, affirmed 181 (Sup. Sp. T. 1900) 33 Misc. 134, 68 App. Div. 932 mem., 167 N. Y. S. N. Y. S. 342. 1103; Farmer v. Medico-Legal 3. Tanenbaum V. New York F. Ins. Journal Assm, (City Ot. 1889) 26 Exch., (Sup. Sp. T. 1900) 33 Misc. State Rep. 940, 7 N. Y. S. 322; 134, 68 N. Y. S. 342. Baldwin v. Mildeberger, (Super. Ct. 4.' Nundy v. Matthews, (Sup. 1884) 1829) 2 Super. Ct. 176. 34 Hun 74, 79. S. Smith v. Hughes, (1871) 6 Q. B. 5. Cutts V. Guild, (1874) 57 N. Y. 597, 607. 229; Kayser v. Arnold, (1891) 124 This statement ds approved in Con- N. Y. 674, 36 State Rep. 896, 27 N. E. sumers' 'Ice Co. v. Webster, (Sup. 360,4 Silv. Ct. App. 405; Consumers' 1903) 79 App. Div. 350, 79 N. Y. S. Ice Co. V. Webster, (Sup. 1903) 79 385. App. Div. 350, 79 N. Y. S. 385; 7. Smith v. Hughes, (1871) 6 Q. Scranton v. Booth, (Sup. 1859) 29' B. 597. Barb. 171; Fullerton v. Dalton, (Sup. This statement is quoted with ap- 1870) 58 Ba,rb. 236; Wilentshik v. proval by Church, 0. J., in Phillip v. Messier, (Sup. App. T. 1905) 48 Misc. Gallant, 62 N. Y. 256. 362, 95 N. Y. S. 500; Up-To-Date 12 NEW YORK LAW OF CONTRACTS [§ 8 A mistake as to the identity of a party to the contract may also prevent the consummation of a binding contract.* A misunder- standing or mistake as to the legal effect or meaning of a contract, its terms being known, will not prevent a party from being bound thereby.' When a buyer has announced his intention to return goods purchased as not complying with the contract of purchase, and the seller notifies him that if the goods are so returned he will sell them on the buyer's account, the fact that the buyer returns the goods does not constitute an assent to a contract that the seller may resell them on the buyer's account, irrespective of whether the buyer was or was not justified in returning them; the buyer having announced his intention of making the return, the seller cannot by notice create, without the buyer's further assent, a con- tract that the goods may be sold on the buyer's account.^" Where an offer or proposal is expressed in clear and explicit terms, matter printed in small type at the top or bottom of the office stationery of the writer, where it is not easily seen, which is not in the body of the instrument or referred to therein, is not necessarily to be considered a part of the offer.^^ An offer on the part of a munici- pality may be in the form of a resolution, which if duly accepted by the offeree will create a binding contract.^^ In case of statutory undertakings, such as undertakings on appeal and the like, the assent of the obligee is not necessary to the creation of the obliga- tion, nor would his dissent in the slightest degree modify its effect on his own or the other party 's rights.^^ The assent of a party may be given through a duly authorized agent, but under the general principles of the law of principal and agent, when one party chooses to cdntract with an agent he is bound by the limitations placed on the agent's authority unless the principal has done something to create a false impression as to the extent of such authority." 8. Consumers' lee Co. v. Webster, 10. Sutton v. Cronin, (Super. Ct. (Sup. 1898) 32 App. Div. 592, 53 1865) 26 Super. Ct. 493. N. Y. S. 56. 11- B. F. Sturtevant Co. v. Fire- 9. Phillip V. Gallant, (1875) 62 1'!;°''* ^"f Co., (1915) 216 N. .Y. N. Y. 256; McCreery v. Duncan. ''%'{'>''■ I ^^'\ (Super. Ct. 1886) 53 Super. Ct. 448, ^^t ^^^^ Co. v. Albany, ( 1874) 55 1 Q+ 4. -p OKR ' N. Y. 495, affirming 7 Lans. 264. 1 btate Kep. Ab5. 13 ^.^^^^^^^^ ^ Blanchard, (1850) See infra, section 71 et seq., as to 3 i^_ y_ 335 333 the reality of the assent as affected 14. Cohen v. Siegel, (Sup. 1916) by mistake. 172 App. Div. 21, 157 N. Y. S. 1077. § 9] ASSENT GENERAJJLY 13 § 9. Matters Left Open for Future Settlement.— Ordinarily if there remains any of the material terms or conditions of the con- tract to be settled and agreed on by the parties, no binding con- tract exists.^^ Thus where an offer to take a lease of premises is made, which contemplated alterations according to plans to be thereafter agreed on by the parties, and such offer is accepted in general terms, no binding contract is created, because the terms have not been settled. This is in effect merely an agreement that if the parties shall thereafter agree on plans for alterations then a lease on the terms specified will be made.^* So an agreement in a lease to renew on terms to be agreed on by the parties at the time of the contemplated renewal is unenforceable." In case of a contract of employment where the amount of the compensation is left open for settlement by mutual agreement, no binding con- tract is created." Likewise where the parties signed " a memo- randum or points of agreement " to be made between them, which stipulated for the employment of the plaintiff for a certain time at a stated compensation and a certain per cent of the distributable profits of the business, which was guaranteed not to be less than a stated sum, but it was further provided that " the method of accounting to determine the net distributable profits is to be agreed upon later when the company's [defendant's] accounts have developed for a better understanding," and they were unable to agree on the method of accounting — it was held that no binding contract was consummated, irrespective of the fact that the failure to agree on the method was due to the unreasonable insistence or bad faith of the defendant ; and it was further held that the plain- tiff had no right to waive any claim for compensation beyond the 15. McCotter V. New York, (1867) 33 Barb. 358, 369; Hawksworth v. 37 N. Y. 325, affirming 35 Barb. 609; Durant, (Sup. App. T. 1916) 93 Misc. Brown v. New York Central R. Co., 149, 156 N. Y. S. 1026; Moran v. (1870) 44 N. y. 79; Holtz v. Wellington, (Sup. Tr. T. 1917) 101 Schmidt, (1874) 59 N. Y. 253; Misc. 594, 167 N. Y. S. 465; Burgdorf Schenectady Stove Co. v. Holbrook, v. Odell, (Sup. 1883) 17 Wldy. Dig. (1885) 101 N. Y. 45, 4 N. E. 4; 542. Mayer v. McCreery, (1890) 119 N. Y. 16. Mayer v. McCreery, (1890) 119 434, 29 State Rep. 690, 23 N. E. 1045; N. Y. 434, 29 State Rep. 690, 23 N. Petze V. Morse Dry Dock, etc., Co., E. 1045. (Sup. 1908) 125 App. Div. 267, 109 17. Moran v. Wellington, (Sup. Tr. N. Y. S. 3-28, affirmed 195 N. Y. 584 T. 1917) 101 Misc. 594, 167 N. Y. S. mem., 89 N. E. 1110; Muller v. Idler, 465. (Sup. 1908) 126 App. Div. 366, 110 18. Hawksworth v. Durant, (Sup. N. Y. S. 858; Brooklyn Cent. R. Co. App. T. 1916) 93 Misc. 149, 156 N. v. Brooklyn City R. Co., (Sup. 1860) Y. S. 1026. 14 NEW YOEK LAW OF CONTRACTS [§ 10 stated sum and the mininnim guaranty as to the profits and hold the defendant to a contract on this basis.-^ It has also been held that no binding contract for the sale of a business exists where a part of the total agreed price was paid down and the time for a second payment stated, but the terms of payment as to the balance were expressly left open for settlement by the parties.^" If the terms left open for settlement are subsequently agreed on a binding contract will then be created, even though this is verbal and though the parties may have contemplated in the first instance the execution of a written contract, provided the contract as finally agreed on is not within the statute of frauds, as the parties may make a verbal agreement as a substitute for the con- templated written contract/^ Thus where the memorandum for the employment of the plaintiff as stage manager for a certain season fixed the rate of compensation, stipulating that it was sub- ject to the conditions and regulations of a contract to be substi- tuted for the memorandum, and the conditions were verbally agreed on, it was held that the contract was thereby rendered binding.^^ The view has been taken that a contract may be a binding one though matters are left open for mutual settlement, so as to require each party to make reasonable and fair efforts to agree in this respect, and that a party who refuses in bad faith with the intent not ,to carry out the contract may render himself liable in damages.^ § 10. Oonctirrent Assent. — The assent of each party, as evidenc- ing the meeting of the minds, need not be in fact concurrent in point of time in so far as knowledge of the parties is concerned. In practice, where two parties, being present together, enter into negotiations looking to the making of a contract, the minds of both ordinarily meet at the same time on the same terms or no contract is made, and each has knowledge of such fact. Where, however, the parties reside at a distance from each other and the negotiation 19. Petze V. Morse Dry Dock, etc., 22. Walton v. Mather, (City Ct. Co., (Sup. 190-8) 125 App. Div. 267, 1893) 4 Misc. 261, 53 State Rep. 716 109 jSr. Y. S. 328, affirmed 195 N". Y. 24 N. Y. S. 307; Walton v. Mather, 684 mem., 89 N. E. 1110. (Sup. App. T. 1896) 16 Misc. 546, 74 20. Muller v. Idler, (Sup. 1908) State Rep. 131, 38 N. Y. S. 782, 126 App. Div. 366, 110 N. Y. S. 858. affirming 15 Misc. 453, 72 State Rep' 21. Walton v. Mather, ( Sup. App. 177, 37 N. Y. S. 26. T. 1896) 16 Misc. 546, 74 State Rep. 23. Smith v. United Traction, etc., 131, 3» N. Y. S. 782, affirming 15 Co., (Sup. 1900) 49 App. Div! 64l', Misc. 453, 72 State Rep. 177, 37 N. 63 N. Y. S. 665, affirmed 168 N". Y.' Y. S. 26. 597 mem., 61 N. E. 1134. § 11] ASSENT GENERALLY 15 is conducted by written correspondence, though there must be the assent of both parties to the same provisions, it is of course im- practical that such assent should be manifested simultaneously and both have fuU knowledge thereof. One must state what he is will- ing to do, and the other must, when the proposition has reached him, assent to the same terms and in some manner manifest that assent.^ In such a case the will or assent of the party making the offer is in law presumed to continue until a reasonable opportunity has been given the other party to express his assent.^° In other words, as expressed in an early English case, the offeror must be considered in law as making, during every instant of time his letter was traveling, the same identical offer, and then the contract is complete by the acceptance by the offeree.^^ To give existence to a contract it is not essential that both parties in fact know that they have assented to the agreement, if their minds have met and this is evidenced by overt acts. As has been said by Marcy, J., in a leading case in this state: " The law does not regard bare volitions and pure mental abstractions. When it speaks of the operations of the mind, it means such as have been made manifest by overt acts ; when it speaks of the meeting of minds, it refers to such a meeting as has been made known by proper acts, and when thus made known it is effective, although the parties who may claim the benefit of or be bound by a contract thus made may for a season remain ignorant of its being made. ' ' ^'^ § 11. Conditional Assent. — If the assent of one party to the transaction's becoming effective and binding on him as a contract is subject to a condition, this condition must be duly performed, otherwise no binding contract arises.^* For example, where it appeared that the defendants intended to make an exhibit at the Panama Exposition if they could procure from the exposition authorities an allotment of space, which could be had only after an approval of the proposed plans of the exhibit, and the plaintiff proposed to prepare plans for the exhibit and erect the same, and 24. Vassar v. Camp, (1854) 11 N. 28. Justice v. Lang, (1875) 63 N. Y. 441, 449; Mactier v. Frith, (Ct. Y. 633, affirming 39 Super. Ct. 283; Err 1830) 6 Wend. 103, 115. Waxelbaum v. Schloss, (Sup. 1909) 25. Mactier v. Frith, (Ct. Err. 131 App. Div. 826, 116 N. Y. S. 42; 1830) 6 Wend. 103, 115. Wilhelm v. Wood, (Sup. 1912) 151 26. Adams v. Lindsell, (1818)- 1 App. Div. 42, 135 N. Y. S. 930; White B & Aid 681 V. Kingston Motor Car Co:, (Sup. '27. Mactier' V. Frith, (Ct. Err. App. T. 1910) 69 Misc. 627, 126 N. Y;'' 1830) 6 Wend. 103, 118. S. 150, 16 NEW YORK LAW OF CONT-KAOTS I§ 12 his offer was accepted in a letter stating that should the defendants " be the successful applicant and the space referred to be awarded us we will gladly contract with you to furnish the material and erect the booth per plans and bid submitted, ' ' it was held that the agreement for the erection of the booth was contingent on the award of the space after an approval of the plaintiff's plans, and that where the authorities rejected the plaintiff's plans no action could be maintained by him, though other plans submitted by the defendant were approved and space awarded.^' Likewise if the acceptance of an offer to assign a lease is subject to the condition that the legality of the lease be favorably passed on by the accep- tor's attorney, the favorable action of the attorney is ordinarily essential to impose any liability on the acceptor's part to take the assignment. The acceptor in such a case does not undertake to guarantee that the decision of the attorney shall be in accordance with the law, his only obligation being not fraudulently to inter- fere with an approval.^* The fact that the agreement was reduced to writing does not prevent the party from showing by oral evidence that its taking effect as a binding contract was subject to a condition.'^ Thus where the seller signed and delivered a memorandum for the sale of a certain number of rifles, he may show that it was a condition precedent to the transaction's becoming binding on him as a sale that the buyer should give an order for an additional number of rifles, and on the letter's failure to do so no binding contract was created.^^ § 12. Intention to Contract Generally. — In order that a trans- action may constitute a contract there must be an intention on the part of the parties to assume a contractual relation.^^ And a mere printed notice at the head of a hotel register limiting the common law liability of an innkeeper cannot be considered as a contract so doing, merely because a guest signs the register, without proof that the guest's attention was called to it and that he signed the 29. Singer v. Disston, (Sup. 1917) State Kep. 235, 18 N. E. 127, 2 Silv. 178 App. Div. 108, 165 N. Y. S. 94. Ct. App. 99; Higgins v. Eidgway, 30. Wilhelm v. Wood, (Sup. 1912) (1897) 153 N. Y. 130, 47 N. E. 32; 151 App. Div. 42, 135 N. Y. S. 930. Corn v. Bergmann, (Sup. 1911) 145 31. Benton v. Martin, (1873) 52 App. Biv. 218, 129 N. Y. S. 1049. N. Y. 570; Bookstaver v. Jayne, 32. Justice v. Lang, (1875) 63 N. (1875) 60 N. Y. 146; Justice v. Lang, Y. 633, affirming 39 Super. Ct. 283. (1875) 63 N. Y. 633; Reynolds v. 33. Grierson v. Mason, (1875j 60 Robinson, (1888) 110 N. Y. 654, 18 N. Y. 394. § 12] ASSENT GEISTERALLY 17 register with the intention to be bound by it.^* And where a rug cleaner in taking rugs to be cleaned, in response to the question as to when they would be returned, stated that they would be done in eight or nine days, it was held that this was a mere expression of an opinion as to the time it would require to do the work and not a contract on his part to return the rugs in the time so stated.^^ A proposal to be the basis of a contract by acceptance must be made with the intent or under circumstances evidencing an intent' that it may, without further negotiations, be converted into a con- tract by acceptance. If there is no intent that a mere acceptance shall create a contract it is insufficient for such purpose.'^ Though the transaction is reduced to writing and is in the form of a bilat- eral contract, oral evidence may be admitted to show that it was not the intention of the parties that it should in fact operate as a contract. This is in avoidance of the writing as a contract and not to change it, and does not fall within the general rule pro- hibiting the admission of oral evidence to modify or vary a written contract." Ordinarily the intent to contract is evidenced by an offer or promise on one side to do a certain thing, and an acceptance on the other side of such offer or promise with the intent to form a contract. It is not essential, however, that one party offer or promise in formal words to do the thing contemplated. This may be implied from the language used.^* For example, it appeared in a case that the defendant made an inquiry over the telephone of the plaintiff as to the rate for transporting a certain quantity of goods to a certain place, and on a rate being quoted stated that it was satisfactory and asked a confirmation of the rate in writing. This the carrier gave, and in his letter requested notice of accept- ance. The defendant replied acknowledging the plaintiff's letter and stating his acceptance. It was held that though there was no express promise by the carrier to transport for the quoted rate, and by the defendant to ship at such rate, this would be implied 34. Ramaley v. Leland, (Super. Ct. 37. Grierson v. Mason, (1875) 60 1868) 29 S^per. Ct. 358, modified on N. Y. 394. other grounds 43 N. Y. 539; Bern- 38. Homan v. Earle, (1873) 53 stein V. Sweeny, (Super. Ct. 1871) 33 N. Y. 267, affirming 13 Abb. Pr. N. S. Super Ct 271 ^^'' Stilwell v. Ocean Steamship Co., oc oi, i^ ' T,, A ^A ,=. (Sup. 1896) 5 App. Div. 212, 39 N. 35. Shablow V. Bloomfield, (Sup. ^ £ ^gj g^^ ^j^^ ^.^■^^ ^ B^^^.^,. App. T. 1919) 175 N. Y. S. 865. ^^„^ ^g^p jgi^, ^gg App. Div. 952, 36. Myers v. Smith, (Sup. 1867) 150 N. Y. S. 242, affirmed 221 N. Y. 48 Barb. 614. 693 mem., 117 N. E. 1067. Z 18 NEW YOEJK LAW OP CONTRACTS [§12 from tlieir communications.^^ So no particular form of words is necessary to constitute a contract to marry; as in cases of other contracts, it is sufficient if such language was used as to show the meeting of the minds of the parties ; and while, where in an action for the breach of such a contract the parties are witnesses and state all that occurred, a contract cannot be implied, yet the mean- mg and intention of the parties may be inferred, and it is sufficient to establish the contract if their acts and language were such as clearly to indicate that they intended a mutual engagement and understood it to exist.*" It is the general rule, as is hereafter shown, that if a statement is in such form that it may be susceptible of more than one mean- ing, it is to be interpreted in the sense in which the maker or promisor had reason to expect that it was understood by the promisee." And while a statement of a mere intention or hope may not be a sufficient basis for such an- acceptance as will result in a binding agreement or extend the express obligations of a contract,*^ yet whether the statement is such as to give the other party the right to act on it as an intended offer may be a question for the jury.*' And where in a conversation between the parties the essential elements constituting a contract to deliver a lecture were agreed to, with the exception of the date during the season, which was left to be fixed by the lecturer, it was held a question for the jury whether a contract was entered into or whether there was merelj' a preliminary negotiation contemplating the making of a future contract.** A mere protocol or plan on which the parties contemplate doing business and making future contracts, but which in itself imposes no present obligations on the parties, though it may be considered as entering into subsequent contracts if in fact made, does not itself constitute a contract.*" Likewise a mere direction by a 39. Stilwell V. Ocean Steamship 249; Schonberg v. Cheney, (Sup. Co., (Sup. 1896) 5 App. Div. 212, 39 1875) 3 Hun 677, 6 Thomp. & C. 200. N. Y. S. 131, distinguishing Chicago, 43. Stevens v. Amsinck, (Sup. etc., R. Co. V. Dane, (App. 1870) 43 1912) 149 App. Div. 220, 133 N. Y. S. N. Y. 240. 815. 40. Homau v. Earle, (1873) 53 N. 44. Savery v. Ingersoll, (Sup. G. T. Y. 667, affirming 13 Abb. Pr. N. S. 18'86) 2 State Rep. 218. 402. 45. Hempstone v. Koehler, (Sup. 41. Stevens v. Amsinck, (Sup. App. T. 1910) 125 N. Y. S. 1094. See 1912) 149 App. Div. 220, 133 N. Y. S. also Stern v. Ladew, (Sup. 1900) 47 815. App. Div. 331, 336, 62 N. Y. S. 267, 42. Knudtsen v. Remmel, (Sup. 30 Civ. Proc. 135. 1910) 141 App. Div. 445, 126 N. Y. S. § 13] ASSENT GENERALLY 19 principal to his agent to enter into a certain contract with a third person will not entitle the latter to sue as on a contract consummated before the agent has acted.** For example, it is said that A may empower his coachman to buy a horse of B, without subjecting himself to an action at the suit of B for the value of the horse, although the directions may have been given to the coachman because B had before offered to sell to A at a price named by him.*' § 13. Invitation to Negotiate Generally. — 'Ordinarily a pro- posal to constitute an offer and form the basis of a contract arising from its mere acceptance must be so definite that the terms of the contract can be ascertained,** and an invitation on the part of a person extended to another to negotiate with a view to a future contract cannot be regarded as an offer which may by mere accept- ance be converted into a contract.*^ As said by Jenks, J. : " If a proposal is nothing more than an invitation to the person to whom it is made to make an offer to the proposer, it is not such an offer as can be turned into an agreement by acceptance. Proposals of this kind, although made to definite persons and not to the public generally, are merely invitations to trade ; they go no further than what occurs when one asks another what he will give or take for certain goods. Such inquiries may lead to bargains, but do not make them. They ask for offers which the proposer has a right to accept or reject as he pleases. " '°'' This is the effect to be given to general advertisements giving notice to the public that the advertiser is prepared to enter into a business relation in respect to certain matters.^^ Thus an advertisement setting forth the advantages to be derived from a certain mode of speculation on the Chicago grain exchange and the facilities which the signer had for furthering such speculation, and stating in a general way that moneys remitted would be used for such speculative purposes, has been considered a mere invitation looking to future contracts 46. McCottcr v. New York, (Sup. Pomeroy v. Newell (No. 1), (Sup. 1861) 35 Barb. 609, affirmed 37 N. Y. 1907) 117 App. Div. 800, 804, 102 325. N. Y. S. 1098; Commercial Telegram 47. McCotter v. New York, (Sup. Co. v. Smith, (Sup. 1888) 47 Hun 1861) 35 Barb. 609, affirmed 37 N. Y. 494, 15 State Rep. 19; Kirwan v. 325. Byrne, (Com. PI. G. T. 1894) 9 Misc. 48. Zeltner v. Irwin, (Sup. 1898) 76, 59 State Rep. 746, 29 N. Y. S. 25 App. Div. 228, 49 N. Y. S. 337. 287. As to the essential element of cer- 50. Pomeroy v. Newell (No. 2), tainty in contracts, see infra, section (Sup. 1907) 117 App. Div. 800, 804, 60 et seq. 102 N. Y. S. 1098. 49. Zeltner v. Irwin, (Sup. 1898) 51. Zeltner v. Irwin, (Sup. 1898) 25 App. Div. 228, 49 N. Y. S. 337; 25 App. Div. 228, 49 N. Y. S. 337. 20 XEW YORK. LAW' OF CONTRACTS [§ 14 for speculation, and therefore not an offer giving rise to a contract for speculation on the mere mailing of a letter by one to whose notice the advertisement is brought, transmitting money to be used for such speculation. In such a case the contract for speculation is consummated as of the time and place when and where the letter is received by the advertiser and he assents to use it for specula- tion."^ Also, as a general rule, where a request is made of a mer- chant for prices, the sending of a catalogue of prices cannot be considered as an offer to sell whatever quantity or amount of the goods described therein the party making the inquiry may order, but is in the nature of an invitation to the latter to submit orders or offers to be thereafter accepted by the merchant."' The same principle is applied where a wholesale merchant writes to a pro- spective customer stating merely that he has certain goods for sale at a certain price, but without stating the amount he is willing to sell or authorizing the addressee to order any amount he may desire."* The proposer is under no obligation to notify the person making the offer, in response to the proposal, of his refusal.'"^ § 14. Request for Submission of Bids Generally. — ^Where a person with a view to entering into a contract requests bids or tenders based on certain specifications, this is merely an invitation to negotiate and imposes no obligation on the party to accept the lowest bid which may be tendered, in the absence of an express pledge to that effect. The bid or tender submitted is the first offer, and its acceptance is necessary to create a contract of any kind between the parties.^ This is equally true, in the absence of a statutory provision to the contrary, in the case of a proposal for bids for a public or quasi-public contract." As said by Miller, J. : " If an individual issues proposals for bids for the erection of a building or any other work, and he finds upon opening them that 52. Zeltner v. Irwin, (Sup. 1898) 56. Smith v. New York, (1853) 10 25 App. Div. 228, 49 NT. Y. S. 337, N. Y. 504, 1 Seld. Notes 161, affirm- reversing 21 Misc. 13, 46 N. Y. S. ing 6 Super. Ct. 221; Southard v. 852, which affirmed 20 Misc. 398, 45 Jump Co., (Sup. Sp. T. 1904) 43 N. Y. S. 1036. Misc. 164, 170, 88 N. Y. S. 317; 53. Schenectady Stove Oo. v. Hoi- Topping v. Swords, (Com. PI. 1852) brook, (1885) 101 N. Y. 45, 4 N. E. 1 E. D. Smith 609. 4, affirming 30 Hun 86 mem. 57. Walsh v. New York, (1889) 113 54. Stein-Gray Drug Co. v. H. N. Y. 142, 22 State Rep. 308, 20 N. E. Michelsen Co., (N. Y. Munic. Ct. 825; Molloy v. New Eochelle (1910) 1909) 116 N. Y. S. 789. 198 N. Y. 402, 92 N. E. 94, affirming 55. Pomeroy v. Newell (No. 2), 123 App. Div. 642, 108 N. Y. S. 120- (Sup. 1907) 117 App. Div. 800, 804, People v. Croton Aqueduct Board, 102 N. Y. S. 1096. (Sup. 1867) 49 Barb. 259. § U] ASSENT GENERALLY 21 they far exceed his views or his means, he does not thereby bind himself to the contractor who purposes to take the job, and who happens to be the lowest in the scale of prices. He has a right to determine whether he will proceed to the completion of the work proposed or not. Under ordinary circumstances the same rule would apply to public bodies, unless there is some positive enact- ment which interferes with or prevents its enforcement. "^' If the bid or tender is on a different basis or terms from those pro- posed, it controls, and if accepted the terms of the contract are governed by the terms of the bid and not by the original request." The party requesting bids is not, in case he refuses to accept the lowest bid submitted, under any liability to compensate a person submitting a bid, for the time and labor employed by the latter in examining the plans and specifications and making the estimates necessary for the making of his bid.*" Thus when a landowner desiring to erect a building invites proposals from masons, car- penters, etc., specifying the terms on which they will perform the work, he is not bound to award a contract to the bidder who offers to do the work at the lowest price, nor is he liable if he rejects the lowest bid to compensate the person making it for his time and labor incident thereto. On a general invitation of this kind, the owner has a full right to consider the proposals or bids in all their aspects, having in view the character of the party, his reputed skill, his promptness and fidelity to his contracts, or any other ground of preference, even of a merely personal character. He holds out no inducement to any one to submit a bid except the hope or expectation that a contract may be secured. Any one who submits a bid does it for his own advantage, and until a bid is accepted there is no contract of any sort between the parties." As soon as a bid or tender is accepted by the party asking for its submission a binding contract arises ; '^ and this has been held 58. People v. Croton Aqueduct York, (Sup. 1897) 17 App. Div. 455, Board, (Sup. -1867) 49 Barb. 259. 45 N. Y. S. 229; People v. Edgcomb, 59. Underbill v. North American (Sup. 1906) 112 App. Div. 604, 98 Kerosene Gaslight Co., (Sup. 1862) N. Y. S. 965; Levey v. New York 36 Barb. 354, on second appeal 31 Cent. R. Co., (Super. Ct. 1893) 4 How. Pr. 34. Misc. 415, 53 State Rep. 579, 24 N. GO. Topping V. Swords, (Com. PI. Y. S. 124, affirmed 144 N. Y. 649 1852) 1 E. D. Smith 609. mem., 64 State Rep. 866, 39 N. E. 61. Topping V. Swords, (Com. PI. 493; Wimpie Electric Co. v. Colum- 1852) 1 E. D. Smith 609. bus Circle Constr. Co., (Sup. App. T. G2. Baird v. New York, (1880) 83 1917) 98 Misc. 242, 162 N. Y. S. 969; N. Y. 254; Lynch v. New York, (Sup. Hersee v. Buffalo, (Super. Ct. 1874) 1896) 2 App. Div. 213, 73 State Rep. 1 Sheld. 445. 479, 37 N. Y. S. 798; Pennell v. New 22 NEW YORK LAW OF CONTRisCTS [§ 15 true where bids for certain work are requested by a municipality, though it also directed the bidder to execute the written evidence of the contract, which was not done.*' § 15. Effect of Statute Requiring Letting of Contract to Lowest Bidder. — Though a statute requires public contracts of a certain character to be let on competitive bidding to the lowest bidder or responsible bidder, this does not impose a legal duty on the public officers to award the contract to the lowest bidder and deprive them of the right to reject all bids, so as to enBtle one who is in fact the lowest bidder to a writ of mandamus to compel the officers to enter into a contract with him or to maintain an action against the municipality on its rejection of his bid and refusal to award him the contract.** Such a provision is intended for the benefit of the municipality, and whenever an action is brought for a breach of duty imposed by statute, the party bringing it must show that he had an interest in the performance of the duty, and that the duty was imposed for his benefit. Where the duty is created or imposed for the benefit of another, and the advantage to be derived to the party prosecuting, by its performance, is merely incidental and no part of the design of the statute, no such right is created as forms the subject of an action.*^ Furthermore, if the rule is otherwise a disobedience of the provisions of the statute will result in making the municipality pay not only the difference between the lowest bid and the bid of the one to whom the contract is awarded, but also the profits that the lowest bidder would have made if the statute had not been violated.** This has been held true where the charter of the municipality provided: " Whenever any expenditures to be made or incurred by the common council or city board or any city officer in behalf of the city for work to be done, or materials or supplies to be furnished, . . . shall exceed two hundred dollars, the city clerk shall advertise 63. Hersee v. Buffalo, ( Super. Ct. 28, 25 Wkly. Dig. 289. See also New 1874) 1 Sheld. 445. York v. Seely-Taylor Co., (Sup. 64. People v. Contracting Board, 1912) 149 App. Div. 98, 107, 133 N. (1865) 33 N. y. 382, affirming 33 Y. S. 808, per Laughlin, J.; People v. Barb. 510, which reversed 20 How. Dorsheimer, (Sup. 1878) 55 How. Pr. Pr. 206; Walsh v. New York, (1889) 118; Weed v. Beach, (Sup. 1879) 56 113 N. Y. 142, 22 State Rep. 308, 20 How. Pr. 470. N. E. 825; Molloy v. New Rochelle, 65. Molloy v. New Eochelle, (1910) (1910) 198 N. Y. 402, 92 N. E. 94, 198 N. Y. 402, 407, 92 N. E. 94. affirming 123 App. Div. 642, 108 N. 66. Molloy v. New Eochelle, (1910) Y. S. 120; People v. Kings County, 198 N. Y. 402, 92 N. E. 94. (Sup. 1886) 42 Hun 456, 6 State E«p. § 16] ASSENT GENERALLY 23 for and receive proposals therefor, in such, manner as the common council or as the board or officer charged with making such con- tract shall prescribe, and the contract therefor shall be let to the lowest responsible bidder, who shall execute a bond to said city with one or more sureties, being freeholders, for the faithful performance of the contract. ' ' ^ The same conclusion was reached where the provision was that all contracts " shall be awarded to the lowest bidder for the same, with adequate security, and every such contract shall be deemed confirmed in and to such lowest bidder, at the time of the opening of the bids, estimates or pro- posals therefor, and such contract shall be forthwith duly executed . . . with such lowest bidder." " Under such law it is quite clear," says Peckham, J., " that no contract could be let to any person other than to the lowest bidder with adequate security. The obvious purpose was to secure to the city the advantages of having its work done by the lowest bidder therefor after proper advertisement. I do not think that it meant to compel the making of a contract even with such lowest bidder, if it were plain that the bids were all largely in excess of the real cost of the work. . . . It was meant that no contract should be awarded to any but the lowest bidder, and whether to him or not would be a question for the body awarding the contract, acting in good faith, and for what they deemed the true interests of the city. ' ' ^* § 16. Agreement to Execute Contract. — The mere expression of one's willingness to enter into a contract in the future cannot be considered as itself creating any legal obligation.'' On the other hand, a contract to make and execute a certain written agreement, the terms of which are specific and mutually understood, is in all respects as valid and obligatory where no statutory objection inter- poses, as the written contract would be if executed.™ For example, a railroad company adv^ertised for bids for certain work, therein specifying that a contract would be entered into with the person whose bid should be accepted, and a bid was submitted providing 67. Molloy V. New Rochelle, (1910) App. Div. 534, 642, 82 N. Y. S. 1070; 198 N. Y. 402, 92 N. E. 94, affirming Potomac Ins. Co. v. Kelly, (Sup. 123 App. Div. 642, 108 N. Y. S. 120. 1916) 173 App. Div. 791, 160 N. Y. S. 68. Walsh V. New York, (1889) 113 161. N. Y. 142, 146, 22 State Rep. 308, 20 70. Pratt V. Hudson River R. Co., N. E. 825. See also People v. Croton (1860) 21 N. Y. 305; Warth v. Liebo- Aqueduct Board, (Sup. 1867) 49 vitz, (1004) 179 N. Y. 200, 71 N. E. Barb. 259, 263. 734. 69. Parks v. Gates, (Sup. 1903) 84 24 NEW YORK LAW OF CONTRACTS [§ 17 that the bidder bound himself to enter into a written contract for the work and to give the required security for its performance. It was held that on the acceptance of the bid a contract binding on the company to enter into the contemplated contract for the work was created for a breach of which an action would lie." While the cause of action for a refusal to execute the agreed con- tract might be different from that for a refusal to carry out the contract to be executed/^ the damages recoverable would be the same in each ease.'^ And for this reason, where a complaint alleges a refusal to permit the performance of the contract to be executed rather than a breach of the contract to execute such contract, the defect is merely formal, and under the Code practice an amend- ment after judgment remedying the defect is proper.'* § 17. Intention to Reduce Contract to Vlvitmg. — If the parties intend that their mere verbal negotiations shall be finally reduced to writing as the evidence of the terms of the contract, there is nothing binding on either party until the writing is executed, and either may withdraw from the negotiations before the formal con- tract is executed.'^ Also, though the communication or negotiations between the parties are in writing, if it was evidently the intent of the parties, or of the party making the first proposal, that a formal contract should be executed and that not until then should any binding contract arise, this effect will be given to the nego- tiations.'"' Thus where a letter was sent stating that the writers 71. Pratt V. Hudson River R. Co., Ryan, (Sup. App. T. 1905) 92 N. Y. (1860) 21 N. Y. 305. S. 242. 72. Pratt v. Hudson River R. Co., 76. Brauer v. Oceanic Steam Nav. (1860) 21 N. Y. 305. Co., (1904) 178 N. Y. 339, 70 N. E. 73. Pratt v. Hudson River R. Co., 863; Brauer v. Oceanic Steam Nav. (1860) 21 N. Y. 305. Co., (Sup. 1902) 77 App. Div. 407, 74. Pratt v. Hudson River R. Co., 79 N. Y. S. 299; Kingsway Constr. (1860) 21 N. Y. 305. Co. v. Metropolitan L. Ins. Co., (Sup. 75. Sanders v. Pottlitzer Bros. 1915) 166 App. Div. 364, 151 N. Y. S. Fruit Co., (1894) 144 N. Y. 209, 213, 609, affirmed 222 N. Y. 617 mem., 118 63 State Rep. 76, 39 N. E. 75; Van N. E. 1064; Potomac Ins. Co. v. O'Linda v. Whitehead Bros. Co., Kelly, (Sup. 1916) 173 App. Div. (Sup. 1915) 168 App. Div. 589, 154 791, 160 N. Y. S. 161; Commercial N. Y. S. 339; Wood v. Edwards, Telegram Co. v. Smith, (Sup. 1888) (Slip. 1821) 19 Johns. 205; Bryant 47 Hun 494, 15 State Rep. 19; Sidney V. Ondrak, (Sup. 1896) 87 Hun 477, Glass Works v. Barnes, (Sup. 1895) 68 State Rep. 316, 34 N. Y. S. 384; 86 Hun 374, 378, 67 State Rep. 221, Shaw V. Mansfield, ( Com. PI. G. T. 33 N. Y. S. 508 ; Levenson v. Bollowa, 1895) 10 Misc. 760, 64 State Rep. (Sup. App. T. 1903) 85 N. Y. S. 386; 501, 31 N. Y. S. 798; Guarantee Crooke Smelting, etc., Co. v. Towle, Constr. Co. v. Riekert-Finlay Realty (Sup. 1891) 37 State Rep. 45, 13 N. Co., (Sup. App. T. 1914) 88 Misc. Y. S. 520. 73, ISO N. Y. S. 551; Holland v. § 17] ASSENT GENERALLY 25 were to appoint the addressee their general agent on certain general terms, and that a " formal agreement to this effect will be sub- mitted by Tis to you with the usual clauses and conditions, . . and shall send you draft of the necessary agreement in the course of a day or two," and the addressee indorsed on the letter his acceptance, it was held that no binding contract was created." And where in negotiations for the purchase of land the purchaser paid a part of the purchase money and took a receipt therefor, and the parties contemplated that a formal contract of sale should thereafter be drawn, and the purchaser refused to sign the contract when drawn, this was held insufficient, in a suit by the vendor, to sustain the burden of proof that a binding contract, rather than negotiations, was entered into, though if it, in fact, had been the intention of the parties to consummate a contract, the receipt was in sufficient form to bind the vendor under the statute of frauds.'* On the other hand, the mere fact that the parties contemplate that a formal agreement shall be executed embodying the terms of a contract already assented to will not prevent the contract from being created, if it was not the intention of the parties that the execution of the formal agreement should be a condition pre- cedent to the taking effect of the contract according to the agreed terms ; and if one of the parties refuses to execute a formal contract or its execution is otherwise waived by the parties, the previous negotiations may be made the basis of an action.''' Thus where 77. Potomac Ins. Co. v. Kelly, Dorn iron Works Co., (Sup. 1904) 94 (Sup. 1»16) 173 App. Div. 791, 160 App. Div. 95, 87 N. Y. S. 995; N. Y. S. 161. Carlisle v. Barnes, (Sup. 1905) 102 78. Wright v. Miseho, (Super. Ct. App. Div. 573, 579, 92 N. Y. S. 917; 1885) 52 Super. Ct. 241, Uistinguish- Peirce v. Cornell, (Sup. 1907) 117 ing Raubitseheko v. Blank, (1880) 80 App. Div. 66, 102 N. Y. S. 102; Fer- N. Y. 478. guson Contracting Co. v. Helderberg 79. Pratt v. Hudson River R. Co., Cement Co., (Sup. 1909) 135 App. (1860) 21 N. Y. 305; Sanders v. Div. 494, 120 N. Y. S. 317; Corn v. Pottlitzer Bros. Fruit Co., (1894) Bergmann, (Snp. 1910) 138 App. 144 N. Y. 209, 63 State Rep. 76, 39 Div. 260, 123 N. Y. S. 160; Morton v. N. E. 75; Brauer v. Oceanic Steam Witte, (Sup. 1911) 147 App. Div. 94, Nav. Co., (1904) 178 N. Y. 339, 70 131 N. Y. S. 777; Singer v. Disaton, N. E. 863; Wilbur v. Collin, (Sup. (Sup. 1917) 178 App. Div. 108, 165 1896) 4 App. Div. 417, 74 State Rep. N. Y. S. 94; Wimpie Electric Co. v. 531, 38 N. Y. S. 848; Day v. Dow, Columbus Circle Constr. Corp., (Sup. (Sup. 1899) 46 App. Div. 148, 61 App. T. 1917) 98 Misc. 242, 162 N. Y. N. Y. S. 793; Disken v. Herter, (Sup. 8. 969; Bernzweig v. Zwiaohn, (Sup. 1902) 73 App. Div. 453, 77 N. Y. S. App. T. 1905) 91 N. Y. S. 736; H. G. 300, affirmed 175 N. Y. 480 mem., 67 Vogel Co. v. Cauldwell-Wingate Co., N. E. 1081; Brauer v. Oceanic Steam (Sup. App. T. 1913) 140 N. Y. S. Nav. Co., (Sup. 1902) 77 App. Div. 370. 407, 79 N. Y. S. 299 ; Boysen v. Van 26 NEW YORK LAW OF CONTRACTS [§17 the parties carry on negotiations by letters and telegrams, and a point is reached in which the minds of the parties have met on all the terms of the contract, and their assent is evidenced by a definite offer by the one and its acceptance by the other, the fact that they may contemplate that their concurrence shall be formally expressed in a single written agreement, which when signed shall be the evidence of what had already been agreed on, does not pre- vent the correspondence from constituting a binding contract, which may be relied on by one of the parties in case the other refuses to sign a contract embodying the agreed terms.^" Where one contemplating bidding for a building contract accepted an offer to furnish materials for the work in case the contract was awarded him, il was held that a binding contract existed, though the offer expressly provided that if the contract was so awarded it should be entered into on the terms of the offer.^^ This result was also reached where it appeared that the plaintiff, who had a contract for the erection of a building, negotiated with the defendant for subletting a part of the work, and the defendant after examining the plans made a specific offer to do certain work, which was accepted by the plaintiff, the latter stating in his letter of accept- ance that he would submit in due season a contract for the defend- ant to sign.82 Tjjg parties may waive an express stipulation or condition that their agreement be reduced to writing. The carry- ing out of such a stipulation is not essential to the vitality of the contract, but only a means provided for making the agreement more definite and certain, and therefore may be dispensed with.^ The general test in this class of cases is whether or not the proposition by one party and the acceptance by the other show that their minds have met as to the terms of the contract, leaving no essential matter for future agreement ; care being taken not to misconstrue as a completed agreement letters and the like which are intended merely as a part of the preliminary negotiations for a contract.** 80. Sanders v. Pottlitzer Bros. 81. Ferguson Contractmg Co. v Fruit Co., (1894) 144 N. Y. 209, 63 Helderberg Cement Co., (Sup. 1909) State Rep. 76, 39 N. E. 75, reversing 135 App. Div. 494, 120 N Y g 317 53 State Rep. 645, 25 N. Y. S. 257, 82. Peiree v. Cornell, (Sup. 1907)' as to the general effect of the corre- 117 App. Div. 66, 102 N. Y. S. 102. spondence. 83. Stover v. Flack, (18'64) 30 N. As regards contracts hy letters and Y. 64. telegrams generally, see infra, section 84. Peiree v. Cornell, (Sup. 1907) ^1- 117 App. Div. 66, 102 N. Y. S. 102. § 18] ASSENT GENERALLY 27 The fact that a written contract is to be submitted for execution is itself evidence that the prior negotiations were tentative merely,*^ and has been said to be strong evidence that the prior verbal negotiations were tentative.** Though the previous negotiations may have been such in form as to constitute a binding contract, yet if both parties, when the provisions of the formal contract are afterwards under discussion or in subsequent communications, coincide in the conclusion that the negotiations were tentative merely and subject to substantial modifications, and fail to agree on such modifications, neither can thereafter claim that the previous negotiations were binding.^' § 18. Offers to the Public or a Class of Persons Generally. — As a general rule, as an oif er made to one person can be accepted only by the person to whom it is made, it cannot be accepted by another so as to be the basis of a contract relation between the party making the offer and such third person.** An offer, however, need not be directed to a particular person to form the basis of a contract. It may be made to a particular class of persons or to the public generally.*' Thus the publication of an advertisement offering a reward for information respecting a loss or for the return of lost property is a general offer, and the acceptance of it by any person who is able to give the information asked or to return the property creates a valid contract.'" Another form of offer to the 85. Shaw V. Mansfield, (Com. PI. conditions. If this were the rule the G. T. 1895) 10 Misc. 760, 64 State contract would never be completed in Rep. 501, 31 N. Y. S. 798. cases where by changes in the market 88. Bryant v. Ondrak, (Sup. 1895) or other events occurring subsequent 87 Hun 477, 68 State Rep. 316, 34 to the written negotiations it became N. Y. S. 384. the interest of either party to adopt 87. Boysen v. Van Dorn Iron Works that course in order to escape or Co., (Sup. 1904) 94 App. Div. 95, 87 evade obligations incurred in the N. Y. S. 995. See also Templeton v. ordinary course of commercial busi- Wile, (Com. PI. G. T. 1889) 22 State ness. A stipulation to reduce a valid Rep. 251, 3 N. Y. S. 931, affirming 18 written contract to some other form State Rep. 1012, 3 N. Y. S. 9. cannot be used for the purpose of im- In Sanders v. Pottlitzer Bros. Fruit posing upon either party additional Co., (1894) 144 N. Y. 209, 214, 63 burdens or obligations or of evading State Rep. 76, 39 N. E. 75, O'Brien, the performance of those things J., said: "Any other rule would al- which the parties have mutually ways permit a party who has entered agreed upon by such means as made into a contract like this through let- the promise or assent binding in law." ters and telegraphic messages to vio- 88. See infra, section 36. late it whenever the understanding 89. Pierson v. Morch, (1880) 82 N. was that it should be reduced to an- Y. 503. other written form, by simply suggest- 90. Pierson v. Morch, (1880) 82 N. ing other and additional terms and Y. 503. 28 NEW YOEK LAW OP CONTRACTS [§ 19 public is involved in the quite modern practice under which manu- facturers offer to redeem for premiums coupons contained in packages of their goods sold to the public, and the presentation of such coupons for redemption imposes a contractual obligation on the offeror to redeem them in accordance with his offer." And a similar view has been taken as regards a general offer by a manufacturer of automobiles to give to all purchasers of its cars a certain share of its profits, provided a minimum number of cars are sold.'^ Where circulars are issued by an educational institution indicating the terms on which students will be received and the rights, including a degree, which they are to acquire by reason of their compliance with the rules and regulations of the college, and a student matriculates in reliance on the circular, a contract arises between the student and the institution, that if he complies with the terms prescribed he shaJl have the degree which is the end to be obtained.'^ It is a general principle of the law of principal and surety or guaranty that an agreement made with one person cannot be extended to another person.^'' A general letter of credit or guaranty is, however, an offer to the public. The rule applicable to that class of instruments is that as soon as any person accepts the proposition tendered and complies with the request of the letter a contract is at once completed between the acceptor and the letter writer. A direct privity arises between the acceptor and the writer, and the contract becomes the same in effect as if the letter had been especially directed to the acceptor.^^ § 19. Knowledge of Offer as Basis of Contract. — The existence of a contract requires mutual assent, or, in another form, offer and acceptance thereof. Therefore, knowledge of the exist- ence of the offer is essential in order to give rise to a contract based on an acceptance thereof where such acceptance is to be formed from conduct. For this reason, where an offer of a reward is made to the public, a person who in fact had no knowledge that 91. Payne v. Lautz, (City Ct. 490, affirmed 128 N. Y. 621 mem. 28 1916) 166 N. Y. S. 844, affirmed 168 N. E. 253. N. Y. S. 369. 94. Barns v. Barrow, (1874) 61 N. 92. Ford v. Ford Motor Co., (Sup. Y. 39. 1917) 181 App. Div. 28, 168 N. Y. S. 95. Union Bank v. Coster, (1850) 176. 3 N. Y. 203, 214, affirming 3 Super. 93. People v. Bellevue Hospital Ct. 563; Cheever v. Sehall, (Sup. Medical College, (Sup. 1891) 60 Hun 1895) 87 Hun 32, 67 State Rep 502 107, 38 State Rep. 418, 14 N. Y. S. 33 N. Y. S. 751 §■§20,21] ASSKXT GENERALLY 2!) the offer had been made, at the time he performed acts which otherwise may have constituted a performance entitling him to the reward, cannot hold the offeror liable therefor.^* For example, if a reward is offered for information leading to the apprehension of a criminal, one who gives such information before he has knowledge of the offer is not entitled to recover the reward, as in giving the information he did not manifest any assent to the offer nor act in any sense in reliance thereon." § 20. Signing Blank Paper or Incomplete Contract. — Unless some principle of estoppel arises, one who signs a blank piece of paper or incomplete contract cannot be bound by a contract written over the signature unless it can be shown that he gave the person who wrote it authority to do so.'' "A signature to an incomplete paper," says Johnson, J., " wanting in any substantial particular, when no delegation of authority is conferred to supply the defect, does not bind the signor, without further assent on his part, to the completion of the instrument. " '' As the person signing a blank form or incomplete contract cannot in any sense be considered as having assented to an unauthorized contract written over his signature, he may assert the defense under a denial of the making and execution of the contract.^ § 21. Contracts by Letters and Telegrams Generally. — The parties may adopt the mail or telegraph service as the means of communication, and a contract thus consummated by an offer made and duly accepted is binding.^ The simplest form of a contract by letter or telegram is where one party makes an offer with intent to contract, and this is duly accepted by the other party .^ Nego- tiations by letter or telegram, however, frequently take the form of propositions from one party and counter propositions from the other, and it is sometimes difficult to determine where there has 9e. Pitch V. Snedaker, (1868) 3'8 146, reversing 45 State Rep. 722, 18 N. Y. 248; Howland v. Lounds, N". Y. S. 733. (1873) 51 N. Y. 604. 2- Trevor v. Wood, (1867) 36 N. Y. 97. Fitch v. Snedaker, (1868) 38 307, 3 Abb. Pr. N. S. 355, 1 Trans. N Y 248 ^PP- 2^^' Crane v. Barron, (Sup. oo'tu/i. ^ n <- T> n 1906) 115 App. Div. 196, 37 Civ. Pro. 98. Dutchess, etc., County E. Co. v. gg^ ^^^ ^^ y g 93^ g^^ ^^ Mabbett, (1874) 58 N. Y. 397; tion 52 et seq., as to the communica- Richards v. Day, (1893) 137 N. Y. ^j^^^ ^^ ^^^ acceptance by letter or 183, 50 State Rep. 389, 33 N. E. 146. telegram. 99. Dutchess, etc., County R. Co. v. S.Crossett v. Carleton, (Sup. 1897) Mabbett, (1874) 58 N. Y. 397, 400. 23 App. Div. 366, 48 N. Y. S. 309; 1. Richards v. Day, (1893) 137 N. Baker v. Packard, (Sup. 1906) 112 Y. 183, 50 State Rep. 389, 33 N. E. App. Div. 543, 98 N. Y. S. 804. 30 NEW YORK LAW OF CONTRACTS [§ 22 been a definite contractual offer made by the one and accepted by the other. If it can be gathered from the entire correspondence that the minds of the parties have met in a definite offer and it has been duly accepted, the parties will be held to have entered into a binding contract.^ On the other hand, if it does not appear that the minds of the parties have so met no contract is created.^ In other words, there must have been an exact meeting of the minds of the contracting parties in respect to every material detail of the proposed contract, and if the precise thing offered was not accepted, or if the acceptance was in any manner qualified by conditions or reservations, however slight, no valid contract is thereby established; such a modified or qualified acceptance must rather be treated as a rejection of the offer.* § 22. Tests as to Consummation of Contract. — To deter- mine whether a point has been reached at which the parties may be considered as having entered into a contract, the correspondence 4. Gates v. Dudgeon, (1903) 173 N. Y. 426, 66 N. E. 116, 33 Civ. Pro. 317, reversing 72 App. Div. 562, 76 N. Y. S. 561; Hartwig v. American Malting Co., (Sup. 1902) 74 App. Div. 140, 77 N. Y. S. 533, affirmed 175 N. Y. 489 mem., 67 N. E. 1083; Lillis V. Merty, (Sup. 1903) 89 App. Div. 289, 85 N. Y. S. 800; Batt v. Earle, (Sup. 1914) 164 App. Div. 228, 149 N. Y. S. 623; Dunlevie v. Spangenberg, (Sup. Tr. T. 1910) 66 Misc. 354, 121 N. Y. S. 299'; Blair v. Turner, (Sup. App. T. 1918) 168 N. Y. S. 660. 5. Brown v. New York Cent. R. Co., (1870) 44 N. Y. 79; H. Jol- sen's Taendstikfabrikker v. Thurber, (1890) 118 N. Y. 684 mem., 29 State Rep. 802, 2 Silv. App. 537, reversing 23 N. E. 808, 45 Hun 589 mem., 9 State Rep. 833; Brauer v. Oceanic Steam Nav. Co., (1904) 178 N. Y. 339, 79 N. E. 863, affirming 83 App. Div. 643 mem., 82 N. Y. S. 1095; Mahar v. Compton, (Sup. 1897) 18 App. Div. 536, 45 N. Y. S. 1126; Cameron v. Wright, (Sup. 1897) 21 App. Div. 395, 47 N. Y. S. 571, affirmed 163 N. Y. 586 mem., 57 N. E. 1105; Brubaker v. James, (Sup. 1901) 57 App. Div. 527, 68 N. Y. S. 255; Brauer v. Oceanic Steam Nav. Co., (Sup. 1902) 77 App. Div. 407, 79 N. Y. S. 299; Salisbury v. Henion, (Sup. 1910) 138 App. Div. 389, 122 N. Y. S. 748; Glens Falls Lumber Co. V. Ryerson, (Sup. 1916) 175 App. Div. 769, 162 N. Y. S. 427; Com- mercial Telegram Co. v. Smith, (Sup. 1888) 47 Hun 494, 15 State Rep. 19; Sidney Glass Works v. Barnes, (Sup. 1895) 86 Hun 374, 67 State Rep. 221, 33 N. Y. S. 508; Wood v. Ells- worth, (Sup. App. T. 1904) 45 Misc. 584, 91 N. Y. S. 24; Ashner v. Farm- ers' Loan, etc., Co., (Sup. App. T. 1918) 102 Misc 658, 169 N. Y. S. 507; Stein-Gray Drug Co. v. H. Michelsen Co., (N. Y. Munic. Ct. 1909) 116 N. Y. S. 789; Schorsch v. Hartford City Paper Co., (Sup. App. T. 1917) 165 N. Y. S. 261; Davis v. Barr, (Super. Ct. Tr. T. 1887) 12 State Rep. Ill; Crooke Smelting, etc., Co. V. Towle, (Sup. G. T. 1891) 37 State Rep. 45, 13 N. Y. S. 520; Eraser V. Small, (Sup. 1891) 37 State Rep. 900, 13 N. Y. S. 468. 6. Howells V. Stroock, (Sup. Tr. T. 1900) 30 Misc. 569, 62 N. Y. S. 870, affirmed 50 App. Div. 344, 63 N. Y. S. 1074. § 23] ASSENT GENERALLY 31 as a whole is to be looked into.' ' ' You must, ' ' as said by Cairns, L. C, in a leading English case, " take into consideration the whole of the correspondence which has passed. You must not at one particular time draw a line and say, ' We will look at the letters up to this point and find in them a contract or not, but we will look at nothing beyond.' In order fairly to estimate what was arranged and agreed, if anything was agreed between the parties, you must look at the whole of that which took place and passed between them. ' ' * And of course the terms of the contract arrived at are to be determined from the correspondence as a whole.' The fact that differences subsequently arise between the parties as to the true and proper interpretation of the provisions of the agreement in no way militates, it would seem, against the proposition that a contract was in fact made.^" But where, immediately following the correspondence relied on as an unconditional offer and acceptance, a written contract when submitted by the offeror was changed by the offeree, which change the former refused to agree to, both being divergent fwi^m the contract as evidenced by such prior corre- spondence, /his has been considered as showing sufficiently that the minds of yOie parties had not in fact met on definite terms.^^ § 23|y6ontracts over Telephone. — There is no doubt but what a contract may be concluded through conversations over the tele- phone.^ And where one party testifies explicitly to the making of a contract in this manner, testimony of the other party, in answer to a general question, that he never had any conversation with the former over the telephone, has been held insufficient as a contradiction of the explicit testimony that the contract was so 7. Barrow Steamship Co. v. Mexi- Burns, (Sup. 1903) 79 App. Div. 639, can Cent. R. Co., (1892) 134 N. Y. 79 N. Y. & 819. 15, 45 State Rep. 379, 31 N. E. 261; 10. Bunlevie v. Spangenberg, (Sup. Gates V. Dudgeon, (Sup. 1902) 72 Tr. T. 1910) 66 Misc. 354, 120 N. Y. App. Div. 562, 76 N. Y. S. 561, re- S. 299. versed on the effect to be given to 11. Kirwan v. Byrne, (Com. PI. G. the correspondence as a whole 173 N. T. 1894) 9 Misc. 76, 59 State Eep. Y. 426, 33 Civ. Pro. 317, 66 N. E. 746, 29 N. Y. S. 287. See also Frazer 116; M^ers v. Smith, (Sup. 1867) 48 V. Small, (Sup. 1891) 59 Hun 619 Barb. 614; Dunlevie v. Spangenberg, mem., 37 State Rep. 900, 13 N. Y. S. (Sup Tr T. 1910) 66 Misc. 354, 120 468; Lipsohitz V. Grace, (Sup. App. N- Y. S. 299. T. 1918) 104 Misc. 55, 171 N. Y. S. 8. Hussey v. Horne-Payne, (1879) 330. 4 App Cas. 311. This statement is 13. Bodger v. Hills, (Sup. App. T. quoted with approval in Gates v. 1908) 113 N. Y. S. 879; Greater New Dudgeon, (Sup. 1902) 72 App. Div. Yorlc Tin, etc., Roofing Co. v. Gold- 562 76 N. Y. S. 561. smith, (Sup. App. T. 1911) 126 N. Y. 9.' Beacon Palls Rubber Shoe Co. v. S. 618. 32 NEW YOMC LAW OF CONTRACTS [§ 24 concluded.15 On the other hand, to prove an alleged contract over the telephone the testimony must identify the defendant, if he denies the making of the contract, as the party with whom the conversation was had; and where the witness who is relied on to prove the contract testifies that he had the conversation with the defendant, that he had never seen or spoken with him previously and had never seen him until the trial two months after the alleged conversation, and that he recognized his voice as that of the person with whom he had the conversation, this was held insufficient to identify the defendant as the person with whom the witness had the conversation." Also where a contract over the telephone is sought to be established it must be shown that the minds of the parties met as to its terms. If the letters of the parties confirma- tory of the contract differ materially as to its terms^ and there is no proof of the actual telephone conversation, the letters are insuffi- cient to prove a valid contract, as they show that there was no meeting of the minds of the parties.^' '' Revocation or Withdrawal of Offer § 24. In General. — As a general rule, an offer not itself based on a consideration may be revoked by the person making it, at any time before there has been a due acceptance by the one to whom it is made^"~An offer made without consideration is nudum pactum, 13. Bodger v. Hill's, (Sup. App. T. Finizio v. American Steel Export Co., 1908) 113 N. Y. S. 879. (Sup. 1920) 192 App. Div. 571, 183 14. James L. Wells C!o. v. Silver- N. Y. S. 317; Stephens y. Buffalo, man, (Sup. App. T. 1910) 125 N. Y. etc., E. Co., (Sup. 1855) 20 Barb. S. 457. 332; McCotter v. New York, (Sup. 15. Harris v. Walker M. Levitt Co., 1861 ) 35 Barb. 609 ; Hamilton v. (Sup. App. T. 1917) 165 N. Y. S. 317, Patrick, (Sup. 1891) 62 Hun 74, 41 aflSrmed 181 App. Div. 932, 167 N. Y. State Rep. 770, 16 N. Y. S. 578, af- S. 1103 mem. firmed 149 N. Y. 580 mem., 43 N. E. 16. Schenectady Stove Co. v. Hoi- 987; Jackson v. Rode, (Com. PI. G. brook, (1885) 101 N. Y. 45, 4 N. E. T. 1894) 7 Misc. 680, 58 State Rep. 4, affirming 30 Hun 86 mem. ; Levin 362, 28 N. Y. S. 147 ; Farmer v. Put- V. Dietz, (1909) 194 N. Y. 376. 87 N. nam, (Sup. App. T. 1901) 35 Misc. E. 454; Bement v. Rockwell, (Sup. 32, 70 N. Y. S. 179; Durkin v. New 1904) 92 App. Div. 44, 86 N. Y. S. York, (Sup. App. T. 1905) 49 Misc. 876; Northeastern Constr. Co. v. 114, 96 N. Y. S. 1059; Davidge v. North Hempstead, (Sup. 1907) 121 Velie, (County Ct. 1916) 95 Misc. App. Div. 187, 105 N. Y. S. 581; Fox 511, 160 N. Y. S. 820; Lipsehitz v. V. Hawkins, (Sup. 1912) 150 App. Grace, (Sup. App. T. 1918) 104 Misc. Div. 801, 135 N. Y. S. 245; Hayman 55, 171 N. Y. S. 330; Block v. Rohit- V. Canton Art Metal Co., (Sup. 1916) scher, (Sup. App. T. 1920) 112 Misc. 174 App. Div. 923, 160 N. Y. S. 42; 185, 182 N. Y. S. 773; Ives v. Smith, § 24] ASSENT GENERALLY 33 and therefore the proposer may change his mind; if the other party accepts, after such change and notice thereof, their minds do not meet, and hence no contract is made." It is immaterial that the offer expressly purports to give the offeree the right to accept until a stated time,^* or expressly states that it cannot be revoked.^' It is also immaterial that the person to whom the offer is made may have incurred expense in making investigations to determine whether or not he will accept the offer.^" This is not within the rule that acting on an offer may constitute an acceptance prevent- ing its withdrawal,^^ and has been applied in case of an offer to sell a vessel where the offeree incurred expense in the employment of an expert to examine the vessel preliminary to determining whether or not he would accept the offer.^^ An order or request in writing, addressed to a dealer, to ship to the writer certain goods for which he agrees to pay a certain price, does not consti- tute a contract until accepted or acted on by the dealer and may be withdrawn before acceptanee.^^ And where an order is solicited by an agent subject to the approval of his principal there is no binding contract until acceptance by the principal, and prior to such time may be revoked.^* After the offer has been revoked it is considered as though it had never been made, in so far as it (Sup. Sp. T. 1888) 3 N. Y. S. 645, Register Co. v. Finnegan, (Sup. App. 19 State Rep. 556, 569; Staines, etc., .T. 1903) 84 N. Y. S. 154; Gary v. Co. V. Duggan, (Sup. App. T. 1909) Appo, (Sup. App. T. 1903) 84 N. Y. 117 N. Y. S. 1005; Realty Advertis- S. 569; Howe Scale Co. v. Wolfshaut, ing, etc., Co. v. Lynn, (Sup. App. T. (Sup. App. T. 1918) 170 N. Y. S. 1912) 135 N. Y. S. 581; Hochster v. 943. Barueh, (Com. PI. 1874) 5 Daly 440; 20. Ganss v. GufFey Petroleum Co., Bleecker v. New York, (Com. PI. (Sup. 1908) 125 App. Div. 760, 110 1878) 7 Daly 439. See also Morse v. N. Y. S. 176. Chicago, etc., R. Co., (App. 1903) 84 21. Ganss v. Guflfey Petroleum Co., App. Div. 406, 82 N. Y. S. 698. (Sup. 1908) 125 App. Div. 760, 110 17. Hamilton v. Patrick, (Sup. N Y. S. 176. See infra, section 46 1891) 62 Him 74, 79, 41 State Rep. et seq., as to when acting on an offer 770, 16 N. Y. S. 578. will constitute an acceptance. 18. Schenectady Stove Co. v. Hoi- 22. Ganss v. Guffey Petroleum Co., brook, (1885) 101 N. Y. 45, 4 N. E. (Sup. 1908) 125 App. Div. 760, 110 4; Pomeroy v. Newell (No. 2), (Sup. N. Y. S. 176. 1907) 117 App. Div. 800, 102 N. Y. S. 23. Bement v. Rockwell, (Sup. 1098; Ganss v. Guflfey Petroleum Co., ,1904) 92 App. Div. 44, 86 N. Y. S. (Sup. 1908) 125 App. Div. 760, 110 876; Staines, etc., Co. v. Duggan, N. Y. S. 176; Pettibone v. Moore, (Sup. App. T. 1909) 117 N. Y. S. (Sup. 1894) 75 Hun 461, 57 State 1005. Rep. 363, 27 N. Y. S. 455. 24. Gary v. Appo, (Sup. App. T. 19. National Cash Register Co. v. 1903) 84 N. Y. S. 569; Realty Adver- McCanri, (Sup. Tr. T. 19J3) 80 Misc. tising, etc., Co. v. Lynn, (Sup. App. 165 140 N. Y. S. 916; Hallwood Cash T. 1912) 135 N. Y. S. 581. 34 NEW YORK LAW OF CONTRACTS [§ 25 forms the basis of a contract, and an acceptance thereafter can operate only as an offer by the acceptor, which must itself be accepted by the party making the first offer before a contract can arise.^^ At any time before the negotiations have ripened into a contract, either party may withdraw without liability to the other for any expense or loss he may have incurred on a(icount of the negotiations,^^ and whether the party terminating the negotiations acted in good faith or not is immaterial." ;^f a^^c^sideration is paid or agreed to be paid by the offeree for the agreement of the offeror to leave the offer open for a certain time, there is then a contract binding upon the offeror not to revoke or withdraw his contract. This contract is generally spoken of as an option.^* Though an offer for the purchase of goods is in writing, it may be shown by oral evidence that it was subject to countermand at any time before the time for delivery arrived.^ § 25. Effect of Acceptance on Right to Withdraw. — ^As soon as an offer has been duly accepted a contract is thereby created, and the offer cannot thereafter be revoked so as in any way to affect the binding effect of the contract.'" And this is true though the revocation is attempted to be made at the same interview as that at which the acceptance is communicated.'^ Thus where a person offered to take a lease, the lease to be executed by him as soon as presented by the lessor, the presentation of the lease to the lessee for execution within the time contemplated and before the offer is withdrawn is an acceptance, and the lessee cannot there- 25. McCotter v. New York, (Sup. 1916) 95 Misc. 511, 160 N. Y. S. 1861) 35 Barb. 609. 820. 26. Loorya v. Kupperman, (Sup. (^^ Corn v. Bergmann, (Sup. 1910) App. T. 1898) 25 Mi^c. 518, 54 N. Y. ISTApp. Div. 260, 123 N. Y. S. 160; S. 1005; Pick V. Bartelstone, (Sup. Ideal Cash Register Co. v. Zunino, App. T. 1900) 33 Misc. 762, 67 N. Y. (Sup. App. T. 1902) 39 Misc. 311, 79 S. 908 ; Demuth v. American Insti- N. Y. S. 504 ; Brown v. New York, tute, (Super. Ct. 1877) 42 Super. Ct. (Sup. Sp. T. 1908) 57 Misc. 433, 108 336, affirmed 75 N. Y. 502; Topping N. Y. S. 555, affirmed 128 App. Div. V. Swords, (Com. PI. 1852) 1 E. D. 925 mem., 112 N.Y. S. 1123; Stewart Smith 609. V. Gillett, (Sup. Eq. T. 1913) 79 27. Petze v. Morse Dry Dock, etc., Misc. 93, IS^' N. Y. S. 583, affirmed Co., (Sup. 1908) 125 App. Div. 267, 171 App. jBif. 967 mem., 156 N. Y. S. 109 N. Y. S. 328. 1146; Eising v. American Alcohol 28. See infra, section 317, as to an Co., (Sup. App. T. 1918) 168 N. Y. S. additional consideration as avoiding 682; Butterfield v. Spencer, (Super, the necessity for mutuality of obliga- Ct. 1856) 14 Super. Ct. 1, 25. tion. 31. Corn v'. Bergmann, (Sup. 1910) 29. Davidge v. Velie, (County Ct. 138 App. Div-. 260, 123 N. Y. S. 160. § 25] ASSENT GENERALLY 35 after withdraw his offer.^^ It is immaterial that knowledge of the acceptance has not in fact reached the offeror, provided it has been placed in a way of communication sanctioned by him, which in law operates £is an acceptance from the time it is so placed. Thus, where the offer authorizes acceptance by mail, the offer cannot be withdrawn after the letter of acceptance is mailed.^^ And where an offer is made by telegram, and acceptance by the same means of communication is authorized, the acceptance dates from the time the message of acceptance is delivered for transmission to the offeror; and a notice of revocation sent thereafter but before the message of acceptance is received by the offeror is ineffectual, though in fact received by the offeree before the offeror received the message of acceptance.^* But the mere acceptance of an option or privilege to accept, as distinguished from an exercise of the option by an obligatory promise so as to impose mutuality of obligation, does not preclude the offeror from withdrawing the offer, that is, the promise to give an option, as this is no more than in effect say- ing to the offeror that the offeree agrees to his making the offer.^^ Thus where offers to sell land and counter proposals were made by mail, and finally the purchaser asked if the vendor would give an option for a certain time on the terms last proposed, which the vendor agreed to do, and the purchaser answered, " Your cable granting option received. Have accepted option," this was held an acceptance of the privilege or option to purchase and not an exercise of the privilege and promise to purchase, and therefore the vendor could withdraw his offer at any time before there was an acceptance by way of a promise to purchase.*^ Where a con- tract of sale is made through a broker, who ordinarily would be regarded as the agent of both buyer and seller, capable of binding both by contract, if the parties choose not to rely on the contract of the broker alone, but elect to require acceptance by each other, each has the right to propose a change of the contract before final acceptance, and any modification thus made by one and assented to by the other will be binding." 32. Corn V. Bergmann, (Sup. 1910) 35. Chicago, etc., R. Co. v. Dane, 138 App. Div. 260, 123 N. Y. S. 160. (1870) 43 N. Y. 240; Pomeroy v. 33. Stein-Grav Drug Co. v. H. Newell (No. 2), (Stip. 1907) 117 Michelsen Co., "(N. Y. Munic. Ct. App. Div. 800, 102 N. Y. S. 1098. 190S) 116 N. Y. S. 789. 38. Pomeroy v. Newell (No. 2), 34. Trevor v. Wood, (1867) 36 N. (Sup. 1907) 117 App. Div. 800, 102 Y. 307, 3 Abb. Pr. N. S. 355, 1 Trans. N. Y. S. 1098. App. 248. See infra, section 52 et 37. McArdle v. Thames Iron Works, seq., as to the communication of ac- (Sup. 1904) 96 App. Div. 139, 89 N. ceptance by mail or telegram. Y. S. 485. 36 NEW YORK LAW OP CONTRACTS [§§ 26,27 § 26. Competitive Bids Submitted on Request. — Where a per- son requests that bids be submitted to him for the performance of certain work or the supplying of certain goods, wares or mer- chandise, he is under no obligation, unless it is expressly so pro- vided in the request, to accept any bid ; '* and it follows, as in case of any other unaccepted offer, that the bidder may, before there has been an unconditional acceptance of his bid or ofEer, revoke or withdraw the same.^' And though the request for bids requires a deposit to'accompany each bid tendered, it is held that the bidder may, on a withdrawal of his bid before acceptance, recover the amount of his deposit." It would seem, however, that if the request for bids expressly obligates the proposer to accept the lowest bid, and also requires a deposit to accompany all bids, to be forfeited in case the bidder refuses to enter into a contract in pursuance of his bid, the person making the lowest bid would not have the right to withdraw it before the proposer has had a reasonable opportunity to accept and on so doing recover his deposit, as his offer is based on a consideration, that is, the promise of the other party to accept the lowest bid.*^ The legislature may also by statu- tory enactment deprive or limit the right that a bidder for a public contract otherwise would have to withdraw his bid, and may impose on him, in case he attempts to do so and refuses to enter into the contract when awarded to him, a forfeiture of the deposit required to accompany his bid.^^ § 27. What Constitutes Revocation Generally. — To constitute a revocation of an offer and thereby render a subsequent acceptance ineffectual, it is not essential that the offeror notify the offeree in specific terms that the offer is withdrawn. It is sufficient if the notice conveys clearly that the offeror intends no longer to be bound by his proposition ; *^ as where he informs the offeree that he will no longer be bound by the offer unless he is compelled by 38. See supra, section 14. (Sup. 1912) 14'9 App. Div. 98, 133 39. Northeastern Constr. Co. v. N. Y. S. 808, construing the effect of North Hempstead, ( Sup. 1907 ) 121 the provision in this regard contained App. Div. 187, 105 N. Y. S. 581. in the New Yorlc city charter, and 40. Northeastern Constr. Co. v. holding that the forfeiture of the North Hempstead, (Sup. 1907) 121 deposit is the extent of the bidder's App. Div. 187, 105 N. Y. S. 581. liability. 41. As regards mutual promises as 43. Durkin v. New York, (Sup. a consideration, see infra, section 310 App. T. 1905) 49 Misc. 114, 96 N. Y. et seq. S. 1059. 43. New York v. Seely-Taylor Co., § 28] ASSENT GENERALLY 37 law to stand to it," or where, in case of an offer to sell real or per- sonal property, the offeree is notified that the property has been sold to a third person.^^ So if, before there has been an acceptance, a dispute arises between the parties as to the terms of the offer, this itself is to be regarded as a revocation, and prevents the offeree from availing himself of the offer though his contention as to its terms may have been proper, as it cannot be said that at the time the acceptance of the disputed offer is tendered the minds of the parties have met/^ The view has also been taken that where a person makes an offer to sell and convey land and fixes a place for the consummation of the transaction, and there has been no accept- ance of the offer, his conduct in remaining away from the place at the time fixed is in effect a withdrawal of his offer, and prevents his being bound by any subsequent acceptance." § 28. Notice of Revocation. — If the offer is a continuing one, that is, one which specifies a certain time within which it may be accepted, or one which gives the offeree a reasonable time for acceptance, it is ordinarily the duty of the offeror, if he desires to revo ke it, to notify the other_Earty.*^ It will not be presumed that the~^eror has"cEaiiged his mind within the time obviously allowed for acceptance unless he does some act indicating such change." Thus where an offer is made by mail or telegram and the offeree is authorized to accept by the same method, and the acceptance dates from the time it is sent, a revocation of the offer which is not received by the offeree until after his acceptance is sent, though before the acceptance is received by the offeror, is ineffiectuaL^'^^nd where the offer is such that performance by^ the offeree may be~"snffieienlrt5~evidence acceptance and supply the necessary'eiement of mutuality, eciuivocal conduct on tke„pa.rt of '^F'^eror will notTie^giveif'the effect of a revocation, where he 44. Stephens v. Buffalo, etc., R. Co., explaining on this ground Levin v. (Sup. 1855) 20 Barb. 332. Dietz, (1909) 194 N. Y. 376, 87 N. E. 45. Pomeroy v. Newell (No. 2), 454. (Sup. 1907) 117 App. Div. 800, 102 48. Pettibone v. Moore, (Sup. N. Y. S. 1098; Hamilton v. Patrick, 1894) 75 Hun 461, 57 State Eep. 363, (Sup. 1891) 62 Hun 74, 41 State 27 N. Y. S. 456. Rep. 770, 19 N. Y. S. 578, aflBrmed 49. Hamilton v. Patrick, (Sup. 149 N. Y. 580 mem., 43 N. E. 987. 1891) 62 Hun 74, 79, 41 State Rep. 46. Schenectady Stove Co. v. Hoi- 770, 16 N. Y. S. 578. brook, (1885) 101 N.Y. 45, 4 N. E. 4. 50. Stein-Gray Drug Co. v. H. 47. Stewart V. Gillett, (Sup. Eq. T. Michelsen Co., (N. Y. Mumc. Ct. 1913) 79 Misc. 93, 139 N. Y. S. 583, 1909) 116 N. Y. S. 789. 38 NEW YORK LAW OF CONTRACTS [§§ 29-31 has knowledge that the offeree is continuing to perform on the faith of the offer.'l^ § 29. Death of Offeror. — The death of the person making the offer, before acceptance by the person to whom it is made, revokes the offer ipso facto, provided the offer is one capable of being revoked at the option of the offeror .^^ § 30. Rejection of Offer. — If the offer is rejected by the offeree, it is thereby terminated, and unless renewed, expressly or impliedly, a subsequent attempt to accept is ineffectual.^^ And it is stated as a general rule that a proposal to accept an offer if modified, or an acceptance subject to other terms and conditions, is equivalent to an absolute rejection of the offer.^* The view, however, as an inference from the facts appearing in the case, seems to have been taken that a mere counter proposal, without any statement of an intention not to accept the offer as made, is not in itself to be regarded as a rejection. Thus, where an offer was made to sell at a certain price, and the buyer offered a less price, which was rejected, and he thereafter accepted the original offer, it was held that this acceptance was effectual if there had been no withdrawal of the offer and if a reasonable time for acceptance had not expired.^' Notice given by the offeree that he will take the offer under consideration is not necessarily a rejection precluding a subsequent acceptance.^' § 31. Lapse of Time; Continuing Offer. — If an offer stating a certain time within which it may be accepted is not withdrawn, an acceptance within the time specified is effectual to create a bind- ing contract, though for want of consideration the offer could have been withdrawn at any time before its acceptance.^^ An offer which is left open for future acceptance is a continuing offer dur- ing the time limited for acceptance, unless revoked. During the 51. Quick V. Wheeler, (1879) 78 v. Livingston, (Com. PL 1888) 14 N. Y. 300. As to when acting on an Daly 402, 13 State Rep. 74. offer constitutes an axiceptance, see 54. Glens Falls Lumber Co. v. infra, section 46 et seq. Ryerson, (Sup. 1916) 175 App. Div. 52. See also Twenty-third St. Bap- 769, 162 N. Y. S. 427. tist Church v. Cornell, (1890) 117 55. Pox v. Hawkins, (Sup. 1912) N. Y. 601, 28 State Rep. 482, 23 N. E. 150 App. Div. 801, 135 N. Y. S. 245. 177; Mactier v. Frith, (Ct. Err. 56. Mactier v. Frith (Ct Err 1830) 6 Wend. 103, 113. 1820) 6 Wtend. 103. 53. Frith v. Lawrence, (Chan. Ct. 57. Pettibone v. Moore, (Sup. 1894) 1829) 1 Paige 434, reversed on other 75 Hun 461, 57 State Rep. 363 27 grounds 6 Wend. 103. See also Rapp N. Y. S. 455. ' § 32] ASSENT GENERALLY 39 whole of that time it is an offer every instant, but as soon as accepted it ceases to be an offer merely and ripens into a contract.^^ Also until an offer, not stating the time within which accept- ance must be made, is withdrawn, expressly or impliedly, it remains open, and an acceptance prior to its withdrawal is equally effectual to create a binding contract.^' The law usually implies, however, that an offer not stating the time for acceptance must be accepted within a reasonable time, taking into consideration the nature of the transaction ; otherwise it will lapse, and an acceptance attempted to be made after such time will be ineffectual.*" And if the facts are undisputed it is held that the question whether the acceptance was within a reasonable time is one of law for the determination of the court.*' Thus where an offer was made by letter to trans- port a large amount of iron from New York to Chicago, without specifying any time for its acceptance, it was held that it must be accepted if at all within a reasonable time, and that a delay of four months was unreasonable.*^ So in case of an offer to insure property against loss by fire, it has been held, where it appeared that the parties were engaged in business in the same city, that a delay of six days and until after the property to be insured was destroyed by fire was unreasonable.*^ § 32. Expiration of Time Limited for Acceptance Generally. — If the time within which the offer is to be accepted is limited in the offer, the acceptance must be made within the time so limited; otherwise the offeror may consider the offer as rejected and pro- ceed in the same manner as if it had never been made.** Any equitable rides as to time not being of the essence of a contract 58. Pettibonev. Moore, (Sup. 1894) Co., (Sup. 1893) 72 Hun 141, 55 75 Hun 461, 57 State Rep. 363, 27 State Eep. 431, 25 N. Y. S. 301. N. Y. S. 455. 62. Chicago, etc., R. Co. v. Dane, 59. Fox V. Hawkins, (Siip. 1912) (1870) 43 N. Y. 240, 241. 150 App. Div. 801, 135 N. Y. S. 245. 63. Van Tassel v. Greenwicli Ins. See also Fisk T. Batterson, (Sup. Co., (Sup. 1893) 72 Hun 141, 55 1914) 165 App. Div. 952, 150 N. Y. S. State Rep. 431, 25 N. Y S. 301. 242, aifirmed 221 N. Y. 693 mem., 117 64. Howells v. Stroock, (Sup. Tr. N. E. 1067. T. 1900) 30 Misc. 569, 62 N. Y. S. 60. Chicago, etc., R. Co. v. Dane, 870, affirmed 50 App. Div. 344, 63 N. (1870) 43 N. Y. 240; Van Tassel v. Y. S. 1074; Taylor v. Rennie, (Sup. Greenwich Ins. Co., (Sup. 1893) 72 1861) 35 Barb. 272, 22 How. Pr. 101; Hun 141, 55 State Rep. 431, 25 N. Y. Britton v. Phillips, (Sup. G. T. 1862) S. 301. See also Fox v. Hawkins, 24 How. Pr. 111. See also Oliver Re- (1912) 150 N. Y. 801, 135 N. Y. S. fining Co. v. Aspegren, (Sup. 1912) 245. 152 App. Div. 877, 137 N. Y. S. 1057. 61. Van Tassel v. Greenwich Ins. 40 NEW YOKK LAW OF CONTRACTS [§ 33 whieh the courts sometimes resort to in construing a contract, after it is made, cannot be resorted to in order to relieve the offeree from the necessity of expressing his acceptance within the time limited in a voluntary proposal.^^ So v^here an oifer to sell land fixes the time when the conveyance is to be made, the time within which it may be accepted as a continuing offer cannot extend beyond the time so fixed, as any obligation to convey must be preceded by the acceptance of the offer, and the acceptance must of necessity be made so as to admit of performance as proposed; any subse- quent acceptance would imply a contract different from the terms proposed.^^ Though the offer is in writing and does not specify any time within which notice of acceptance must be given, and would therefore, as a general rule, authorize acceptance within a reasonable time, it may nevertheless be shown by oral evidence that it was expressly agreed that the acceptance must be within a stated time.^ This is analogous to the general rule that oral evidence is admissible to show that the taking effect of a written contract was subject to a condition.^^ § 33. Acceptance by Return Mail Requested. — "Wliere an offer is made by letter, and notice of its acceptance or rejection by return mail is requested, this requirement must be complied with in order to bind the offeror.^' For instance, where an offer to purchase goods was made by letter, and an acceptance or rejec- tion by return mail requested, and the offeree instead of sending an unqualified acceptance answered that he would submit the offer to other persons, and several days thereafter delivered the goods at the offeror's place of business, it was held that there was no sufficient acceptance.'" The same has been held true where a creditor offered to receive a draft in payment of his claim and requested an answer by return mail, and the debtor did not until four days after the receipt of the letter either notify the creditor 65. Hamilton v. Patrick, (Sup. 68. See supra, section 11. 1891) 62 Hun 74, 79, 41 State Kep. 69. Howells v. Stroock, (Sup. Tr. 770, 16 N. Y. S. 578. T. 1900) 30 Misc. 569, 62 N. Y. S. 66. Hamilton v. Patrick, (Sup. 870, affirmed 50 App. Div. 344, 63 1891) 62 Hun 74, 41 State Rep. 770, N. Y. S. 1074; Taylor v. Eennie, 16 N. Y. S. 578, affirmed 149 N. Y. (Sup. 1861) 3'5 Barb. 272, 22 How. 580 mem., 43 N. E. 987. Pr. 101. 67. Corn v. Bergmann, (Sup. 1911) 70. Howells v. Stroock, (Sup. 1900) 145 App. Div. 218, 129 N. Y. S. 1049. 50 App. Div. 344, 63 N. Y. S. 1074, See also Stephens v. Buffalo, etc., R. affirming 30 Misc. 569, 62 N. Y. S. Co., (Sup. 1855) 20 Barb. 332. 870. § 34] ASSENT GENERALLY 41 of his acceptance or send the draft, the creditor in the meantime having instituted suit on his claim.'^ It has also been held that an offer made by letter to sell merchandise if the buyer will give his order " now " remains open only for a sufficient time to enable the buyer to accept, and therefore requires an acceptance by return mail.'^ The direction to accept by " return mail " does not neces- sarily require that the acceptance be sent by the first mail leaving on the day the letter containing the offer is received, where there are several mails leaving that day, as no one residing in a city where there are several mails every day would understand that a reply by the first return mail was intended." § 34. Waiver of Delay in Acceptance. — The person mak- ing the offer may waiA'^e the failure of the offeree to signify his acceptance within the time limited and thereby render the delayed acceptance effectual,'* as where a seller whose offer required immediate acceptance clearly shows by acts and statements that he regards the buyer's letter as an acceptance in time.'^ But this effect will not be given to the mere failure of the offeror expressly to withdraw his offer after the time limited. Thus where an offer to buy goods required an acceptance by return mail, and instead of an unqualified acceptance the offeree stated that he would sub- mit the offer to other persons for consideration and would promptly notify the offeror of the final decision, and several days thereafter delivered the goods at the offeror 's place of business, a waiver can- not be based on the failure of the offeror to answer the letter of the offeree, or his statement in returning the goods that he did so because they were not promptly delivered.'* So the fact that the offeror does not, at the time of the delayed acceptance, expressly assert his nonliability on the ground that the acceptance was not in time, but asks for time to consider what he will do, and makes pro- posals for a compromise or settlement, cannot be considered a waiver of the failure to accept in due time." 71. Taylor v. Eennie, (Sup. 1861) 75. Batterman v. Morford, (1879) 35 Barb. 272, 22 How. Pr. 101. 76 N. Y. 622. 72. Batterman v. Morford, (1879) 76. Howells v Stroock, (Sup. 1900) 76 N. Y. 622. 50 App. Div. 344, 63 N. Y. S. 1074, 73. Palmer v. Phoenix Mut. L. Ins. affirming 30 Misc. 569, 62 N. Y. S. Co., (1881) 84 N. Y. 63. 870. 74. John Single Paper Co. v. Ham- 77. Page v. Shainwald, (1901) 169 mermill Paper Co., (Sup. 1904) 96 N. Y. 246, 62 N. E. 356, reversing 52 App. Div. 535, 89 N. Y. S. 116; Cur- App. Div. 349, 65 N. Y. S. 174. rier v. Carnriok, (Sup. App. T. 1901) 36 Misc. 176, 73 N. Y. S. 146. 42 NEW YORK LAW OF CONTRACTS [§ 35 Acceptance of Offer § 35. In General. — An offer itself does not constitute a binding contract ; there must be an acceptance by the person to whom the offer is made; the two together are what constitutes the mutual assent or the meeting of the minds.''* And though there have been previous negotiations between the parties consisting of proposals and counter proposals, if one makes a definite offer to the other, this cannot be considered an acceptance of any offer that may have been made by such other, but is merely an offer that itself requires a positive answer.™ The acceptance does not relate back to the time of the offer so as to create a contract as of the latter time; the contract when consummated dates only from the time of the acceptance.*" Where a proposition or offer on one side is sub- mitted, whether verbal or written, calling for an answer or accept- ance based on such proposal, the acceptance, though in writing, need not recite the terms of the proposal or offer. It is to be read in connection with the offer to which it is a reply, and the whole together constitutes the contract between the parties.*^ Where the consideration for the promise on the one side is the mutual promise on the other side, the acceptance of an offer must be in such terms as to bind the person accepting to perform; otherwise there is no mutuality.*^ Thus where a carrier made an offer to transport ' ' not to exceed " a certain quantity of iron, and the other party replied merely that he accepted the proposal, without in any way promis- 78. Bemuth v. American Institute, N. Y. S. 581; Wayne Oil Tank, etc., (1878) 75 N. Y. 502, affirming 42 Co. v. .Stoltz, (Sup. App. T. 1917) Sliper. Ct. 336; More v. New York 167 N. Y. S. 32; Howe Scale Co. v. Bowery F. Ins. Co., (1892) 130 N. Y. Wolfshault, (Sup. App. T. 1918) 170 537, 42 State Rep. 543, 29 N. B. 757; N. Y. S. 943; Rapp v. Livingston, Thedford V. Herbert, (Sup. 1907) 118 (Com. PI. 1888) 14 Daly 402, 13 App. Div. 181, 102 N. Y. S. 1083; State Rep. 74. Corn V. Bergmann, (Sup. 1911) 145 79. Britton v. Phillips, (Sup. G. T. App. Div. 218, 129 N. Y. S. 1049; 1862) 24 How. Pr. 111. Remmey V. Van De Carr, (Sup. 1917) 80. Grant v. Griffith, (Sup. 1899) 177 App. Div. 237, 163 N. Y. S. 724; 39 App. Div. 107, 56 N. Y. S. 791, Tuttle V. Love, (Sup. 1811) 7 Johns. affirmed 165 N. Y. 636 mem., 59 N. E. 470; Stephens v. Buffalo, etc., R. Co., 1123. (Sup. 1855) 20 Barb. 332; Marschall 81. Bea<;h v. Raritan, etc., R. Co., V. Eisen Vineyard Co., (Com. PI. G. (1868) 37 N. Y. 457, 5 Trans. App. T. 1894) 7 Misc. 674, 58 State Rep. 113; Myers v. Smith, (Sup. 1867) 48 375, 28 N. Y. S. 62; Davidge v. Velie, Barb. 614. (County Ct. 1916) 95 Miac. 511, 160 82. As to the necessity for mutual- N. Y. S. 820; Realty Advertising, etc., ity, see infra, section 316. Co. V. Lynn, (Sup. App. T. 1912) 135 § 36] ASSENT GENERALLY 43 ing to ship any iron, it was held that no contract was created.*' From the moment when the minds of the parties have met, signified by overt acts, the contract is consummated.*^ § 36. Who Entitled to Accept. — Only the person or persons to whom the offer is made can accept; an offer so limited cannot be accepted by a third person, and thus form the basis of a contract between the offeror and such third person.*^ And a third person can- not properly join in the acceptance of an offer. For example, it has been said : " If I should offer to sell a house to my friend A, the acceptance of the offer by A and a stranger B would impose no obli- gation on me. " *" If an offer in the form of subscriptions is made to a railroad company to pay to it a certain sum in consideration of the consFtruetion of the road, another company succeeding by pur- chase to the franchise and property of the first company has no right to accept the offer.*'' When an offer is made to two or more persons to enter into a contract with them jointly, the acceptance must be by all. And it seems that if an offer is made to and for the benefit of a class of persons, it cannot be accepted by a part of such class and thereby bind the offeror; otherwise there might be several acceptances by several parts of the class, giving rise to separate contracts, all of which could not be enforceable. There is no impli- cation that the part first expressing their acceptance should have the legal preference. This difficulty can be obviated only by requir- ing that all of the class join in the acceptance, or that there can be no contract until the offeror has received and accepted the pro- posal of such of the class as should attempt to take advantage of his offer.** An offer, however, may be made to two or more persons to enter into several contracts with each, which may entitle each to accept on behalf of himself alone ; and in such a case, though they join in a letter of acceptance which is joint in its mode of expression, it may be construed as a several acceptance by each.*" 83. CMcago, etc., R. Co. v. Dane, 242. As regards offers to the public (1870) 43 N. y. 240. see supra, section 18. 84. See supra, section 25, as to the 86. Cammeyer v. United German right to withdraw offer after accept- Lutheran Churches, (Chan. Ct. 1844) ance. 2 Sandf. Ch. 186, 249. 85. Van Rensselaer v. Aikin, (1870) 87. Dix v. Shaver, (Sup. 1878) 14 44 N. y. 126, reversing 44 Barb. 547; Hun 392. Barns v. Barrow, (1874) 61 N. y. 88. Cammeyer v. United German 39; Dix V. Shaver, (Sup. 1878) 14 Lutheran Churches, (Chan. Ct. 1844) Hun 392. See also Cammeyer v. 2 Sandf. Ch. 186, 242. United German Lutheran Churches, 89. Hough v. Brown, (1859) 19 N. (Chan. Ct. 1844) 2 Sandf. Ch. 186, Y. HI. 44 XEW YORK LAW OF CONTRACTS [§ 37 An offer need not be made directly to a person to entitle him to accept ; it is sufficient if it is made for the purpose of being com- municated to him.^" Thus if, in a letter to the wife of one con- templating the purchase or lease of property or the like, the writer offers to become surety for the addressee's husband if the sale or lease is made to him, with directions to communicate the offer to the owner of the property, this is in effect an offer to the owner, and where acted on by him by the making of the sale or lease, becomes binding on the writer.*'- § 37. Conditions Precedent to Acceptance. — If the offer is sub- ject to conditions requiring something more than a mere expres- sion of assent of the person attempting to accept them, there must be a compliance with such conditions.'^ The failure to -comply therewith, whether this is the result of misapprehension, inadver- tence or neglect on the part of the party seeking to take advan- tage of the offer, will prevent the consummation of the contract.'^ Thus, where the purchaser of a railroad on foreclosure offers to exchange stock in the company to be formed by him to operate the road, for stock in the old company, provided the stockholders in the old company deposit within a certain time their stock with a third person, properly indorsed for transfer, to be turned over by the latter to the offeror on his tender of the stock of the new company, the acceptance of such offer must be accompanied with a delivery of the stock to such third person, properly indorsed for transfer; and in such a case it is immaterial, if the stock is not properly indorsed for transfer, that the offeror refuses to accept the stock without stating his objection to the form of the transfer.^' So where in negotiations for a lease, the landlord offers to lease on certain terms if satisfactory security is given by the lessee, no binding agreement for a lease arises unless the lessee furnishes security satisfactory to the lessor, and the lessor may arbitrarily refuse to accept as satisfactory any security tendered. This is different from a case where a landlord binds himself to give a lease on receiving satisfactory security, in which case he might not be 90. Waterbury v. Graham, (Super. 23 N. Y. S. 557. See also McGrath Ct. 1850) 6 Super. Ct. 215; Egan v. v. Brown, (Sup. 1873) 66 Barb. 481. Thompson, (Com. PI. 1878) 57 How. 93. Sehorestene v. Iselin, (Sup. Pr. 324. 1893) 69 Hun 250, 53 State Rep. 347, 91. Waterbury v. Graham, (Super. 23 N. Y. S. 557. Ct. 1850) 6 Super. Ct. 215. 94. Sehorestene v. Iselin, (Sup. 92. Sehorestene v. Iselin, (Sup. 1893) 69 Hun 250, 53 State Rep. 347, 1893) 69 Hun 250, 53 State Rep. 347, 23 N. Y. S. 557. §§ 38,39] ASSENT GENERALLY 45 justified in arbitrarily refusing to accept security proven to be sufficient.'^ § 38. Conditional Acceptance Generally. — Unless otherwise authorized by the offer, the acceptance must be unqualified by conditions or reservations,'* and ordinarily when the acceptance is qualified by a clause introduced by " if " it is to be regarded as conditional.'^ This rule that the acceptance must be unconditional has, in a case in a lower court, been carried to what seems an extreme limit. Thus where an offer to sell at a certain price and on certain terms was made by telegram, a reply from the buyer stating that " if " the seller ' ' cannot do better ' ' the buyer will accept the offer, has been held ineffectual, as it is conditional in form and refers the matter back to the seller for reconsideration, suspending meanwhile any absolute acceptance of the offer.'* The court in this case recognizes that if the form of expression had been, ' ' as you cannot do better I accept your offer, ' ' it would have been a due acceptance; and it is suggested that in the general under- standing of business men the two are really the same, the one used being merely a mild protest against the terms of the offer but still accepting it. § 39. Acceptance Requiring Acknowledgment or Con- firmation. — If the acceptance is conditional in that it requires the offeror to acknowledge the letter of acceptance, it will not itself operate as a consummation of the contract, but will constitute a counter proposition calling for an acceptance from the other party by way of acknowledgment or confirmation." Thus, where a verbal offer is made, the acceptance, if written, should be in form unquali- 95. McGrathv. Brown, (Sup. 1873) 97. Marschall v. Eisen Vineyard 66 Barb. 481. Co., (Com. PI. G. T. 1894) 7 Misc. 96. Northeastern Constr. Co. v. 674, 58 State Eep. 375, 28 N. Y. S. 62. North Hempstead, (Sup. 1907) 121 98. Marschall v. Eisen Vineyard App. Div. 187, 105 N. Y. S. 581; Mar- Co., (Com. PI. G. T., 1894) 7 Misc. schall V. Eisen Vineyard Co., (Com. 674, 58 State Rep. 375, 28 N. Y. S. PI. G. T. 1894) 7 Misc. 674, 58 State 62, reversing 1 Misc 511, 49 State Eep. 375, 28 N. Y. S. 62; Kirwan v. Rep. 40, 21 N. Y. S. 468. Byrne, (Com. PI. G. T. 1894) 9 Misc. 99. Hough v. Brown, (1859) 19 N. 76, 59 State Rep. 746, 29 N. Y. S. Y. Ill; Poel v. Brunswick-Balke-Col- 287, affirming 6 Misc. 528, 27 N. Y. S. lender Co., (1915) 216 N. Y. 310, 771, 143; Wilson v. Imperial Electric 110 N. E. 619, 111 N. E. 1098. See Light Co., (Sup. App. T. 1807) 20 also Barrow Steamship Co. v. Mexi- Misc. 547, 46 N. Y. S. 430; Howells can Cent. R. Co., (1892) 134 N. Y. V. Stroock, (Sup. Tr. T. 1900) 30 15, 45 State Rep. 379, 31 N. E. 261; Misc. 569, 62 N. Y. S. 870, affirmed Wilentshik v. Messier, (Sup. App. 50 App. Div. 344, 63 N. Y. S. 1074. T. 1905) 48 Misc. 362, 95 N. Y. S. 500. 46 NEW YORK LAW OF CONTRACTS [§ 39 fied, leaving the terms of the contract open to oral proof. If instead of doing so the offeree states that he accepts the offer, and then continues to set out his understanding of the terms, though cor- rectly, and further requests an acknowledgment of the acceptance, it is insufficient to conclude the contract, as this requires that the offeror signify his assent to the terms therein set forth, and there- fore is itself a counter proposal on the terms set out, requiring acceptance by the party making the first offer.^ This same prin- ciple was later applied in a case in which a contract, with the necessary memorandum to comply with the statute of frauds, was sought to be established by letters passing between the parties. The seller's letter, which was first written, inclosed a contract for the sale of certain articles. The defendant's reply was an order for such articles, but under the heading " Conditions on which above order is given ' ' there was a requirement that the order be promptly acknowledged. The court held that the buyer's letter, being in the form of an order, could not be considered an acceptance of the offer of sale contained in the earlier letter of the seller, as, even if it could otherwise be considered an acceptance of the offer to sell, it was not unconditional because it required acknowledgment by the seller.^ If the acceptance is in the first instance itself uncon- ditional it will not be rendered conditional and therefore ineffec- tual by a mere request as a matter of favor to acknowledge the letter or telegram of acceptance.^ And in a case where it appeared that the plaintiff sent a telegram asking for an offer of Calcutta standard wheat bags, and received a reply offering " one million centrals" (meaning Calcutta wheat bags, size 36x22, weighing 12 ounces) with the further statement, " Must have a confirmed bankers' credit on London four months' sight," and the plaintiff replied, " We accept for our account one million standard Cal- cutta grain bags, size twenty-two by thirty-six, weight twelve ounces, as per your telegram of to-day. Wire us confirming this and naming your correspondent in Calcutta and instruct us regard- ing credit " — it was held that this was an effectual acceptance, as the request was in no sense an addition to the terms of the con- 1. Hough V. Brown, (1859) 19 N. 725, Which affirmed 78 Misc. 311, Y. 111. 139 N. Y. S. 602. 2. Poel V. Brunswick-Balke-Collen- 3. Orr v. Doubleday, (1918) 223 der Co., (1915) 216 N. Y. 310, 771, N. Y. 334, 119 N. E. 552; Crossett 110 N. E. 619, 111 N. E. 1098, revers- v. Carleton, (Sup. 1897) 23 App. Div, ing 159 App. Div. 365, 144 N. Y. S. 366, 48 N. Y. S. 309. §§ 40,41] ASSENT GENERALLY 47 tract and did not change what was an absolute acceptance into a conditional one.* § 40. Manifestation of Acceptance Grenerally. — An acceptance must, to be effectual to consummate the contract initiated by an offer, be evidenced by some overt act, and the manifestation put in a proper way of reaching the proposer ; a mental determination to accept, not indicated by speech or put in coarse of indication by act, is not an acceptance.^ " The mere determination of the mind, unacted on, can never be an acceptance. ' ' ^ And an act which in itself is no indication of acceptance does not become such because accompanied by an unevinced mental determination to accept.^ In case of an offer in general terms a simple assent thereto or acceptance is all that is necessary.^ In such a case the accept- ance or assent imports an undertaking by the acceptor to do and perform all that by the terms of the offer he is required to do or perform, and supplies the mutuality or consideration essential to all contracts.* If the offer stipulates that the acceptance shall be evidenced in a certain manner this stipulation must be complied with.i" § 41. Oral Acceptance of Written Offer. — The fact that the offer is in writing does not itself require that the acceptance also be in writing; an oral acceptance may be sufficient.^^ Where the offer is in writing and the acceptance oral, the contract evidenced thereby is not in the strict sense a written contract, and oral evi- dence may be admitted to show that the offer was qualified by oral conditions, such as a condition permitting the offeror to rescind or terminate the contract." And a fortiori where a written offer 4. Crossett V. Carleton, (Sup. 1897) 9. Pettibone v. Moore, (Sup. 1894) 23 App. Div. 366, 48 N. Y. S. 309. 75 Hun 461, 57 State Rep. 363, 27 5. Trevor v. Wood, (1867) 36 N. N. Y. S. 455. See also Van Patten Y. 307, 3 Abb. Pr. N. S. 355, 1 Trans. v. Taber, (County Ct. 1911) 71 Misc. App. 248; White v. Corliea, (1871) 610, 130 N. Y. S. 1055. 46' N. Y. 467 ; Mactier V. Frith, ( Ct. la, Goldberger v. Morria^ (Sup, Err. 1830) 6 Wend. 103, 117; Nundy App. T. 1905) 94 N. Y. S. 359. V. Matth^vs, (Sup. 1884') 34 Hun 11. Fox v. Hawkins, (Sup. 1912) 74; Dickinson v. Eawson, (Sup. G. 150 App. Div. 801, 135 N. Y. S. T. 1881) 12 Wkly. Dig. 563. 245; Pettibone v. Moore, (Sup. 1894) 6. Mactier v. Frith, (Ct. Err. 75 Hun 461, 57 State Rep. 363, 27 1830) 6 Wend 103, 119, per Marcy, J. N. Y. S. 455; Beck v. Bonwit, (Sup. 7. White V. Corlies, (1871) 46 N. App. T. 1915) 153 N. Y. S. 888. Y. 467. 12. Davidge v. Velie, (County Ct. 8. Pettibone r. Moore, (Sup. 1894) 1916) 95 Misc, 511, 160 N. Y- S, 75 Hun 461, 57 State Eep, 363, 27 820, N. Y, S. 455, 48 NEW YORK LAW OF CONTRACTS [§ 42 to purchase does not purport to set out the obligations of the seller, oral evidence is admissible to prove them, such as a promise by the seller not to reduce his selling price of the articles sold.^^ On the other hand, where an order for the purchase of an article, which was orally accepted by the seller, on its face purports to set out the obligations of both seller and buyer, oral evidence to vary its terms is not admissible, such as evidence of an oral warranty by the seller." § 42. Implication of Acceptance Generally. — While acceptance must be manifested by some appropriate aet,^^ it is not necessary that formal words of acceptance be employed. It is sufficient if the language used clearly shows an intention to accept, and is treated and considered by the parties as an acceptance ; " and what- ever amounts to the manifestation of a formal determination to accept, communicated to the party making the offer, and clearly indicating that the matter is no longer left in suspense, is an acceptance which will bind the bargain.^'' Thus where a landlord wrote to a tenant asking him if he wished to renew the lease on terms stated, similar to those contained in a provision of the lease which gave a privilege of renewal, and the tenant replied that the terms were perfectly satisfactory, this was held an acceptance of the offer to renew." So where the offeree on Sept. 9th wrote to the offeror, ' ' You may enter my order for the acceptance of your offer (till October 1st, time given to conclude on) , " this has been held an unqualified acceptance, the words in parenthesis being simply a reminder that the acceptance is sent within the time limited in the offer, and not a statement that the offeree merely accepted the privilege of finally accepting the offer by the first of October." It has also been held, where the terms of a contract have been agreed on generally, and a written contract is drawn by one party 13. Routledge v. Worthington Co., Bullock v. Cutting, (Sup. 1913) 155 (1890) 119 N. Y. 592, 30 State Rep. App. Div. 825, 140 N. Y. S. 686; 195, 23 N. E. 1111. Goodfield Realty Co. v. Boden, (Sup. 14. Lamson Consol. Store Service App. T. 1909) 116 N. Y. S. 703. Co. V. Hartung, (Com. PI. G. T. 1892) 17. O'Neill v. James, fl870) 43 45 State Rep. 50, 18 N. Y. S. 143, N. Y. 84; .Myers v. Smith, (Sup. affirmed on reargument 46 State Rep. 1867) 48 Barb. 614. 191, 19 N. Y. S. 233. 18. Goodfield Realty Co. v. Boden, 15. Pomeroy v. Newell (No. 2), (Sup. App. T. 1909) 116 N. Y. S. (Sup. 1907) 117 App. Div. 800, 804, 703. 102 N. Y. S. 1098. 19. O'Neill v. James, (1870) 43 16. Crane v. Barron, (Sup. 1906) N- Y. 84. 115 App. Div. 196, 100 N. Y. S. 937; § 43] ASSENT GENERALLY 49 and sent to the other and is returned by the latter with directions that certain corrections be made, that it becomes a binding con- tract immediately on the corrections being made and the contract returned and that it cannot then be repudiated by the person directing the corrections.^" The language used in accepting must not be so obscure as to leave in doubt whether it was the inten- tion to accept unconditionally. Thus, where the question arose as to whether a contract for the delivery of certain engines in part settlement of an indebtedness was consummated, it appeared that there existed a dispute as to the amount of the plaintiff's claim against the other party, and the latter wrote to the plaintiff deprecating the controversy and offering the engines at a certain price, and a check for the balance. The plaintiff replied, reasserting the justness of his claim, and concluded as fol- lows : ' ' You are a good deal like my wife ; I have to let her have the last say. I hope you wiU tell the boys to try and find the rod for the big engine; it must be around there some place. Don't load the engines yet, for I am too busy to take care of them now. ' ' It did not appear that any check for the balance had ever been sent or demanded. It was held, reversing the lower court, that an acceptance could not be inferred from the plaintiff's letter .^^ It has been said that in verbal contracts very slight circumstances, if they are intelligible, such as a nod of ^ the head, the shaking of hands, etc., are sufficient to evidence acceptance or assent.^^ § 43. Implication of AcceptaJice Contrary to Express Refusal. — In some instances, for the purpose of relief by way of an action ex contractu, an assent may be implied from conduct, though the party may have expressly stated that he will not assent.^ As is shown later in discussing implied and quasi contracts the case of money obtained by extortion, imposition, or deceit, and of goods obtained by trespass or fraud and converted into money, are familiar instances of the application of the rule that contracts may be implied against the intention of the parties, where justice requires it. So, ordinarily, where a yearly tenant holds over he will be deemed at the option of the landlord to have renewed the 20. Dike v. Garrett, (Sup. G. T. 22. Nounenbocker v. Hooper, (Com. 1878) 7 Wkly. Dig. 352. PI- 1855) 4 E. D. Smith 401. 21. Maharv. Compton, (Sup. 1897) 23. Hazeltine v. Weed, (1878) 73 18 App. Div. 536, 79 State Rep. 1126, N. Y. 156, 160. 45 N. Y. S. 1126. so NEW YORK LAW OF CONTRACTS [§ 44 lease for another year, even though he disclaims any such inten- tion, as the law attaches this as a consequence of the holding over.^* And where a tenant is notified that if he continues in possession after the termination of his lease he will be required to pay a certain advanced rent, his holding over may operate in law as an assent to pay the increased rent, though this may not in fact have been his intention.^' As a general rule, however, the law cannot imply that a person has promised to do that which in express and unequivocal terms he has refused to do.^^ " It is quite essential to implied as well as express contracts, that there should be some act performed, or language used, by both parties, from which the con- clusion can be fairly drawn that their minds met upon the conditions of the agreement. Most certainly if one party expressly declines to assent to the proposed terms, no inference can be indulged that he has assented. ' ' ^' Thus, where a storekeeper held, under a con- tract of hire, a carrier service attached to the building, and was notified that after the expiration of his contract he would be required to pay an increased price for its use, which he refused to do, the fact that he continued to use the apparatus, not having attempted in any way to prevent its removal by the owner, cannot be considered as an assent to pay the increased price, as the own- er's neglect to remove the apparatus could with equal reason be considered an assent on his part to accept a lesser price.^' § 44. Silence as Evidencing Assent Generally. — It has been said that keeping silence under certain circumstances may be an assent to a proposition.^' Thus, an assent to an account rendered so as to create an account stated may be inferred from silence.^" And where a buyer is notified by the seller of the terms on which he is willing to sell, the buyer's receipt and acceptance of the articles without objection will constitute an assent to the terms 24. Schuyler v. Smith, (1873) 51 N. Y. 586, 590, 5 N. E. 770 (per N. Y. 309. Ruger, Ch. J.). 25. Despard v. Walbridge, (1857) ^^- Lamson Consol. Store Service 15 N Y 374 '^°-'^- '^"'> C^*"!' PI- 1890) 15 Daly oo'rr' 1+-' w 1 M0.7Q, to '^^^' ^9 State Rep. 307, 8 N. Y. S. 26. Hazeltme v. Weed, (1878) 73 gog N.Y. 156; Preston v.Hawley, (1886) 29Mactier v Frith (Cf Frr 101 N. Y. 586, 5 N. E. 770; Lameon noon; « w .. in, nVA' o , r, , „, r, • rt nj -1 1^^" ^ Wend. 103, 119. See also Consol. Store Service Co. v. Weil, -»■„ „ v i j. -r. ^ -r.. , ,r^ T>i ionn> ic: -r. 1 Ano on ^^^ York, etc., R. Co. V. Pixley, State Rep. 307, 8 N. Y. S. 336. ^^ Spellman v. Muehlfeld, (1901) 87, Preston v. Hawley, (1886) 101 166 N. Y. 245, 59 N, E. 817. § 44] ASSENT GENERALLY 51 stated.^i This is also true where goods are ordered by a merchant without any agreement as to the price, and the shipment of the goods by the seller is accompanied with an invoice stating the price. In such a case if the buyer retains the goods without objection he is liable for the invoice price.^^ If, however, the buyer has no knowledge of the price the seller expects to charge he can be considered only as agreeing to pay the reasonable or market price, and this has been held true where the buyer sent a servant for goods who was notified by the seller as to the price but failed to inform his master.^^ Where a contract for the purchase of land was signed by the purchaser and sent to the vendor for his approval, and the contract as so signed required the purchaser to erect a mill on the land and provided that on the failure of the purchaser to make the required payments the vendor could declare the contract void and retain all payments made and improvements placed on the land, and the vendor made alterations in the contract by inserting the words " fixtures and machinery " after the word " improvements," and returned it to the purchaser, it was held that the purchaser's acquiescence in the contract as so altered, and his occupation and improvement of the land, constituted an acceptance and assent thereto rendering it binding on him.'* A similar view was taken where the buyer of goods signed duplicate contracts of purchase and left them with the seller, and the latter altered the provision as to the time of delivery and sent the con- tract so altered to the buyer, who retained it without objection, and received and paid for a part of the goods, which were delivered after the time specified in the original contract, and it was held that the buyer was bound by the contract as altered.'^ The mere fact that a person has knowledge that a third person has purchased property and agreed to give the former's notes to the seller for the price creates no contractual liaiiility on his part to the seller for the priee.^* 31. Dent V. North American Steam- 33. Booth v. Bierce, (1868) 38 N. ship Co., (1872) 49 N. Y. 390; Doerr Y. 463, reversing 40 Barb. 114. V. Woolsey, (Com. PI. G. T. 1889) 34. Church v. Laphajn, (Sup. 5 N. Y. S. 447', 25 State Rep. 574, 1904) 94 App. Div. 550, 88 N. Y. S. reargument denied 15 Daly 284, 28 222. State Rep. 401, 7 N. Y. S. 662; 35. Tilt v. La Salle Silk Mfg. Co., Erigham v. Fish, (Sup. G. T. 1885) (Com. PI. 1813) 5 Daly 19. 21 Wkly. Dig. 531. 36. Fitch v. Dederick, (1867) 37 32. Metropolitan Mfg. Co. v. Dun- N. Y. 225. ning, (Sup. 1886) 41 Hun 638, 2 State Rep. 711, 52 NEW YOKK LAW OF CONTRACTS [§ 45 § 45. Effect of Silence Where Contract Is Wholly Execu- tory.— As a general rule, where the contract is wholly executory the circumstances must be very peculiar under which an accept- ance may be inferred from silence merely. In such cases silence can operate ordinarily as an acceptance only by way of estoppel, and to raise an estoppel from silence there must have been some duty to speak, and the failure to do so must have operated to mis- lead, and generally a person is under no obligation to do or say anything concerning a proposal which he does not choose to accept." Thus if an offer is made by letter, the mere failure of the offeree to reply to the letter cannot itself be considered an acceptance,^* and the failure of a fire insurance company to reply to an application for insurance raises no presumption of its acceptance.^' So where an order for the purchase of goods is taken by an agent, subject to approval by his principal, acceptance and approval of the order cannot be inferred simply from the silence of the principal,*" and this has been held true though a bill of sale of property to be taken in exchange accompanies the order .^^ "Where a buyer makes an offer by mail and the seller replies with a counter proposal, the mere act of the buyer in putting the counter proposal away is not an acceptance, as such proposal requires an affirmative acceptance to the same extent as the original offer.*^ So where a dispute has arisen between parties and an offer of settlement is made by one, the silence of the other cannot ordinarily amount to an assent to such offer ; *^ and if the offer of settlement is met by a counter proposition an acceptance of the latter cannot be presumed from silence on the part of the party making the first offer, though there was a mental determination on his part to accept the modi- fied proposition.^* Similarly where an offer to sell was made by telegram in response to a request by the buyer, and the buyer's reply accepting the offer did not conform to the offer, the seller's 37. More v. New York Bowery F. 41. Simpson v. J. I. Case Threshing Ins. Co., (1892) 130 N. Y. 537, 42 Mach. Co., (Sup. Sp. T. 1918) 170 State Rep. 543, 29 N. E. 757. N. Y. S. 166. 38. Thedford v. Herbert, (Sup. 42. Drucker v. Oppenheimer, (Sup. 1907) 118 App. Div. 181, 102 N. Y. App. T. 1917) 165 N. Y. S. 284. See S- 1083. also Warner Mfg. Co. v. Jacobs, 39. More v. New York Bowery F. (Sup. App. T. 1919) 177 N. Y. S. Ins. Co., (1892) 130 N. Y. 537, 42 183. State Rep. 543, 29 N. E. 757. 43. Moran v. Standard Oil Co., 40. Simpson v. J. I. Case Threshing (1914) 211 N. Y. 187, 105 N. E. 217. Mach. Co., (Sup. Sp. T. 1918) 170 44. Nundy v. Matthews, (Sup. N- Y. S. 166. 1884) 34 Hun 74. § 46] ASSENT GENERALLY 53 acceptance of the reply as a counter proposition cannot be inferred from his silence.*^ It has been held, where an application for space in an exhibition building, accompanied by the payment of an entrance fee, was made on a blank furnished by the party conduct- ing the exhibition, it being expressly stipulated in the application that the party to whom it was made had the right to reject it, that his mere failure to notify the applicant whether or not the appli- cation was accepted could not be considered an acceptance, as he did not assume the duty of informing applicants whose applica- tions were not accepted of the fact before he was called on for the information.^^ Where a buyer in pursuance of previous oral nego- tiations sent to the seller duplicate contracts for a purchase of goods, one to be retained and the other executed and returned to the buyer, and the seller altered the duplicate signed by him and returned it to the buyer, the act of the buyer in placing the con- tract in his safe has been held not such an acceptance of the sell- er's counter proposal resulting from the alteration as to render the contract as altered binding on the seller.^'' § 46. Acting on Offer as Acceptance Generally. — Though the contract or offer is unilateral in form and signed by the promisor only, it may become a binding contract when the promisee receives the instrument so signed and acts on it,** and he may thus render the contract binding not only on the offeror but on himself as well.^' And as a general rule, if an offer is made by one person accom- panied by a promise, a voluntary performance by the person to whom the offer is made, before the offer is withdrawn, constitutes an acceptance and furnishes the consideration necessary to render the promise of the offeror binding on him.^" In other words, a 45. Wood V. Ellsworth, (Sup. App. 108 N. Y. 434, 13 State Hep. 809, T. 1904) 45 Misc. 584, 91 N. Y. S. 24. 15 N. E. 705. 46. Demuth v. American Institute, 50. Lamoreux v. Gould, (1852) 7 (1878) 75 N. Y. 502, affirming 42 N. Y. 349; White v. Baxter, (1877) Super. Ct. 336. 71 N. Y. 254, affirming 41 Super. Ct. 47. Drucker V. Oppenheimer, (Sup. 358; Marie v. Garrison, (1880) 83 App. T. 1917) 165 N. Y. S. 284. N. Y. 14, 26; Cox v. Stokes, (1898) 48. Lord v. Cronin, (1897) 154 N. 156 N. Y. 491, 505, 51 N. E 316; Y. 172, 47 N. E. 1088; Wayne, etc., Robb v. Washington, etc.. College, Institute v. Smith, (Sup. 1861) 36 (Sup. 1905) 103 App. Div. 327, 93 Barb. 576; Beardsley v. Davis, (Sup. N. Y. S. 92, modified on other 1868) 52 Barb. 159. See also Beck v. matters, 185 N. Y. 485, 78 N. E. 359; Bonwit, (Sup. App. T. 1915) 153 American Woolen Co. v. Moskowitz, N. Y. S. 888. (Sup. 1913) 159 App. Div. 382, 144 49. Park v. Preston, (Sup. G. T. N. Y. S. 532; New York, etc., R. 1885) 22 Wkly. Dig. 359, affirmed Co. v. Pixley, (Sup. Sp. T. 1853) 19 54 NEW YORK LAW OF CONTRACTS [§ 47 request followed by performance is sufficient, and mutual promises at the time are not essential, unless it was the understanding that the promisor was not to be bound, except on the condition that the other party enter into an immediate and reciprocal obligation to do the thing requested.'! As said by Rapallo, J. : " When one, acting on the faith of a promise, performs the condition upon which the promise was made, the promise attaches to the consideration so performed, and renders the promisor liable. After the promisor has had the benefit of the consideration for which he bargained, it is no defense to say that the promisee was not bound by the con- tract to do the act. ' ' '^ § 47. i Application of General Rule as to Acting on Offer. — If a creditor is requested by his debtor to extend the time of pay- ment, and a third person undertakes in consideration of forbear- ance to become liable as surety or otherwise, and the creditor does in fact forbear in reliance on the undertaking, though he enters into no enforceable agreement to do so, his acquiescence in the request and an actual forbearance in consequence thereof constitute an acceptance of and furnish a good consideration for the col- lateral agreement.'^ The same principle has been applied where an application for the issuance of a surety bond contains a promise by the applicant to pay certain premiums in consideration of the issuance of the bond, and in reliance thereon the bond is issued ; ^ where a person in consideration of the offeree's making a sale of his property at a price less than he asked promises to pay him an additional sum, and in reliance thereon the sale is made ; '^ and where an order or offer for the purchase of merchandise is sent to a merchant and the order is filled by a shipment of the goods.'* In the latter instance, the order must, however, be filled in accord- Barb. 428; Wilkinson v. Chamber 52. White v. Baxter, (1877) 71 of Commerce, (Sup. Tr. T. 1911) 73 N. Y. 254, 260. Misc. 141, 130 N. Y. S. 676. See 53. Strong v. Sheffield, (1895) 144 also Baker v. Angell, (Sup. G. T. N. Y. 392, 63 State Rep. 101, 39 N. 1887) 12 State Rep. 406. As to the E. 330. necessity for mrutuality in bilateral 54. Aetna Indemnity Co. v. Ryan, contracts, see infra, section 316; and (Sup. App. T. 1907) 53 Misc. 614, as regards the effect of performance 103 N. Y. S. 7'56. of the conditions of an offer as fur- 55. Wilkinson v. Chamber of Com- nishing a consideration, see infra, merce, (Sup. Tr. T. 1911) 73 Misc. section 321 et seq. 141, 130 N. Y. S. 676. 51. Strong V. Sheffield, (1895) 144 56. Grant v. Griffith, (Sup. 1899) 39 N". Y. 392, 63 State Rep. 701, 39 N. App. Div. 107,56 N. Y.S. 7'9il, affirmed E. 330. 165 N. Y. 636 mem., 59 N. E. 1123. § 471 ASSENT GENERALLY 55 ance with its terms. Thus, if an order for merchandise is given with directions for shipment on March 1st, a shipment about the middle of February cannot operate as an acceptance, as it does not conform to the order.^' In case of a guaranty or letter of credit, if the person to whom the letter is directed extends the credit requested, there immediately arises a contract binding on the writer of the letter,^* and in case of a promise to answer for the price of goods if sold to another, acting on the promise and selling the goods to such third person constitute an acceptance without notice to the promisor.^' And it has been held that the fact that the person to whom the guaranty runs sent for execution by the guarantor a more formal contract of giiaranty does not prevent his acting on the guarantor 's offer from constituting an acceptance, even though the formal contract so sent for execution contains provisions not contained in the original contract.'" If a person is requested to indorse the notes of another for a certain amount in order to secure their discount by a bank making such request, and he promises to do so, and on the faith of such promise the notes are discounted by the bank, it would seem that this itself is an acceptance of the offer to indorse making the promise bind- ing; but where the person of whom the request was made replied that he would not indorse to the amount asked but would to a lesser amount, it has been held that as this offer was variant from the request, notice of its acceptance must be given the promisor to make the promise binding on him, and that the mere act of the bank in discounting a note for the lesser amount does not itself constitute an acceptance." The offer or promise of guaranty may be so worded as to require notice of its acceptance to be given the guarantor.'^ Where an offer is made to the public, the acting thereon and performing the conditions of the offer may constitute an acceptance. Thus where a manufacturer of automobiles made an offer to share ■ certain profits with purchasers of its cars, pro- 57. Davidge v. Velie, (County Ct. 60. American Woolen Co. v. Mos- 1916) 95 Misc. 511, 160 N. Y. S. 820. kowitz, (Sup. 1913) 159 App. Div. 58. Union Bank v. Coster, (1850) 382, 144 N. Y. S. 532, reversing 140 3 N. Y. 203; Douglass v. Howland, N. Y. S. 522. (Sup. 1840) 24 Wend. 35, 49. 61. Greenwich Bank v. Oppenheim, 59. American Woolen Co. v. Mos- (Sup. 1909) 133 App. Div. 586, 118 kowitz, (Sup. 1913) 159 App. Div. N. Y. S. 297. 382, 144 N. Y. S. 532; Drueker v. 62. StaiTord v. Low, (Sup. 1819) Heyl-Dia, (Sup. App. T. 1906) 52 16 Johns. 67. Fisc. 142, 101 N. Y. S. 796. 56 NEW YORK LAW OF CONTRACTS [§ 48 vided a minimum number of cars were sold, the purchase of one of its cars was held an acceptance of the offer, giving rise to a contract binding on the manufacturer.*' The acceptance by per- formance does not relate back to the time of the offer but consum- mates the contract only as of the time of such performance." § 48. Limitation of Rule as to Acting on Offer. — Where acting on an offer is relied on as an acceptance, it must in itself be such as indicates an acceptance independent of the offeree's mental determination.'^ Thus the plaintiff, a builder, received a note from the defendants making an offer for work to be done and materials to be furnished by him in fitting up offices for the defendants ; and without reply, the plaintiff immediately purchased lumber for the work and started to prepare it for use ; the defend- ants thereafter withdrew their offer. It was held that the pur- chase of and work on the lumber were not acts indicative to the defendants of acceptance, as they were appropriate for any other like work, and that therefore there was no acceptance before the withdrawal of the offer.** It is necessary, in order that acting on a promise or offer may work as an acceptance, that the action constitute a full performance on the part of the promisee or impose on him the duty to perform fully, and thereby remove any objec- tion to want of mutuality.*' Thus, where goods are ordered to be delivered in instalments the mere delivery of one or more instalments cannot be considered an acceptance of the order as a whole, so as to give rise to an executory contract of sale for the amount of the entire order, and thereby prevent the buyer from countermanding his order to the extent that it has not been filed.** It has been held, where a person offers to become surety for the debt of another in consideration of the creditor's receiving pay- ment of a part of the debt in discharge of the whole, payment to be made at a certain date in the future, that mere silence on the part of the creditor and failure to take any steps to enforce pay- ment of the debt until after the time fixed cannot be considered G3. Ford v. Ford Motor Co., (Sup. 65. White v. Corlies, (1871) 46 1917) 181 App. Div. 28, 168 N. Y. S. N". Y. 467. 176. 66. WHiite v. Corlies, (1871) 46 N" Y 467 64. Grant v. GrifBth, (Sup. 1899) e^'xr . ,. .^, ,o 39 App. Div. 107, 56 N. Y.%. 791. ,stl]''Ar.U ""'' ''"'• affirmed 165 N. Y. 636 mem., 59 bo a,.v-„ q • tj • n -KT -^ -.-.^r, r, , ='","•' 68. Auto Sprmg Repairer Co. v. N. E. 1123. -;ee also Douglass v. Mutual Auto Accessories Co., (Sup. Howland, (Sup. 2840) 24 Wend. 35, App. T. 1911) 72 Misc. 402, 130 61, explaining earlier cases. N. Y. S. 140. § 49] ASSENT GENERALLY 57 an acceptance of the offer, as they would impose no ol)ligation on the part of the creditor to accept part payment in full satisfac- tion.*' The same principle has been applied where an order was given for advertising in a paper or magazine for a stated period, and the advertisement was published for a part of the time after which the advertiser directed its discontinuance.'"' On the other hand, on the theory that communicated acceptance ma}' be predi- cated on some overt act on the part of the person to whom the offer is made, provided the person making the offer expressly or impliedly intimates that it would be sufficient to act on his pro- posal without directly communicating acceptance of it to himself, it has been held, where an order is taken by a solicitor of the publisher, calling for the publication of an advertisement for a stated time under an entire contract, that the beginning of the publication of the advertisement and knowledge thereof on the part of the advertiser show an acceptance of his offer rendering the contract binding on him, and he has thereafter no right to terminate the contract.''^ It has been said in reference to such a transaction that " the part performance of an order for a definite number of insertions and for a definite amount necessarily implies an acceptance and an agreement to complete, as, unless completed, nothing would be earned. ' ' ''^ § 49. Acknowledgment of Order or Offer. — Where an order for goods or merchandise is sent by one merchant to another, formal words of acceptance are not required; words indicating an inten- tion to accept and so treated by the parties are sufficient.'^ Thus where an order for lumber of specified sizes is sent, a letter 89. Nundy v. Matthews, (Sup. It is to be noted, however, in this 1884) 34 Hun 74. case that the order contained under 70. White v. Kingston Motor Car the headline " Important " a direc- Co., (Sup. App. T. 1910) 69 Misc. tion to the publisher that "if rate 627, 126 N. Y. S. 150. or space is incorrect write us at once, 71. Mendell v. Willyoung, (Sup. and we will be governed according to App. T. 1903) 42 Misc. 210, 85 N. your acceptance. Copies of each Y. S. 647. See also North Side News publication must be forwarded same Co. V. Cypress, (Sup. App. T. 1912) day adv. appears." This itself would 75 Misc. 129, 132 N. Y. S. 806; Post seem to be a, very strong implica- V. Frank, (Sup. App. T. 1912) 75 tion that no further notice of the Misc. 130, 132 N. Y. S. 807, dis- acceptance of the order was required tinguishing White v. Kingston Motor or contemplated. Car Co., (Sup. App. T. 1910) 69 73. Crane v. Barrow, (Sup. 1906) Misc. 627, 126 N. Y. S. 150. 115 App. Div. 196, 87 Civ. Pro. 350, 72. Post V. Frank, (Sup. App. T. 100 N. Y. S. 937. 1912) 75 Misc. 130, 132 N. Y. S. 807. 58 NEW YOKK LAW OF CONTRACTS [§ 49 acknowledging the order, stating that it had been sent to the mills with instructions to commence cutting at once and that the lumber will be shipped by a certain carrier unless other instruc- tions are given, has been held an acceptance of the order, having been so treated by the parties.'* On the other hand, the acknowledg- ment of an order and the statement that it will receive proper attention or the best attention, or the like, are regarded as a mere notification that the order will be taken under consideration. The only obligation which can reasonably be implied from such an answer is that the seller will give the order due consideration, for the purpose of ultimately determining whether it will be accepted or not.''° Such an acknowledgment, therefore, does not preclude the buyer from withdrawing his order,'^ nor does it impose lia- bility on the seller to fill the order." So a letter from a merchant, to whom an order has been transmitted for the purchase of goods, acknowledging its receipt and directing the buyer to call in refer- ence thereto, cannot be considered an acceptance of the order.'* The view has been expressed, where a letter was written by a merchant to a manufacturer stating the quantity of goods he expected to need during a certain time and that if the full amount was not ordered in the time specified further orders would be given until the quantity was exhausted, and also stating that he hoped that the manufacturer would be able to fill all orders, and a reply was sent saying that the order had been entered and that the writer did not think that there would be any difficulty in keep- ing the merchant supplied if reasonable opportunity was given the writer to prepare — that this was not an acceptance of the ofEer to purchase the quantity stated in the merchant's letter. Irrespective, however, of whether this was so or not, it was held that no contract was created, because the reply was in other respects inefEectual, as variant from the order in regard to the time of delivery.'' 74. Crane v. Barrow, (Sup. 1906) 77. Van Keuren v. Boomer, etc., 115 App. Div. 196, 37 Civ. Pro. 350, Press Co., (Sup. 1911) 143 App. I>iv. 100 N. Y. S. 937. 785, 128 N. Y. S. 306. 75. Van Keuren v. Boomer, etc., 78. WaxelbauM v. .Stehloss, (Slip. Press Co., (Sup. 1911) 143 App. Div. 1909) 131 App. Di^. 826, 116 N. Y. 785i 128 N. Y. S. 306. S. 42. 76. National Cash Register Co. v. 79. Sidney Glass Works v. Barnes, McCann, (Sup. Tr. T. 1913) 80 Misc. (Sup. 1895) 86 Hun 374, 67 State 165, 140 N. Y. S. 916, affirmed 160 Rep. 221, 33 N. Y. S. 508. App. Div. 912 mem., 14.5 N.Y.S. 1135. §§ 50,51] ASSENT GENERALLY 59 § 50. Signature of Promisee to Unilateral Contract. — The signature of the promisee to a writing in the form of an offer or unilateral contract may be sufficient to evidence his acceptance if what he has assented to can be reasonably and intelligibly inferred from the writing.*", And in a number of cases involving a contract unilateral in form, for the purchase of property or for the rendition of services, under which the promisor promises to make the pur- chase or render the services, it has been held that the other party 's signature sufficiently evidenced his acceptance of the offer and thereby imposed on him a reciprocal agreement to sell or employ ; '^ as where the writing is itself designated as an " agreement," and one party " agrees " to make the purchase or render the services, as the word ' ' agreement " or " agrees ' ' connotes a mutual obliga- tion.'^ If, however, the contract is purely unilateral in form, imposing no obligation on the promisee, as in case of options, his signature cannot itself import an acceptance and create the re- sultant mutuality of obligation.*' § 51. Communication of Acceptance Generally. — ^As a general rule the acceptance must be communicated to the offeror or his duly authorized agent, or at least it must be placed in the way of communication to the offeror by a means of communication recognized or authorized by him. To make a valid contract it is not only necessary that the minds of the contracting parties should meet on the subject of the contract but they must communicate that fact to each other so that both parties may know that their minds do meet.** Therefore, where an order for goods is sent by 80. Moran v. Standard Oil Co., 83. Booth v. Milliken, (Sup. 1908) (1914) 211 N. Y. 187, 105 N. E. 127 App. Div. 522, 111 N. Y. S. 791, 217; Nounenbocker v. Hooper, (Com. affirmed 194 N. Y. 553 mem., 87 N. E. PI. 1855) 4 E. B. Smith 401. 1115; Dittenfass v. Horsley, (Sup. 81. Moran r. Standard Oil Co., 1917) 177 App. Div. 143, 163 N. Y. (1914) 211 N. Y. 187, 105 N. E. S. 626. 217; Moskowitz V. White, (Sup. App. 84. White v. Corlies, (1871) 46 T. 1917) 166 N. Y. S. 15. N. Y. 467; Greenwich Bank v. Oppen- 82. Benedict v. Pinous, (1908) 191 heim, (Sup. 1909) 133 App. Div. N. Y. 377, 84 N. E. 284; Moran v. 586, 118 N. Y. S. 297; Hamilton v. Standard Oil Co., (1914) 211 N. Y. Patrick, (Sup. 1891) 62 Hun 74, 187, 105 N. E. 217; Eichards v. 41 State Rep. 770, 16 N. Y. S. Edick, (Sup. 1853) 17 Barb. 260. 578, affirmed 149 N. Y. 580 mem.. See infra, section 316, as to mutu- 43 N. E. 987; Ehrlich v. Adams, ality of obligation generally; and (Super. G. T. 1893) 4 Misc. 614 mem., especially as regards the implication 53 State Rep. 588, 23 N. Y. S. 1163; of a mutual promise from the use of White v. Kingston Motor Car Co., the term "agree" or the like, see (Sup. App. T. 1910) 69 Misc. 627, infra, section 315. 126 N. Y. S. 150; Simpson v. J. T. 60 NEW YORK LAW OF CONTRACTS [§ 51 one merchant to another the mere fact that the party receiving the offer writes thereon the letters "0 K " or his initials does not itself evidence an acceptance of the order.*^ Likewise where an order for advertising is given to an association publishing a periodical, and it provides that the order shall not be binding until accepted by a certain committee, notice of acceptance by such committee must be given the offeror.** On the other hand, it is not always essential that notice of the acceptance in fact reach the offeror, if the offeree by an overt act has signified his acceptance and has placed the information with respect thereto in the way of communication to the offeror by a means recognized and sanc- tioned by the latter." As said by Marcy, J. : " Anything that shall amount to a manifestation of a formed determination to accept, communicated or put in the proper way to be communicated to the party making the offer, would doubtless complete the con- tract. ' ' '* This rule finds its most frequent application in cases where the acceptance is by mail or telegram.*^ It is not, how- ever, limited to such cases. Thus, in a case it appeared that a theatrical manager sent duplicate copies of an employment con- tract to an actress, with directions that if she desired to accept to sign one of the copies and return it to the offeror, and she deposited a signed copy in the letter box at the offeror's theater usually used for such purpose. It was held that this was a sufficient communication to the offeror of the acceptance by the offeree, though in fact he may not have received the acceptance.'" If the offer is made by other means than a direct communication from the offeror to the offeree, and no method of communicating Case Threshing Maoh. Co., (Sup. Sp. Co., (Sup. App. T. 1910) 69 Misc. T. 1918) 170 N. Y. S. 166; Howe 627, 126 N. Y. S. 150. Scale Co. v.Wolfshaut, (Sup. App. T. 87. Howard v. Daly, (1875) 61 1918) 170 N. Y. S. 943; Frith v. N'. Y. 362; Morrison v. Tuiska, (Sup. Lawrence, (Chan. Ct. 1829) 1 Paige ^'PP- T- 1908) 113 N. Y. S. 611. 434, reversed on other grounds, 6 **• Mactier v. Frith, (Ct. Err. Wend. 103; Britton v. Phillips, (Sup ^^^O' J^ '^^'"^- l^^, 119. G. T. 1862) 24 How. Pr. 111. H' ^^ following sections. „,r Tx . T. ,, ,^ 90. Howard V. Daly, (1875) 61 N. 85. Hempstone v Koehler (Sup. y. 362. It was further held in this App. T. 1910) 120 N.Y. S. 1094. ,ase that the facts were sufficient to See also Howe Scale Co v. Wolf- sustain a finding of fact that the ^haut, ^( Sup. App. T. 1918) 170 N. ^eoeptance was received by the offeror though he denied in his testi- Y. S. 943. 86. White v. Kingston Motor Car mony that this was so, §§ 52,53] ASSENT GENERALLY 61 the acceptance is specified, it seems that the offeree may use the same means of communication adopted by the offeror.^^ § 52. Commmiication by Mail or Telegram Generally. — Where an acceptance by mail, irrespective of the manner in which the offer is made, is authorized by the offer, the contract is con- summated on the due mailing of the letter.^^ The sending of the letter accepting the offer is regarded as an acceptance, because it is an overt act, clearly manifesting the intention of the party sending it to close the offer of him to whom it is sent, and thus making the meeting of the minds which is necessary to constitute a contract.'^ Where the offeror and the offeree live in different states and their communications are by letter or telegram, and acceptance by this means is authorized, the place of contract is in the state where the acceptance takes place, that is, the state where the final acceptance is dispatched." And its effect as an acceptance is governed by the law of the place from which the acceptance is sent.^' § 53. Implied Authorization for Acceptance by Mail or Telegram. — Applying the rule announced in the leading English case of Adams v. Lindsell (1 B. & Aid. 681) , it has been established from an early date that where a person makes an offer by mail he authorizes an acceptance to be made by the same means of communication, and the acceptance and consummation of the con- tract date from the mailing of the letter of acceptance, and not from the time the letter is received by the offeror.^* It is immaterial that the letter of acceptance never in fact reaches the offeror.^' 91. Mactier v. Frith, (Ct. Err. 95. Stein-Gray Drug Co. v. H. 1830) 6 Wend. 103, per Marcy, J. Miohelsen Co., (N. Y. Munic. Ct. See also Trevor v. Wood, (1867) 36 1909) 116 N. Y. S. 789. N. Y. 307, 310. 96. Vassar v. Camp, (1854) 11 92. Watson V. Russell, (1896) 149 N". Y. 441, affirming 14 Barb. 341; N. Y. 388, 44 K. E. 161; Clark v. White v. Oorlies, (1871) 46 N. Y. 467, Dales, (Sup. 1855) 20 Barb. 42. See 460; Coates v. Emporia First Nat. also Crown Point Iron Co. v. Aetna Bank, (1883) 91 N. Y. 20; Mactier v. Ins. Co., (1891) 127 N. Y. 608, 618, Frith, (Ct. Err. 1830) 6 Wend. 103; 40 State Rep. 4126, 28 N. E. 652. Clark v. Dales, (Sup. 1855) 20 Barb. 93. Trevor v. Wood, (1867) 36 N. 42; Stein-Gray Drug Co. v. H. Y. 307. Michelsen Co., (N. Y. Munic. Ct. 94. New York Architectural Terra- 1909) 116 N. Y. S. 7S9'; Butterfleld v. Cotta Co. V. Williams, (Sup. 1905) Spencer, (Super. Ct. 1856) 14 Super. 102 App. Div. 1, 92 N. Y. S. 808, Ct. 1, 25. See also Myers, v. Smith, affirmed 184 N. Y. 579 mem., 77 (Sup. 1867) 48 Barb. 614; Brisban v. N. E. 1192; .Seaver v. Lindsay Light Boyd, (Chan. Ct. 1832) 4 Paige 17. Co., (Sup. Tr. T. 1920) 111 Misc. 97. Vassar v. Camp, (1854) 11 N. 553 182 N. Y. S. 30. Y. 441. See also Crown Point Iron 62 NEW YORK LAW OF CONTEACTS [§ 53 The objection to this view, that thereby a party is in effect bound by a contract before he has knowledge that it is binding on him, is not regarded as of any weight. As said by Marcy, J., in an early leading case: " If a bargain can be completed between absent parties it must be when one of them cannot know the fact whether it be or be not completed. It cannot begin to be obligatory on the 0]ie before it is on the other; there must be a precise time when the obligation attaches to both, and this time must happen when one of the parties cannot know that the obligation has attached to him. ' ' "* This principle has been applied where after the letter of acceptance was mailed and before it reached the offeror the offeree died, and it was held that a binding contract was created, as the acceptance dated from the time of mailing the letter of acceptance.'' The same principle is applied where the telegraph service is adopted as the means of communication, and an accept- ance by telegram of an offer made in the same manner is complete at the time the telegram of acceptance is deposited with the tele- graph company for transmission to the offeror,^ irrespective of undue delay in the transmission of the message.^ Thus in a lead- ing case it appeared that parties living at a distance from each other contemplated future transactions in Mexican silver dollars and agreed to use the telegraph service as the means of communica- tion. One of the parties sent to the other a telegram asking a quotation or offer for the sale of such dollars. The party receiving this message sent an offer by telegram. Acceptance of this offer was made by delivering a message of acceptance to the telegraph company. This message, on account of fortuitous events, was delayed for several days in transmission. Before receipt of the acceptance the offeror sent a telegram withdrawing the offer because he had received no answer. It was held that the accept- ance dated from the time the message of acceptance was delivered for transmission.^ The offeror in making an offer by mail or Oo. V. Aetna Ins. Co., (1891) 127 3. Trevor v. Wood, (1867) 36 N. Y. N. Y. 608, 618, 40 State Rep. 426, 307, reversing 41 Barb. 255, wherein 281 N. E. 652. the view was taken that the use of 98. Mactier v. Frith, (Ct. Err. the telegraph service is to be dis- 1830) 6 Wend. 103, 117, 118. tinguished from the use of the mail, 99. Mactier v. Frith, (Ot. Err. and. that the agreement beforehand 1830) 6 Wend. 103. that the telegram should be used as 1. Trevor V. Wood, (1867) 36 N. Y. the means of communication was a 307. warranty by each party that his 2. Trevor V. Wood, (1867) 36 N". Y. communication to the other should 307. be received. § 64] ASSENT GENERALLY 63 telegram, which would authorize impliedly its acceptance in the same manner, may protect himself against a miscarriage or delay in the delivery of the letter or message of acceptance by an express provision that the letter or message of acceptance shall be actually received by him within a certain time. This effect, however, will not be given to a provision that " if this offer shall be accepted, speedy notice of the same be given to ' ' the offeror,* or to a state- ment of his intention as to what he intends to do to carry out the contract after he has received notice of the acceptance.^ § 54. Mailing, Stamping ajid Aiidressing Letter of Accept- ance. — So long as the letter of acceptance remains unmailed, and therefore under the control of the offeree, it is the same as if it had not been written, and it cannot constitute an acceptance for the purpose of binding the offeror.* And in order that a letter of acceptance may have the effect of consummating the contract from the time it is mailed, it must not only be deposited in the post office or proper receptacle furnished by the government for the mailing of letters, but it must also be stamped' and properly directed. If through misdirection the letter does not reach the offeror or is unduly delayed in delivery, it cannot operate as an acceptance from the time of mailing.* It seems that if the letter containing the offer is written on the letterhead of a business firm in New York city, and does not give the writer's address, the offeree in accepting the offer by mail would not be justified in addressing the letter to the offeree, " New York city," but should either address it in care of the firm on whose letterhead the offer was written or inquire of them for a more specific address.^ If there has been an oral acceptance as well as an acceptance by letter, the offeree on inability to prove that the letter was mailed may fall back on the oral acceptance as consumtmating the contract, especially where the conduct of the parties shows their under- standing that the contract was in fact consummated, and an 4. Vassar v. •Camp, (Sup. 1852) 14 8. Sanders v. Pottlitzer Bros. Fruit Barb. 341, affirmed 11 N. Y. 441. Co., (Sup. G. T. 1893) 53' State Bep. 5. Vassar v. Camp, (Sup. 1852) 14 645, 25 N. Y. S'. 257, reversed on Barb. 341, affirmed 11 N. Y. 441. other grounds 144 N. Y. 209, 63 6. Stroock Plush Co. v. Talcott, State Rep. 76, 39 N. E. 75. (Sup. 1912) 150 App. Div. 343, 134 9. Britton v. Phillips, (Sup. G. T. N. Y. S. 1052. 1862) 24 How. Pr. 111. 7. Britton v. Phillips, (Sup. G. T. 1862) 24 How. Pr. 111. NEW YORK LAW OF CONTRACTS [§ 55 amendment to the complaint may be allowed at the trial if neces- sary for such purpose.^" § 55. Conformance of Acceptance to Offer Generally. — It is a cardinal principle of the law of contracts that the acceptance must conform to or meet the offer. There must be no variance between the two.*^ As said by Washington, J. : " It is an undeni- able principle of the law of contracts that an offer of a bargain by one person to another imposes no obligation upon the former 10. Strooek Plush Co. v. Talcott, (Sup. 1912) 150 App. Div. 343, 134 N. Y. S. 1052. 11. Hough V. Brown, (1859) 19 N. Y. Ill; Schenectady Stove Co. v. Holbrook, (1885) 101 N. Y. 45, 4 N. E. 4, affirming 30 Hun 86 mem.; Poel V. Bnunswiok-Balke-Oollender Co., (1915) 216 N. Y. 310, 771, 110 N. E. 619, 111 N. E. 109»; Hart v. Thompson, (Sup. 1896) 10 App. Div. 183, 75 State Rep. 1279, 45 N. Y. S. 909; Cameron V. Wright, (Sup. 1897) 21 App. r>iv.395, 47 N. Y. S. 571, affirmed 163 N. Y. 586 mem., 57 N. E. 1105; James Ourran Mfg. Co. v. Aultman, etc.. Machinery Co., (Sup. 1901) 62 App. Div. 201, 70 N. Y. Sv 1074, affirmed 172 N. Y. 623 mem., 65 N. E. 1118; New York Architec- tural Terra-Cotta Co. v. Williams, (Sup. 1905) 102 App. Div. 1, 92 N. Y. S. 808, affirmed 184 N. Y. 579 mem., 77 N. E. 1192; Greenwich Bank v. Oppenheim, (Sup. 1909) 133 App. Div. 586, 118 N. Y. S. 297; Batt v. Earle, (Sup. 1914) 164 App. Div. 228, 140 N. Y. S. 623; Glens Falls Limiber Co. v. Ryerson, (Sup. 1916) 175 App. Div. 769, 162 N. Y. S. 427; Dodsworth v. Hannevig, (Sup. 1918) 184 App. Div. 539, 172 N. Y. S. 572; A. D. Granger Co. v. Universal Machinery Corp., (Sup. 1919) 189 App. Div. 905, 178 N. Y. S. 875; Myers v. Smith, (Sup. 1867) 48 Barb. 614; Nundy v. Matthew®, (Sup. 1884) 34 Hun 74; Uhlman v. Day, (Sup. 1885) 38 Hun 298; Myers v. Trescott, (Sup. 1891) 59 Hun 395, 36 State Rep. 235, 13 N. Y. S. 54; Hamilton v. Patrick, (Sup. 1891) 62 Hun 74, 41 State Rep. 770, 16 N. Y. S. 578, affirmed 149 N. Y. 580 mem., 43 N. E. 987; Sidney Glass Works V. Barnes, (Sup. 1895) 86 Hun 374, 67 State Rep. 221, 33 N. Y. S. 508; Marschall v. Eisen Vineyard Co., (Com. PI. G. T. 1894) 7 Misc. 674, 58 State Rep. 375, 28 N. Y. S. 62, revensing 1 Misc. 511, 49 State Rep. 40, 21 N. Y. S. 468; Jackson v. Rode, (Com. PI. G. T. 1894) 7 Misc. 680, 58 State Rep. 362, 28 N. Y. S. 147; Kirwan v. Byrne, (Com. PI. G. T. 1894) 9 Misc. 76, 59 State Rep. 746, 29 N. Y. S. 287, affirming 6 Misc. 528, 57 State Rep. 863, 27 N. Y. S. 143; Wilson v. Imperial Electric Light Co., (Sup. App. T. 1897) 20 Misic. 547, 46 N. Y. S. 430, affirmed 20 Misc. 715 mem., 45 N. Y. S. 1151; Wood V. Ellsworth, (Sup. App. T. 1904) 45 Misc. 584, 91 N. Y. S. 24; Block V. Robitscher, (Sup. App. T. 1920) 112 Misc. 185, 182 N. Y. S. 773; Moss v. Granville, (Sup. App. T. 1915) 156 N. Y. S. 453; Schorsch V. Hartford City Paper Co., (Sup. App. T. 1917) 165 N. Y. S. 261; Drucker v. Oppenheimer, (Sup. App. T. 1917) 165 N. Y. S. 284; Raisler Heating Co. v. Clinton Wire Cloth Co., (Sup. App. T. 1918) 168 N. Y. S. 668; Warner Mfg. Co. v. Jacobs, (Sup. App. T. 1919) 177 N". Y. S. 183; Frith v. Lawrence, (Chan. Ct. 1829) 1 Paige 434, reversed on other grounds 6 Wend. 103; Cammeyer v. United German Lutheran Churches, (Chan. Ct. 1844) 2 Sandf. Ch. 186, 240, 4 Edw. Ch. 223; Dickinson v. Rawson, (Sup. G. T. 1881) 12 Wldy. Dig. 563, 25 Hun 60 mem.; Wells v. Thompson, (Sup. G. T. 1881) 13 Wkly. Dig. 256. § 56] ASSENT GENERALLY 65 until it is accepted by the latter according to the terms in which the offer was made. Any qualification of or departure from those terms invalidates the offer, unless the same be agreed to by the person who made it. Until the terms of the agreement have received the assent of both parties, the negotiation is open and imposes no obligation upon either. ' ' ^' And it is said by Martin, J., that " even where there is an acceptance, if it is not of the exact thing offered, or if it is accompanied by any conditions or reservations, however slight, then no contract is made, and the proposition to accept with such modifications is a rejection of the offer. " ^^ So where a telegram states that an offer is accepted, but further states that an official order follows, which is divergent from the offer, there is not a sufficient acceptance, as the two together constitute the attempted acceptance." Though the ac- ceptance is in the first instance in conformance with the offer and would have been effectual if it had ended there, it is rendered ineffectual if additional terms are thereafter imposed.^^ § 56. Application of General Rule as to Conformance to OflFer. — The general rule that the acceptance must conform to the offer has been applied in numerous cases. For instance, where an actor in response to an offer for his services at a certain salary replies that he will play for the amount stated and his railroad fare and hotel bills while traveling, it has been held that there was no contract, because the acceptance is variant from the offer." Where an offer to buy contained in a letter provided for delivery f. 0. b. New York, the buyer's place of business, and the accept- ance provided for delivery f. o. b. the seller's place of business, freight to New York to be deducted, it was held ineffectual on account of variance as to place of delivery." In case of an offer to sell a lot of dried apples at a certain price per pound packed in barrels, an acceptance in the first instance conforming to the 12. Eliason v. Henshaw, (1819) 4 Machinery Corp., (Sup. 1919) 189 Wheat. 225, 228, 4 U. S. (L. ed.) App. Div. 905, 178 N. Y. S. 875. 556. 15. Myers v. Trescott, (Sup. 1891) This statement is quoted with ap- 59 Hun 395, 36 State Rep. 235, 13 proval in Myers v. Trescott, (Sup. N. Y. S. 54. 1891) 59 Hun 395, 397, 3« State Rep. 16. Hart v. Thompson, (Sup. 1896) 235, 13 N. Y. S. 54. 10 App. Div. 183, 75 State Rep. 1279, 13. Sidney Glass Works v. Barnes, 41 N. Y. S. 909. (S:up. 1895) 86 Hun 374, 377, 67 17. Sohorsch v. Hartford City State Rep. 221, 33 N. Y. S. 508. Paper Co., (Sup. App. T. 1917) 165 14. A. D. Granger Co. v. Universajl N. Y. S. 261. 5 66 NEW YORK LAW OF CONTEACTS § 57 offer, but thereafter stating that the acceptance is on the pre- sumption that the goods are of " prime " quality and run a certain number of pounds net or more per barrel, and further requesting a sample to be sent, on receipt of which shipping direc- tions would be given, has been held insufficient.^* It has also been held, where an offer to sell is in general terms without specifica- tion of the terms of payment or time of delivery, that an acceptance in general terms is rendered ineffectual by the further statement that the acceptor will transmit some money by the afternoon train and take the goods- on a certain future day, as there is implied, in addition to the indefinite delay of payment, delay as to the time of delivery, and thus the seller is asked to vary the terms which his proposition imported, that is, immediate delivery and pay- ment.^' Also where a seller made an offer for the sale of stock which implied that payment and delivery would be at his place of residence, and the buyer sent a telegram of acceptance but direct- ing the seller to draw a three days' sight draft with stock attached, it was held that the acceptance was ineffectual for variance in the place and mode of payment.^* § 57. Restating Terms of Offer, — In accepting an offer it is not necessary to set out its terms.^ In fact, it is somewhat dangerous to try to do so, for if an attempt is made to recite the terms of the offer it must recite them correctly j otherwise it can operate only as a counter proposal to contract on the terms reeited.22 Thus where the offer was to sell malt " delivered " on the boat at a certain place, and in the acceptance, attempting to restate the terms, it is said that the malt is " deliverable " on boat at. such place, it was held that the acceptance was not in accordance with the offer, as the words "delivered" and "deliverable" could not be considered as importing the same meaning.^ But in a more recent case, where an order for lumber stated the place 18. Myers v. Trescott, (Sup. 1891) 31. See supra, section 35. 5S Hun 395, 36 State Rep. 235, 13 22. Dodsworth v. Hannevig, (Sup. N. Y. S. 54. 1918) 184 App. Div. 539, 172 N. Y. 19. Uilman v. Day, (Sup. 1885) S. 572; Myers v. Smith, (Sup. 1867) 3« Hun 298. 48 Barb. 614. See also Schorsch v. 20. Cameron v. Wright, (Sup. Hartford City Paper Co., (Sup. App. 1897) 21 App. Div. 395, 47 N. Y. S. T. 1917) 165 N. Y. S. 261. 571, affirmed 163 N. Y. 586 mem., 57 23. Myers v. Smith, (Sup. 1867) N". E. 1105. • 48 Barb. 614. § 5«] ASSENT GENERALLY 67 of shipment as f. o. b. Ottawa, and the acceptance referred to the place of shipment as f. o. b. Hull, which is across the river from Ottawa, the freight from the two places being the same, it was considered that this was not a material variance rendering the acceptance ineffectual, especially where the subsequent conduct of the parties showed that they understood that the contract had been consummated.^* If the offer is in writing, and its terms there- fore certain and not subject to variance or proof by oral evidence, the restatement of the terms in the letter of acceptance does not prevent the acceptance from being effectual ; but if the offer is an oral one, an attempt to restate the offer and in effect settle any future dispute as to the terms cannot, it would seem, operate as an unqualified acceptance, even though the terms may be correctly stated.^^ The fact that the acceptance contains a provision or term which is implied in the offer will not render it ineffectual for vari- ance, as the offer includes all terms, implied as well as expressed.^^ Thus where an offer is made by one New York city merchant to another for the purchase of brick to be imported, to be delivered when navigation on the Hudson river opens, which according to the custom of the trade implies that delivery is to be made on dock at New York city, an acceptance is not rendered ineffectual because it expressly states that delivery will be made on dock in such city." § 58. Directory Request or Statement. — If the acceptance of an offer is in the first instance unconditional, the fact that it is accompanied with a direction or request looking to the carrying out of its provisions, which is in no way intended as a limitation or restriction on the contract, does not have the effect of rendering the acceptance ineffectual.^* This has been held true where the buyer, when accepting the seller's offer, requests information with 24. Blair v. Turner, (Sup. App. T. 1897) 23 App. Ddv. 366, 48 N. Y. .S. 1818) 168 N. Y. S. 660. 309; Clark v. Dales, (Sup. 1855) 20 25. Hough V. Brown, (1859) 19 N. Barb. 42; Brown v. Norton, (Sup. y. 111. 1888) 50 Hun 248, 19 State Eep. 26. Brown v. Norton, (Sup. 1888) 220, 2 N. Y. S. 869; Brisban v. Boyd, 50 Hun 248, 19 State Rep. 220, 2 (Ohan. Ct. 1832) 4 Paige 17; But- N. Y. S. 869. terfield v. Spencer, (Super. Ct. 1856) 27. Brown v. Norton, (Sup! 1888) 14 Soiper. Ct. 1, 25; Winslow v. 50 Hun 248, 19 State Rep. 220, 2 N. Moore, (Sup. Gen. T. 1883) 17 W!kly. Y. S. 869. Dig. 429. 28. Crosset V. Carleton, (Sup. 68 NEW YORK LAW OF CONTRACTS [§ 59 regard to the manner of remitting the price ;^' where a person offered in writing to sell property on condition that a certain price be paid within a specified time and the offeree accepted in writing, asking at the same time that the proposed seller fix a date when the transaction could be consummated ; ^» and where, in accepting an offer to seU an interest in a partnership in which no time or place for consummating the transaction is stated, the buyer sug- gests a time and place.^^ The same view has been taken where a merchant wrote to a factor offering to ship to him certain mer- chandise on their joint account and as a joint venture, and the factor wrote an unconditional acceptance of the offer, in which he also requested that the offeror mark the goods to be shipped and advise him when they would be shipped.^^ Again, where it appeared that the plaintiff sent a telegram requesting an offer on certain Calcutta wheat bags, and on receipt of the offer which required, as regards terms of payment, a confirmed bankers' credit in Lon- don, the defendant telegraphed accepting the offer, it was held that his acceptance was not rendered ineffectual by a request tliat the seller's correspondent in Calcutta be named and that instructions regarding the credit be given. ^^ It is sometimes difficult to deter- mine whether a statement in the acceptance is intended as a mere directory request or as a modification of the offer. And the view has been taken that since an offer to sell chattels which does not specify the time of delivery implies that it shall be made within a reasonable time, if in response to such an offer the buyer replies accepting, in general terms and then states that he will take the property on a certain future day, this will prevent, on account of variance, the acceptance from being effectual.** § 59. Nonconforming Acceptance as New Offer. — If the accept- ance contains a modification of the offer, it may constitute itself an offer on the terms of the original offer except as so modified, and if accepted, expressly or impliedly, by the party making the first offer, will create a contract on the terms of the original offer 29. Clark V. Dales, (Sup. 1855) 20 32. Brisban v. Boyd, (Chan.. Ct. Barb. 42. 1832) 4 Paige 17. 30. Baker v. Packard, (Sup. 1906) 33. Crossett v. Carleton, (Sup. 112 App. Div. 543, 98 N. Y. S. 804, 1897) 23 App. Div. 366, 48 N. Y. S. affirmed 189 N. Y. 524 mem., 82 N. E. 309. 1124. 34. Uhlman V. Day, (Sup. 1885) 38 31. Wlnslow V. Moore, (Sup. Gen. Hun 298. T. 1883) 17 Wkly. Dig. 429. 59] ASSENT GENERALLY 69 as modified.^^ Thus where an order for the purchase of goods is made in which delivery is required by a specified time, and the acceptance states that delivery will be made as near as possible to such time, if this is acquiesced in or agreed to, the terms of the original ofPer control except as to the time for delivery .'' 35. Nightengale V. Eiseman, (18«0) 121 N. Y. 288, 30 State Rep 995, affirming 50 Hun 189, 24 N. E. 475, 19 State Rep. 169, 2 N. Y. S. 779; James Curran Mfg. Co. v. Aultman, etc., Machinery Co., (Sup. 1901) 62 App. Div. 201, 70 N. Y. S. 1074, affirmed 172 N. Y. 623 mem., 65 N. E. 1118; New York Architectural Terra Cotta Co. V. Williams, (Sup. 1905) 102 App. Div. 1, 92 N. Y. S. 808, affirmed 184 N. Y. 579 mem., 77 N. E. 1192. See also De Brumoff v. Werner Co., (Sup. App. T. 1904) 88 N. Y. S. 361. 3G. Nightengale v. Eiseman, (1890) 121 N. Y. 288, 30 State Rep. 995, 24 N. E. 475, affirming 50 Hun 189, 19 State Rep. 1©9, 2 N. Y. S. 779. CHAPTER III Certainty § 60. In General 61. Oral Evidence to Correct Uncertainty in Written Contract 62. Implications of Law Rendering Contract Certain 63. Conduct, etc., Removing Uncertainty 64. Indefiniteness as to Compensation or Price Generallj'' 65. — Quantum Meruit or Quantum Valebat 66. Uncertainty as to Duration 67. Uncertainty as to Time of Performance or Payment 68. Uncertainty as to Amount or Quantity Generally 69. — Agreement for Share of Estate on Death of Promisor 70. Description of Land Sold § 60. In General. — Certainty is an essential element in all con- tracts, otherwise it is impossible to determine as to what the parties have agreed."^ " It is elementary in the law," says Gray, J., " that, for the validity of a contract, the promise or the agreement of the parties to it must be certain and explicit, and that their full inten- tion may be ascertained to a reasonable degree of certainty. ' ' ^ And ordinarily the fact that a contract expressly leaves open mate- rial terms to be thereafter agreed on by the parties will render it unenforceable.^ For this reason a contract to pay, in lieu of inter- 1. United Press v. New York Press 38; Baltimore Koofing, etc., Mfg. Co. Co., (1900) 164 N. Y. 406, 58 N". K. v. Rubber Roofing Mfg. Co., (Sup. 527; Woods Motor Vehicle Co. v. App. T. lOie^) 160 N. Y. S. 1006; Brady, (1905) 181 N. Y. 145, 73 Sears v. New York Hippodrome Corp., N. E. 674; Varney v. Ditmars, (1916) (Sup. App. T. 1918) 171 N. Y. S. 181; ,217 N. Y. 223, 111 N. E. 822; Stand- Smedes v. Wild, (Sup. Sp. T. 1852) ard Fashion Co. v. Ostrom, (Sup. 7 How. Pr. 309. 1897) 16 App. Div. 220, 44 N. Y. S. 2. United Press v. New York Press 666; Flaherty v. Cary, (Sup. 1901) Co., (1900) 164 N. Y. 406, 410, 58 62 App. Div. 116, 70 N. Y. S. 951, N. E. 527. See also Varney v. Dit- affirmed 174 N. Y. 550 mem., 67 N. E. mans, (1916) 217 N. Y. 223, 228, 1082; G«er v. Clark, (Sup. 1903) 83 111 N. E. 822. App. Div. 292, 82 N. Y. S. 87 ; Howie 3. Watters v. Plumbers' Trade V. Kasnowltz, (Sup. 1903) 83 4pp. Journal Pub. Co., (Sup. App. T. 1914) Div. 295, 82 N. Y. S. 42; Jackson v. 86 Misc. 3», 148 N. Y. S. 52; Moran Alpha Portland Cement Co., (Sup. V.Wellington, (Sup. Tr. T. 1917) 101 1907) 122 App. Div. 345, 106 N. Y. Misc. 694, 167 N. Y. S. 465; Sammis S. lCf52; Caflkins v. Falk, (Sup. v. Huntington, (Sup. Sp. T. 1918) 1862) 39 Barb. 620, affirmed 1 Abb. 104 Misc. 7, 171 N. Y. S. 965. See Ct. App. Dec. 291, 38 How. Pr. 62; eupra, section 9. Foot V. Webb, (Sup. 1866) 59 Barb. [70] § 60] CERTAINTY 71 est on a loan of one hundred dollars, payable in equal monthly instalments, " one clear half " of the profits of a boarding house " at such times as shall be thereafter agreed upon between the parties," has been held unenforceable.* The fact that extrinsic evidence must be resorted to to remove a latent ambiguity or obscurity will not render the contract invalid.^ Nor will the use of an indefinite phrase, if, taken in connection with the subject matter of the contract, the phrase can be given a reasonable and just limitation. This has been held true as to the use of the words ' ' immediate neighborhood " in a contract having for its object a restriction against the erection of flats in the imme- diate neighborhood of a residential section.^ So language which to some extent may be ambiguous or obscure can often be made cer- tain by reference to the intent of the parties, the purpose sought to be effected, and the means employed to that end.'' Usage or custom may also render sufiiciently certain a phrase otherwise indefinite in its meaning.^ If a written contract as executed is complete and certain as to its terms, the fact that it refers for more particular details to a separate or distinct contract to be executed will not render it ineffectual if the execution of the latter is waived by the parties.^ The requirement of certainty is subject to the maxim " certum est quod certum reddi potest,"^" and a written contract is not rendered uncertain because it refers to another, writing capable of being identified for necessary particulars.^^ In reference to the degree of certainty required by a court of equity in order to induce it to compel specific performance, it is said that a greater degree of certainty is required than is neces- sary to render valid a contract in a court of law as a basis for a recovery of damages ; ^^ and it is recognized that a contract may 4. Smedes v. Wild, (Sup. Sp. T. N. Y. 672, 12 Abb. N. C. 19, 65 How. 185,2) 7 Haw. Pr. 309. Pr. 95, affirming 24 Hun 661 mem. 5. Mcintosh v. Miner, (Sup. 1900) 10. Wells v. Alexandre, (1891) 130 53 App. Div. 240, &5 N. Y. S. 735; N. Y. 642, 41 State Rep. 334, 29 N. E. Fish V. Hubbard, (Sup. 1839) 21 142, 3 Silv. Ct. App. 594; Ehrenworth Wend. 651; Lent v. Hodgman, (Sup. v. Stuhmer, (1920) 229 N. Y. 210, 128 1853) 15 Barb. 274. N". E. 108, reversing on other grounds 6. Lewis V. Gollner, (1891) 129 181 App. Div. 939 mem, 167 N". Y. S. N. Y. 227, 41 State Rep. 173, 29 N. 1097; TJtica Waterworks Co. v. Utica, E. 81. (Sup. 1884) 31 Hun 426, 430. 7. Heisel V. Yolkmann, (Sup. 1900) 11. Fabbri v. Meyer, (Sup. 1915) 55 App. Div. 607, 67 N. Y. S. 271. 169 App. Div. 588, 155 N. Y. S. 502. 8. Mcintosh v. Miner, (Sup. 1900) 12. Stanton v. Miller, (1874) 58 53 App. Div. 240, 65 N. Y. S. 735. N. Y. 192, 200. 9. Heilman v. Lazarus, (1882) 90 72 NEW YORK LAW OF CONTEACTS [§ 61 be sufficiently certain to support an action at law for damages for its breach though it may not be so certain as to entitle a party to a decree for specific performance." This does not mean, however, that different rules are applied as regards the validity of the con- tract. The rules of construction of contracts are the same in both courts; and no reason can be assigned for demanding a greater degree of certainty in one court than in the other." § 61. OraJ Evidence to Correct Uncertainty in Written Con- tract. — If the agreement is reduced to writing it must be neither vague nor indefinite, and if thus defective, oral proof cannot be resorted to. The rules of evidence exclude oral testimony with reference to the understanding of the parties or to supply omis- sions, and permit it only when to do so is necessary to explain the meaning of some technical or ambiguous language used. They will not permit it to vary the terms of the contract itself by inserting in the writing what is not there.^^ As said by Miller, J. : "If the meaning of the instrument is uncertain, the intention may be ascertained by extrinsic testimony, but it must be a meaning which may be distinctly derived from a fair and rational interpretation of the words actually used. If it be incompatible with such inter- pretation the instrument will be void for uncertainty and incurable inaccuracy."''-^ Where the clause as to compensation is left blank this is a patent and not a latent amlbiguity and cannot be corrected by oral evidence." For this reason a covenant in an oil and gas lease which requires the lessee to prosecute operations within a certain time or thereafter pay to the lessor " dollars per until work is commenced " is void for uncertainty.'* Also a pro- vision authorizing the lessor to terminate the lease on paying to the lessee " the sum of dollars " is void though it may not affect the lease itself." 13. Hopedale Electric Co. v. Elec- 17. Vandevoort v. Dewey, (Sup. trie Stora,ge Battery Co., (Sup. 1909) 1886) 42 Hun 68, 3 State Rep. 474, 132 App. Div. 348, 116 N. Y. S. 859, 25 Wkly. Dig. 195; Eaton v. Wilcox, affirmed 198 N. Y. 588 mem., 92 N. (g^p. iggg) 42 Hun 61, 3 State Rep. ^- ^°^^- 501, 25 Wkly. Dig. 179. 14. Foot V. Webb, (Sup. 1866) 59 10 -p j. w-i /o ^ooc^ •g . „g ' > J. ' 18. Eaton v. Wilcox, (Sup. 1886) ''is.' United Press v. New York 42 Hun 61, 3 State Rep. 501, reversed Press Co., (1900) 164 N. Y. 406, 58 ""^ °^^^'' grounds 122 N. Y. 416, 25 N. E. 527; Eaton v. Wilcox, (Sup. ^- ^- ^^'^■ 1886) 42 Hun 61, 3 State Rep. 501. 19. Vandevoort v. Dewey, (Sup. 16. Calkins v. Falk, (Sup. 1862) 1886) 42 Hun 68, 3 State Rep. 474, 25 3© Barb. 620, 624, affirmed 1 Abb. Vmy. Dig. 195. Ct. App. Dec. 2.1; 1, 38 How. Pr. 62. §§ 62,63] CERTAINTY 73 § 62. Implications of Law Rendering Contract Certain. — Terms which the law will imply may be read into a contract in order to render it certain, and in case of business transactions the presump- tion is that the parties mutually intended performance in the usual and customary manner, and if there is nothing in the agree- ment to take it out of the ordinary course the law will interpret it as an agreement to do whatever is usually done in the regular course of trade and dealing.^o A provision, therefore, in a contract otherwise certain, that merely provides for a future agreement of the parties as to the manner of carrying out the contract, which is in effect nothing more than an agreement for the doing of what the law would imply if the provision had not been inserted, does not render the contract unenforceable for uncertainty. Thus, a contract of sale which provides for the sale and delivery of a quantity of sugar between certain limits each year during a cer- tain period, delivery to be at the buyer's option, is not rendered uncertain by a further provision that ' ' the terms of delivery are to be arranged from time to time between buyer and seller, who pledge themselves to mutual aid, ' ' as this merely requires what the law would require to be done in case the provision was absent from the contract, that is, to deliver within a reasonable time after demand.^ § 63. Conduct, etc., Removing Uncertainty. — i Though the agree- ment may in the first instance be uncertain, still if this uncertainty is removed by the subse quent acts or agreement of the parties, this will remove any objection on that ground. ^^ Thus where the agree- ment for additional compensation for property sold was conditioned on the result of tests to be made by the buyer, the time, place and manner to be determined on by the parties, it was held that though this would render the agreement unenforceable as to such extra compensation if the parties were unable to agree as to the manner, etc., of making the test, this uncertainty was removed by their 20. Warren v. Winne, (Sup. 1870) 55 N. E. 1096; Hopedale Electric 2 Lans. 209. Co. v. Electric Storage Battery Co., 21. Spiritusfabrick Astra, etc., Su- (Sup. 1904) 96 App. Div. 344, 89 gar Products Co., (Sup. 1917) 176 N Y. S. 325; Becher v. National App. Div. 829, 163 N. Y. S. 516, Cloak, etc., Co., (Sup. 1908) 128 App. affirmed 221 N. Y. 581 mem., 116 N. Div. 423, 112 N. Y. S. 839; Hopedale E. 1077. Electric Co. v. Electric Storage Bat- 22. Hazelton v. Webster, (Sup. tery Co., (Soip. 1909) 132 App. Div. 1897) 20 App. Div. 177, 46 N. Y. S. 348, 116 N. Y. S. 859, affirmed 198 922, affirmed 161 N. Y. 628 mem., N. Y. 588 mem., 32 N. E. 1086. 74 NEW YOEK LAW OF CONTRACTS [§ 64 agreement as to such manner, etc., and rendered the contract then binding.^ Likewise where all the general terms of the contract are fixed, incidental matters relating to the manner of performance may be left to the direction of one of the parties without affecting its validity. Thus where a contract for the sale of paper fixes the price per pound and time of delivery and of payment, its certainty is not affected by a provision permitting the buyer to give thereafter specifications for delivery with regard to the size and consequent weight of the sheets.^* A contract to convey land " at any time " on the payment of the price, under which the purchaser has entered into possession and paid the taxes and inter- est on the price, may be rendered certain as to the time of per- formance by a tender of the conveyance and demand of payment, and therefore is not invalid for uncertainty.^" And where the defendant promised to pay ' ' some ' ' money to a church society in consideration of its going on and finishing its buildings, and in pursuance of his promise and after the completion of the buildings gave his notes to the society for a certain amount, it was held that the notes related back to the original consideration of the promise and were as valid as if given at the time the promise was made.^ § 64. Indefiniteness as to Compensation or Price Generally. — Uncertainty as to the compensation or price has frequently been held to render contracts unenforceable." The principle which runs through the cases is, as said by Rodenbeck, J., that ' ' a con- tract to be enforceable must be sufficiently explicit so that the full 23. Hopedale Electric Co. v. Elec- App. Div. 25, 68 N. Y. S. 492; Mack- trie Storage Co., (Sup. 1904) 96 App. intosh v. Kimball, (Sup. 1905) 101 Div. 344, 89 N. Y. S. 325, affirmed App. Div. 494, 92 N. Y. S. 132; 184 N. Y. 356, 77 N. E. 394. Bluemner v. Garvin, (Sup. 1S07) 24. Single Paper Co. v. Hammer- 120 App. Div. 29, 104 N. Y. S. 1009; mill Paper Co., (Sup. 1904) 96 App. Lambert v. Hayes, (Sup. 1910) 136 Div. 535, 89 N. Y. S. 116. App. Div. 574, 121 N. Y. S. 80; 25. Lee v. Briggs, (Sup. G«n. T. Canet v. Smith, (Sup. 1916) 173 App. 1899) 2 Silv. Sup. a. 535, 25 State Div. 241, 159 N. Y.' S. 593; Balti- Rep. 512, 6 N. Y. S. 98, affirmed 127 more Roofing Mfg. Co. v. Rubber N. Y. 653 mem., 27 N. E. 857. Roofing Mfg. Co., (Sup. App. T. 26. First Soc. of M. E. Church v. 1916) 160 N. Y. S. 1006; Barker v. Rathbun, (Sup. Gen. T. 1877) 5 O'Grady, (Sup. Sp. T. 1917) 163 Wkly. Dig. 53. N. Y. S. 594; Yerby v. Kirkpatrick, 27. United Press v. New York (Super. Ct. 1864) 25 Super. Ct. 227; Press Co., (1900) 164 N. Y. 406, 58 Metropolitan Exhibition Co. v. Ward, N. E. 527 ; Varney V. Ditmars, (1916) (Sup. 1890) 24 Abb. N. C. 393, 9 217 N. Y. 223, 111 N; E. 822; Mack- N. Y. S. 779. intosh V. Thompson, (Sup. 1901) 58 § 64] CERTAINTY 75 intention of the parties may be ascertained to a reasonable degree of certainty, and where the agreement as to compensation is negotiatory or nebulous . . . there can be no recovery under it. " ^ Thus an agreement for services to be rendered or articles to be delivered over a period of time at a compensation or price to be agreed on by the parties at intervals is in no way binding on the parties, in so far as it is executory, as neither party could be com- pelled to agree with the other as to the price.^' And no recovery can be had for breach of an agreement whereby the plaintiff agreed to purchase all goods of a certain character from the defendant, the defendant to sell only to the plaintiff, if the agreement does not state the price or fix any test by which the price can be ascer- tained.'" It has been held that a contract is too indefinite to be enforced where an architect agreed to give an employee, in addition to a weekly payment, a " fair share " of his yearly profits,'^ or a fair share of the commissions to be received for certain plans.'^ It has also been so held of an agreement to give an employee a share of the profits which the employer promised to make " all right " or " satisfactory ;" ^^ of a promise to pay in consideration of the disclosure of a secret process a ' ' reasonable amount ' ' from the profits to be realized from the sale of the merchandise manu- factured ; '* and of an agreement between attorneys to make an " equitable division " of fees, without furnishing any rule by which the equitable division is to be made.'^ So a contract for furnishing news service for compensation in a sum " not exceed- ing " a certain amount per week is unenforceable for indefinite- ness.'" And this has been held true as to a contract to furnish 28. Barker v. (yGrady, (Sup. .Sp. 1907) 120 App. Div. 29, 104 N. Y. S. T. 1917) 163 N. Y. 8. 594, 595. 1009. 29. Varney v. Ditmars, (1916) 217 33. Mackintosh v. Thompson, (Sup. N. Y. 223, 111 N. E. 822; Buck- 1901) 58 App. Div. 25, 68 N. Y. S. master v. ConBumers' Ice Co., (Com. 492; Mackintosh v. Kimball, (Sup pa. 1874) 5 Daly 313. 1905) 101 App. Div. 494, 92 N. Y. S. 30. Lambert v. Hays, (Sup. 1910) 132. 136 App. Div. 574, 121 K. Y. S. 80. 34. Canet v. Smith, (Sup. 1916) See also Howie v. K^snowitz, (Sup. 173 App. Div. 241, 159 N. Y. S. 593. 1903) 83 App. Div. 29'5, 82 N. Y. S. 35. Barker v. CGrady, (Sup. Sp. 42. T. 1917) 163 N". Y. S. 594. 31. Varney v. Ditmars, (1916) 217 36. United Press v. New York N. Y. 223, 111 N. E. 822, affirming Press Co., (1900) 164 N. Y. 406, 58 159 App. Div. 911 mem., 44 N. Y. S. N. E. 527, affirming 35 App. Div. 444, 1148. 54 N. Y. S. 807. 32. Bluemner v. Garvin, (Sup. 76 NEW YORK LAW OF CONTRACTS [§ 64 ice at a price " not to exceed " a dollar a ton profit." On the other hand it has been held that a contract for the employment of the plaintiff for a certain time at " not less " than a certain sum per week is sufficiently definite as to the compensation to sustain an action for damages for its breach, as the plaintiff was entitled at all events to the stated salary per week.^* Still a contract giving the employer the right to reserve the services of a ball player for an additional season at a salary " not less " than a certain amount has been held too indefinite for indirect enforcement by injunction.^' If data are given by which the price or compensation may be fixed, this may obviate an objection to the contract on the ground of uncertainty, and a contract by a whole- sale broker for the sale of bread to retail distributors, fixing the price at at least one cent under the general wholesale price and two cents under the usual retail price, has been upheld.*" Uncer- tainty as to the price or compensation may be remedied also by the subsequent agreement or conduct of the parties, especially where the written contract leaves this matter open for future settlement ; " as where a contract for services to be rendered a corporation provides that the employee shall receive " a sub- stantial interest in all the future earnings " of the company, and by a subsequent settlement this is fixed at a certain percentage of the earnings.*^ The fact that the compensation agreed on for services to be rendered is such that it is difficult to estimate with accuracy its monetary value for the purpose of assessing damages will not necessarily render the contract invalid for uncertainty and insufficient to support an action against the employer for damages for its breach. This has been held true where the com- pensation promised a brother and his wife for residing with the promisor and taking care of him, etc., was to leave the brother a 37. Buckmaster v. Consumers' Ice ing on other grounds 181 App. Div. Co., (Com. PI. 1874) 5 Daly 313. 939 mem., 167 N. Y. S. 1097. 38. Rosbach v. Sackett, etc., Co., 41. Dupigna-e v. Bernstrom, (Sup. (Sup. 1909) 134 App. Div. 130, 118 1902) 76 App. Div. 105, 78 N. Y. S. N. Y. S. 846. See also Price v. Press 705, affirming 37 Misc. 677, 76 N. Y. Pub. Co., (Sup. 1907) 117 App. Div. S. 381; Becher v. National Cloak, 854, 103 N. Y. S. 296. etc., Co., (Sup. 1908) 128 App. Div. 39. Metropolitan Exhibition Co. v. 423, 112 N. Y. S. »39. Ward, (Sup. 1800) 24 Abb. N. C. 42. Dupignac v. Bernstrom, (Sup. 393, 9 N. Y. S. 779. 1902) 76 App. Div. 105, 78 N. Y. S. 40. Ehrenworth v. Stuhmer, (1920) 705. 229 N. Y. 210, 128 N. E. 108, revers- I 65] CERTAINTY 77 certain farm and money enough to buy another of equal value, to furnish him and his wife with board and supply them with money to buy clothes and other supplies and reasonable spending money.^ § 65. Quantum Meruit or Quantum Valebat. — Where work has been performed or articles furnished under a contract which fails to fix definitely the compensation or price to be paid, a recovery may be based on a quantum meruit or quantum valebat, as the law will in such a case imply a promise to pay a reasonable compensation or priee.^* Where, however, the contract is executory and requires performance over a future period of time and is silent as to the compensation or price, it does not, it has been said, possess binding force, and either party may terminate it at will in so far as it is executory .^^ This, however, does not, it has been said, prevent an express contract to pay the reasonable or market value for services or for an article, even while executory, from being binding.** In reference to such contracts. Chase, J., says: " The question whether the words ' fair ' and ' reasonable ' have a definite and enforceable meaning when used in business transac- tions is dependent upon the intention of the parties in the use of such words and upon the subject matter to which they refer. In cases of merchandising and in the purchase and sale of chattels the parties may use the words ' fair and reasonable value ' as synonymous with ' market value.' A promise to pay the fair market value of goods may be inferred from what is expressly agreed by the parties. The fair, reasonable or market value of goods can be shown by direct testimony of those competent to give such testimony. The competency to speak grows out of experience and knowledge. The testimony of such witnesses does not rest upon conjecture. The opinion of this court in United Press v. N. Y. Press Co. (164 N. Y. 406) was not intended to assert that a contract of sale is unenforceable unless the price is expressly mentioned and determined. In the case of a contract for the sale of goods or for hire without a fixed price or consideration being named, it will be presumed that a reasonable price or consideration 43. Banta v. Banta, (Sup. 1903) Press Co., (1900) 164 K Y. 406, 84 App. Div. 138, 82 N. Y. S. 113. 58 N. E. 527, per Gray, J.; Lambert 44. Lent v. Hodgman, (Sup. 1853) v. Hays, (Sup. 1910) 136 App. Div. 15 Barb. 274. The subject of implied 574, 121 N. Y. S. 80. and quasi contracts is discussed later. 46. Varney v. Ditmars, (1916) 217 45. United Press v. New York N. Y. 223, 111 N. E. 822. 78 NEW YORK LAW OF CONTRACTS [§ 66 is intended, and the person who enters into such a contract for goods or service is liable therefor as on an implied contract. Such contracts are common, and when there is nothing therein to limit or prevent an implication as to the price, they are, so far as the terms of the contract are concerned, binding obligations."*' § 66. Uncertainty as to Duration. — ^A contract of a continuing nature, such as a contract of employment, to be enforceable must be certain as regards the term of employment; otherwise, as is shown later, it may be put an end to by either party at any time.** The same principle applies to a contract of sale contemplating the delivery of goods in instalments over an indefinite period of time.*' Thus a contract giving a broker or commission merchant the ex- clusive agency for the sale of the goods of the other party, but which fails to fix any period for the duration of the contract, may be terminated by either party at any time ; ^^ and this is held true where a person was employed for an annual rate of com- pensation.^^ It has also been held that a contract for the trans- portation of cattle to Cuba to continue " until the shipping trade in cattle should end by reason of said island being restocked ' ' was too indefinite as to duration.^^ A contract to procure or make a loan is invalid for uncertainty if the time for which the loan is to be made is not fixed,^^ and in case of a contract for the sale of land a provision for a credit to be secured by a mortgage of ' ' not less than " a certain number of years' duration is not sufficiently certain.^* If the term " season " has acquired a definite meaning in the theatrical profession, a contract to continue during a certain 47. Varney v. Ditmars, (1916) 217 (1895) 148 N. Y. 117, 2 Annot. Cas. N. Y. 223, 227, 111 N. E. 822. 387, 42 N. E. 416. 48. Mackintosh v. Miner, (Sup. 52. Ceballoa v. Munson Steamship 1899) 37 App. Div. 483, 55 N. Y. S. Line, (Sup. Tr.T. 1903) 42 Misc. 22, 1074; Outerbridge v. Campbell (Sup. ^^ N. Y. S. 530, reversed on other 1903) 87 App. Div. 597, 84 N. Y. S. grounds 93 App. Div. 593, 87 N. Y. S. 537; Ceballos v. Munson Steamship ^^l- Line, (Sup. 1904) 93 App. Div. 593, 53. Smith v. Dotterweich, (Sup. 87 N. Y. S. 811. 1809) 132 App. Div. 489, 116 N. Y. S. 49. Baltimore Roofing, etc., Mfg. Ir^^'ZT'^^t T^°^^^'' f^""!?^ ^°? Co. V. Rubber Roofing Mfg. Co. ( Sup. ^- J" ^^l' ^^ ^'f ^^S ; Van Schaick App. T. 1S16) 160 N. Y. S. 1006. r;7^" ^"'^^"' <»"?• 1893) 70 Hun ^^ ' 575, 53 State Rep. 827, 24 N. Y. S. 50. Outerbridge v. Campbell, (Sup. sQg 1903) 87 App. Div. 597, 84 N. Y. S. 54. Milliman v. Huntington, (Sup. 537- 1893) 68 Hun 258, 52 State Rep. 273, 51. Martin v. New York L. Ins. Co., 22 N. Y. S. 997. ■ § 67] CERTAINTY 79 season may be enforceable.^" It is otherwise, however, where the contract contemplates a season the duration of which is not fixed, either by proof of a custom or usage in the profession or by the express terms of the contract, but is to be fixed by the subsequent agreement of the parties."^ The fact that the contract is to con- tinue until the happening of a certain event does not render it too indefinite as to duration; as, for example, where the contract is to continue so long as the parties are engaged in a certain business ; " where the agreement is to make weekly payments so long as the promisor conducts a certain business;^* or whsre a vessel is chartered to the government for one month and as much longer as it may be required by the war departinent.^' Where it appeared that the promisor, in consideration of services to be rendered by the promisee, agreed to use a sum of money, furnished by the promisee, in a speculative way, according to his own views and discretion, and indemnify the promisee against loss, it has been held that the contract was not invalid for uncertainty as to duration, so as to relieve the promisor from liability, for the reason that when the fund was exhausted the contract was necessarily ended.'" If the duration of the contract is definitely fixed in the first instance, the fact that provision is made for its continuance with the mutual consent of the parties will not render it invalid for uncertainty; as where a contract for the services of an actor was to continue for several " seasons " (a word having a definite mean- ing in the theatrical profession), the first to commence sometime in the month of November and the two ensuing seasons sometime in the month of September, and " shall continue so long as the same may be mutually agreed upon. ' ' ^^ § 67. Uncertainty as to Time of Performance or Pa3rment. — The fact that no time for performing the contract is specified does 55. Mcintosh V. Miner, (Sup. 1900) Gen. T. 1902) 38 Misc. 814 mem., 53 App. Div. 240, 65 N. Y. S. 735. 78 N". Y. S. 1116. 56. Mcintosh V. Miner, (Soip. 1899) 59. Sturgis v. New Jersey Steam- 37 App. Div. 483, 55 N. Y. S. 1074. boat Co., (Super. Ct. 1873) 35 Super. 57. Ehrenworth v. Stuhmer, (1920) Ct. 251, affirmed 62 N. Y. 625 mem. 229 N. Y. 210, 128 N. E. 108, revers- 60. Osgood v. Wallack, (Sup. Gen. ing on other grounds 181 App. Div. T. 1886) 2 State Rep. 596. 939 mem., 167 N. Y. S. 1097; Ce- 61. Mcintosh v. Miner, ;Sup. hallos v. Munson Steamship Line, 1900) 53 App. Div. 240, 65 N. Y. S. (Sup. 1903) 93 App. Div. 593, 87 735, explaining decision on prior ap- N. Y. S. 811, reversing on other peal 37 App. Div. 483, 55 N, Y. S. grounds 42 Misc. 22, 85 N. Y. S. 530. 1074. 58. Friese v. Hoefler, (City Ct. 80 NEW YOEK LAW OF CONTRACTS [§ 67 not necessarily render it invalid for uncertainty, as the law will imply that it is to be performed within a reasonable time ; ^^ as, for example, where an order for goods or merchandise is sent by one merchant to another and promptly accepted,"^ or where the contract is one for the sale of wood to be cut and delivered by the seller." One of the parties may also be given the right to fix the time of performance within certain limits without this having the efiEect of rendering the contract invalid for uncertainty.*" In such a case it is incumbent on the party to whom the right is given to fix the time of performance, to act in good faith and give to the other party notice to perform, and his absolute and un- reasonable refusal to fix a time may constitute a breach of the contract on his part.*' Where no time is specified for the pay- ment of the agreed compensation for a building contract or the like, the law implies that the compensation is to be paid when the party entitled thereto has completed the contract on his part," and in case of a contract for the sale of personal property the law implies that payment is to be made on delivery.^* If, how- ever, the contract provides for a sale on credit, the time of credit must be fixed to render the contract certain.*' But in case of a contract for the sale of land, which provides for part payment in cash and the balance by a purchase money mortgage, if the purchaser has in part performed by making the cash payment the fact that the time for which the mortgage is to run is not stated will not, it has been held, prevent a court of equity from enforcing the contract. In so doing it will fix a reasonable time within which the deferred payment shall mature.'" 62. Van Woert v. Albany, etc., R. 66. Engineer Co. v. Herring-Hall- Co., (1876) 67 N. Y. 538; Crane v. Marvin Safe Co., (Sup. 1912) 154 Barron, (Sup. 1906) 115 App. Div. App. Div. 123, 138 N. Y. S. 881. See 196, 100 N. Y. S. 937, 37 Civ. Pro. also Dicken v. Herter, (Sup. 1902) 3S0; Wempie Electric Co. v. Co- 73 App. Div. 453, 77 N. Y. S. 300, lumbus Circle Constr. Corp., (Sup. affirmed 175 N. Y. 480 mem., 67 N. E. App. T. 1917) 98 Misc. 242, 162 1081. N. Y. S. 969. 67. Wimpie Electric Co. v. Co- 63. Crane v. Barron, (Sup. 1906) lumbus Circle Constr. Corp., (Sup. 115 App. Div. 196, 100 X. Y. S. 937, App. T. 1917) 98 Misc. 242, 162 N. Y. 37 Civ. Pro. 350. S. 969. G4. Van Woert v. Albany, etc., R. 68. Clark v. Dales, (Sup. 1832) Co., (1876) 67 N. Y. 538. 20 Barb. 42. 65. Engineer Co. v. Herring-Hall- 69. Foot v. Webb, (Sup. 1866) 59 Marvin Safe Co., (Sup. 1912) 154 Barb. 38. App. Div. 123, 138 N. Y. S. 881; 70. Lawlor v. Densmore-Compton Savery v. Ingersoll, (Sup. Gen. T. Bldg. Co., (Sup. Sp. T. 1909) 63 1886) 2 State Rep. 218. Misc. 458, 118 N. Y. S. 468, affirmed § 68] CERTAINTY SI § 68. Uncertainty as to Amoiint or Quantity Generally. — In case of executory contracts for the sale of personal property, un- certainty as to quantity may render the contract invalid." If, however, the quantity to be sold can be made certain, the maxim, certum est quod certum reddi potest, may be applied and the contract upheld. Thus a contract for the sale of all the goods, etc., of a certain kind which the buyer may require in his business is capable of being made certain as to quantity, and therefore is not necessarily subject to the objection of uncertainty.'^ For example, a contract with a railroad company to furnish it all the office supplies of a certain character which it may require during a certain period is valid, and binds the company to take from the seller, and the seller to furnish, all the supplies which the company may need.'^ The same view has been taken as regards a contract for the sale of all the coal which a vessel may require for certain voyages,'^ and a contract to furnish a butcher all the ice he may require in his business.'^ This has even been held true as to a contract under which the defendant was appointed the exclusive sales agent for the pMntiff, a fashion company, and was to receive on consignment " such a sufficient stock of patterns as might be mutually agreed upon, not to exceed $1000 at retail prices, includ- on opinion below 135 App. Div. 920, 579, 24 N. Y. S. 124, affirmed 144 120 N. Y. S. 1131. See also Roberge N. Y. 649 mem., 39 N. E. 493; V. Winne, (1895) 144 N". Y. 709, 71 Reeves v. Eulton Market Refrigerat- State Rep. 284, 39 N". E. 631. ing Co., (Sup. Tr. T. 1918) 105 Misc. 71. Howie V. Kasnowitz, (Sup. 130, 173 N. Y. S. 568. See also 1903) 83 App. Div. 295, 82 N. Y. S. Miller v. Leo, (Sup. 1892) 35 App. 42; Baltimore Roofing, etc., Mfg. Co. Div. 589, 55 N. Y. S. 165; Heisel v. v. Rubber Roofing Mfg. Co., (Sup. Yolkmaim, (Sup. 1900) 65 App. Div. App. T. 1916) 160 N. Y. S. 1006. 607, 67 N. Y. S. 271. 72. Wells V. Alexandre, (1891) 130 As to the objection of want of N. Y. 642, 41 State Rep. 334, 29 N. E. mutuality, see infra, section 316. 142, 3 Sdlv. Ct. App. 594 ; Ehrenworth 73. Levey v. New York Cent. R. V. Stuhmer, (1920) 229 N. Y. 210, Co., (Super. Ct. Gen. T. 1893) 4 128 N. E. 108, reversing 181 App. MiSiC. 415, 53 State Rep. 579, 24 Div. 939 mem., 167 N. Y. S. 1097; N. Y. S. 124, affirmed 144 N. Y. 649 Standard Fashion Co. v. Ostrom, mem., 39 N. B. 493. (Sup. 1897) 16 App. Div. 220, 44 74. Wells v. Alexandre, (1891) 130 N. Y. S. 666; East v. Cayuga Lake N. Y. 642, 41 State Rep. 334, 29 N. E. Ice Line, (Sup. Gen. T. 1893) 66 142, » Sdlv Ct. App. 594. Hun 636 mem., 50 State Rep. 362, 75. East v. Cayuga Lake Ice Line, 21 N. Y. S. 887; Levey v. New (Sup. G. T. 1893) 66 Hun 636 mem., York Cent. R. Co., (Super, a. Gen. 50 State Rep. 362, 21 N. Y. S. 887. T. 1893) 4 Misc. 415, 63 State Rep. 6 82 NEW YORK LAW OF CONTRACTS [§ 69 ing a sufficient quantity of new monthly patterns. " ''« If the maximum and minimum amount of the property to be sold is fixed, the determination of the exact amount may be left to the option or needs of the buyer without invalidating the contract for un- certainty." A contract to cut and deliver wood from the seller's land, not to exceed a certain number of cords or so much thereof as the seller could cut and deliver, has also been upheld. The maximum quantity being fixed, the seller was obliged to deliver all or so much of this as he could, and this is sufficiently certain and definite as to quantity.'* A contract to make advances or loans may be sufficiently certain to support an action for damages, though the exact amount to be advanced is not fixed, as where the promisor agrees to advance to a mining corporation sufficient /money to redeem its property from a foreclosure sale and as is required from time to time to operate and develop its mines until they ' ' shall yield sufficient returns to pay for working and operat- ing the same. ' ' '* § 69. Agreement for Shaxe of Estate on Death of Promisor. — ^An agreement by the promisor to leave to the promisee all of his property, on his death, is generally held sufficiently certain,*" -and also an agreement to adopt a child, or to treat 76. Standard Fashion Co. v. Os- ceive any or require the plaintiff to trom, (Sup. 1897) 16 App. Div. 220, consign more than should be fairly 44 N. Y. S. 66'6. The court in this and rea,sonahly necessary. The case, per Williams, J., said: "The parties could neither of them refuse court in' dismissing the complaint unreasonably to come to an agree- held that the contract was invalid for ment as to what quantity was neces- indefiniteness as to the quantity of sary. They were under obligation to patterns to be consdgned under the act and make an effort in good faith first clause. . . . We cannot asisent to to arrive at such a mutual agree- the correctness- of either of these con- ment. We think the contract was not elusions. The fair construction of invalid for uncertainty." the first clause is that the quantity of 77. Heisel v. Yolkmann, ( Sup. patterns within the limit stated of 1000) 65 App. Div. 607, 67 N. Y. S. $1000, at retail prices to be consigned, 271. was to be such as should be fairly 78. Van Woert v. Albany, etc., R. and reasonably sufficient for the Co., (1876) 67 N. Y. 538. needs of the business — such as the 79. San Remo Copper Min. Co. v. defendant should be able to sell. Moneuse, (Sup. 1'912) 149 App. Div. Some quantity should be consigned 26, 133 N. Y. S. 509. in any event, and the quantity neces- 80. Winne v. Winne, (1901) 166 sary within the contract should be N. Y. 263, 59 N. E. 832; Brady v. mutually agreed upon as the busi- Smith, (Super. Ct. <3en. T. 1894) 8 ness progressed. The plaintiflf could Misc. 465, 60 State Rep. 58, 28 N. Y, not refuse to consign any patterns, S. 776, nor could the defendant refuse to re- § 70] CERTAINTY 83 it as the promisor's own child, and at the promisor's death to leave it an own child's share of his property.*^ In regard to such contracts it has been said to be immaterial that the promisor reserves the right to dispose of any or all of his estate before his death, as the characteristic of certainty is the same whether this right of disposal exists or not.*^ On the other hand, the view has been taken that a court of equity should not specifically enforce a contract to leave all of the promisor's property to the promisee, because as it permits him to possess, control and absolutely dispose of his property so as to divest himself of aU title thereto during his life, it leaves uncertain whether he would have any property at his death.*' § 70. Description of Land Sold. — A contract for the sale of land must identify the land to be conveyed, otherwise it is un- enforceable for uncertainty.** For this reason a contract to sell and convey " seventy acres of land " without further identifica- tion has been held unenforceable.*' The fact that extrinsic evidence is necessary to fit the description to the land intended will not itself constitute an uncertainty, if the description when so applied particularizes the land from all others.*^ As said by Woodruff, J. : " This is not making an agreement of doubtful import certain; it is applying the clear and distinct terms of the agreement to a subject matter which is proved to be within the exact terms em- ployed for its description. ' ' *' For example, the description has been held sufficiently certain where the agreement was to convey " two lots owned by me in 116th street. New York, between Eighth and Ninth avenues, said lots being 25 feet front and about 75 feet 81. Healy v. Healy, (Sup. 1900) 84. Eollin v. Pickett, (Sup. 1842) 55 App. Div. 315, 8 Annot. Cas. 325, 2 Hill 552. 66 N. Y. S. 927, affirming 31 Misc. 85. Eollin v. Pickett, (Sup. 1842) 636, 66 N. Y. S. 82, and affirmed 166 2 Hill 552. N. Y. 624 mem., 60 N. E. 1112. See 86. Waring v. Ayres, (1869) 40 N. allso Gates v. Gates, (Sup. 1898) 34 Y. 357; Fish v. Hubbard, (Sup. App. Div. 608, 54 N. Y. S. 454. 1839) 21 Wend 651; Lee v. Briggs, 82. Brady V. Smith, (Super. 1894) (Sup. Gen. T. 1889) 2 Silv. Sup. 8 Misc. 465, 60 State Rep. 58, 28 Ct. 535, 25 State Rep. 512, 6 N. Y. N. Y. S. 776. S. 98, affirmed 127 N. Y. 653 mem., 83. Ripsom v. Hart, (Sup. 1901) 27 N. E. 857. See also Ryerss v. 64 App. Biv. 593, 72 N. Y. S. 791. Wheeler, (Sup. 1839) 22 Wend 148. See also Shakespeare v. Markham, 87. Waring v. Ayres, (1869) 40 (Sup. 1877) 10 Hun 311, 324. N. Y. 357, 362. 84 NEW YORIC: LAW OF CONTRACTS [§ 70 deep," and the extrinsic evidence showed that the vendor owned two and only two lots so situated.'* An indefinite description may also be rendered certain by the conduct of the parties giving a practical construction to the contract and thus identifying the land, as where possession is delivered to the purchaser and he pays the taxes and improves the property.*' 88. Waring v. Ayres, (1869) 40 Silv. Sup. Ct. 535, 6 N. Y. S. 98, N. Y. 357. 25 State Rep. 512, affirmed 127 N. 89. Lee v. Briggs, (Sup. 1889) 2 Y. 653 mem., 27 N. E. 857. CHAPTER IV Mistake § 71. In General 72. Mistake of Pact Generally 73. Mistake of Law Generally 74. — Mistake of Law in Connection with Other Consi(Jerations 75. Mistake as to Subject Matter 76. Mistake as to Immaterial or Extrinsic Pacts Generally 77. — ■ Application of Rule 78. Mistake as to Identity of Party Generally 79. — ■ Qualification of General Rule 80. Mistake in Reducing Contract to Writing Generally 81. — Degree of Proof Required as Basis for Reformation 82. Unilateral Mistake as Basis for Reformation 83. Unilateral Mistake as Ground for Rescission 84. Effect of Negligence in Ascertaining Pacts § 71. In General. — It is a general rule of the law of contracts that the minds of the parties must meet on the terms of the con- tract.^ " If one of the parties," says Blackburn, J., in a leading English case (Smith v. Hughes, L. R. 6 Q. B. 607), " intends to make a contract on one set of terms, and the other intends to make a contract on another set of terms, or, as it is sometimes expressed, if the parties are not ad idem, there is no contract, unless the circumstances are such as to preclude one of the parties from denying that he has agreed to the terms of the other. ' ' ^ Thus where in the case of a sale of chattels to be paid for with the note of a third person, the buyer understands that the note is to be indorsed by him without recourse, and the seller understands that the note is to have the general indorsement of the buyer, there is no binding contract,' but if the buyer receives and disposes of the property he may be held liable on an implied contract to pay its reasonable value.* It is also the rule, as stated by Black- burn, J., that ""if, whatever a man's real intention may be, he so conducts himself that a reasonable man would believe that he was 1. See supra, section 8. 3. Baldwin v. Mildeberger, (Super. 2. See Consumers' Ice Co. v. Web- Ct. 1829) 2 Super. Ct. 176. ster, etc., Co., (Sup. 1903) 79 App. 4. Baldwin v. Mildeberger, (Super. Div. 350, 355, 79 N. Y. S. 385, quot- Ct. 1829) 2 Super. Ct. 176. ing with approval this statement of Blackburn, J. [85] 86 NEW YORK LAW OF CONTRACTS [§ 72 assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party's terms. "^ If a party signs a written contract he is presumed to have knowledge of its con- tents and may in this way be bound by a contract concerning the terms of which he was in fact ignorant.^ And the same principle is applied where a party accepts as the agreement of the parties a written contract signed by the other party.' § 72. Mistake of Pact Generally. — A mistake as to the intrinsic and essential facts on the basis of which a contract was entered may entitle a party to relief therefrom.^ And though the contract is executed instead of executory in its nature, relief may be granted by a court of equity if no injustice will result therefrom.^ Thus where in the sale of chattels by the pound, yard or other measure, there is a mutual mistake in estimating the quantity, the buyer may recover the resulting overpayment.^* Also where it was the intention of the parties, in a sale by one partner to the other of his interest in the partnership, to sell at its face value to be ascer- tained by an accurate inventory of the firm 's assets and liabilities, and their bookkeeper in making such inventory wrongly included an item as an asset and excluded an item which should have been listed as a liability, the buyer has been permitted to recover the excess payment caused by the mistake." The same principle has been applied where in the estimation of land sold by the acre a mistake was made in the acreage ; ^^ and relief has been granted in case of an executory contract for the purchase of land, though the sale was not a sale strictly by the acre, where there was a mutual 5. This statement is quoted with 9. Paine v. Upton, (1882) 87 N. approval by Church, C. J., in Phillip Y. 327, affirming 21 Hun 306; V. Gallant, (1875) 62 N. Y. 256, Hyde v. Tanner, (Sup. 1847), 1 Barb. 263. 75; Markowitz v. Messner, (Sup. 6. See infra, § 85. App. T. 1896) 18 Misc. 256, 41 N. 7. See infra, § 86 et seq. Y. S. 512. 8. New York v. Dowd Lumber Co., 10. Wheadon v. Olds, (Sup. 1838) (Sup. 1910) 140 App. Div. 358, 125 20 Wend. 174; Hargous v. Ablon, N. Y. S. 394; Champlin v. Laytin, (Ct. Err. 1846) 3 Deuio 406, af- (Ct. Err. 1837) 18 Wend. 407, af- firming 5 Hill 472; Scott v. Warner, firming 6 Paige 189, which affirmed (Sup. 1870) 2 Lans. 49. Edw. Ch. 467; Roosevelt v. Dale, 11. House v. Wechsler, (Sup. 1905) (Ct. Err. 1823) 2 Cow. 129, affirming 104 App. Div. 124, 93 N. Y. S. 593. 5 Johns. Oh. 174; Smith v. Mackin, 12. Paine v. Upton, (1882) 87 N. (Sup. 1871) 4 Lans. 41. Y. 327, affirming 21 Hun 306. § 72] MISTAKE 87 and substantial mistake as to the quantity contained in the tract, and it was readily to be seen that but for such mistake the con- tract would not have been made.^' So courts of equity may give relief in cases of a mutual mistake, unaccompanied by fraud, where the subject of the conveyance is so materially variant from what the parties supposed it to be that the substantial object of the transaction has failed.^* And it has been held that relief may be granted where in conveyances between cotenants, for the purpose of partition there was a mutual and material mistake as to the quantity of land contained in the tracts set off and conveyed to each other by metes and bounds.^^ Ordinarily, however, if the sale is in gross and the risk as to quantity is taken by the grantee, relief cannot be granted though the quantity may be less than what the parties may have thought to be the fact.^' The court has also refused relief where the parties acted under a mutual mistake as to the land actually included within the description inserted in the conveyance, as where the land was described as bounded by the land of an adjoining owner, and the parties believed that an existing fence was on the true division line, whereas it encroached on the land of such adjoining owner. " I am not aware," said Marvin, J., " that any action has ever been instituted by a pur- chaser against his grantor, on the ground of a mistake as to the true line, though both parties saw the actual division fence and supposed it was properly placed upon the line. To permit an action in such a case would, I apprehend, be a source of much litigation, and would be extremely dangerous. The grantor, when he bounds the land which he conveys, by the land of another, does not undertake that the visible division fence is upon the true line, but he leaves the true line to be ascertained. The grantee can always protect himself by requiring a different description, 13. Belknap v. Sealey, (1856) 14 Marvin v. Bennett, (Ct. Err. 1841) K Y. 143, affirming 9 Super. Ct. 570. 26 Wend. 169, affirming 8 Paige 312. 14. Stevens v. Meleher, (1897) 152 In Faure v. Martin*, (1852) 7 N. N. Y. 551, 575, 46 N. E. 965; Dunn Y. 210, affirming 13 Barb. 394, the V. Dunn, (Sup. 1912) 151 App. Div. same principle is applied, though on 800, 136 N. Y. S. 282; Dale v. the facts it would seem that it falls Roo'sevelt, (Chan. Ct. 1821) 5 Johns. within the class of cases involving Ch. 174; Marvin v. Bennett, (Chan. sales by the acre, rather than in Ct. 1840) 8 Paige 312. gross, in wOiich relief may be granted. 15. Dunn v. Dunn, (Sup. 1S12) See also Belknap v. Sealey, (1856) 151 App. Div. 800, '136 N. Y. S. 282. 14 N. Y. 143, 153; Wilson v. Ran- 16. Sweet' V. Marsh, (Sup. 1909) dall, (1876) 67 N. Y. 338. 133 App. Div. 315, 117 N. Y. S. 930; 88 NEW YORK LAW OF CON-TRACTS [§ 72 as making the fence the boundary, or leaving it solely to courses and distances. ' ' " Where after a vessel had left on its voyage and after it was believed that it had arrived at its destination, the parties cancelled an insurance policy against the loss of the , vessel, and it appeared that the vessel had been lost at the time of such cancellation, it was held that the mistake was such a one as entitled the insured to be relieved from the effect of the can- cellation as a release of the insurer from liability for the loss.^* It is also the general rule that where an antecedent equity is clearly established in favor of the party seeking relief, and the legal right has been extinguished by contract under circumstances clearly showing a mistake of fact, a court of equity will grant relief and enforce the equity to prevent manifest injustice.^' The principle which underlies all the reported decisions in this class of eases is, that where the legal rights of the parties have been changed by mistake, equity restores them to their former condition, when it can be done without interfering with any new rights acquired on the faith and strength of the altered condition of the legal rights, and without doing injustice to other parties.^" In case of accident insurance, relief has been granted the insured from the effect of a general release given after he had received an accidental injury to his arm, where the parties acted under a mutual mistake that the injury would not be permanent but would result only in the loss of time from employment, whereas it proved to be such that, due to the unknown conditions, it necessitated the amputation "of the arm of the insured.^"^ The burden of establishing the mistake on the basis of which the relief is sought is on the party alleging it.^' And, as is shown later, by an unreasonable delay in seeking to avoid the contract after knowledge of the facts, a party may lose his right to rescind.^^ 17. Northrup. v. Summey, (Sup. Miller, (Sup. Sp. T. 1896) 18 Misc. 1858) 27 Barb. 196. 127, 132, 40 N. Y. S. 1073. 18. Duncan v. New York Mut. ^^- Eominicis v. United States Ins. Co., (1893) 138 N. Y. 88, 51 Casualty Co., (Sup. 1909) 132 App. State Rep. 661, 33 N. E. 730. ^^^^ ^53 116 N. Y. S. 975. io TT / rr ,c -.cAn. 1 ^^- N°laii ^- Harned, (Sup. 1897) 19 Hyde v Tanner (Sup. 1847). 1 jg ^ j^-^ ^gg 43 ^ y^g 33 tarb. 75; L,miber Ex^h Bank v. ^^-^^^ ^ q^^^^ ^^^^ ?^7 In '>?"^ l.l-J ^ "■ ^PP- T- 1903) 84 N. Y. S. 561. 127, 40 N. Y. S. 1073. 23 galdwin v. Van Deusen, (1868) 20. Lumber Exchange Bank v. 37 N. Y. 487, 5 Trans. App. 18. § 73] MISTAKE 89 § 73. Mistake of Law Generally. — It is the 'general rule that the fact that a party entering into a contract has acted under a mistake of law affords no ground for relief.^ And ordinarily if a written contract is clear and unambiguous, a mistake on the part of one of the parties as to its legal effect, that is, the construction and effect given by the law thereto, in no way affects the binding force of the contract.^" " The mistake, as such," says Bradley, J., ' ' which permits oral evidence to modify or reform a written agree- ment must be mutual, and in some sense have relation to facts, for, as a general rule, a mere mistake of its legal effect affords no such relief ; that is to say, if the written agreement is made as the parties intended, a mistake of its legal import furnishes no ground for the introduction of oral evidence to qualify its terms. ' ' ^' And it has been held, where the oral agreement of the parties was for a certain rate of interest and a provision in the written contract for this rate was omitted on account of the mutual mistake of the parties that it would render the contract usurious, that relief by way of reformation so as to authorize a recovery of such rate of interest cannot be granted." It is immaterial that a mistake as to the legal effect of a contract is caused by a reliance on the statements of a third person, made without the knowledge of the other party and for which the latter was not responsible.^ For example, in a carefully considered case it appeared that after a dispute had arisen between the plaintiff and the defendant as to the character of the work done under a building contract, a new contract was entered into for the completion of the work. This 24. Marble v. Whitney, (1863) 28 N. Y. S. 231; Marsh v. McNair, N. Y. 297; Clarke v. Butcher, (Sup. (Sup. 1888) 48 Hun 117, 15 State 1824) 9 Cow. 674; Champlin. v. Lay- Eep. 470; Kochester, etc., Land Co. tin, (Sup. 1837) 18 Wend. 407; Car- v. Davis, (Sup. 1894) 79 Hun 69, 61 pentier v. Minturn, (Sup. Gen. T. State Rep. 661, 29 N. Y. S. 1148; 1872) 6 Lans. 56; Shotwell v. Mur- Moran v. Wellington, (Sup. Tr. T. ray, (Chan. Ct. 1815) 1 Johns. Oh. 1917) 101 Misc. 594, 167 N. Y. S. 512; Lyon v. Ei-chmond, (Chan. Ct. 465; McCreery v. Duncan, (Super. 1916) 2 Johns. Oh. 51; Loomer v. Ct. 1886) 53 Super. Ct. 448. Wheelwright, (Chan. Ct. 1845) 3 26. Marsh v. McNair, (Sup. 1888) Sandf. Oh. 135; Bowden v. Owen, 48 Hun 117, 119, 15 State Rep. 470. (Sup. Tr. T. 1918) 103 Misc. 56, 171 27. Greene v. Smith, (18«9) 160 N. Y. S. 778. N. Y. 533, 55 N. E. 210, affirming 13 25. Phillip V. Gallant, (1875) 62 App. Div. 459, 77 State Rep. 610, N. y. 256; Marsh v. McNair, (1885) 43 N. Y. S. 610. 99 N. Y. 174, 1 N. E. 660, reversing 28. Phillip v. Gallant, (1875) 62 25 Hun 314; Miller v. Carpenter, N. Y. 256. (Sup. 1902) 68 App. Div. 346, 74 90 NEW YORK LAW OF CONTRACTS [§ 73 contract was carefully and distinctly read over to the defendant, and she was informed that the plaintiff was bound to perform only what he agreed to therein. The defendant, a Frenchwoman, did not understand English perfectly, and a third person attempted to explain the contract to her in French, and erroneously stated to her, without the knowledge of the plaintiff, that the plaintiff was required by the contract to supply alleged defects in work thereto- fore done. The plaintiff acted in entire good faith, supposing that the contract contained the entire agreement and that the defendant assented thereto, and completed the work in accordance with the contract. It was held that the defendant was bound by the terms of the contract.^* And the same has been held true where the misunderstanding as to the legal effect of the instrument arose from the attempt, made in good faith, of one party to explain the legal effect or meaning of the language used.^** As a general rule a court of equity will not set aside a voluntary conveyance at the instance of the grantor because he was mistaken as to its legal effect or otherwise induced by a mistake of law.^^ And it has been held that a conveyance in consideration of the future support of the grantors should not be set aside because the grantors may not have fully understood the legal effect of their conveyance, where there was no fraud or concealment whatsoever on the part of the grantee.^^ It is also held that if a grantee, though under the contract of purchase, he may have been entitled to a warranty, knowingly accepts in lieu thereof a quitclaim deed, this is a full performance of the contract of purchase, and, there being no mis- take as to the character of the deed, he is not entitled to relief because there was an unknown incumbrance on the land.^' It sometimes happens that parties consent to carry out their agree- ment by an instrument which by their mistake of law will not effectuate their intention. In such a case equity will not reform the instrument or substitute another which will in law give effect to their intention, because they adopted and agreed upon the particular instrument, and equity will not compel them to execute 29. Phillip V. Gallant, (1875) 62 Barb. 537; Fellows v. Heermans, N. Y. 256, affirming on this point 1 (Sup. G. T. 1870) 4 Lans. 230. Hun 528, 3 Thomp. & C. 618. 38. Stewart v. Dunn, (Sup. 1902) 30. Fort V. Globe, etc., F. Ins. Co., 77 App. Div. 631 mem., 79 N. S. 123. (Sup. Tr. T. 1818) 102 Misc. 584, 33. Wliittemore v. Parrington, 169 N. Y. S. 229. (1879) 76 N. Y. 452, affirming 12 31. Dupre v. Thompson, (Sup. Sp. Hun 349, on prior appeal 7 Hun T. 1848) 4 Barb. 279, affirmed 8 392, § 74] MISTAKE 91 an agreement which they never consented to execute and thus make an agreement for them.^* § 74. Mistake of Law in Connection with Other Con- siderations. — 'Although as a general rule a mistake of law furnishes no ground for equitable relief from contracts entered into under the influence thereof, it may be otherwise where there has been unfair or deceptive conduct on the defendant's side which tends to confirm the mistake and conceal the truth.'" " It is equally well settled," says Finch, J., after stating the general rule as to the effect of a mistake of law, ' ' that where there is a mistake of law on one side, and either positive fraud on the other, or inequitable, unfair, and deceptive conduct, which tends to confirm the mistake and conceal the truth, it is the right and duty of equity to award relief. All the cases which deny a remedy for mere mistake of law on one side are careful to add the qualification that there must be no improper conduct on the other. ' ' '* And relief may be granted where the complainant has been led into the mistake by misrepresentations of the defendant, or where the defendant takes an improper advantage of the complainant's ignorance of a matter of law." The existence of a confidential relation, such as that of husband and wife, may also found the basis of a charge of con- structive fraud and authorize the court in setting aside a voluntary conveyance by the wife to her husband, where it is shown that she did not understand the conveyance or acted in making it under the influence of a mistake of law.'* A mistake as to one's legal rights is not necessarily a mistake of law, and as such insufficient to found a basis for equitable relief, though the facts on which the right depends are known, but may be viewed as a mistake of law and fact combined or in the nature of a mistake of fact and relief 34. Pitcher v. Hennessey, (1872) olic Benev. Legion, (Sup. Sp. T. 48 N. y. 415, 424; Wemple v. Hauen- 1920) 180 N. Y. S. 598. stein, (Sup. 1897) 19 App. Div. 552, 36. Haviland Y. Willets, (1894) 557, 46 N. Y. S. 288; Arthur v. 141 N. Y. 35, 35 N. E. 958. Arthur, (Sup. Sp. T. 1850) 10 Barb. 9. 37. Terry v. Moore, (Com. PI. Gen. 35. Haviland v. Willets, (1894) T., 1893) 3 Misc. 290, 52 State 141 N. Y. 35, 35 N". E. 958, affirming Rep. 403, 22 N. Y. S. 788, on later as to this but reversing as to the appeal 12 Misc. 641, 67 State Rep. extent of the relief granted 67 Hun 499, 33 N. Y. S. 846. 89, 51 State Rep. 747, 21 N. Y. S. 38. Boyd v. De La Montagnie, 1112; Marsh v. McNair, (Sup. 1888) (1878) 73 N. Y. 498, affirming 1 Hun 48 Hun 117, 15 State Rep. 470, 28 696, 4 Thomp. & C. 148, 47 How. Pr. Wkly. Dig. 420; Donaldson v. Cath- 433. 92 NEW YORK LAW OF CONTRACTS [§ 75 granted, as where the mistake is the result of a misconstruction of a doubtful grant.^_ ^§ 75. Mistake as to Subject Matter. — If in case of sales and the like there is a mutual miM;ake as .to the identity or existence of the subject matter of the sale, no binding contract is made.^" An example frequently given of this is where a horse is purchased which is believed by both parties to be alive, but which in fact is dead at the time. In such a case a purchaser would be entitled to relief by way of rescission of the contract.*^ And relief has been granted where a contract was made for the sale of a gore of land, not specifically located but erroneously supposed by the parties to lie between platted lots or surveys ; *^ this is somewhat similar to the old illustration of the sale of land, which both parties believed to exist but which had been washed away by a flood.** Likewise, in case of a lease, a mutual mistake as to the identity of the subject matter will prevent a binding contract from arising, as where the lessee thinks he is leasing one house and the lessor thinks that another house is the one leased." The view has been taken, in the case of a sale of a note, that the mutual mistake of the parties as to the infancy of the maker and his consequent right to defend on that ground constitutes reason for a rescission.*' Also in case of a sale of a note under the mutual mistake of the parties that it was secured by a first mortgage on land, whereas the land was encumbered by a prior mortgage, it was held that this was such a mistake as entitled the buyer to rescind and recover the purchase money paid.*« Eelief by way of rescission has also been granted where a sale of corporate stock was made on the basis 39. Goodspeed v. Ithaca St. E. Co., 42. Morse v. Elmendorf, (Chan. (1906) 184 K Y. 351, 355, 77 N. E. Ct. 1844) 11 Paige 277, 287; Russell 392, affirming 88 App. Div. 147, 14 v. Brownell, (Sup. 1884) 20 Wkly. Annot. Cas. 6, 84 N. Y. S. 383; Mat- Dig. 504. ter of Willets, (Surr. 1906) 51 Mis*. 43. L. D. Garrett Oo. v. Halsey, 176, 5 Mills 451, 100 N. Y. S. 850, (Sup. Sp. T. 1902) 38 Misc. 438, 443, affirmed 119 App. Div. 119, 104 N. 77 N. Y. S. 989. y. e. 1150 which is affirmed 190 N. 44. Malone v. Hirsch, (County Ot. Y. 527 mem., 83 N. E. 1134. 1816) 102 Misc. 724, 167 N. Y. S. 40. Martin v. MeCormick, (1853) 723, affirmed on opinion below, 181 8 N. Y. 331, 335; Cutts v. Guild, App. Div. 914, 167 N. Y. S. 723. (1874) 57 N. Y. 229; Gardner v. 45. Baldwin v. Van Deusen, (1868) Troy, (Sup. 1857) 26 Barb. 423; 37 N. Y. 487, 5 Trans. App. 18. Wblff V. Megargel, (Sup. App. T. 46. Lewis v. Cavanagh, (Sup. 1910) 123 N. Y. S. 368. 1882) 14 Wkly. Dig. 535. 41. Dambmann v. iSchulting;, (1878) 75 N. Y. 55, 63. § 75] MISTAKE 93 of an untrue report as to its financial condition, and both parties acted under the belief that the report was true, whereas in fact the corporajtion was insolvent and the stock wholly worthless." The principle with respect to mistake as to the identity of the subject matter is well illustrated in a leading English case involv- ing the sale of cotton to arrive by vessel. In this case the defendant agreed to buy of the plaintiff a cargo of cotton to arrive ex Peerless from Bombay. There were two ships called Peerless, both sailing from Bombay, and the buyer meant the Peerless arriving in October while the seller meant the Peerless arriving in December. It was held that there was no contract.** And where, in a sale of a carload of applewaste, samples to determine the quality were by the buyer through mistake drawn from the wrong car, without negligence on his part, due to the form of the order on the carrier given by the seller to the buyer to enable him to secure the samples, this has been considered such a mistake as to the identity of the subject matter of the sale as to authorize the buyer to recover the price paid.*' If language which identifies certain property, and this only, is used in describing the subject matter of the sale, and the purchase is made by the buyer in good faith and under the belief that the seller intends to sell the property so described, it seems that the seller will be bound though in fact he intended to sell other property.^" Thus if there are two issues of the bonds of a corporation, one kriown as the issue of 1932 and the other as that of 1953, and the seller agrees to sell the former, and the buyer makes the purchase in good faith, the seller will not be granted relief because in fact he intended to sell bonds of the issue of 1953.°^ In case of a sale by sample, the fact that the seller by mistake used a wrong sample does not entitle him to relief if the buyer acted in good f aith.^^ But even in a mistake of this character, if the buyer knows that the seller intends to sell other property 47. L. D. Garrett Co. v. Haflsey, Brown v. New York, (Sup. Sp. T. (Sup. Sp. T. 1902) 38 Misc. 438, 1908) 57 Misc. 433, 108 N. Y. S. 555, 77 N. Y. S. 889. affirmed 128 App. Div. 925 mem., 48. Eaffles v. Wichelhaus, (1864) 112 N. Y. S. 1123; Lister v. Wind- 2 H. & C. 906. muller, (Super. Ct. 1885) 52 Super. 49. De Wolflf V. Howe, (Sup. Ct. 407. 1906) 112 App. Eiv. 104, 98 N. Y. 51. Wolff v. Megargel, (Sup. App. S. 262. T. 1910) 123 N. Y. S. 368. 50. Wolff V. Megargel, (Sup. App. 52. Davis v. Reisinger, (Sup. 1907) T. 1910) 123 N. Y. S. 368. See also 120 App. Div. 766, 105 N. Y. S. 603. 94 NEW YORK LAW OF CONTRACTS [§ 76 than that apparently referred to by the description used, relief may be granted the seller.'"' Thus in the case of the two issues of bonds, though the seller expressly agreed to sell bonds of the issue of 1932, intending, however, to sell those of the issue of 1953, and the buyer knew that such was his intention and that he was ignorant that there were two issues, the one much more valuable than the other, the seller should be granted relief.** § 76. MistaJse as to Immaterial or Extrinsic Facts Generally. — In order that mistake may be ground for relief it must be a mistake as to some fact not remotely, but directly, bearing on the act against which relief is sought;"* it must also be a mistake as to some existing or present state of facts.*' It is the general rule that a mistake as to an extrinsic fact and not essential to the contract, but which if known might have influenced the action of a party and deterred him from making the contract, is not such a mistake as will authorize even equitable relief ; °' and a fortiori this is true where the mistake is in its nature a mistake of law rather than a mistake of f act.'°* As said by Earl, J. : " There are many extrinsic facts surrounding every business transaction which have an important bearing and influence upon its results. Some of them are generally unknown to one or both of the parties, and if known might have prevented the transaction. In such eases, if a court of equity could intervene and grant relief, because a party was mistaken as to such a fact which would have prevented him from entering into the transaction if he had known the truth, there would be such uncertainty and instability in contracts as to lead to much embarrassment. As to all such facts, a party must rely 53. Wolff V. Megargel, (Sup. App. 57. Dambmann v. SlchUlting, T. ISIO) 123 N. Y. S. 368. See also (1878) 75 N. Y. 55; Stettheimer v. Davis V. Reislnger, (Sup. 1907) 120 Killip, (1878) 75 N. Y. 282; South- App. Div. 766, 105 N. Y. S. 603. wick v. Memphis First Nat. Bank, 54. Wolff V. Megargel, (Sup. App. (1881) 84 N. Y. 420, 61 How. Pr. T. 1910) 123 N. Y. S. 368. 164, reversing 20 Hun 349; Hand v. 55. Southwick v. Memphis First Gas Engine, etc. Co., (1901) 167 N. Nat. Bank, (1881) 84 N. Y. 420, 61 Y. 142, 60 N. E. 425. See also Dun- How. Pr. 164; Metropolitan El. R. can v. New York Mut. Ins. Co., Co. V. Johnston, (Sup. 1894) 84 Hun (1893) 138 N. Y. 88, 93, 51 State 83, 65 State Rep. 206, 32 N. Y. S. Rep. 661, 33 N. E. 730. 49, affirmed 158 N. Y. 739 mem., 58. Holdredge v. Webb, (Sup. 53 N. E. 1128. 1872) 64 Barb. 9; Carpentier v. 56. Southwick v. Memphis First Minturn, (Sup. 1873) 65 Barb. 293; National Bank, (1881) 84 N. Y. Carpentier v. Minturn, (Sup. 1872) 420, 61 How. Pr. 164. 6 Lans. 56. J J §§ 77, 7»] MISTAKE 95 upon his own circumspection, examination and inquiry ; and if not imposed upon or defrauded, he must be held to his contracts. ' ' ^' § 77. Application of Rule. — The court has refused to set aside a release because the creditor was ignorant at the time of the financial condition of the debtor, considering this an intrinsic fact.*" Also where the insured had been unheard of for some time, and the insurer and the beneficiary in the policy supposed that he was dead, and entered into a compromise agreement under which the insurer agreed to pay a certain amount at all events and to deposit a further amount to be paid to the beneficiary within a certain time if the insurer could not produce reasonable proof showing that the insured was still alive, it was held that their mistake as regards the insured's death did not relieve the insurer from liability to pay the first amount, as the possibility that the insured was alive was necessarily in the contemplation of the parties.'^ A similar ruling was made in a case where it appeared that the plaintiff held the obligation of the defendant under which he was entitled to have a certain amount applied towards the price of articles he might purchase from the defendant. In nego- tiating the terms of the sale, which was on a cash basis, the defendant did not know who the plaintiff was or that it was his intention to claim the amount of the defendant's obligation as a payment towards the price. It was held that this did not prevent the sale agreed to from being binding on the defendant.*^ The court has also refused to set aside a release given a person liable to another for persona,l injuries caused by the negligence of the former, because the parties were mistaken as to the actual extent of the injuries, which proved to be more serious than they were thought to be at the time, no element of fraud or misrepresentation being involved.*' § 78. Mistake as to Identity of Party Generally. — A mistake of one party to a contract as regards the identity of the other party, as where he intends to make a contract with another person 59. Dambmann v. Schulting, ing 24 App. Div. 410, 48 K Y. S (1878) 75 N. Y. 55, 64. 559. 60. Dambmann v. Schulting, 62. Hand v. Gas Engine, etc. Co., (1878) 75 N. Y. 55, reversing 12 (1901) 167 N. Y. 142, 60 N. E. 425. Hun 1, which affirmed 54 Ho\¥. Pr. 63. Miles v. New York Cent. R. 289. Co., (Sup. Sp. T. 1919) 178 N. Y. 61. Sears v. Ancient Order, (1900) S. 637. 163 N. Y. 374, 57 N. E. 618, revers- 96 KEW YOKK LAW OF CONTRACTS [§ 78 and believes that he is doing so, will prevent the contract from being binding on him, or at least will entitle him to equitable relief therefrom to the extent that it is executory.*^ The reason for this is that not only has every one a right to select and deter- mine with whom he will contract and to have no person thrust on him without his consent,^" but also because a contract involves a meeting of the minds of the contracting parties. If one of the supposed parties is wanting, there is an absence of one of the formal constituents of a legal transaction, and in such a situation there is no contract.** Accordingly, where an executory contract of sale is entered into through an agent of the buyer, and the seller believes and is led to believe that he is contracting with a partner- ship with which he had theretofore had dealings, and it turns out that the agent was contracting for a corporation engaged in the same business under the same name, the seller may repudiate the contract on ascertaining such fact.*' So one who falsely induces another to believe that he is acting as the agent of a third person, when in fact he is acting for himself, cannot enforce the contract thus made.** This has been held true where the plaintiff was engaged under the name and style of " Committee on Distribu- tion " in selling a publication entitled "Messages and Papers of the Presidents." In making a sale it was represented to the defendant that the " Committee on Distribution " was a congressional committee and the publication a government publi- cation, and that the government was the seller. The defendant in making the purchase thought that he was dealing with the govern- ment and did not intend to contract with any individual. It was held that the defendant could repudiate the contract, though the publication itself was as represented.*' It is also held that where one falsely represents himself to be acting as the agent of a third person, and induces a seller to sell on credit and deliver goods to 64. Kelly Asphalt Block Co. v. Eadliff v. ITallinger, (1866) 141 Barber Asphalt Pav. Co., (1914) 211 Mass. 1, 6, 4 N. E. 805. N. Y. 68, 105 N. E. 88; Bareua v. 67. Consumers' Ice Co. v. Webster, Dorries, (Sup. 1901) 64 App. Div. etc., Co., (Sup. 1898) 32 App. Div. 109, 71 N. Y. S. 695. 592, 53 N. Y. S. 56, on subsequent 65. Barcus v. Dorries, (Sup. 1901) appeal 79 App. Div. 350, 79 N. Y. S. 64 App. Div. 109', 114, 71 N. Y. S. 3S5. 695. 68. Barcus v. Dorries, (Sup. 1901) 66. Kelly Asrphalt Block Co. v. 64 App. Div. 109, 71 N". Y. S. 695. Barber Asphalt Pav. Co., (1914) 211 69. Barcus v. Dorries, (Saip. 1901) N. Y. 68, 71, 105 N. E. 88, citing 64 App. Div. 109, 71 N. Y. S. 695. § 79] MISTAKE 97 him as £igent, no title whatsoever passes to the agent, and there- fore the seller may reclaim the goods from one who purchases in good faith and for value for such pseudo agent.'" The same view has been taken where a person by representing himself as the agent of a nonexisting corporation induced the plaintiff to sell on credit and deliver goods to him as such agent.'^ § 79. Qualification of General Bule. — To avoid the con- tract for a mistake as to the identity of the opposing party it is necessary that, as a matter of fact, the intent of the other party was to contract with a distinct other person. The fact that he may not have known who the party was with whom he was ostensibly contracting, and probably would not have entered into the con- tract with him if he had known his identity, is not sufficient. This is very similar to the rule which permits an undisclosed principal to sue on a simple contract entered into by his agent in his own name. And this rule has been held true where the identity of the principal has been concealed because of the belief that if it were disclosed the contract would not be made.'^ Thus if a person pre- sents himself at another person's place of business to purchase goods on a cash basis and the terms of a sale are agreed on, the fact that the seller did not know who the buyer was and would not have made the contract in question with him if he had known does not affect the contract, and this has been held true though the buyer may have given a false name to conceal his identity.'^ It has also been held, where a buyer supposes that he is contracting with a person as an officer of a corporation instead of with such person as an individual, but receives and uses the property when delivered by such person, who thought the contract was with him- self as an individual, that the buyer is liable for the value of the property.'* And again, though the defendant may have thought that he was dealing with a partnership transacting business under 70. Hentz v. Miller, (1883) 94 N. Barber Asphalt Paving Co., (1914) Y. 64; Collins v. Railei, (Sup. 1880) 211 N. Y. 68, 105 N. E. 88, affirming 20 Hun 246, affirmed 85 N. Y. 637 153 App. Div. 907 mem., 137 N. Y. mem., and disapproving (1866) S. 1125. Craig V Marsh, 2 Daly 61. See also 73. Hand v. Gas Engine, etc., Co., Soltau V. Gerdau, (1890) 119 N. Y. (1901) 167 N. Y. 142, 60 N. E. 425, 380, 29 State Rep. 395, 23 N. E. 864. reversing on other grounds 34 App. 71. Wyckoflf v. Vicary, (Sup. 1894) Div. 354, 54 N. Y. S. 250. 75 Hun 409, 56 State Rep. 774, 27 74. Pizzutielle v. Graham, (Sup. N. Y. S. 103. App. T. 1907) 56 Misc. 584, 106 N. 72.. Kelly Aspihalt Block Co. v. Y. S. 1099. 98 NEW YORK LAW OF CONTRACTS [§ 80 a trade name instead of with the plaintiff, a corporation, this would not prevent the plaintiff, in the absence of any misrepresentation on its part, from recovering for work done in good faith under the contract^" § 80. Mistake in Reducingf Contract to Writing Generally. — Though the rule in the courts of law is that the written instru- ment does, in contemplation of law, contain the true agreement of the parties, and that the writing furnishes better evidence of the sense of the parties than any that can be supplied by parol, equity has a broader jurisdiction and will open the written con- tract to let in an equity arising from facts perfectly distinct from the sense and construction of the instrument itself, and reform the writing to accord with the true intention of the parties.'^ ' ' It has long been settled, ' ' says Smith, J., ' ' that where an agreement is reached between parties, if that agreement be put into the writ- ing other than as understood between the parties, through fraud, mistake or inadvertence, the contract may be reformed. ' ' " And imder the Code practice the defendant when sued at law may set up the equitable defense as a counterclaim and thereby seek a correction of the mistake.'^ There is no question but that relief may be granted where a clerical mistake or omission is made in reducing the oral agreement to writing.'^ The rule, however, is not restricted to such instances, but where parties have made an oral agreement and there is no allegation of any mistake in it, and in reducing it to writing they by mutual mistake, either because 75. Weber v. Heam, (Sup. 1900) v. Whiteomb, (Sup. 1919) 186 App. 49 App. Div. 213, 63 N. Y. S. 41. Div. 509, 511, 174 N. Y. S. 531. 76. Arlt V. Whitlock, (Sup. 1901) 78. Madison v. Benedict, (Sup. 65 App. Div. 246, 72 N. Y. S. 522; 1902) 73 App. Div. 112, 76 N. Y. S. Friedman Marble, etc. Works v. 402. See also Frankenberg v. Perl- Whitcomb, (Sup. 1919) 186 App. man, (Sup. 1917) 180 App. Div. 174, I>iv. 509, 174 N. Y. S. 531; Metzger 167 N. Y. S. 627, affirmed 223 N. v. Aetna Ins. Co., (Sup. 1919) 186 Y. 673 mem., 119 N. E. 1043. App. Div. 627, 175 N. Y. S. 428; 79. Madison v. Benedict, (Sup. Houlden v. Farmers^ Alliance Co-op. 1902) 73 App. Div. 112, 76 N. Y. S. F. Ins. Co., (Sup. 1919) 188 App. 402; Paisley v. Casey, (Com. PI. Div. 734, 177 N. Y. S. 286; Delap v. G. T. 1891) 41 State Rep. 339, 18 Leonard, (Sup. 1919) 189 App. Div. N. Y. S. 102, affirmed 137 N. Y. 562 87, 178 N. Y. S. 102; Manhattan mem., 33 N. E. 338; Bayrhoff v. Wrecking, etc. Co. v. Eidlitz, (Sup. RoMe, (Com. PI. 1892) 42 State App. T. 1912) 78 Misc. 396, 138 Rep. 466, 16 N. Y. S. 851 ; O'Donnell N. Y. S. 308; Gillespie v. Moon, v. Harmon, (Com. PL 1871) 3 Daly (Chan.. jCt. 1817) 2 Johns. Oh. 585. 424. 77. Friedman Marble, etc. Works § 80] MISTAKE 99 they did not understand the meaning of words used or their legal effect, fail to embody their intention in the instrument, equity will grant relief by reforming the instrument, and compelling the parties to execute and perform their agreement as they made it, and it matters not whether such mistake is called one of law or fact.^" This is especially true where the mistake arises from a mis- representation by one party as to the meaning of the language used.*^ " When in the process of reducing an agreement to writ- ing," says Bradley, J., " the instrument by reason of a mistake fails to express the contract made by the parties, although it may to some extent involve mistake of law, equity may grant relief by way of reformation. In such case the mistake is not of the legal effect, but a mistake relating to the effect of the language used, which has prevented the expression in some respect, in the written instrument, of the terms of the contract as made. ' ' *^ This principle has been applied in a case where one party agreed to navigate a boat for the owner to a certain place, which required its passage through canal locks, and it was the agreement of the parties that the boat owner should assume the risk of the canal locks being sufficient to permit the passage of the boat. In reduc- ing the contract to writing the expression " risks of naviga- tion " was used to designate this assumption by the boat owner. It was held that if this expression was not sufficiently broad to cover the possibility that the canal locks were too small to permit the passage of the boat, a court of equity should reform the instru- ment in this respect.*' It has been established in this state from an early date that where by mistake in the description of the land sold or conveyed, land not intended is included, a court of equity may grant relief if the mistake is clearly and satisfactorily proven.*^ In case of contracts not negotiable according to the law merchant or statute, relief by way of reformation or rescission may be 80. Pitcher v. Hennessey, (1872) 627, affirmed 223 N". Y. 673 mem., 48 N. y. 415; Bom v. Schrenkeiaen, 119 N. B. 1043. (1888) 110 N. Y. 55, 16 State Rep. 82. Marsh v. McNair, (Sup. 1888) 412, 17 N. E. 3i39; Bacot v. Fessen- 48 Hun 117, 120, 15 State Rep. 470. den, (Sup. 1910) 139 App. Div. 647, 83. Pitcher v. Hennessey, (1872) 124 N. Y. S. 370, affirming 64 Misc. 48 N. Y. 415. 422 119 N y. S. 464; Marsh v. 84. Jamaica Sav. Bank v. Taylor, McNair, (Sup. 1888) 48 Hun 117, (Sup. 1902) 72 App. Div. 567, 76 15 State Rep. 470. N. Y. S. 790; Gillespie v. Moon, 81. Frankenberg v. Perlman, (Sup. (Ohan. Ct. 1817) 2 Johns. Ch. 585. 1917) 180 App. Div. 174, 167 N. Y. S. 100 NEW YORK LAW OF CONTRACTS [§ 81 granted, though the contract has been assigned and is held by one who took in good faith and for value, as all assignees of non-nego- tiable contracts take subject to all equitable defenses.*' § 81. Degree of Proof Reqxiired as Basis for Reforma- tion. — To warrant relief by way of reformation on account of an alleged mutual" mistake in reducing the contract to writing, proof of the niistake must be clear and satisfactory.*'^ " The party seek- ing the reformation, ' ' says Martin, J., ' ' must' prove that there was a mistake by evidence that is clear, positive and convincing. It is to be presumed that the written instrument was carefully and deliberately prepared and executed, and, therefore, is evidence of the highest character and will be regarded as expressing the inten- tion of the parties to it until the contrary appears in the most satisfactory manner. The grade and degree of proof required to entitle a plaintiff to relief of this character has been many times considered by the courts of England, the federal and the various state courts of the United States, and their decisions as to the nature of the proof required show that it must be of the most substantial and convincing character. " *' A mere preponderance of the proof is not sufficient.** It has been said that " courts of equity should exercise great caution in reforming written instru- ments, and proof as to the mistake should be so clear and con- vincing as to leave no room for doubt, ' ' *' and even that the mis- take must be proved beyond a reasonable doubt.'" The better view, however, would seem to be that it is not necessary that the mistake 85. Jamaica S'av. Bank v. Taylor, 7 Abb. Pr. N. S. 439; Smith v. (Sup. 1902) 72 App. Div. 567, 76 Knapp, (Sup. G. T. 1883) 18 Wkly. N. Y. S. 790. Dig. 95. 86. Nevins v. Dunlap, (1865) 33 87. Christopher, etc., St. R. Co. v. N. Y. 676; Mead v. Westchester F. Twenty-third St. R. Co., (1896) 149 Ins. Co., (1876) 64 N. Y. 453; Ford N. Y. 51, 58, 43 N. E. 538. See also V. Joyce, (1879) 78 N. Y. 618 mem.; SchaU v. Schwartz, (Sup. 1918) 181 Southard v. Curley, (1892) 124 N. App. Div. 397, 399, 168 N. Y. S. 1048. Y. 148, 45 State Rep. 778, 31 N. E. 88. Weed v. Whitehead, (Sup. 330; Christopher, etc., St. R. Co. v. 1896) 1 App. Div. 192, 72 State Rep. Twenty-third St. E. Co., (1896) 149 665, 37 N. Y. S. 178; Burt v. Qua 1*5 N. Y. S. 159, reversing S. 87; Smith v. Mackin, (Sup. G. T. ^9 Mise. 299, 139 N. Y. S. 1057 (on 1871) 4 Lans. 41; Dayton v. Ameri- ^^°°"<^ ^PP**^! 166 App. Div. 903, 151 can Steel Barge Co., (Sup. Tr. T. ^J ^- ®- ^'^^^' ^^^^ 222 N. Y. 1901) 36 Misc. 223, 73 N. Y. S. 316, ^^° ™™" ^^^ ^- ^- l***^' ' Gartens. affirmed 76 App. Div. 454, 79 N. Y. l,^^^^""''', j t i. ^ NT V SSfis ^ ^^ ' 8. New York v. Dowd Lumber Co., ■ „ :°, ^ (Sup. 190&) 135 App. Div. 244, 120 5. New York v. Dowd Lumber Co., N. Y. S. 370. (Sup. 1910) 140 App. Div. 358, 125 9. Flynn v. Smith, (Sup. 1906) lU N. Y. S.. 394; Wolff v. Megargel, App. Div. 870, 98 N. Y. S. 56. § 84] MISTAKE 105 of mistake should act with due diligence on discovering the mis- take ; if he fails to do so and the other party is irreparably injured thereby, he will be denied relief.^" Relief on the ground of mistake is granted only to the mistaken party .^^ § 84. Effect of Negligence in Ascertaining Facts. — As a general rule, if the party seeking relief on the ground of mistake of fact was guilty of negligence in not having ascertained the true facts, this will preclude him from relief in equity .^^ " It is not sufficient in general, " it is said, ' ' to show that the fact is material ; it must in general also be shown that the fact is one which could not, by reasonable diligence, have been known; for if by reasonable dili- gence the fact would have become known, equity will not relieve, since that would be to encourage culpable negligence on the part of persons whose duty it is to make all due inquiries. ' ' ^^ This is true whether the mistake is mutual or unilateral, provided in the latter case there was no duty legal or equitable on the part of the party against whom the relief is sought to make disclosure." The fact that granting the relief will work an injustice to the other party is additional reason, in the nature of an estoppel, for not granting relief. For example, in a case where electrical current was furnished a manufacturer for power purposes, monthly bills therefor being rendered and paid, and the party furnishing the current was negligent in estimating the amount furnished, it fur- ther appearing that the manufacturer fixed the selling price of his manufactured articles on the basis of the cost of the electrical power as shown by the bills rendered, it was held that, as a recovery for the excess current would work a hardship against the manu- facturer, it should not be allowed.^" Ordinarily where a party 10 Thomas v. Bartow, (1872) 48 13. Metropolitan El. R. Co. v. jf. y. 193. Johnston, (S;ip. 1895) 84 Hun 83, n.'wilber v. Wilber, (Sup. 1907) 88, 65 State Kep. 206, 32 N. Y. a. 119 App. Div. 740, 104 N. Y. S. 179. 49, affirmed 158 N. Y. 739 mem., 53 12. Stern v. Ladew, (Sup. 1900) N. E. 1128, per Van Brunt, P. J. 47 App. Div. 331, 30 Civ. Pro. 135, 14. Metropolitan El. R. Co. v. 62 N. Y. S. 267 ; Northrop v. Sumney, Johnston, ( Sup. 1895 ) 84 Hun 83, (Sup 1858) 27 Barb. 196; Metro- 65 State Rep. 206, 32 N. Y. S. 49, politan El. R. Co. v. Johnston, (Sup. affirmed 158 N. Y. 739 mem., 53 N. 1895) 84 Hun 83, 65 State Rep. 206, E. 1128. affirmed 32 N. Y. S. 49, 158 N. Y. 15. q^eenaborough Gas, etc., Co. v. 739, 53 N. E. 1128; Queensborough Sohoncke, (Sup. 1912) 76 Misc. 190, Gas', etc., Co. v. Schoncke, (Sup. App 136 N. Y. S. 986. T. 1912) 76 Misc. 190, 136 N. Y. S. 106 NEW YORK LAW OF CONTRACTS [§ 84 signs a written contract without informing himself of its terms, a court of equity will not relieve him from its effect in the absence of any fraud or concealment by the other party." For instance, a creditor who held two overdue notes, one signed by a husband and the other by the husband and his wife, requested the husband, in view of a renewal, to secure a surety for the amount of both notes. The husband drew a single note for the amount of the two, which the wife signed without reading, but under the mis- taken impression, not induced by any misrepresentation by the husband, that she was signing a renewal note for the amount of the note theretofore signed by herself and her husband. The creditor accepted this new note in good faith and surrendered the old notes, and forbearance was extended until the new note became due. It was held that this afforded no ground for limiting the wife's liability on the new note to the amount of the old one signed by her." 16. Jaycoxv. Trembly, (Sup. 1899) N. Y. 636. See infra, section 85 42 App. Div. 416, 59 N. Y. S. et seq. 245; In re Potter, (Com. PI. 1883) 17. Jaycox v. Trembly, (Sup. 1899) 10 Daly 133, appeal dismissed 94 42 App. Div. 416, 59 N". Y. S. 245. CHAPTER V Ignorance of Terms of Written Contract § 85. Contract Signed by Party 86. Acceptance of Paper of Contractual Nature Generally 87. — Bill of Lading and the Like 88. — Passenger Ticket 89. Provisions in Telegraph Blanks § 85. Contract Signed by Party. — The law presumes that a per- son who executes a written contract knows its contents where no claim is made that he was prevented by any act or representation of the other party from acquainting himself with its terms; his mere failure to read the contract or otherwise acquaint himself with its contents presents no defense against its provisions.^ This includes provisions and conditions printed or written on tjie reverse side of the contract, which are referred to in the body of the con- tract and thus made a part of it.^ As said by the federal Supreme Court: " It will not do for a man to enter into a contract, and, when called upon to respond to its obligations, to say that he did not read it when he signed it, or did not know what it contained. If this were permitted, contracts would not be worth the paper on which they are written. But such is not the law. A contractor must stand by the words of his contract ; and if he will not read 1. Ellis V. Keller, (Sup. 1908) 126 361; Happel v. Rosenthal, (Sup. App. Div. 343, 110 N. Y. S. 542; App. T. 1907) 103 N. Y. S. Pragi V. Lehigli Coal, etc., Co., (Sup. 715; Howell v. Bloom, (Sup. App. 1917) 176 App. Div. 265, 162 N. Y. T. 1909) 117 N. Y. S. 893; Root v. S. 1011; Rochester, etc.. Land Co. v. ZoUer, (City a. Tr. T. 1888) 19 Davis, (Sup. 18'94) 79 Hun 69, 61 State Rep. 679, 2 N. Y. S. 742; Van State Rep. 661, 29 N. Y. S. 1148; Nostrand v. New York Guaranty, Chu Pawn v. Jrwin, (Sup. 1894) 82 etc., Co., (Super. Ct. 1875) 39 Hun 607, 64 State Rep. 411, 31 X. Y. Super. Ct. 73; Harris v. Story, S. 724; Rozen v. Dry Dock, etc., R. (Com. PI. 1854) 2 E. D. Smith Co., (Com. PI. 1894) 7 Misc. 130, 363; an re Potter, (Com. PI. 1883) 58 State Rep. 8, 27 N. Y. S. 10 Daly 133, appeal dismissed 94 337; Wheeler v. Mowers, (County Ct. X. Y. 636; Toler v. Adee, (Sup. Gen. 1896) 16 Misc. 143, 74 State Rep. T. 1879) 9 WlUy. Dig. 211. See 540, 38 N. Y. S. 950; Mulderrig v. also Nesbit v. Jencks, (Sup. 1903) Burke, (Sup. App. T. 1898) 24 Misc. 81 App. Div. 140, 80 N. Y. S. 1085. 716, 53 N'. Y. S. 1004; Hallwood 2. Van Nostrand v. New York Cash Register Co. v. Greenberger, Guaranty, etc., Co., (Super. Ct. 1875) (Sup. App. T. 1904) 90 N. Y. S. 39 Super. Ct. 73. [107] 108 JTEW YORK LAW OF CONTRACTS [§ 816 what he signs, he alone is responsible for his omission."' This statement has been quoted with approval by the courts of our state.'' The fact that a person signing a written contract may have been unable to read or to read the language in which the contract is written is considered no reason for relaxing the rule.^ And it is immaterial that the contracts was not read over to him, if its substance was explained to him.^ Under some circumstances, however, the misrepresentation of the terms of the contract may constitute such a fraud as will prevent the contract from being binding.' § 86. Acceptance of Paper of Contractual Nature Generally.— It is the general rule that when in a business transaction a party receives a paper signed by the other party as a contract, or when he has reason to believe that a paper delivered to him contains the terms of a special contract, he is bound to acquaint himself with its contents, and if he accepts it and retains it he will be bound by it although he did not read it.^ This rule, however, does not apply where the paper is received under circumstances which justify the party in the belief that the paper received by him is intended as a receipt merely, and his attention is not called to provisions therein which otherwise would constitute a special con- tract, on the part of the party delivering to the party receiving, defining his obligation in respect to the matter in hand.' This is chiefly exemplified in the case of bills of lading, tickets and the like containing provisions limiting the common law liability of a carrier,^" but it is not restricted to paper of this class. Thus where a claim is delivered to a collection agency, and a paper is received which under the circumstances the creditor is justified in believing was intended merely as a receipt, and his attention is not called to a provision limiting the liability of the agency for the default or 3. Upton V. Tribiloock, (1875) 91 1004; Wackerow v. Engel, (Sup. App. U. S. 45, 50, 23 U. S. (L. ed.) 203. T. 1905) 96 N. Y. S. 1071; Harris v. 4. See for instance, Chu Pawn v. Story, (Com. PI. 1854) 2 E. D. Irwin, (Sup. 1894) 82 Hun 607, 64 Smith 363; Ellis v. McCormick, State Rep. 411, 31 N. Y. S. 724; (Com. PI. 18'57) 1 Hilt. 313. Wheeler v. Mowers, (County Ct. 6. Ellis v. McCormick, (Com. PI. 1896) 16 Misc. 143, 74 State Rep. 1857) 1 HIilt. 313. 540, 38 N. Y. S. 850. 7. See infra section 143. 5. McDonald V. John Hancock Mut. 8. Madan v. Sherard, (1878) 73 L. Ins. Co., (Sup. 1897) 17 App. Div. N. Y. 329, 334. 16, 78 State Rep. 818, 44 N. Y. S. 9. Madan v. Sherard, (1878) 73 818; Mulderrig v. Burke, (Sup. App. N. Y. 329. T. 189S) 24 Misc. 716, 53 N. Y. S. 10. See the following sections. § 87] IGNORANCE OF TERMS OF WRITTEN CONTRACT 109 neglect of its subagents, the creditor is not bound thereby. ^^ In case of a sale of seed for planting, especially when grown by the seller, a warranty may be implied that the seed is free from noxious weed seeds.^^ This implied warranty, however, may be excluded by the terms of the sale, and the question has arisen whether a card placed on or in a bag of seed sold, containing a limitation of such warranty, is sufficient for this purpose. If the part of the card containing the limitation is in fine print and is not in fact read by the buyer, and the circumstances are not such as to impose on him a duty to read it, it cannot as a matter of law be given the effect of a contractual limitation of the warranty, as to give it such effect it must have been assented to, expressly or impliedly, by the buyer, and such assent cannot be implied unless he had or ought to have had knowledge of the attempted limitation.^* It is said that ordinarily the question whether in a particular case a person received a paper under circumstances sufficient to inform him that it was intended not only as a receipt but also as a special contract limiting the liability of the other party, is one for the determina- tion of the jury as a question of fact." § 87. — I — Bill of Lading and the Like. — Ordinarily a bill of lading has a twofold character : first, that of a receipt, and second, that of a contract.^" As a general rule, in so far as it acknowledges the receipt of goods for carriage, either as regards the quality or the condition of the goods so received, it is regarded as a receipt merely." As said by Allen, J.: " That part of the bill which relates to the receipt of the goods, their quality, condition, and quantity, is treated as a receipt, as distinct from the contract " for carriage." The parties, however, to avoid a future contro- 11. Neuman v. National Shoe, etc., man v. National Shoe, etc., Exch., Exch., (Sup. App. T. 1899) 26 Misc. (Sup. App. T.) 26 Misc. 38«, 56 N. Y. 388, 56 N. Y. S. 193, affirming 25 S. 193, affirming 25 Misc. 412, 54 Misc. 412, 54 N. Y. S. 942. N. Y. S. 942. See also Morgan v. 12. White V. Miller, (1877) 71 Woolverton, (1911) 203 N. Y. 52, N. Y. 118. 96 N". E. 354. 13. Bell V. Mills, (Sup. 1902) 78 15. Van Etten v. Newton, (1892) App. Div. 42, 80 N. Y. S. 34, explain- 134 N. Y. 143, 45 State Rep. 768, ing decision on prior appeal 68 App. 31 N. E. 334. Div. 531, 74 N. Y. S. 224. 16. Ellis v. Willard, (1854) 9 N. Y. 14. Madan v. Sherard, (1878) 73 529, Seld. Notes 242; Meyer v. Peck, N. Y. 329; Grossman v. Dodd, (Sup. (1864) 28 N. Y. 590, affirming 33 18&2) 63 Hun 324, 43 State Rep. Barb. 532, 533. 375, 17 N. Y. S. 855, affirmed 137 17. Ellis v. Willard, (1854) 9 N. Y. N. Y. 599 mem., 33 N. E 642; Neu- 529, 531, Seld. Notes 242. 110 NIEW YORK LAW OF CONTRACTS [§ 87 versy as to the quantity of the property delivered to the carrier, iiiay by an express contract obligate the carrier to account for the quantity acknowledged in the bill of lading to- have been received, and thus prevent the carrier from avoiding liability in case the quantity so stipulated is not redelivered, on the ground that such quantity was not in fact delivered in the first instance.^* This effect has been given to a stipulation as follows: "All the defi- ciency in cargo to be paid by the carrier, and deducted from the freight, and any excess in the cargo to be paid for to the carrier by the consignee. ' ' •'' The acceptance of the bill of lading or receipt by the shipper with knowledge of its contents may make that instrument, in so far as it is contractual, a binding contract between the parties and define their rights and liabilities,^" and in such a case its terms cannot be varied by oral evidence any more than the terms of other written contracts.^^ In order that the shipper may be bound by a provision in a bill of lading or receipt, given to evidence the delivery of the property for carriage, whereby the carrier's com- mon law liability is sought to be limited, notice of the provision must be brought home to the shipper or the circumstances must be such as to convey to hin; the information that the receipt is also a contract and contains the terms and conditions on which the property is received for carriage; otherwise the shipper cannot be regarded as having given the necessary assent which is essential to a contract.^^ This has been said to be the utmost to which the rule can be carried without abandoning the principle that a con-, tract is indispensable to limit the carrier's common law liability.^ And a fortiori, if the carrier has entered into a general contract of carriage and received the goods for shipment, he cannot limit his common law liability, by thereafter issuing and sending to the 18. Eihode»v. Newhall, (1891) 126 21. Van Etten v. Newton, (1892) N. Y. 574, 38 State Rep. 431, 27 N. 134 N. Y. 143, 45 Stat© Rep. 768, B. 947. See also Meyer v. Peck (1864) 31 N. E. 334. 28 N. Y. 580, 598, per Denio, C. J. 22. Blossom v. Dodd, ( 1870 ) 43 19. Rhodes v. Newhall, (1891) 126 N. Y. 264; Hill v. Syracuse, etc., R. N. Y. 574, 38 State Rep. 431, 27 N. B. Co., (1878) 73 N. Y. 351; Limburger 947. But see Abbe v. Eaton, (1873) v. Westcott, (Sup. 1867) 49 Barb. 51 N. Y. 410. 283; Prentice v. Decker, (Sup. 1867) 20. Van Etten v. Newton, (1892) 49 Barb. 21. 134 N. Y. 143, 45 State Rep. 768, 31 23. Blossom v. Dodd, (1870)- 43 N. B. 334. As regards the legality N. Y. 264. of contracts limiting the liability of carriers, see infra, section 537 et seq. § 87] IGNORA.NCE OF TERMS OF WRITTEN CONTRACT 111 shipper a bill of lading containing clauses limiting his liability, unless the shipper subsequently assents to this limitation.^ So where a traveler on delivering his baggage cheek to a local express company receives a paper, which, from the circumstances of the transaction, he has the right to regard simply as a receipt or voucher to enable him to follow and claim his property, and no notice is given him that it embodies the terms of a special contract or is intended to subserve any other purpose than a receipt, his omission to read the paper is not per se negligence, and he is not, as a matter of law, bound by its contractual terms.^' On the other hand, where the transaction is conducted with every oppor- tunity for care and consideration on the part of the shipper, and there is no fraud, imposition, or concealment on the part of the carrier, a bill of lading issued by the carrier which on its face plainly shows that it is not a receipt merely is considered as evi- dencing the mutual rights and liabilities of the parties and as imposing on the shipper the duty to read it, and the provisions thereiu limiting the carrier's common law liability are considered as having been assented to by the shipper. This is in pursuance of the rule that where a person in a business transaction receives a paper as a contract or where he knows or has reason to suppose that a paper delivered to him contains the terms of a special con- tract, he is bound to acquaint himself with its contents, and if he accepts and retains it he will be bound by it, though in fact he did not read it.^" And to bring a case within this principle it is not essential that the bill of lading be issued simultaneously with the receipt of the goods, provided the shipper is given adequate time 24. Park v. Preston, (1888) 108 N. Y. 166; Collender v. Dinsmore, N. Y. 434, 13 State Rep. 809, 15 N. (1873) 55 N. Y. 200; Hinckley v. E. 705, affirming 22 Wkly. Dig. 359. New York Cent., etc., R. Co., (1874) See also Bostwick v. Baltimore, etc., 56 N. Y. 429; Magnin v. Dinsmore, E. Co., (1871) 45 N. Y. 712. (1874) 56 N. Y. 168; Kirkland v. 25. Blossom v. Dodd, (1870) 43 Dinsmore, (1875) 62 N. Y. 171, re- N. Y. 264; Madan v. Sherard, (1878) versing 2 Hun 46, 4 Thomp. & C. 304; 73 N. Y. 329, affirming 42 Super. Ct. Germania F. Ins. Co. v. Memphis, 853; Morgan v. Woolverton, (1911) etc. R. Co., (1878) 72 N. Y. 90; Hill 203 N. Y. 52, 96 N. E. 354; Woodruff v. Syracuse, etc., R. Co., (1878) 73 V. Sherrard, (Sup. 1876) 9 Huri 323; N. Y. 351; Greenwald v. Barrett, Grossman v. Dodd, (Sup. 1892) 63 (1910) 199 N. Y. 170, 92 N. E. 218. Hun 324, 43 State Rep. 375, 17 N. Y. See also Zimmer v. New York Cent., S. 855, affirmed 137 N. Y. 599 mem., etc., R. Co., (1893) 137 N. Y. 460, 51 33 N. E. 642. State Rep. 269, 33 N. E. 642. 2G. Belger v. Dinsmore, (1872) 51 112 NEW YORK LAW OP CONTRACTS [§ 88 to reclaim the possession of the goods if he does not desire to have them carried on the terms set out in the bill of lading.^' § 88. Passenger Ticket. — The rule as to the effect of pro- visions inserted in railroad tickets and the like, as a contractual limitation of the liability of the carrier for the safe carriage of the passenger and his baggage, is somewhat similar to the rule prevail- ing in case of a bill of lading. A carrier of passengers cannot limit its common law liability by mere notice. An express contract is necessary to effect this.^ And ordinarily a provision printed on the ticket issued to a passenger whereby the carrier's liability is attempted to be limited is not regarded as a contract unless the passenger expressly or impliedly agrees thereto; and to raise a presumption of an assent on his part, notice of the provision must be brought to his attention or the circumstances must be such that he can be considered as having such information.^ If a person pays for his passage and receives a ticket, he is justified in regard- ing it as a receipt for his money and as evidence of his right to ride. Provisions printed thereon cannot be regarded as an agree^ ment on the passenger's part to a limitation of the carrier's liabil- ity. The carrier cannot by his own act enforce or impose any such agreement on the passenger.^" And, as has been said, " it would be unreasonable to presume that a passenger, when he buys a railroad ticket at a ticket office, stops to read the language printed upon it, and it would be equally unreasonable to hold that a pas- senger must take notice that the language upon his ticket contains any contract, or in any way limits the carrier's common law lia- bility. ' ' ^^ The fact that an ordinary passenger acquires knowledge of the provision after he has commenced his journey cannot be considered an assent on his part to a limitation of the carrier's liability.^^ It is otherwise, however, where at the time the ticket is issued the attention of the passenger is called to the provision 27. Germania F. Ina. Co. v. Mem- Co., (1862) 24 N. Y. 196; Rawson v. phis, etc., R. Co., (1878) 72 N. Y. Pennsylvania R. Co., (1872) 48 N. Y. 90, distinguishing Bostwick v. Baiti- 212; Hutchins v. Pennsylvania R. Co., more, etc., R. Co., (1871) 45 N. Y. (1905) 181 N. Y. 186, 73 N. E. 972, 712. See also Hill v. Syracuse, etc., 18 Am. Neg. Rep. 189. E. Co., (1878) 73 N. Y. 351. 30. Perkins v. New York Cent., etc., 28. Perkins v. New York Cent. R. R. Co., (1862) 24 N. Y. 196. Co., (1862) 24 N. Y. 196; Hollister 31. Rawson v. Pennsylvania R. V. Nowlen, (Sup. 1838) 19 Wend. Co., (1872) 48 N. Y. 212, 217, per 234; Cole V. Goodwin, (Sup. 1838) 19 Earl, C. Wend. 251. 32. Raweon v. Pennsylvania R. Co., 29. Perkins v. New York Cent. R. (1872) 48 N. Y. 212. § 8»] IGNORANCE OF TERMS OF WRITTEN CONTRACT 113 as a contractual limitation of the carrier's liability, or the eiremn- stances are such that he must be considered as having information that the ticket was intended as the evidence of the full contractual obligation of the carrier .^^ This latter principle has been applied to a ticket for a voyage across the ocean purchased some time before the voyage, which contained a limitation on the carrier's liability for the loss of baggage ; ^* and it is especially applicable where a reduced fare is paid,^^ or where the carriage is gratuitous, as in case of a provision limiting the liability of the carrier contained in a free pass.^^ A common carrier is not an insurer as to the time when passengers will reach their destination, in the absence of an express contract to that •effect, and the issuance of a time table is not such an express contract. ^^ § ,89. Provisions in Telegraph Blanks. — As is shown later a telegraph company cannot, as a general rule, limit its common law liability for negligence in the transmission or delivery of a tele- gram, by notice merely; but where the message is written by the sender on a blank form of the company, he is generally considered as consenting to the stipulations printed thereon limiting the lia- bility of the company.^^ 33. Steers v. Liverpool, etc., Steam- 36. Perkins v. New York Cent., etc., ship Co., (1874) 57 N. Y. 1. See R. Co., (1862) 24 N. Y. 196; Bissel also Talcott V. Wabash R. Co., (1899) v. New York Cent. R. Co., (1862) 159 N. Y. 461, 54 N. E. 1, modify- 25 N. Y. 442. ins 89 Hun 492, 70 State Rep. 235, 37. Cormack v. New York, etc., R. 35 N. Y. S. 574. Co., (1909) 196 N. Y. 442, 90 N. E. 34. Steers v. Liverpool, etc.. Steam- 56, reversing 126 App. Div. 909 mem., ship Co., (1874) 57 N. Y. 1. 110 N. Y. S. 1125. 35. Bissel v. New York Cent. R. 38. See infra, section 532 et seq. Co., (1862) 25 N. Y. 442. CHAPTER VI Duress Summary of Section Headings Effect of Duress (§§ 90-95) What Constitutes Duress (§§ 96-120) Effect of Duress 90. In General 91. Requiring One to Perform His Legal Duty 92. Right of Bona Fide Purchaser or Assignee 93. Ratification or Waiver 94. Duress as a Personal Defense 95. Pleading and Proof of Duress What Constitutes Duress 96. In General 97. Duress, Fraud and Undue Influence Contrasted 98. Involuntary Payments Generally 99. Necessity for Overcoming Free Agency 100. Character of Person Coerced 101. By Whom Duress Exerted 102. Duress by Imprisonment Generally 103. — Qualification of Rule as to Duress by Imprisonment 104. Threats as Duress Generally 105. — Time of Threats 106. Fear of Bodily Harm 107. Threat of Arrest or Criminal Prosecution 108. Threat of Civil Proceedings 109. Abuse of Process 110. Threat of Injury to Property Rights Generally 111. Threat or Refusal to Perform Contract or Duty 112. — Withholding Payment of Claim 113. Threats Affecting Domestic Peace and Happiness 114. Threat to Commit Suicide 115. Business Exigencies or Necessities as Duress 116. Invalid Statute or Ordinance as Duress 117. Duress of Property Generally 118. — Recovery of Payments 119. Against Whom Duress Directed Generally 120. — Application of Rule as to Threats against Near Relatives [114] § 90] DURESS 115 Effect of Duress § 90. In General. — The effect of duress is to render the contract, if executory, unenforceable, and the defense is available in any action which may be brought to enforce it against the party coerced.^ The fact that the contract is under seal in no way affects the right to defend on this ground.^ And the rule which prevents the contradiction of written instruments by oral evidence does not apply so as to exclude oral evidence of duress; otherwise the wrongdoer might always secure his own success by shielding him- self behind formal written instruments procured by his own wrong- ful acts.^ The nullification of instruments procured by duress is a well recognized head of equity jurisprudence.* "Where security is coerced by duress, it is immaterial, as affecting the creditor's right to enforce it, that it was given for a just debt. ' ' The party who exacts," says Porter, J., "a security from one whom he wrongfully restrains of his liberty, can derive no aid from the fact that the claim which he enforced by illegal means was just. He cannot be permitted to allege the outstanding obligation of another as a justification of his own fraudulent acts in deliberate violation of law. In all such cases it is the simple duty of the courts to condemn the contract, and the parties are thus remitted to their antecedent rights. " ° If personal property is obtained from a person by duress the owner may sue therefor in trover without a previous demand.^ In case of a release procured by duress it has been held that it may be ignored by the plaintiff and cannot be set up as a defense to an action at law on the claim released,' and in such cases the issue as to the alleged duress is triable by the court of law.* Thus where a person was arrested in a civil cause under circumstances rendering one at whose 1. See cases cited generally 6. Foshay v. Ferguson, (Sup. throughout this chapter. 1843) 5 Hill 154. 2. Leopold V. Herzig, (Sup. G. T. 7. Guilleaume v. Rowe, (1883) 94 1878) 7 Wkly. Dig. 438. N. Y. 268. See also Lazzarone v. 3. Leopold V. Herzig, (Sup. G. T. Oishei, (Super. Ct. G. T. 1892) 2 1878) 7 Wkly. Dig. 438. Misc. 200, 49 State Rep. 520, 21 N. Y. 4. Jewelers' League v. De Forest, S. 267; Sixty-First St. Bldg. Corp. (Sup. 1894) 80 Hun 376, 61 State v. Eltoma Realty Co., (Sup. App. T. Rep. 827, 30 N. Y. S. 88, affirmed 151 1918) 172 N. Y. S. 260. N. Y. 654 mem., 46 N. E. 1148. 8. Sixty-First St. Bldg. Corp. v. 5. Osborn v. Robbing, (1867) 36 Eltoma Realty Co., (Sup. App. T. N. Y. 365, 371, 4 Abb. Pr. (N. S.) 1918) 172 N. Y. S. 260. 15, 2 Trans. App. 319. 116 NEW YORK LAW OF CONTRACTS [§91 instance he was arrested liable in an action for false imprisonment, a release of such cause of action, given to secure the person's release from the imprisonment, has been held no defense to an action subsequently brought for the false imprisonment.' Where, however, the plaintiff, instead of ignoring the release and suing as if it had not been given, asks in his complaint that the release be set aside for duress, it has been held that this raises an equi- table issue, to be tried by the court as such without an absolute right on the plaintiff's part to a jury trial. " It is undoubtedly true," says Van Brunt, P. J., " that if the pleader had drawn his complaint in proper form, he might have had this question of duress in respect to the release tried by a jury. But he has chosen in his complaint to assail the release and ask that it be adjudged fraudulent and void, and only a court of equity can grant such relief. If he had sued for the damages for malicious prosecution, ignoring the release altogether, and the defendant had set it up as a defense in his answer, he might have attacked the release before a jury ; but having asked to have it set aside in his complaint, the action was properly triable before the court without a jury. " ^° It seems that where a defendant is forced, by an officer who has in his hands for service process in a civil action, to come within the state and thus subject himself to service, which he would not otherwise have done, the service should be set aside on account of the duress.^^ The fact that the transaction is in form a settlement of a disputed claim does not deprive the person coerced by duress to enter into the agreement from being entitled to relief therefrom.^^ § 91. Requiring One to Perform His Legal Duty. — The fact that a person is coerced into performing his legal duty affords him no ground for relief from the act so performed. Thus if a claim which a debtor is coerced into paying, even by duress, is justly owing, the recovery back of the money paid will not be allowed." And the fact that a creditor is coerced or compelled to take pay- ment of his debt when due does not entitle him to disaffirm the 9. G-Tiilleaume v. Rowe, (1883) 94 11. Ziporkes v. Chmelniker, (Sup. N. Y. 268, affirming 48 Super. Ct. G. T. 1888) 15 State Rep. 215. 169, 63 How. Pr. 175. 12. Aronoff v. Levine, (Sup. 1919) 10. Stono V. Weiller, (Sup. G. T. 190 App. Div. 172, 179 N. Y. S. 247. 1890) 32 State Rep. 936, 10 N. Y. 13. Scholey v. Mumford, (1876) 64 S. 828, affirmed 128 N. Y. 655, 28 N. Y. 521. N. E. 653, 3 Silv. Ct. App. 556. §i 92,93] DURESS 117 payment and compel the debtor to pay a second time, though the benefit of the first payment is lost." § 92. Bight of Bona Fide Purchaser or Assignee. — Duress vitiates the contract, and in case it is executory and not a nego- tiable instrument governed by the law merchant, no one succeed- ing to the rights of the promisee can acquire any rights to enforce it irrespective of good faith or value paid ; ^^ nor does a bona fide purchaser for value acquire a good title to a chose in action which he has bought from one who has procured it by assignment from the owner by duress." The better view also seems to be that where one acquires chattels or land by duress he cannot transfer a good title thereto to one who purchases from him in good faith and for value, provided the owner has not been guilty of laches in seeking relief. There are cases, says Folger, J., in this connection, " which hold that where the owner of property, induced by false repre- sentations, sells it and parts with the possession of it with the intention of passing the title to the vendee, there the bona fide purchaser for value from the fraudulent vendee obtains a title which he can defend. In such case there is a voluntary parting with the possession of the property and there is an uncontrolled volition to pass the title. But where there exists coercion, threats, compulsion and undue influence, there is no volition. There is no intention nor purpose, but to yield to moral pressure, for relief from it. A case is presented more analogous to a parting with property by robbery. No title is made through a possession thus acquired. " " § 93. Batification or Waiver. — A contract obtained by duress is not ordinarily void but merely voidable, and may therefore be ratified by the party coerced and thereby rendered enforceable against or binding on him.^^ And ordinarily the party claiming 14. lyester v. Union Mfg. Co., 18. Oregon Pac. R. Co. v. Forrest, (Sup. 1874) 1 Hun 288, 3 Thomp. & (1891) 128 N. Y. 83, 38 State Rep. C. 657. 837, 28 N. E. 137 ; Abelman v. Indelli, 15. Loomis v. Ruck, (1874) 56 etc., Co., (Sup. 1915) 170 App. Div. N. y. 462. 740, 156 N. Y. S. 401; Lynct v. 16. Barry v. Equitable L. Assur. Sauer, (Sup. App. T. 1896) 16 Misc. Soc., (1875) 59 N. Y. 587. 1, 73 State Rep. 269, 37 N. Y. S. 666, 17. Barry v. Equitable L. Assur. affirming 14 Misc. 252, 70 State Rep. Soc, (1875) 59 N. Y. 587, 591. See 449, 35 N. Y. S. 715; Cammarata v. also National Bank of Republic v. Pennsylvania Coal Co., ( Sup. App. T. Cox, (Sup. 1900) 47 App. Div. 53, 1904) 86 N. Y. S. 787. 62 N. Y. S. 314. 118 NEW YORK LAW OF CONTRACTS [§ 93 to have been constrained, by afterwards acting on the contract or recognizing its validity, the duress having ended, thereby affirms its validity and loses the right to avoid it.^^ " One entitled to repudiate a contract on the ground of duress," says Earl, J., " should, like one who attempts to repudiate a contract on the ground of fraud, act promptly. ' ' 2" Thus if a lessee is coerced by duress into entering into the lease, he should promptly repudiate the agreement, and if instead of doing so he remains in possession and pays the rent, he thereby ratifies the lease and cannot there- after avoid it for the alleged duress.^^ So if a compromise agree- ment executory in its nature, as where one party delivers to the other his interest-bearing bond, is in the first instance invalid for duress, it is the duty of the party coerced to repudiate it promptly, and if he continues to recognize the agreement as valid and volun- tarily pays interest on the bond he loses his right to avoid the settlement.^ And if the giving of a note is coerced by duress, the voluntary payment of the note after the duress has ceased is a waiver, and the payment cannot be recovered.^^ Where a considera- tion has befen received by the complainant, the general principles regarding the rescission of contracts require that he restore it to the other party as a condition to such relief, and by keeping it he will be deemed to have elected to waive the duress and ratify the transaction.^* To constitute a ratification there must, how- ever, be some act on the part of the one coerced recognizing the validity of the transaction; his mere failure to take active steps to have the contract set aside cannot itself operate as a ratification 19. Oregon Pac. E. Co. v. Forrest, 20. Oregon Pac. R. Co. v. Forrest, (1891) 128 N. y. 83, 38 State Rep. (1891) 128 N. Y. 83, 93, 38 State 837, 28 N. E. 137, affirming 32 State Rep. 837, 28 N. E. 137. Rep. 178, 11 N. Y. S. 8; Buck v. 21. Lynch v. Sauer, (Sup. App. T. Houghtaling, (Sup. 1905) 110 App. 189ef) 16 Misc. 1, 73 State Rep. 269, Div. 52, 9& N. Y. S. 1034; Mae Far- 37 N. Y. S. 66«, affirming 14 Misc. land V. Liberty Nat. Bank, (Sup. Sp. 252, 70 State Rep. 449, 35 N. Y. S. T. 1917) 166 N. Y. S. 393; Foerster 715. V. Squier, (City Ct. G. T. 1892) 46 22. Oregon Pac. R. Co. v. Forrest, State Rep. 289, 19 N. Y. S. 367. See (1891) 128 N. Y. 83, 38 State Rep. also Colon v. East One Hundred and 837, 28 N. E. 137, affirming 32 State Eighty-Ninth St. Bldg., etc., Co., Rep. 178 11 N. Y. S. 8. (Sup. 1910) 141 App. Div. 441, 126 23. Lilienthal v. Bechtel Brewing N. Y. S. 226: Williams v. Ruther- Co., (Sup. 1907) 118 App. Div. 205, furd Realty Co., (Sup. 1913) 159 102 N. Y. S. 1051. App. Div. 171, 144 N. Y. S. 357; Abel- 24. Cammarata v. Pennsylvania man v. Indelli, etc., Co., (Sup. 1915) Coal Co., (Sup. App. T. 1904) 86 170 App. Div. 740, 156 N. Y. S. 401. N. Y. S. 787. § 94] DUEESS 1,19 or laches barring him from relief. Thus where a mother is by duress coerced into giving a mortgage to secure the debt of her son, her delay for a considerable period of time in instituting a suit to have it removed as a cloud on her title cannot operate as a ratification or laches so as to bar her from the right to relief.^ And where a landowner was coerced by dureas to execute a mort- gage to secure an invalid claim, and immediately instituted a suit to have it set aside, his payment of interest under protest was held not to constitute a ratification of the mortgage.^" The provision of the Code (Code Civ. Proc. § 382) requiring actions for relief on the ground of fraud to be brought within six years has no application to a suit to remove as a cloud on title a mortgage pro- cured by duress.^ § 94. Duress as a Personal Defense.— Ordinarily the defense of duress is personal to the party coerced and his legal representa- tives.^* Thus the fact that the indorsement or assignment of a note by the payee was coerced by duress cannot be set up by the maker as a defense to an action by the indorsee or assignee.^ And it is said that if A and B give their joint and several bond, B cannot avoid liability thereon because A was coerced by duress.^" If, however, a person gives a note or bond under duress one who signs as his surety can set up the defense, and if a note is procured from the maker by duress, an accommodation indorser, being in effect a surety, may set up the defense.^'' On the other hand, a surety on an undertaking given to discharge a mechanic's lien cannot, it has been held, set up the defense that the building contract on which the lien was based was procured from the owner by duress, as the right to avoid the building contract for such 25. Schoener v. Liasauer, (1887) (Supp.) 141 App. Div. 441, 126 N. 107 K. Y. Ill, 11 State Kep. 368, 13 Y. S. 226. N. E. 741. 29. Wamsley v. Darragh, (Com. 26. Aronoflf v. Levine, (Sup. 1919) ^l- «• T. 1895) 14 Misc. 566, 70 190 App. ]>iv. 172, 179 N. Y. S. 247, State Eep. 719, 35 K Y. S. 1075. modifying on other grounds 105 ^°- Thompson v. Lockw«od, (Sup. Misc. 668, 173 N. Y. S. 830. ^^IS) 15 Jdhns. 256. „, ^. ,„ 31. Osborn v. Eobbins, (1867) 36 27. Schoener v. Lissauer, (Sup. ^_ y ggg ^ ^^,j, p^. (j^_ g , jg 1890) 107 N. Y. Ill, 11 State Rep. g ^ran^ ^ 3^9 g^rong v. Gran- 368, 13 N. E. 741, reversmg 36 Hun ^j^^ (g^p igg^^ 2g ^^^^ ^^^. j^^^^. 100. soil V. Roe, (Sup. 1873) 65 Barb. 28. Colon V. East One Hundred and 346. See also Thompson v. Loek- Eighty-Ninth St. Bldg., etc., Co., wood, (Sup. 1818) 15 Johns. 256. 120 NEW YORK LAW OF CONTRACTig [§ 95 duress is personal to the owner, and if he chooses to waive it, it cannot be set up by the surety on the collateral undertaking. "A contract," says Scott, J., " procured by duress exercised by means of threats is not void but voidable, and as a general rule only the party upon whom the duress was exercised may take advantage of it to avoid the contract. The right of avoidance is purely personal to the party coerced. ... It is true that it has also been held that a surety upon a contract coerced by duress may plead the defense if he was ignorant of the duress when he became surety, but this exception does not apply to the appellant because it was not a surety upon the voidable contract. Its undertaking merely took the place of the lien filed by plaintii9P, and it cannot by any defense put the plaintiff in a worse position than it would have been in if the lien had remained undischarged. If no undertaking had been given to secure the lien the right to take advantage of the duress would have rested solely with the owner. '"^ § 95. Pleading and Proof of Duress. — It seems that ordinarily the defense of duress must be pleaded.^ In so doing the particulars should be given, to enable the plaintiff to prepare properly to meet the ease, it not being sufficient to allege in general terms that the instrument sued on was procured by duress.^* Also in an action to recover payment made under duress the complaint should give the particulars constituting the duress.^^ Thus in an action to recover back money alleged to have been paid under duress of goods, the complaint should allege the particulars so as to enable the court to determine whether there was, in contemplation of law, legal duress.^' Where, in an action to foreclose a mortgage given by a wife to secure her husband's debt, the answer alleged merely that it was procured by the duress of the plaintiff, it was held that evidence that duress was exercised by her husband was not admissible' on account of the variance. " The plaintiff," says 32. Colon V. East One Hundred and (Sup. 1863) 41 Barb. 341, affirmed Eighty-Nintli St. Bldg., etc., Co., 41 N. Y. 619 mem.; Lord v. Lindsay, (Sup. 1910) 141 App. Div. 441, 126 (Sup. 1879) 18 Hun 484. N. Y. 8. 226. 35. Kamenitsky v. Corcoran, (Sup. 33. Sternbaek v. Friedman, (Sup. 1917) 177 App. Div. 605, 164 N. Y. Sp. T. 1898) 23 Misc. 173, 60 N. Y. S. S. 297. 1025. See also Lord v. Lindsay, 36. Commercial Bank v. Rochester, (Sup. 1879) 18 Hun 484. (Sup. 1863) 41 Barb. 341, affirmed 34. Commercial Bank v. Eochester, 41 N. Y. 619 mem. § 05] DURESS 121 Boardman, J., " had a right to know the nature of the duress, and by whom exercised, to enable him to prepare for the trial. If this defense was properly admitted, then a general answer that defendant's signature was obtained by duress and coercion, with- out setting out the time and place when, or the person by whom, or the manner in which it was done, would be good and sufficient pleading. "We think the learned judge erred in admitting evidence of coercion by the husband under the pleadings in this case. ' ' ^^ Where the defense of duress is duly pleaded, it seems that the burden of the whole case is on the plaintiff seeking to enforce the contract to prove that the defendant's assent to the contract was properly given and therefore that it was not extorted by duress.^* Thus, where the refusal of the court to charge that ' ' the burden of proof remains with the plaintiff throughout the case," was held error, Haight, J., said: " The defenses of conspiracy and duress were in reality and in substance negative, in effect alleging that there was no legal contract and that it never bad a valid inception. These defenses pertain to the facts which took place at the time the contract was alleged to have been executed, and become the res gestae, upon which the validity of the contract depends. This class of defenses is distinguishable from those affirmative defenses which are based upon facts occurring subsequently to the execu- tion of a contract, in which it may be changed, altered, modified or settled. It, therefore, follows that the plaintiff, in undertaking to prove the contract upon which his action is based, had cast upon him the burden of establishing, by a preponderance of evi- dence, that it was a good and valid contract having a legal incep- tion which was binding upon the defendant, and that burden of proof continued with him throughout the case. " ^' On the other hand it would seem that the plaintiff is entitled, in the first instance, to rely on the prima facie presumption that an assent in form was duly given, unless some evidence is introduced by the defendant to overcome this presumption, and in this sense it is said that the burden of proving the alleged duress is on the party alleging it." 37 Lord v. Lindsay, (Sup. 1879) 39. Murray v. Narwood, (1908) 18 Hun 484. 192 N. Y. 172, 177, 84 N. E. 958. 38. Murray v. ISTarwood, (1900) 40. Kochman v. Karp, (Sup. App. 192 K Y. 172, 84 N. E. 958, revers- T. 1911) 130 N. Y. S 175. ing 119 App. Div. 875 mem., 104 N. Y. S. 1135. 122 NEW YOEK LAW OF CONTRACTS [§ 96 What Constitutes Duress § 96. On General. — While the vitiating effect of duress is recognized by all the authorities, the difficulty is to determine what constitutes duress. As a general rule there must be some wrongful or unlawful coercion. " It is not duress on the part of a person to insist on his legal rights. ' ' " Thus, where the owners of practically all the stock of a corporation were desirous of selling their stock, and the contemplated buyer refused to purchase unless the sellers should secure the resignation of the secretary of the corporation and a release by him of all claims for future salary, a charge of duress cannot be based on the refusal of such officer to execute the release unless a consideration was paid him therefor.^^ And where a municipality was under no obligation to employ an honorably discharged soldier, who if employed would not under the civil service rule have been subject to summary discharge, and as a condition to his employment exacted a blank resignation to be used when his services were no longer needed, it cannot be claimed that the resignation was procured by duress." So ordinarily a payment made in consideration of the extension of the time of sale of property under a decree cannot be considered as coercion by duress.^* It also seems that a charge of duress cannot be based on threats to expose alleged fraudulent conduct, irrespective of whether the person threatened has been guilty of such conduct or not.^° The fact that a man, in executing a contract for a woman's future support, may have been influenced by the fear of the disclosure of their illicit relations does not necessarily or as a matter of law constitute duress.*^ The modern authorities have to a considerable extent relaxed the rigid rule announced in the early English cases as to what constitutes duress. " The principle," says Eumsey, J., " upon which men are relieved from their contracts procured by duress has been greatly extended in recent years. In the time of Lord Coke no one would have been permitted to avoid his contract for duress, unless the duress was such as not only to put him in fear 41. Macpherson v. Cox, (1881) 86 44. Foster v. Central Nat. Bank, N. Y. 472, 478. (Sup. Tr. T. 1905) 93 N. Y. S. 603. 42. Slade v. Montgomery, (Sup. 45. Stilwell v. Mutual L. Ins. Co., 1900) 53 App. Div. SI'S, 65 N. Y. S. (1878) 72 N. Y. 385. 709. 46. Wiakley v. King, (Sup. 1906) 43. Caldwell v. New York, (Sup. 112 App. Div. 766, 98 N. Y. S. 957. 1911) 148 App. Div. 304, 133 N. Y. S. 168. § 97] DURESS 123 of illegal imprisonment or great bodily harm, but went so far as to be something that a man of ordinary firmness would not be able to resist. No possible loss to his land or property would be sufficient to enable him to avoid a contract which he had made to prevent it. . . . But gradually and by slow degrees the strictness of that rule was abated, until finally it has come to be the rule of law in this country, although perhaps not in England, that where one is presented with the contingency of serious loss or damage to his property or of a submission to an extortionate claim, if he pay the claim or make the contract which is extorted from him it is not to be considered a voluntary act, and it may be set aside on the ground of duress."" "Where confidential relations exist, coercion short of legal duress may constitute undue infiuence entitling the party so coerced to equitable relief.** § 97. Duress, Fraud and Undue Influence Contrasted. — Duress is sometimes spoken of as a species of fraud, and the same is true as regards undue influence. In fact, the latter is quite properly designated as a species of fraud. There would seem, however, to be a marked distinction between fraud and duress. Fraud as commonly understood does not involve the forcible coercion of the free will of a party, but implies that the injury is accomplished without the knowledge of the victim, while in duress he is fully conscious of the coercion. The line between duress and undue influence is more intangible and cannot be drawn clearly, and it is not attempted to do so. In undue influence as in fraud the victim may be unconscious of the improper conduct on the part of the other party, and although it may take the form of coercion the element of force is not always apparent. As is said by Smith, J.: "As between parties occupying no relation of confidence in or towards each other, or of control, by reason of position, employ- ment, or otherwise, undue influence can rarely be imputed without showing some degree of fear, or threats, or advantage taken of position, or unfair practices or persuasion, involving in some degree a species of fraud. But when any of these elements enter into and constitute part of the circumstances attending a trans- 47. Van Dyke v. Wood, (Sup. 108 N. Y. 25, 13' State Rep. 466, 15 1901) 60 App. Div. 208, 70 N. Y. S. N. E. 331, affirming 36 Hun 112. See 324_ infra, section 121 et seq., as to unr 48. Eadie v. Slimmon, (1862) 26 due influence generally. N. Y. 9, 11; Fisher v. Bishop, (1888) 124 NEW YORK LAW OF CONTRACTS [§ 98 action and controlling the will of a party making a deed or other contract, courts of equity have long been accustomed to give relief. Judge Story states the rule, as extracted from and confirmed by many cases, as follows : Courts of equity, he says, relieve a party ' when he does an act or makes a contract when he is under the influence of extreme terror, or of apprehension short of duress; for in cases of this sort he has no free will, but stands in vinculis.' (2 Story Eq. Jur., § 239.) Circumstances, he says, of extreme necessity or distress of a party, although not accompanied by any direct duress or restraint, may also overcome free agency, and justify the court in setting aside the contract on account of some attending oppression, fraudulent advantage, or imposition."® And where an elderly woman was coerced into marrying her confidential agent and business ntanager, a man much younger than she, and into conveying to him an interest in land as a part of the transaction, by threats to ruin her financially by unfounded actions by himself and others, and that she would be found dead, it was held that this constituted such a " wrongful and undue influence " as to warrant a court of equity in setting aside the conveyance.^" § 98. Involuntary Payments Generally. — To constitute the coercion or duress which will be regarded as sufficient to make a payment involuntary, . and as such recoverable, it is said by Justice Field that " there must be some actual or threatened exercise of power possessed, or believed to be possessed, by the party exacting or receiving the payment over the person or property of another, from which the latter has no other means of immediate relief than by making the payment. ' ' °^ This statement has been quoted with approval by our courts.^^ And it has been held that a complaint 49. Eadie v. Slimmou, (1862) 26 affirmed 199 N. Y. 574, 93 N. E. 1130, N. Y. 9, 11. See also Secor v. Clark, and affirming 55 Misc. 420, 105 N. Y. (Super. Ct. 1887) 54 Super. Ct. 494, S. 4'9«. affirmed 115 N. Y. 666, mem., 22 N. B. 51. Radich v. Hutchins, (1877) 95 1126. On a second appeal in this U. S. 210, 24 U. S. (L. ed.) 409. case (117 N. Y. 350, 27 State Rep. 52. Williaaas v. Eratherfurd Realty 169, 22 N. E. 754) the decision of Co., (Sup. 1913) 159 App. Div. 171, the lower court oa the merits (56 178, 144 N. Y. 8. 357; Kamenitsky v. Super. Ct. 162, 16 State Rep. 816, Corcoran, (Sup. 1917) 177 App. Div. 1 N. Y. S. 515,) was reversed on the 605, 608, 164 N. Y. S. 297. See infra, ground that the evidence did not ahow section 118, as to the eflFect of duress duress or undue influence. of property as authorizing the re- 50. Ring V. Ring, (Sup. 1908) 127 covery of a payment coerced thereby. App. Div. 411, 111 N. Y. S. 713, § 99] DURESS laS alleging a threat of a saloon-keeper that he would " cause " the plaintiff's license for a street stand to be revoked by the public officers does not show duress authorizing the recovery of a pay- ment coerced thereby. In this connection, Shearn, J., said : ' ' There was nothing immediate that thd defendant could do. Official action was necessary before the license could be canceled. There was opportunity to appeal to the police or to the courts. True, the defendant might have been a man of far-reaching political influence, or a domineering, overbearing bully who would stop at nothing, and an ignorant man might have believed that the defendant could accomplish his purpose without regard to law. But no facts are alleged from which any such inferences can be drawn, and it is not even alleged that the plaintiff believed that the defendant could cause plaintiff's license to be canceled. So far as appears from the complaint, the case is merely one of petty graft. It is like the case of the janitor of an apartment house demanding a ' commission ' of a coal dealer under ' threat ' of turning the tenants' custom elsewhere, or a cook getting ' presents ' from the butcher and the grocer under ' threat ' to make trouble for them with their customers. Such payments, like the payment in ths case at bar, are without any legal consideration, but they are not involuntary in the sense of being made under duress. ' ' "^ § 99. Necessity for Overcoming Free Agency. — The effect of the conduct or acts relied on to show duress must in fact have overcome the free agency or will of the party complaining; the mere fact that the complainant may have reluctantly entered into the contract is not sufficient, provided he or she was not terrorized in any way nor intimidated by the apprehension of any harm." 53. Kamenitsky v. Corcoran, (Sup. App. Div. 119, 87 N. Y. S. 407, 1917) 177 App. Wv. 605, 164 N. Y. affirmed 178 N. Y. 616 mem., 70 N. E. S. 297, reversing 97 Misc. 384, 161 1098; Wakley v. King, (Sup. 1906) N. Y. S. 756. 112 App. Div. 765, 98 N. Y. S. 957; 54. Dunham v. Griswold, (1885) Triangle Waist Co. v. Todd, (Sup. 100 N. Y 224, 3 N. E. 76, affirming 1915) 168 App. Div. 693, 154 N. Y. 16 Wkly. Dig. 501 ; Secor v. Clark, S. 542, reversed on other grounds 223 (1889) 117 N. Y. 350, 27 State Rep. N. Y. 27, 119 N. E. 85; Knapp v. 169, 22 N. E. 754; Barrett V. Weber, Hyde, (Sup. 1869) 60 Barb. 80; (1890) 125 N. Y. 18, 34 State Kep. Lord v. Lindsay, (Sup. 1879) 18 358, 25 N. E. 1068; Dodd v. Averill, Hun 484; Potter v. Greene, (Sup. (Sup. 1896) 7 App. Div. 290, 39 N. Y. 188^) 39 Hun 72; Jewelers' League S. 1097; Edward C. Jones Co. v. v. De Forest, (Sup. 1894) 80 Hun Board of Education, (Sup. 1898) 30 376, 61 State Bep. 627, 30 N. Y. S. App. Div. 429, 51 N. Y. S. 950; Ford 88, affirmed 151 N. Y. 654 mem., 46 V. Delaware County, (Sup. 1904) 92 N. E. 1148; Stowell v. American Co- 126 NEW YORK LAW OP CONTRACTS t§ lOO "It is not sufficient ... to satisfy the trial court that the threats were uttered; but it must also be shown that they con- strained the will of the promisor and induced the promise. "^^ Thus where a woman sought to avoid her mortgage on the ground of duress, O'Brien, J., said: " In order to avoid the contract on the ground that it was made under fear of imprisonment, the imprisonment, threatened or feared, must be shown to have operated upon her mind so as to deprive the contract of the character of a voluntary act. ' ' ^^ The fact that a mother was induced to assign to the widow of her son an insurance policy on his life, made payable to the mother, by a threat of the widow to interfere with the burial of the son according to the desires of the mother, does not constitute duress where the mother 's free agency was not over- come, though by working on her affections it may have influenced her to do the act reluctantly."^ The party on whom the alleged duress was practiced may testify as to its effect to overcome his or her will.^^ The question whether the complainant's free agency was in fact overcome is ordinarily a question of fact for the determination of the jury or of the court sitting as a trier of fact.°9 § 100. Character of Person Coerced. — ^According to the early common law doctrine, to constitute duress there must be such constraint as is sufficient to overcome the will of a person of ordinary firmness or courage, thus to a large extent eliminating the personal element as regards the victim, and suggestions to this operative Relief Ass'n, (Sup. G. T. Earl, J. See infra, section 104, as to 1889) 1 Silv. Sup. Ct. 246, 23 State the effect of threats generally. Rep. 706, 5 N. Y. S. 233; Sternback 56. Barrett v. Weber, (1890) 125 V. Friedman, (Sup. Sp. T. 1898) 23 N. Y. 18, 25, 34 State Rep. 358, 25 Misc. 173, 50 N. Y. S. 1025; Myers v. N. E. 1068. Grey, (Sup. Sp. T. 1910) 122 N. Y. 57. Jewelers' League v. De Eorest, S. 1079, affirmed 146 App. Div. 923, (Sup. 1894) 80 Hun 376, 61 State 131 N. Y.S. 1130; Kirk V. New York, Rep. 827, 30 N. Y. S. 88, affirmed (Sup. Eq. T. 1910) 136 N. Y. S. 151 N. Y. 654 mem., 46 N. E. 1148. 1061; Scolaro v. Ensign Imp. Co., 58. Dodd v. Averill, (Sup. 1896) 7 (Sup. App. T. 1918) 169 N. Y. S. App. Div. 290, 39 N. Y. S. 1097. 472; Stono v. Weiller, (Sup. G. T. s9. Barrett v. Weber, (1890) 125 1890) 32 State Rep. 936, 10 N. Y. S. N. Y. 18, 34 State Rep. 358, 25 N. E. 828, affirmed 128 N. Y. 655, 28 N. E. 1068; Dodd v. Averill, (Sup. 1896) 653; Wallach v. Hoexter, (Sup. Sp. 7 App. Div. 290, 39 N. Y. S. 1097; T. 1886) 17 Abb. N. Cas. 267, 3 Stowell v. American Co-operative Re- How. Pr. N. S. 196. lief Ass'n, (Sup. 6. T. 1889) 1 55. Dunham v. Griswold, (1885) Silv. Sup. Ct. 246, -SS- State Rep. 100 N. Y. 224, 227, 3 N. E. 76, per 706, 5 N. Y. S. 233; Spore v. Vaughn, § 101] DUPKSS 127 effect may be found in some of our earlier eases.*" This, however, is too strict a rule and is not the criterion now recognized, and the test, especially in a court of equity, is whether the free will of the victim was in fact overcome, taking into consideration the sex, age, and mental characteristics of the person influenced." § 101. By Whom Duress Exerted.— .To constitute duress the threat need not be made directly to the complainant by the other party to the transaction against whom the relief is sought; it is sufficient if it is made by him for the purpose of being com- municated to the complainant and is so communicated, as where a threat of prosecution against a son is made to his relatives for the purpose of being communicated to his mother and is so com- municated.^^ And duress exercised by an agent will prevent the principal from enforcing a contract secured thereby.*^ Coercion, however, exercised by third persons, for whose acts the other party to the contract is in no way responsible, cannot, according to the view taken in most jurisdictions, be relied on to establish duress; and this view has been taken by some of our courts.^ Thus the fact that during the Civil War a person then residing in one of the Confederate states made a settlement in order to enable him to leave the country and avoid what others might do to him if he was found there was held not to entitle him to have the settlement annulled on the ground of duress.^^ So duress exercised by a husband to induce his wife to join with him in a conveyance of land or to mortgage or convey her own land cannot, it has been held, be asserted to invalidate the conveyance or mortgage, if the grantee or mortgagee had no notice of the duress and occupied the position of a purchaser for value.'^" On the other hand, it has (Sup. G. T. 1892) 47 State Eep. 515, 64. Eexford v. Rexford, (Sup. G. 20' N. Y. S. 152. T. 1872) 7 Lana. 6; Lester v. Union GO. Wallach v. Hoexter, (Sup. Sp. Mfg. Co., (Sup. 1874) 1 Hun 288, T. 1886) 17 Abb. N. Cas. 267, 269, 3 Thomp. & C. 657. See also Lord 3 How. Pr. ISr. S. 196. v. Lindsay, (Sup. 1879) 18 Hun 484; 61. Eadie v. Sllmmon, (18«2) 26 Sherman v. Sherman, (Com. PI. Sp. N. y. 9, 12. T. 1892) 47 State Eep. 404, 20' N. Y. 62. Schoener v. Lissauer, (Sup. S. 414. 1885) 39 Hun 100, 102, affirmed as 65. Lester v. Union Mfg. Co., (Sup. to this 107 N. Y. Ill, 13 N. B. 741. 1874) 1 Hun 288', 3 Thomp. & C. 657. 63. Loomis v. Roick, (1874) 56 66. Eexford v. Rexford, (Sup. G. N. y. 462; Vroom v. Litt, (Sup. Tr. T. 1872) 7 Lans. 6. See also Lord v. T. 1^11) 70.Misc. 375, 128 N. Y. S. Lindsay, (Sup. 1879) 18 Hun 484. 758. 128 NEW YORK LAW OF CONTBAOTS [§ 102 been held that if a mother is induced by threats of a criminal prosecution against her son to give a mortgage to secure the repay- ment of moneys embezzled by him, she is entitled to relief there- from, though the threats were made by a person acting on behalf of the son and without the knowledge of the mortgagee. " The principle," says Eumsey, J., "upon which contracts obtained by duress are avoided is that the party who was coerced to make them never in fact consented to do so, and that, therefore, the apparent contract does not exist in fact. If that be the case, and the contract has in fact no existence, it cannot be binding upon anybody. It is quite true that under certain circumstances the person who was coerced may be estopped from insisting that the contract was not valid; but unless thus estopped he is at liberty to assert the invalidity of the contract whenever he is called upon to perform it, even though the person thus calling upon him may have been a bona fide holder for value." *'' § 102. Duress by Imprisonment Generally. — Where a person is coerced into entering into a contract, to. secure his release from an unlawful imprisonment, there is no question but what this constitutes duress vitiating the contract.'* " It is /;learly settled, ' ' says Spencer, J., in an early case, "that where a person is illegally restrained of his liberty, and whilst under such restraint enters into any obligation to the person causing the restraint, it is avoidable for duress of imprisonment. ' ' *' Thus where a person without reasonable cause has another arrested for a crime of which he was not guilty, and thus coerces him into a contract, the con- tract cannot be enforced.'"' And where the defendant caused the plaintiff's arrest on a criminal charge, without reasonablei cause, 67. National Bank of Republic v. N. Y. 268; Thompson v. Lockwood, Oox, (Sup. 1900) 47 App. Div. 53, (Sup. 1818) 15 Johns. 256; Foshay 62 N. Y. S. 314, appeal withdrawn v. Ferguson, (Sup. 1843) 5 Hill 154; 165 N. Y. 639, 59 N. E. 1127. The Strong v. Grajinis, (Sup. 1857) 26 court in this ease overlooks, however, Barib. 122; Lazzarone v. Oishei, the fact that the mortgage was not (Super. Ct. 1892) 2 Misc. 200, 49 executed to the party by whom the State Rep. 520, 21 N. Y. S. 267; duress was exercised, and for this Richards v. Vanderpoel, (Com. PI. reason the cases cited in support of 1859) 1 Daly 71. its holding are not fully applicable. 69. Thompson v. Lockwood, (Sup. See supra, section 92, as to the 1818) 15 Jo'hns. 256, 259. rights of a purchaser from one who 70. Osbom v. Robbins, (1867) 36 acquires a chose in action, chattels, N. Y. 365, 4 Abb. Pr. N. S. 15, 2 or land by duress. Trans. App. 319, reversing 37 Barb. 68. Guilleaume v. Rowe, (1893) 94 481. § 103] DTJEESS 129 and the plaintiff in order to secure his release delivered to the defendant a watch in part satisfaction of or as security for a claim or debt owing by him- to the defendant, it was held that the imprisonment constituted such duress as to entitle the plaintiff to recover the watchJ'- Though the arrest is for a lawful cause and under legal authority, still if it was caused by one party for the unlawful purpose of coercing the other to entering into a contract or to give security for a debt, this, according to the better view, constitutes duress.'^ " If a man," says McCoun, V. C, " is arrested by due process of law, and a wrong use is made of the arrest-, such as requiring him to do an act foreign to the purpose for which he was arrested, or if while in custody he is put under any unlawful deprivation or restraint, the original arrest will be construed to be unlawful; and this court, upon the ground of fraud and duress, will relieve the party from the consequences of the act." ''^ And Bronson, J., says, quoting with approAial from an early Massachusetts case: " It is a sound and correct principle of law, that when a man shall falsely, maliciously, and without probable cause, sue out a process in form regular and legal, to arrest and imprison another, and shall obtain a deed from a party thus arrested to obtain his deliverance, such deed may be avoided by duress of imprisonment: for such imprisonment is tortious and unlawful as to the party procuring it, and he is answerable in damages for the tort in an action for a malicious prosecution; the suing of legal process being an abuse of the law, and a pro- ceeding to cover the fraud. ' ' ''* Where the further detention by the sheriff of a debtor, taken on a body execution and permitted to go at large, was wrongful, a bond given by him for the jail liberties was held unenforceable for duress.'^ § 103. Qualification of Rule as to Duress by Imprison- ment. — It is not duress to assert one's legal rights even by the civil arrest of a debtor.'* And the mere fact that a person is under arrest in a civil case does not itself avoid a settlement made 71. Eichards v. Vandeiipoel, (Com. 74. Foshay v. Ferguson, (Sup. PI. 1859) 1 Daly 71. 1843) 5 Hill 154, 158. 72. Osborn v. Robbins, (1867) 36 75. Thompson v. Lockwood, (Sup. N. y. 365; Foshayv. Ferguson, (Sup. 1818) 15 Johns. 256. 1843) 5 Hill 154; Strong v. Grannis, 76. Bianchi v. Leon, (Sup. 1910) (Sup. 1857) 26 Barb. 122; Richards 138 App. Div. 215, 122 N. Y. S. 1004; V. Vanderpoel, (1859) 1 Daly 71. Sternbach v. Friedman, (Sup. Sp. 73. Farmer v. Walter, (Ghan. Ct. T. 1898) 23 Misc. 173, 50 N. Y. S. 1835) 2 Edw. 601. 1025. 9 1-30 NEW YORK LAW OF CONTRACTS [§ 104 by him,'" or a submission of the controversy to arbitration.'* Thus it is held in an early case that if a person is arrested by due process for a demand, in good faith claimed to be due, and he chooses to compromise by giving his note or bond for the purpose of obtain- ing his liberty, although for want of bail he may be unable to obtain it in any other way, a court of equity will not set aside the compromise or decree the security to be delivered up. To warrant such relief there must be fraud or illegality in the proceeding.'' The same view has been taken where a wife gave her mortgage as security for the indebtedness of her husband to procure his re- lease from a civil arrest.*" Adopting the practice of the English court under an early rule, the taking of a warrant of attorney to confess judgment from one in confinement under arrest in a civil case and unrepresented by counsel has been denounced in several of the early cases, and judgments entered thereon have been set aside.'^ And this has been held proper where the person was under arrest in a criminal case on a charge of larceny and it did not clearly appear that he was indebted to the person at whose instance he was arrested to the amount for which the judgment was entered.*^ It has also been held that the propriety of this practice was not affected by the adoption of the Code of Civil Procedure, though no express provision in regard to the matter was contained therein in the chapter dealing with the confession of judgments.*' § 104. Threats as Dtiress Generally, — It is not necessary that the person seeking relief on the ground of duress be actually sub- jected to bodily injury or imprisonment ; a threatened injury may be equally efficacious to overcome the free will or agency, and according to the view taken from an early date may constitute legal duress. Duress of this character is called duress per minas (threats), and includes not only threats of bodily harm but threats 77. Ziporkes v. Chmelniker, (Sup. second appeal 3 Silv. Sup. Ct. 375, 25 G. T. 1888') 15 State Rep. 215; State Rep. 464, 6 N. Y. S. 139. Farmer v. Walter, (Chan. Ct. 1835) 81. Richmond v. Roberts, (Sup. 2 Edw. 601. 1810) 7 Johns. 319; Evans v. Beg- 78. Shephard v. Watrous, (Sup. leys, (Sup. 1829) 2 Wend. 243; 1805) 3 Caines 166. Boutel v. Owens, (Super. Ct. 1849) 79. Fanner v. Walter, ( Chan. Ct. 4 Super. Ct. 655, 2 Code Rep. 40. 1835) 2 Edw. 601. 82. Wilder v. Baumstauck, (Sup. 80. Bianchi v. L,eon, (Sup. 1910) Sp. T. 1847) 3 How. Pr. 81. 138 App. Div. 215, 122 N. Y. S. 83. Boutel v. Owens, (Super. Ct. 1004; Van Campen v. Ford, (Sup. 1849) 4 Super. Ct. 655, 658, 2 Code G. T. 1888) 15 State Eep. 310, on Rep. 40. § 104] DURESS 131 of illegal or unlawful imprisonment as well.** As said by Bronson, J., in an early leading case: "As the evidence left it doubtful wliether the plaintiff was actually imprisoned, the judge also instructed the jury as to what would constitute a case of duress per minas ; and here it is strenuously insisted that he fell into an error. It is said there must be a threat of life or limb, or of mayhem ; and that a man cannot avoid his contract on the ground that it was procured through the fear of illegal imprisonment. But Lord Coke says the fear of imprisonment is enough. (2 Inst. 483 ; Co. Litt, 253 b. ) And so the rule has been understood ever since that time. ... It is true that Blackstone, in speaking of duress per minas (1 Com. 130, 1), does not mention the fear of imprisonment ; but he was only stating the general doctrine, and he says nothing either way upon this point. I do not find that the rule as laid down by Coke has ever been denied. If a deed might be avoided nearly three centuries ago on the ground that it was procured by threats and the fear of illegal imprisonment, there can be no room for doubt upon the question at the present day. As civilization has advanced, the law has tended much more strongly than it formerly did to overthrow everything which is built upon violence or fraud. ' ' ** "While duress may be the result of the requisite threats it is not necessarily produced by them. It depends wholly on the effect they have on the person to whom they are directed, and comes from fear of their execution and its consequences, and thus deprives the person of voluntary action and places him under the influence and control of the menace against his consent or will.^ And where there is no arrest, no imprisonment, no actual force, and it is claimed that a promise was obtained by duress per minas, then whether or not the promise was so obtained must usually be a question of fact and cannot be determined as one of law." The view has been taken that a threat 84. Deshong v. New York, (1903) 86. Dunham v. Griswold, (1885) 176 N. Y. 475, 68 N. E. 880, 14 N. 100 N. Y. 224, 3 N. E. 76; Potter v. Y. Annot. Cas. 169; Foshay v. Fer- Greene, (Sup. 1886) 39 Hun 72. guson, (Sup. 1843) 5 Hill 154; 87. Dunham v. Griswold, (1885) Potter V. Greene, (Sup. 1886) 39 100 N. Y. 224, 3 N. E. 76, affirming Hun 72; Kichards v. Vanderpoel, 16 Wkly. Dig. 501; Soudder v. Bur- (Com. PI. 1859) 1 Daly 71; Leopold roughs, (Sup. G. T. 1887) 7 State V. Herzig, (Sup. G. T. 1878) 7 Wkly. Rep. 605. See also Potter v. Pig 438. Greene, (Sup. 1886) 39 Hun 72. 85. Foshay v. Ferguson, (Sup. 1843) 5 Hill 154, 157. 132 NEW YORK LAW OF OOISTTRACTS [§§ 105,106 of wrongful expulsion of a member from a labor union may con- stitute duress. Thus it has been held that the payment of a fine illegally imposed on a member of a union of musicians, coerced by a threat of wrongful expulsion from the union and the con- sequent inability to earn his living, should be considered as paid under duress.*^ § 105. Time of Threats. — Threats made after the contract in question was entered into could not have influenced the making of the contract and cannot be made the basis of a charge of duress.*' Also past threats cannot found the basis of a charge of duress if, at the time the contract was entered into or payment made, they .had ceased to coerce the complainant and overcome his or her free agency.'" On the other hand, threats antedating the contract may constitute duress if their overpowering influence is still operative on the victim, as the formal execution of the contract should be considered part and parcel of the original transaction." This has been held true where a wife was induced during the night, by threats of prosecuting her husband for embezzlement, to con- sent to make an assignment of an insurance policy on her hus- band's life in which she was the beneficiary, and about noon of the next day, at a separate meeting, she executed a formal assign- ment while still acting under the influence of the same apprehen- sion and fears which led her to consent to make the assignment in the first instance.'^ § 106. Fear of Bodily Harm. — Among the influences capable of overcoming the will and depriving it of its freedom of action, none is more potent than the fear of bodily harm or peril, and undoubtedly where a person is coerced by a reasonable fear of death or serious bodily harm, there is legal duress.'' In England the view has been taken that the injury feared must be death or mayhem and that fear of a battery is insufficient.'* This rule, how- 88. Fuerst v. Musical Mut. Pro- N. Cas. 267, 3 How. Pr. N. S. 196. tective Union, (City Ct. Tr. T. 1905) 91. Eadie v. Slimmon, (1862) 26 95 N. Y. S. 155. N. Y. 9, 14. 89. Hart v. Walsh, (Sup. App. T. 92. Eadie v. S'limmon, (1862) 26 1914) 84 Misc. 421, 146 N. Y. S. 235. N. Y. 9. 90. McGuire v. H. G. Vogel Co., 93. Loomis v. Ewk, (1874) 66 K. (Sup. 1914) 164 App. Div. 173, 149 Y. 462. N. Y. S. 756; Kamenitsky v. Cor- 94. See Secor v. Clark, (Super, ■eoran, (Sup. 1917) 177 App. Div. Ct. 1887) 54 Super. Ct. 494, 498, 605, 164 N. Y. S. 297; Wallach v. referring to English cases. Hoexter, (Sup. Sp. T. 1886) 17 Abb. § 107] DURESS 133 ever, is said by our courts to be too rigid, and fear of a battery may constitute legal duress.'^ § 107. Threat of Arrest or Criminal Prosecution. — Threats of unlawful arrest or imprisonment may, according to the modern view, constitute duress per minas. Thus where articles of appren- ticeship are voidable at the instance of the apprentice, duress may be based on the threats of the master to arrest the apprentice if he leaves his employ, and though the apprentice could not on the basis of an implied promise recover the value of his services when voluntarily rendered, yet if he is coerced into continuing the employment by the threats of arrest, his services are then to be deemed as having been involuntarily rendered and he may recover for their value.^^ So a threat of arrest on a criminal charge of which the promisor was innocent and for which there was no rea- sonable grounds for prosecution may constitute duress." It is otherwise, however, where there are proper grounds for the prose- cution and the' threat is against the person seeking to be relieved from his promise or act.'* " It is not," says Smith, J., " such a menace as will avoid an act, if the party is only menaced by a lawful imprisonment. In order to avoid an act on the ground of menace of arrest or imprisonment, it must appear that the menace was of an unlawful imprisonment, and that the party was put in fear of such imprisonment and was induced by such fear to do the act in question. ' ' ^ And nothing, it is said, prevents one who has been made the victim of a crime or fraud from impressing on his debtor the criminal aspect of his act and thus inducing him to pay what he ought to pay,^ as where a debtor who has contracted his debt under circumstances rendering him liable to a criminal prosecution and imprisonment satisfies the creditor's claim by the transfer of property under the latter 's threat of such prosecution.^ If the threat of a criminal prosecution and imprisonment, proper grounds for which exist, is made to the husband, wife, parent or 95. Foshay v. Ferguson, (Sup. (Sup. 1869) 60 Barb. 80; Kissock v. 1843) 5 Hill 154, 158; Secor v. House, (Sup. 1880) 23 Hun 35; Clark, (Super. Ct. 1887) 54 Super. Vosburgh v. Brewster, (Com. PI. Ct. 494, 498. 1872) 5 Alb. L. J. 198. 98. Potter v. Greene, (Sup. 1886) 99. Knapp v. Hyde, (Sup. 1869) 39 Hun 72. 60 Barb. 80, 83. 97. See supra, section 104. 1. Kissock v. House, (Sup. 1880) 98. Dunham v. G-riswold, (1885) 23 Hun 35. 100 N. Y. 224, 3 K E. 76, affirming 2. Kissock v. House, (Slip. 1880) 16 Wkly. Dig. 501; Knapp v. Hyde, 23 Hun 35. 134 NEW YORK LAW OF CONTRACTS [§ 108 child of the person guilty of the crime, to induce the former to satisfy an obligation or debt of the latter, a charge of duress may be sustained thereon.^ If the contract is executed, as where money is paid or land conveyed, and the additional element of compound- ing a felony enters into the matter, this may be ground for deny- ing relief therefrom, though the party seeking relief was coerced into making the payment or conveyance under a threat of a crim- inal prosecution which otherwise would have constituted duress, and except for the element of illegality would itself have been ground for relief. As said by Miller, J. : " While fraud, duress and undue influence employed in procuring a contract for the pay- ment of money may vitiate and destroy the obligation created, and render it of no effect, and the party who has been compelled to pay money on account thereof may maintain an action to recover the same, such a right does not exist and cannot be enforced where the consideration of the contract, thus made, arises entirely upon or is in any way affected by the compounding of a felony. When this element enters into the contract, it becomes tainted with a.- corrupt consideration and cannot be enforced. " '' § 108. Threat of Civil Proceedings. — A threat to institute civil proceedings or resort to one's legal remedies cannot, as a general rule, be made the foundation for a charge of duress, as the party threatened may, and it is his duty to, defend himself against such proceedings if in fact unfounded." And it is immaterial that the claim on which the legal proceedings are threatened* is unfounded, to the knowledge of the party making the threat, and that the threat is made for the alleged illegal purpose of extortion.* A mere 3. See infra, section 119. Miso. 22, 148 N. Y. S. 176; Lawrence 4. Haynes v. Rudd, (1886) 102 v. Morris, (Sup. 1913) 167 App. Div. N. Y. 372, 376, 2 State Rep. 45, 7 186, 152 N. Y. S. 777; Abelman v. N. E. 287, reversing 30 Hun 237. See Indelli, etc., Co., (Sup. 1915) 170 infra, section 457 et seq. as to the 11- App. Div. 740, 156 N. Y. S. 401 ; legality of contracts having for their Fisher v. Bishop, (Sup. 1885) 36 object the compounding of a crime. Hun 112; Hart v. Walsh, (Sup. App. 5. Harmony v. Bingham, (Sup. T. 1914) 84 Misc. 421, 146 N. Y. S. 1854) 12 N. Y. 99, 116, per Ruggles, 235; MacFarland v. Liberty Nat. J.; Martin v. New Rochelle Water Bk., (Sup. Sp. T. 1917) 166 N. Y. S. Co,, (Sup. 1896) 11 App. Div. 177, 393; Scudder v. Burrows, (Sup. Gen". 76 State Rep. 893, 42 N. Y. S. 893; T. 1887) 7 State Rep. 605. Lilienthal v. Bechtel Brewing Co., 6. McGuire v. H. G. Vogel Co., (Sup. 1907) 118 App. Div. 205, 102 (Sup. 1914) 164 App. Div. 173, 149 N. y. S. 1051; McGuire v. H. G. Vo- N. Y. S. 756, reversing 86 Misc. 22, gel Co., (Sup. 1914) 164 App. Div. 148 N. Y. g. 176. 173, 149 N. Y. S. 756, reversing 86 S 109] DURESS 13S threat, therefore, to enforce a right to foreclose a mortgage is not duress,^ and duress cannot be founded on a threat of eviction,* or to replevin property,' or to file a mechanic's lien,io or to apply for an injunction,^! or even of civil arrest.'^ In this connection Earl, J., says: " The court could have found, and we may assume did find, that the only threats used, if any, were to arrest the defend- ant in a civil action for the wrong which he had done the plaintiff. The negotiations for the settlement were pending several days. The defendant was not under arrest or restrained of his liberty in any way. He appears to have been a business man in the full possession of his faculties, and the plaintiff was an old man, his uncle. A mere threat to sue the defendant and to arrest him in such suit, or by virtue of an execution which could be issued upon a judgment obtained therein, would not be such duress as would avoid a promise induced by such threat. " '^ So the assertion by the attorney for the children of one for whom he is seeking to have a committee appointed as an insane person, that he will oppose the application for discharge unless provision is made for the children, has been held not to constitute duress." § 109. Abuse of Process. — A judicial process fraudulently obtained may, it seems, be made the basis of a charge of duress sd as to authorize th€ recovery of a payment thereby coerced. Thus a pretended wife obtained the conviction, before a magistrate, of her alleged husband for abandonment, and he was required to deposit money as security for the payment of a sum adjudged for her support. Thereafter it appeared that the marriage was invalid, she having been divorced from her former husband for her adul- 7. Martin v. New Eochelle Water (Sup. 1915) 170 App. Div. 740, 158 Co., (Sup. 1896) 11 App. Div. 177, N. Y. S. 401; Foerster v. Squier, 76 State Rep. 893, 42 N. Y. S. 893; (City Ct. G. T. 1892) 46 State Rep. Wl'liams v. Rutherfurd Realty Co., 289, 19 K. Y. S. 367. (Sup. 1913) 159 App. Div. 171, 144 11. Hart v. Walsh, (Sup. App. T. N. Y. S. 357. 1914) 84 Misc. 421, 146 N. Y. S. 8. Lynch v. Lauer, (City Ct. G. T. 235. 1895) 14 Misc. 252, 70 State Rep. 12. Dunham v. Griswold, (1885) 449, 35 N". Y. S. 715, affirmed 16 100 N. Y. 224, 3 N. E. 76, affirming Misc. 1, 37 JSr. Y. S. 666. See also 16 Wkly. Dig. 501; StembaCh v. Lawrence v. Edwin A. Denham Co., Friedman, (Sup. Sp. T. 1898) 23 (Sup. App. T. 1909) 65 Misc. 189, Misc. 173, 50 N. Y. S. 1025. 119 K Y. S. 725. 13. Dunham v. Griswold, (1885) 9. McGuire v. H. G. Vogel Co., 100 N. Y. 224, 3 N. E. 76. (Sup. 1914) 164 App. Div. 173, 149 14. Lawrence v. Morris (Sup. N. Y. S. 756. 1813) 167 App. Div. 186, 152 N. Y. 10. Abelman v. Indelli, etc., Co., S. 777. 136 NEW YORK LAW OF CONTEACTS [§§ 110,111 tery and by the decree prohibited from remarrying. The alleged husband was permitted to recover back the deposit as having been made under duress of a judicial order procured by a fraudulent statement of facts essential to the magistrate's order .^° It has been held duress to refuse the request of an execution debtor for an adjournment of supplementary proceedings, directed by a void order, to enable him to procure counsel, unless the debtor answers certain questions, and that therefore the debtor is entitled to recover payments made to secure the dismissal of the proceedings.^^ § 110. Threat of Injury to Property Rights Generally. — The principle that a threatened injury to property rights other than tangible personalty may constitute duress has been recognized in well considered cases. Thus, the plaintiff has been allowed to recover back money paid to the city to avoid a threatened detention in the erection of a building in New York. In this case the ques- tion as to what constitutes a voluntary payment is thoroughly dis- cussed and it is there said: " There is no iron-clad rule which confines an involuntary payment to cases of duress of person or restraint of goods. Money compulsorily paid to prevent an injury to one's property rights comes within the same principle. " ^^ And •in an early case, in an action for money had and received, the plaintiff was allowed to recover back the amount that he had paid the defendant in order to procure from it a transfer on its books of shares of stock that he had purchased from the one in whose name they then stood.^* The mere fact, however, that a city refuses to issue the necessary permit to construct vaults under the streets unless certain payments are made does not show duress, though in reality the property owner had the right to construct the vaults without making the payment demanded.^' § 111. Threat or Refusal to Perform Contract or Duty. — As a general rule a threat not to perform an existing contract can- not furnish the ground for a charge of duress so as to relieve the 15. Colon V. Hebbard, (Sup. Sp. T. 1904) 92 App. Div. 449', 87 N. Y. S. 1907) 105 N. Y. S. 805. 214, affirmed 179 N. Y. 580, 72 N. 16. In re Stoddard, (Sup. 1908) E. 1153; Mahoney v. New York, 128 App. Div. 759, 113 N.,Y. S. 157. (Sup. 1911) 145 App. Div. 884, 130 17. Buckley v. New York, (Sup. N. Y. S. 602. See also Title Guaran- 1898) 30 App. Div. 463, 52 N. Y. S. tee, etc., Co. v. New York, (1912) 452. 205 N. Y. 496, 99 N. E. 160, affirm- 18. Bates v. New York Ins. Co., ing 141 App. Div. 931 mem., 126 N. (Sup. 1802) 3 Johns. Cas. 238, 239. Y. S. 1148. 19. Wolff v. New York, (Sup. ! Ill] DURESS 137 party coerced thereby from the effect of concessions or payments made through such coercion. In such a ease the party threatened should not yield but should resort to the courts for his remedy in ease the other party carries out his threat, and if he does yield he is considered as doing so voluntarily.^" Thus where a buyer on refusal of the seller to perform his contract paid an increased price to obtain a delivery, he cannot recover the overpayment on the ground that it was coerced by duress.^ And it has been held that where electrical current can be obtained by a tenant elsewhere than from the landlord, the refusal of the landlord to perform his contract to supply such service would not constitute duress and authorize the tenant to recover additional payments made to induce the landlord to perform his contract.^^ The view has been taken, however, where the parties did not stand on an equal footing and the party threatened did not have an adequate remedy at law in case the contract or duty was not performed, that this might be considered such a moral duress as to render involuntary a payment or conveyance coerced thereby and entitle the party coerced to relief.^ This has been held true where a person having a contract with the state for a period of years for the use of the manufactur- ing plant located in the state prison, and the labor of convicts for its operation, was coerced by the prison officials into paying addi- tional rentals under their threats not to carry out the contract and to exclude him from the prison, and such payments were held recoverable back. It was urged by counsel in this case that the contractor could not have been coerced because the action of the state through its officers was at most a mere breach of contract and the contractor was protected against any loss by his right of 20. Secor v. Clark, (1889) 117 N. S. 513; Mandel v. National Ice, etc., Y. 350, 27 State Itep. 169, 22 N. B. Co., (Sup. App. T. 1920) 180 N. Y. 754 • Doyle v. Trinity Church, S. 429. See also J. J. Little, etc., Co. (1892) 133 N. Y. 372, 45 State Kep. v. Madison Paper Stock Co., (Sup. 205, 31 N. E. 221; A.belman v. In- App. T. 1918) 169 N. Y. S. 104. delli, etc., Co., (Sup. 1915) 170 App. 22. Art Color Printing Co. v. Div. 740, 156 N. Y. S. 401; Boss v. Little, (Sup. App. T. 1917) 164 N. Hutchinson, (Sup. 1918) 182 App. Y. S. 24. See also Kienle v. Gretsch Div. 88, 169 N. Y. S. 513; Art Color Realty Co., (Sup. 1909) 133 App. Printing Co. v. Little, (Sup. App. Div. 391, 117 N. Y. S. 500. T 1917) 164 N. Y. S. 24. See also 23. Kilpatrick v. Germania L. Ins. Stilwell V. Mutual L. Ins. Co., Co., ( 1905) 183 K. Y. 163, 75 N. B. (1878) 72 N. Y. 385. 1124; Van Dyke v. Wood, (Sup. 21. Boss V. Hutchinson, (Sup. WOl) 60 App. Div. .208, 70 N. Y. S. 1918) 182 App. Div. 88, 169 N. Y. 324. 138 NEW YORK LAW OF CONTRACTS [§ 112 action for damages. The court, however, denied this contention, and in the course of its opinion said : ' ' But it must be remembered that he had no such right of action against the state which he could go into the courts and enforce ; nor would it be practicable for him to present a claim for such damages to the board of claims, because until the expiration of the three years during which the contract was to run it would be impossible to ascertain whether or not the contract would prove profitable, or to ascertain what his damages were because of the warden 's refusal to proceed with the same. The uncertain and doubtful remedy which, if any, he had against the state for its refusal to proceed with the contract was by no mean^ an adequate one, and so he was, in fact, at the mercy of those officers who were contracting for the state. He had no means of securing the benefits of the contract save to comply with the warden 's demands. ' ' ^* Also where a master of a vessel was coerced into giving a draft for an excessive amount, by the wrongful refusal of the charterer to do the acts on his part neces- sary to clear the vessel and allow it to proceed on the voyage after being laden, this was held to constitute duress and a defense to the recovery of such excess. The court considered this in the nature of an imprisonment or confinement of the master, Dan- f orth, J., saying : "To make the contract unlawful, it was not necessary that the person of the master should have been arrested, or his goods or vessel seized or libeled. It is enough that the con- tracts which he then entered into were made to procure the libera- tion of the vessel, and their execution might well be imputed to illegal restraint. . . . The confinement, by reason of the plain- tiff's refusal to do the thing which should clear or let go the vessel, was as coercive and difficult to resist as an actual seizure or impris- onment would have been, and under the construction given by us to the charter-party, the refusal was unlawful, for it was an omis- sion of duty. ' ' ^° § 112. Withholding Payment of Claim. — Though a claim is due and payable, and there is no defense against the enforcement 24. Horner v. State, (Sup. 1899) 279, 58 State Rep. 785, 36 N. E. 1060, 42 App. Div. 430, 59 N. Y. S. 96. which also involved the refusal of a 25. Macpherson v. Cox, (1881) 86 charterer to get clearance papers un- N. Y. 472, 13 Wkly. Dig. 344, re- less 'his wrongful claim was acceded versing 21 Hun 493. See also Bald- to, and this was held to constitute win V. Sullivan Timber Co., (Sup. duress, the court following the Mac- G. T. 1892) 48 State Rep. 296, 299, pherson case. 20 N. Y. S. 496, affirmed 142 N. Y. § 113] DURESS 139 of its payment by legal proceedings, the refusal of the debtor to make payment cannot ordinarily be made the basis of a claim of duress.^" "A mere refusal to pay a debt, without more," says Earl, C. J., ' ' certainly does not constitute legal duress which will avoid a consummated gift. ' ' ^^ Thus, as a general rule, the fact that a creditor compromises the claim against his debtor for fear that he would be subjected to expense, delay and risk in enforcing payment thereof, does not entitle him" to avoid the settlement on the ground of duress.^ And where a contractor had completed his contract to sink a well and was entitled to the payment of the agreed com- pensation, and the well was injured through the act of a third person, for which the contractor was not responsible, and the employer refused to pay unless the contractor repaired the well free of charge, it was held that the contractor could not avoid the effect of his promise to do so on the ground that it was extorted by duress.^ Under special circumstances, however, withholding pay- ment in order to compel a compromise of the claim has been held to constitute duress. Thus where a person was employed in a foreign land and was entitled under the contract to be brought home on the termination of the employment, and was without money to live or secure his return passage unless the wages due him were paid, it was held that the refusal of the employer to bring him home in one of the employer's own vessels or to pay him his wages unless he compromised his claim constituted duress entitling the employee to be relieved from the effect of the compromise so coerced.^" § 113. Threats Affecting Domestic Peace and Happiness. — While threats of personal violence made by a husband to his wife to induce her to do some act will constitute duress,^^ it is otherwise as to threats which relate merely to her future domestic peace and 26. Secor v. Clark, (1889) 117 N. N. Y. 350, 27 State Rep. 169, 22 N. Y. 350, 27 State Rep. 169, 22 N. E. E. 754, reversing 56 Super. Ct. 162, 754; Doyle V. Trinity Church, (1892) 16 State Rep. 816, 1 N. Y. S. 515. 133 N. Y. 372, 45 State Rep. 205, 29. Doyle v. Trinity Church, 31 N. E. 221; Miller v. Coates, (Sup. (1892) 133 N. Y. 372, 45 State Rep. 1874) 2 Hun 156, 4 Thomp. & C. 429, 205, 31 N". E. 221, affirming 39 State reversed on other grounds 66 N. Y. Rep. 888, 15 N. Y. S. 626. 609. 30. Rourke v. Story, (Com. PL 27. Doyle v. Trinity Church, 1855) 4 E. D. Smith 54. (1892) 133 N. Y. 372, 377, 45 State 31. Loomia v. Ruck, (1874) 56 N. Eep. 205, 31 N. E. 221. Y. 462. 28. Secor v. Clark, (1889) 117 140 NEW YORK LAW OF CONTRAC?rS [§ 114 happiness,^^ such as threats that he will withdraw himself from her society at his pleasure and seek enjoyment elsewhere or when in her presence he will remain silent/^ or that unless she does the requested act she shall not live with him in peace.^* Thus threats of this kind are not sufficient to vitiate a mortgage given by the wife to secure a loan made to her husband by a third person acting in good faith.^' Such conduct may, however, under the circum- stances, constitute undue influence or fraud which will entitle the wife to equitable relief not only against her husband but also against third persons who cannot claim protection against the wife 's equity as bona Me purchasers.^'' " Courts will watch carefully that the husband does not, by his marital control and influence, secure to himself his wife 's property. In such case undue influence alone may suffice to set aside the transfer. ' ' ^^ § 114. Threat to Commit Suicide. — The question has arisen in several cases as to the efEect of threats by a person to commit suicide, under the influence of which his parent or wife is induced to enter into a transaction with a third person. The view taken is that a charge of duress cannot be sustained thereon.^' Thus it has been held that a threat to commit suicide, made by a son to his mother, does not constitute duress so as to invalidate her mort ■ gage to a third person given to secure her son's debt.^^ This has also been held true where a wife executed a conveyance to a third person under a threat of her husband to commit suicide. The allegation as to duress in this case was that the husband told the wife that he was accused of embezzlement, and that he wanted her to sign some papers ; that if she signed them he would go on with the same salary in the employ of the Standard Oil Company, and nobody would ever know it; that if she did not, he would be 32. Rexford v. Rexford, (Sup. G. 36. Barry v. Equitable L. Assur. T. 1872) 7 Lans. 6; Wallach v. Soc, (1875) 59 N. Y. 587; Sistare Hoexter, (Sup. Sp. T. 1886) 17 Abb. v. Hecksher, (Sup. G. T. 1892) 45 N. Cas. 267, 3 How. Pr. N. S. 196. State Rep. 699, 18 N. Y. S. 475. See also Lord v. Lindsay, (Sup. 37. Lord v. Lindsay, (Sup. 1879) 1879) 18 Hun 484. 18 Hun 484, 486, per Boaidman, J. 33. Wallach v. Hoexter, (Sup. Sp. 38. Metropolitan L. Ins. Co. v. T. 1886) 17 Abb. N. Cas. 267, 3 How. Meeker, (1881) 85 N. Y. 614; Glrty Pr. N. S. 196. V. Standard Oil Co., (Sup. 1896) 1 34. Rexford v. Rexford, (Sup. G. App. Div. 224, 72 State Rep. 538, 3T T. 1872) 7 Lans. 6. N. Y. S. 369. 35. Wallach v. Hoexter, (Sup. Sp. 39. Metropolitan L. Ins. Co. v. T. 1886) 17 Abb. N. Cas. 267, 3 How. Meeker, (1881) 85 N. Y. 614. Pr. N. S. 196. § 115] DURESS Ul arrested ; that he could never stand that disgrace, but should com- mit suicide, and she had better commit suicide with him. The court, per Bartlett, J., after referring to a New Jersey case involv- ing a note executed under similar circumstances, said: "The supreme court of New Jersey declared that there was no trace in the law of a doctrine that the threat of a husband against himself would avoid the contract of his wife, and used this language, which is peculiarly applicable to the case at bar : ' It may be that had the payees of the note or their agent threatened to take the life of the husband unless the wife signed the note, and she signed under the influence of the terror excited by such threats, it would have avoided the contract. But here the threats were made by the husband against his own life. The maker and the object of the threats were the same. Their execution was within his own power of volition. The wife knew that no harm would come to him except by his own act. The present case is utterly unlike an instance of the presence of some overshadowing danger, uncon- trollable by either the wife or the person endangered.' All this could be said just as truly of the alleged duress in the present case, if we substitute the deed for the note, and the grantee named in the deed for the payees named in the note. ' ' ^^ § 115. Business Exigencies or Necessities as Duress. — Persons are often driven into the making of hard bargains through busi- ness exigencies or necessities. As a general rule, if no undue advantage is taken by the other party by 'reason of his position, a charge of duress cannot be based -on this fact alone " — as where a person compromises a claim secured by a mechanic's lien, not filed in bad faith, in order to have the lien discharged and thus enable himself to procure much needed advances from a third person ; ^^ or where a purchaser of merchandise, in order to obtain delivery by the seller, pays more than the agreed purchase price ; *^ or where the owner of a building under construction, because of 40. Girty v. Standard Oil Co., v. Ormiston, (Sup. Sp. T. 1898) 25 (Sup. 1896) 1 App. Div. 224, 72 Misc. 570, 55 N. Y. S. 1037, affirmed State Rep. 538, 37 jST. Y. S. 369. 53 App. Div. 629, 65 N. Y. S. 931. 41. Creveling v. Saladino, (Sup. 42. Creveling v. Saladino, (Sup. 1904) 97 App. Div. 202, 89 N. Y. S. 1904) 97 App. Div. 202, 89 N. Y. S. 834; Lilienthal v. Bechtel Brewing 834. Co., (Sup. 1907) 118 App. Div. 20.=), 43. Boss v. Hutchinson, (Sup. 102 iSr. Y. S. 1051; Carley v. Tod, 1918) 182 App. Div. 88, 169 N. Y. (Sup. 1894) 83 Hun 53, 64 State S. 513. Rep. 271, 31 N. Y. S. 635; Dorsett 142 NEW YORK LAW OF OONTRACTS [§ 115 a threat of a strike of union workmen, desisted from doing particu- lar work himself and executed a contract therefor to an employer of union labor." Under special circumstances, however, the tak- ing of an undue advantage of the distressed cimdition of a person due to his business exigencies has been treated as a species of moral duress or fraud entitling him to relief." Thus where a wife, who had for a sufficient consideration agreed to join in her husband's deeds of his lands and release her dower rights, on learning that he had agreed to sell certain land against which a decree of fore- closure had been entered, took an undue advantage of her position and refused to join in his deed unless the husband conveyed to her other lands, and it appeared that the husband was greatly embar- rassed financially and would have suffered serious financial loss unless the sale was completed, it was held that the conveyance to the wife thus coerced was the result of a species of duress and should therefore be set aside.*^ The same view has been taken where a mechanic's lien was filed in bad faith and for a grossly excessive amount, and the landowner, who was without financial means, in order to obtain a loan on the security of the premises with which to discharge an execution lien and prevent a sale of the premises thereunder, gave a subordinate mortgage to procure a release of the mechanic's lien." In case of a composition with creditors when an additional security privately given to a par- ticular creditor is taken from the debtor himself, it is not merely on the ground that it is a fraud on the creditors from whom it is concealed that it is held to be void. The creditor who exacts such a security, as the condition of his own assent to a composition deed, takes an unfair advantage of the distressed condition of the debtor. He is guilty of oppression and coercion. The unfortunate debtor is not a free agent but is subject to a moral duress as odious to the law as the grossest fraud. And it has been said that the conduct of a creditor thus abusing his power over the debtor ' ' is equivalent 44. Scolaro v. Ensign Imp. Co., also Neilson v. M'Donald, (Chan. Ct. (Sup. App. T. 1918) 169 N. Y. S. 1822) 6 Johns. Ch. 201. • 472. 46. Van Dyke v. Wood, (Sup. 45. Van Dyke v. Wood, (Sup. 1901) 60 App. Div. 208, 70 N. Y. S. 1901) 60 App. Div. 208, 70 N. Y. S. 324. 324; AronofiF v. Levine, (Sup. 1919) 47. AronoflF v. Levine, (Sup. 1919) 190 App. Div. 172, 179 N. Y. S. 247, 190 App. Div. 172, 179 N. Y. S. 247, modifying as to other matters 105 affirming as to this 105 Misc. 668, Misc. 668, 173 N. Y. S. 830. See 173 N. Y. S. 830. § 116] DURtESS 143 to actual compulsion. ' ' ^« Still if the agreement is carried out by the payment of money to procure the creditor's consent, whether the payment is by the debtor himself or by a near relative such as a brother-in-law actuated by his feelings of affection for the debtor, there is not such duress as will enable the payor to recover back the money paid." § 116. Invalid Statute or Ordinance as Duress.— < The fact that a person giving a bond for the security of the public dealing with him in his line of business is actuated by an unconstitutional stat- ute has been held not to constitute duress, relieving either him- self or his surety from liability on the bond. "If," says His- cock, J., " the act requiring the principal to execute an undertak- ing was unconstitutional and void, he must be assumed to have known it at the time, and he was entitled to believe that no one would attempt to enforce against him an unconstitutional act. The mere possibility that some one in the future might attempt so to do was altogether too remote a consideration to operate as a coercive influence on his mind when he executed the undertaking which amounted to legal duress. " ^^ It is also held that because a per- son paying for a license is actuated by the fact that an invalid ordinance requires him to take out a license to conduct his busi- ness or the like, this does not show that the payment was under duress so as to entitle him to recover it back, there being no threats on the part of the municipal officer to prosecute him unless the license was procured.'^ For example, the proprietor of a danc- ing school in a city was asked by a policeman if he had a license, and on his stating that he had not, was told that he must have one, and to go to the mayor's office to get it. He thereupon pro- cured a license and sued to recover the money paid therefor. It was held that the payment was voluntary and not under duress and therefore could not be recovered. ^^ On the other hand, where an unconstitutional statute required the insertion, in contracts with municipalities for local improvements, of a provision obliging the contractor to pay his laborers the prevailing rate of wages, and stated that on his failure to do so the contract would be void and 48. Breck V. Cole, (Super. Ct. 1850) 51. Conley v. Buffalo, (Sup. Sp. 6 Super. Ct. 79, 8 Leg. Obs. 273. T. 1909) 65 Misc. 100, 119 N. Y. S. 49. Solinger v. Earle, (1880) 82 87. N. Y. 393, 60 How. Pr. 116, affirm- 52. Conley v. Buffalo, (Sup. Sp. ing 45 Super. Ct. 80, 604. T. 1909) 65 Misc. lOO, 119 N. Y. S. 50. Musco V. United Surety Co., 87. (1909) 196 N. Y. 459, ©0 N. E. 171. 144 NEW YORK LAW OF CXINTRACTS [§ 117 unenforceable against the municipality, it was held that a pro- vision so inserted should be treated as a nullity in so far as a com- pliance therewith is necessary to render the municipality liable for the agreed compensation, as the stipulation is a part of the con- tract in form only, and has no independent existence arising from the voluntary assent of the parties. " Courts," says O'Brien, J., " must look at the substance of things, and so viewing this trans- action it would be idle to attempt to deceive ourselves with the idea that the question involved in this appeal arises out of the stipulations of the parties to the contract or is governed by them, rather than the provisions of a statute. The contract is in the form that we find it, not because the parties so elected to contract, but for the reason that the statute would not permit them to con- tract in any other way. ' ' ^^ § 117. Duress of Property Generally. — In England the broad view is taken that though an executory agreement is vitiated by a duress of the person, it is otherwise as regards a duress or menace to property. " The former," says Lord Denham, C. J., " is a con- straining force, which not only takes away the free agency but may leave no room for appeal to the law for a remedy; a man, therefore, is not bound by the agreement which he enters into under such circumstances ; but the fear that goods may be taken or injured does not deprive any one of his free agency who pos- sesses that ordinary degree of firmness which the law requires all to exert."" And in some of our cases it is said that the with- holding of the possession of personal property which can be recov- ered by action, though wrongful, does not constitute duress.^" According to the better view, however, the rigid and narrow rule asserted in the early English cases has to a great extent been relaxed in our state, and duress of personal property has been recognized as legal duress."" And it has been held that as a sheriff has no right to levy execution, based on a judgment, which has been assigned to him personally, a note given to him under threats of such a levy, without disclosing the assignment, should not be 53. People v. Coler, (1901) 166 N. 56. Foshay v. Ferguson, (Sup. Y. 1, 59 N. E. 716. 1843) 5 Hill 154; Myers v. Grey, 54. Skeate v. Beale, (1841) 11 Ad. (Sup. Sp. T. 1910) 122 N. Y. S. & El. 983, 39 E. C. L. 294. 1079; Secor v. Clark, (Super. Ct. 55. Miller v. Coates, (Sup. 1874) 1887) 54 Super. Ct. 494, affirmed 115 2 Hun 156, 157, 4 Thomp. C. 429, re- N. Y. 666 mem., 22 N. E. 1126. Versed on other grounds 66 N. Y. 609. § 117] DURESS 145 enforced." The principle as to duress of goods has also been extended to real estate. Thus where a person who held the legal title to land, under circumstances rendering it his duty, enforce- able in equity, to convey to another, exacted as a condition to the performance of this duty that the latter satisfy by a mortgage on the land an indebtedness owing by her husband, this, it has been held, constitutes duress rendering the mortgage voidable.^* A mort- gagor has also been permitted to recover an additional payment coerced by the wrongful refusal of the mortgagee to receive pay- ment of the indebtedness secured by the mortgage and to release the mortgage, the circumstances surrounding the mortgagor at the time making it necessary that the property be freed of the mort- gaged^ To constitute duress of goods the refusal to surrender them must have been wrongful.^" So if one person has an unliqui- dated claim against another and a possessory lien on the property of the latter, a charge of duress cannot be based on the mere fact that the former refuses to deliver up the property unless the plain- tiff agrees to pay what may in fact be an excessive charge, as in such a case the element of settlement or accord and satisfaction is involved. Thus where the plaintiff had a claim for salvage and refused to deliver up the defendant's boat unless he gave his note for an amount which the defendant alleged was unreasonable, it was held in an action on the note that the fact that the amount claimed by the plaintiff was unreasonable did not itself constitute duress. " Under the defense of duress," says Bischoff, J., " the material inquiry was whether or not the note was voluntarily given. If it was, the acceptance of the note by the payee com- pleted the accord and satisfaction of her claim for salvage, and defendant was thereafter precluded from asserting that the amount agreed upon was more than a fair and reasonable charge for the ser- vices rendered."*^ And certainly no charge of duress can be asserted as against a bond taken by a person having a lien for sal- vage conditioned on the payment of the amount of the claim when 57. Mills V. Young, (Sup. 1840) (Sup. 1913) 159 App. Div. 171, 144 23 Wend. 314. N. Y. S. 357. 58 Myers v. Grey, (Sup. Sp. T. 60. Buck v. Houghtaling, (Sup. 1910) 122 N. Y. S. 1079. 1905) 110 App. Div. 52, 96 N. Y. S. 59. Kilpatrick v. Germania L. Ins. 1034; Siegel v. Arken, (Sup. App. Co., 1905) 183 N. Y. 163, 75 N. E. T. 1907) 104 N. Y. S. 778. 1124, reversing 95 App. Div. 287, 88 61. Hyland v. Anderson (Com ^1. N Y S 628. See in this connection G. T. 1892) 1 Misc. 337, 48 State Williams v. Rutherfurd Realty Co., Rep. 665, 20 N. Y. S. 707. 10 146 NEW YORK LAW OF CONTRACTS [§118 properly liquidated.^^ If the owner is himself in possession of his property and there is nothing to show that the other person was in a position to dominate or oppress him, a charge of duress cannot be based on a threat to take the property by f orce.*^ § 118. Recovery of Payments. — Irrespective of the rule as regards executory contracts, it is generally recognized that a payment made to procure the release of property wrongfully with- held may be recovered back as an involuntary payment under a species of duress.** " To constitute," says Rapallo, J., " a volun- tary payment the party paying must have had the freedom of exercising his will. When he acts under any species of compul- sion the payment is not voluntary. If a party has in his posses- sion goods or other property belonging to another, and refuses to deliver such property to that other unless the latter pays him a sum of money which he has no right to receive, and in order to obtain possession of his property he pays that sum, the money so paid is a payment made by compulsion, and may be recovered back. ' ' '' This is especially true where the payment is exacted by a public officer under color of his office, the additional element of extortion being involved in such a case.^* The rule is not restricted, however, to illegal exactions by public officers. Thus where an agent having in his possession the property of another, on which he claims a lien, wrongfully refuses to deliver up the same to his principal without the payment of his claim, and thereupon the latter pays, under protest, in order to get possession, this con- stitutes an involuntary payment, and entitles the principal to recover back the money paid on showing the agent's claim to be unfounded." Recovery is also allowed where a carrier exacts for 62. Jones v. Bridge, (Super. Ct. Y. S. 1112; Clancy v. Dutton, (Sup. 1870) 32 Super. Ct. 431. 1908) 129 App. Div. 23, 113 N. Y. 63. McGuire v. H. G. Vogel Co., S. 124; Commercial Bank v. Rochea- (Sup. 1914) 164 App. Div. 173, 149 ter, (Sup. 1863) 41 Barb. 341, al- N. Y. S. 756. firmed 41 N. Y. 619 mem.; Fleet- 64. Harmony v. Bingham, (1854) wood v. New York, (Super. Ct. 1849) 12 N. Y. 99; Briggs v. Boyd, (1874) 4 Super. Ct. 475, 479; Coady v. Curry, 56 N. Y. 289; Sclioley v. Mumford, (Com. PI. 1878) 8 Daly 58. (1875) 60 N. Y. 498; Adams v. Ir- 65. Sclioley v. Murford, (1875) ving Nat. Bank, (App. 1889) 116 N. 60 N. Y. 498, 501. Y. 606, 610, 27 State Rep. 733, 23 66. Clinton v. Strong, (Sup. 1812) N. E. 7; Cowley v. Fabien, (1912) 9 Johns, 370. 204 N. Y. 566, 97 N. E. 458, affirm- 67. Briggs v. Boyd (1874) 56 N. Y. ing 139 App. Div. 913 mem., 123 N. 289, affirming 65 Barb. 197. § lift] DURESS 147 freight more than is due as a condition of its delivery to the owner, and in order to gain possession the owner pays under protest the amount wrongfully demanded.^* In another case the defendants, having in their hands $85,000 of bonds belonging to the estate of which the plaintiff was the surviving executor, which came into their possession through a deceased executor, refused to deliver up the bonds until a sum claimed by them as due the estate of the deceased executor, for commissions on the amount of the bonds, was paid. This claim being disputed by the plaintiff, the parties appeared before the surrogate, who decided that the defendants were entitled to the commissions. The plaintiff paid them to obtain the bonds, and afterward applied to the surrogate for a rehearing, who, on such rehearing, reversed his former decision. In an action to recover the sum thus paid, it was held that the payment was not voluntary, and that the plaintiff could recover it back.^ § 119. Against Whom Duress Directed Generally. — Ordinarily to constitute duress the acts must be directed against the person seeking to be relieved from his contract. This, however, is subject to the qualification that in relation to husband and wife or parent and child each may avoid a contract induced or obtained by threats of imprisonment of the other."* "At common law," says Giege- rich, J., quoting with approval from a leading Massachusetts case, " as a general rule, the defense of duress per minas must be sus- tained by proof of threats which create a reasonable fear of loss of life, or of great bodily harm, or of imprisonment of the person to whom the threats are made, and one man cannot avoid his obli- gation by reason of duress to another. There is a well-settled exception to this rule in the case of husband and wife, all the authorities agreeing that each may avoid a contract if it was made to relieve the other from duress. The question whether this excep- tion extends to the relation of parent and child does not appear to have been expressly adjudicated. But we find many dicta of judges and statements of authors, entitled to great respect, which show that from the earliest times it has been considered as the 68. Harmony v. Bingham, (1854) 69. Scholey v. Mumford, (1875) 12 N. Y. 99; Baldwin v. Liverpool, 60 N. Y. 498, on second appeal 64 etc.. Steamship Co., (1874) 74 N. Y. N. Y. 521. 125, affirming 11 Hun 496; Clancy v. 70. Adams v. Irving Nat. Bank, Dntton, (Sup. 1908) 129 App. Div. 23, (1889) 116 N. Y. 606, 27 State Rep, 113 N. Y. S. 124, 733, 23 N. E. 7. 148 NEW YORK LAW OF CONTRACTS [§ 120 settled law that the relation of parent and child was within the exception."'! In so far as this relation is concerned it is held immaterial whether the threat is of lawful or unlawful imprison- ment,'2 though it is otherwise if the threat of lawful imprison- ment is made against the party seeking relief from his contract." It has been said that it is not an accurate use of language to apply the term " duress " to cases where the threat of imprisonment is directed against the husband, wife, child or parent of the person seeting relief from his or her contract, but that such a case falls rather within the equitable principle which renders voidable trans- actions obtained by undue influence.'* For practical purposes, however, this class of cases is generally treated by the law writers as involving the element of duress per minas, and it is in this sense, it seems, that the courts use the term " undue influence " rather than ' ' duress per minas. ' ' § 120. Application of Eule as to Threats against Near Relatives. — The case of Eadie v. Slimmon '^ is a leading authority on the effect of threats of imprisonment directed against a wife, husband, parent or child. In this case an assignment of a life insurance policy was obtained by threats to prosecute the plain- tiff's husband for embezzlement. The husband, whose life was insured for the benefit of the plaintiff, having died, the action was brought to determine the ownership of the money due from the insurance company. Judge Smith, who delivered the opinion of the court, said: " The assignment from the plaintiff to the defendant was most clearly extorted by a species of force, terrorism and coercion which overcame free agency; in which fear sought security in concession to threats and to apprehensions of injury. It was made as the only way of escape from a sort of moral duress more distressing than any fear of bodily injury or physical con- straint. ... A deed executed at such a time, under such circum- stances, should be deemed obtained by undue influence, and ought not to stand." This case has been frequently cited with approval in later cases,'^ and the principle announced has been consistently 71. Jaeger v. Koenig, (Sup. App. 74. Adams v. Irving Nat. Bank, T. 1900) 30 Misc. 580, 584, 62 N. Y. (1889) 116 N. Y. 606, 611, 27 State S. 803. Rep. 733, 23 N. E. 7. 72. Adams v. Irving Nat. Bank, 75. Eadie v. Slimmon, (1862) 26 (1889) 116 N. Y. 606, 27 State Rep. N. Y. 9. 733, 23 N. E. 7. 76. Osborn v. Robbina, (1867) 36 73. See supra, sections 107-108. N. Y. 365, 4 Abb. Pr. N. S. 15, 2 § 120] Duress 149 followed." Thus where the threat made against the husband, who was in poor health, was of a prosecution under the bankruptcy laws for concealing assets, and his arrest in case he attempted to leave on a contemplated visit to Europe, under the influence of which the wife made payments to the defendant, she was permitted to recover the moneys so paid.'^ Similar rulings have been made where a parent was coerced into making a payment or giving a note, bond, or mortgage to secure the payment of moneys embezzled by a son under threats of a criminal prosecution against the son ; '' and where a mother-in-law was coerced by threats of prosecuting her son-in-law ; ^° but the rule should not, it would seem, be extended to a promise coerced by threats directed against the promisor's brother-in-law.'^ The principle is applied where the threat was of arrest and imprisonment in a civil action.*^ The fact that a wife is influenced in making reparation for moneys embezzled by her husband through her desire to help him out of his difficulties and avoid the disgrace of his arrest and prosecution does not constitute duress.*' And this has been held true where a mother executed a mortgage to secure her son's debt Trans. App. 319; Peyser v. Kew York, (1877) 70 N. Y. 497, 501; IngersoU v. Roe, (Sup. 1873) 65 Barb. 346, 357; Haynes v. Rudd, (Sup. 1883) 30 Hun 237; Schoener V. Lissauer, (Sup. 1885) 36 Hun 100, 102; Fisher V. Bishop, (Sup. 1885) 36 Hun 112, 114. 77. Adams v. Irving Nat. Bank, (1889) 116 N. Y. 606, 27 -State Rep. 733, 23 N. E. 7; Jaeger v. Koenig, (Sup. App. T. 1900) 30 Misc. 580, 62 N. Y. S. 803, affirming 29 Misc. 780 mem., 61 N. Y. S. 505; Vroom V. Litt, (Sup. Tr. T. 1911) 70 Misc. 375, 128 N. Y. S. 758. 78. Adams v. Irving Nat. Bank, (1889) 116 N. Y. 606, 27 State Rep. 733, 23 N. E. 7, affirming 54 S'uper. Ct. 556. 79. National Bank of Republic v. Cox, (Sup. 1900) 47 App. Div. 53, 62 N. Y. S. 314; Keener v. Kidd, (Sup. 1912) 148 App. Div. 925, 132 N. y. S. 1134, reversing 71 Misc. 321, 130 N. Y. S. 207; Haynes v. Rudd, (Sup. 1883) 30 Hun 237, reversed on other grounds 102 N. Y. 372, 2 State Rep. 45, 7 N. E. 287; Schoener V. Lissauer, (S'up. 1885) 36 Hun 100, affirmed as to this but reversed on another ground 107 N. Y. Ill, 11 State Rep. 368, 13 N. E. 741. See also Dodd v. Averill, (Sup. 1896') 7 App. Div. 290, 39 N. Y. S. 1097. 80. IngersoU v. Roe, (Sup. 1873) 65 Barb. 346; White v. Rasines, (Sup. G. T. 1892) 66 Hun 633 mem., 50 State Rep. 458, 21 N. Y. S. 243. 81. Solinger v. Earle, (1880) 82 N. Y. 393, 60 How. Pr. 116, affirming 45 Super. Ct. 80. 82. Jaeger v. Koenig, (Sup. App. T. 1900) 30 Misc. 580, 62 N. Y. S. 803, affirming 29 Misc. 780 mem., 61 N. Y. S. 505. 83. Girty v. Standard Oil Co., (Sup. 1896) 1 App. Div. 224, 72 State Rep. 538, 37 N. Y. S. 369; Sinith V. Rowley, (Sup. 1873) 66 Barb. 502. See also Spore v. Vaughn, (Sup. 6. T. 1992) 47 State Rep. 515, 20 N. Y. S. 152. 150 NEW YORK LAW OF CONTRACTS [§ 120 ■under the influence of representations by him that it was the only- thing which would save him from prison.** A fortiori there is no basis for a charge of duress where as a matter of fact the threats to prosecute the husband or child did not overcome the wife's or mother's free agency and constitute the controlling cause for her promise or conveyance.*' " The presence," says Southerland, J., " of the fear of evil consequences, and the hope that those con- sequences may be averted in case restitution is made, do not make restitution odious in the eyes of the law, where no undue advantage is taken and when the parties act deliberately and by the advice of their own counsel, and after time for reflection is given, and where there is no agreement or intimation that immunity from criminal prosecution will be extended if restitution is made; nor should a settlement of civil rights thus accomplished be over- thrown." *' And where a husband was arrested in a civil action, and his wife to obtain his discharge without bail gave a mortgage as security for the claim on which he was arrested and other claims owing by him, the court refused to set aside the mortgage on the ground that it was procured by duress or abuse of process." 84. Metropolitan L. Ins. Co. v. 86. Bishop v. Howe, (Sup. Tr. T. Meeker, (Sup. 1881) 85 N. Y. 614, 1909) 117 N. Y. S. 996, 1000. 615. 87. Bianchi v. Leon, (Sup. 1910) 85. Dodd V. Averill, (Slip. 1896) 138 App. Div. 215, 122 N. Y. S. 1004, 7 App. Div. 290, 39 N. Y. S. 1097; reversing 63 Misc. 73, 118 N. Y. S. Bishop V. Howe, (Sup. Tr. T. 1909) 386. 117 N. Y. S. 996. See supra, section 99, as to necessity that free agency or will be overcome. CHAPTER VII Undxxe Influence § 121. In General 122. By Whom Undue Influence Exercised 123. What Constitutes Undue Influence Generally 124. — Necessity for Overcoming Free Will or Agency 125. — Weakness of Mind 126. Proof of Undue Influence Generally 127. Confidential and Fiduciary Relations Generally 128. — Particular Relations Considered Generally 129. — Remote Family or Business Relations 130. — Undue Influence by Parent 131. — Undue Influence by Child 132. — Undue Influence by Husband 133. — Undue Influence by Wife 134. — Bethrothed Persons 135. — Confidential Business Relations Generally 136. — Attorney and Client 137. — • Physician or Nurse and Patient 138. Ratification 139. Rights of Third Persons 140. Pleading Undue Influence § 121. In General. — Undue influence is generally understood to constitute the power which one person wrongfully exercises over another in attempting to control and influence the action of such other person.^ This influence, which is sometimes spoken of as a species of f raud,^ is equally effectual as duress ^ to overcome the free agency or will of a person ; and a contract, executed or execu- tory, to which a person so influenced gives apparent consent may be avoided at his option.* As a general rule, whenever a person is so situated as to exercise a controlling influence over the will, conduct and interests of another, contracts then made will be set aside even on slight evidence of the improper exercise of such influence," as where an aged person, though not mentally unsound, 1. Stout V. Smith, ( 1885 ) 98 N. Y. 4. Sears v. Shafer, ( 1852 ) 6 N. Y. 25, 30. 268, affirming 1 Barb. 408; Ingeraoll 2. In re Smith, (1884) 95 N. Y. v. Eoe, (Sup. 1873) 65 Barb. 346. 516. See infra, section 141 et seq., See also cases cited throughout this as to fraud generally. chapter generally. 3. See supra, section 90 et seq., as 5. Sears v. Shafer, (1852) 6 N. Y. to the effect of dureas. 268, affirming 1 Barb. 408; Anderson [151] 152 NEW YORK LAW OF CONTRACTS [§122 is unduly influenced to make a gift or a conveyance for an in- adequate consideration to a near relative.* " The principle," says Brown, J., " which appears to underlie all of this class of cases is that whenever a party is so situated as to exercise a controlling influence over the will, conduct and interest of another, contracts thus made will be set aside. "'' To warrant the granting of relief the coercion need not amount to legal duress,* nor is it necessary that a case of fraud be established independent of the confidential relation of the parties to the transaction. " In this class of cases," says Everett, J., quoting with approval from Story's Equity Juris- prudence, § 307, ' ' there is often found some intermixture of deceit, imposition, overreaching, unconscionable advantage or other mark of direct and positive fraud. But the principle upon which courts of equity act in regard thereto stands, independent of any such ingredients, upon a motive of public policy. These courts will therefore often interfere in such eases, where, but for such peculiar relations, they would wholly abstain from granting relief, or grant it in a very modified and abstemious manner. ' ' ' § 122. By Whom Undue Influence Exercised. — To invalidate a conveyance or transfer of property for undue influence it need not be made directly to the person exercising such influence over the grantor. It is sufficient if it is made in fact for the benefit of such person or if the grantee or transferee is not a bona fide purchaser for value.^" Thus where the plaintiff, while entertaining a caller, was taken aside by her husband, who appealed to her to deed certain property to the defendant, with the assurance that it was a mere matter of form and that if it were done money would be advanced to aid his firm in extricating themselves from embarrass- ment, and in pursuance of this unexpected appeal the plaintiif conveyed the property; but in fact the conveyance was to serve as security for an existing indebtedness of the firm, — it was held that the deed was procured by undue influence and should be set V. Carter, (Sup. 1897) 24 App. Div. (1889) 116 N. Y. 606, 613, 27 State 462, 49 N. Y. S. 255, affirmed 165 Rep. 733, 23 N. E. 7. N. Y. 624mem., 59 N. E. 1118; Inger- 8. Eadie v. Slimmon, (1862) 26 soli V. Roe, (Sup. 1873) 65 Barb. 346. N. Y. 9, 12. 6. Anderson v. Carter, (Sup. 1897) 9. Bergen- v. Udall, (Sup. 1858) 31 24 App. Div. 462, 49 N. Y. S. 255, Barb. 9, 21. affirmed 165 N. Y. 624 mem., 59 N. E. 10. Bergen v. Udall, (Sup. 1858) 1118 (conveyance by aged aunt to 31 Barb. 9; Sistare v. Heckslier, (Sup. nephew in coaasideration of support). G. T. 1892) 45 State Rep. 699, 18 7. Adams v. Irving Nat. Bank, N. Y. S. 475. § 123] UNDUE INFLUENCE 153 aside, although the defendant did not authorize the husband to make the representations or procure the deed in said manner and did not known of it." § 123. What Constitutes Undue Influence Generally. — It is impossible, it is said, to describe or define with precision what undue influence really is ; what the quality or extent of the power of one mind over another must be to make it undue influence in the eyes of the law.^^ It is not every influence brought to bear on a person which the law denounces." The influence which the law repudiates is undue influence, denominated " undue " because it is unrighteous, illegal, and designed to perpetrate a wrong. It must amount to fraud or coercion. The person over whom the influence is exerted must be in a sense overreached and deceived by some false representation or stratagem, or by coercion, physical or moral.'"' The influence must not be such as arises from grati- tude, esteem or affection,'^ as where a voluntary transfer of prop- erty is made by an aged man, without children, to a woman of unimpeached character, who devoted herself assiduously to his comfort and happiness for a number of years preceding his death, occupying a place somewhat similar to that of a daughter.'* ' ' Thei idea cannot be too strongly emphasized, ' ' says Clark, J., ' ' that it is no part of the province of the court, or anybody else, to step in and by a judicial inquiry and decision in effect say what a person ought or ought not to have done with his property. In this country a man who has industry, intelligence and frugality enough to accumulate a fortune, has a perfect right to dispose of it as he chooses, provided of course he is of sound mind, and that whatever disposition he makes of his property is understood by him and is his free and voluntary act."" And as said by Smith, J.: "As 11. Sistare v. Hecksher, (Sup. G. 1915) 92 Misc. 497, 502, 157 N. Y. S. T 1892) 45 State Eep. 699, 18 N. 121, per Chester, J. See also Watson Y_ S. 475. V. Holmes, (Sup. Eq. T. 1913) 80 12. Watson v. Holmes, (Sup. Eq. Misc. 48, 140 N. Y. S. 727. T 1913) 80 Misc. 48, 56, 140 N. Y. 16. Lamport v. Smedley, (Sup, g 727 1913) 155 App. Div. 516, 140 N. Y. S. 'l3. Watson v. Holmes, (Sup. Eq. 567, affirmed 213 N. Y. 82, 106 N. E. T. 1913) 80 Misc. 48, 140 N. Y. S. 922. 727. 17. Watson v. Holmes, ( Sup. Eq. T. 14. Davis V. Culver, (Sup. G. T. 1913) 80 Misc. 48, 57, 140 N. Y. S. 1855) 13 How. Pr. 62. 727. 15. Roberts V. Little, (Sup. Tr. T. 154 NEW YORK liAW OF CONTRACTS [§ 124 between parties occupying no relation of confidence in or towards each other, or of control, by reason of position, employment or otherwise, undue influence can rarely be imputed without showing some degree of fear, or threats, or advantage taken of position, or unfair practices or persuasion, involving in some degree a species of fraud. ' ' ^^ Where one person has promised to make provision for another who has been assiduous in his devotion to the former 's comfort or happiness, the fact that the promisee repeatedly reminds the other of his promise is no indication of undue influence." On the other hand, if one person, because of his intimate associa- tion with another, uses his position to subdue and control the mind of such other, then the fact that they were old friends and that the person alleged to have exercised the undue influence had been kind to the other would not make it any the less a case of undue influence.^" § 124. ( Necessity for Overcoming Free Will or Agency. — Undue influence, like duress,^^ to afford ground for setting aside a contract, gift or conveyance, must be such as to overcome the free agency of the person alleged to have been unduly influenced.^ ' ' Influence to be undue must be of that dominating character that overrides the will and makes the instrument the act of the person exercising the influence rather than that of the person upon whom it is exercised. ' ' ^ And as said by Judge Miller in a ease involving a will alleged to have been executed as the result of undue influence, but which is regarded as equally applicable to transactions inter vivos: " It must be shown that the influence exercised amounted to a moral coercion, which restrained independent action and destroyed free agency, or which, by importunity which could not be resisted, constrained the testator to do that which was against his free will and desire, but which he was unable to refuse or too weak to resist. It must not be the promptings of affection; the desire of gratifying the wishes of another; the ties of attach- 18. Eadie v. Sliimnon, (1862) 26 1905) 102 App. Div. 383, 92 N. Y. S. N. Y. 9, 11. 601; Decker v. Waterman, (Sup. 19. Lamport v. Smedley, (Sup. 1876) 67 Barb. 460; Watson v. 1913) 155 App. Div. 516, 140 N. Y. S. Holmes, (Sup. Eq. T. 1913) 80 Misc. 567, affirmed 213 N. Y. 82, 106 N. B. 48, 140 N. Y. S. 727; Roberts v. 922. Little, (Sup. Tr. T. 1915) 92 Misc. 20. Watson v. Holmes, (Sup. Eq. T. 497, 502, 157 N. Y. S. 121. 1913) 80 Misc. 48, 140 N. Y. S. 727. 23. Roberts v. Little, (Sup. Tr. T. 21. See supra, section 99. 1915) 92 Misc. 497, 502, 157 N. Y. S. 22. Absalon v. Sickinger, (Sup. 121, per Chester, J. § 125] UNDUE INFLUENCE 155 ment arising from consanguinity, or the memory of kind acts and friendly offices, but a coercion produced by importunity, or by a silent, resistless power which the strong will often exercises over the weak and infirm, and which could not be resisted, so that the motive was tantamount to force or fear. " ^ On the other hand, no matter how slight the influence may be, if it destroys the free agency of the person, it destroys also the act or acts that came from it, which are the result of it.^ § 125. Weakness of Mind. — In many of the cases in which charges of undue influence are involved the element of mental weakness on the part of the person alleged to have been so influenced also appears. Though iii these cases the mental weak- ness has not reached the stage rendering the person incapable to contract, it is a material consideration in determining whether in fact his contract was the result of undue influence.^^ ' ' When one of the parties to the transaction," says Burr, J., " is physically weak, and his mental condition is such that control is comparatively easy, either because of extreme dependence or through fear of resistance, while the other is physically and mentally strong, less evidence in the way of acts or conduct indicating domination of the weaker by the stronger wiU be sufficient than if no such disparity exists. ' ' '" Even in such cases, however, there must be some evi- dence that, either by importunities which could not be resisted, or 24. Children's Aid Soc. v. Love- & C. 25, aflBrmed 58 N. Y. 646; Sweet ridge, (1887) 70 N. Y. 387, 394. v. Bean, (Sup. 1874) 67 Barb. 91, 25. Watson 7. Hoknes, (Sup. Eq. T. 3 Thomp. & C. 772; Fisher v. Fisher, 1913) 80 Misc. 48, 140 N. Y. S. 727. (Sup. G. T. 1890) 5 Silv. Sup. Ct. 26. Green v. Roworth, (1889) 113 45», 30 State Kep. 363, 9' N. Y. S. N. Y. 462, 23 State Rep. 149, 21 N. 4, affirmed 129 N. Y. 654, 42 State E. 165; Barnard v. Gantz, (1893) Rep: 100, 29 N. E. 951, 3 Silv. Ct. 140 N. Y. 249, 55 State Kep. 541, App. 640, 22 Civ. Pro. 48; Swan- 35 N. E. 430, affirming 50 State Kep. strom v. Day, (Sup. Sp. T. 1905) 46 674, 21 N. Y. S. 349; Hayes v. Kerr, Misc. 311, 93 N. Y. S. 192, affirmed (Sup. 1897) 19 App. Div. 91, 45 N. 101 App. Div. 609 mem., 92 N. Y. Y. S. 1050; Babcock v. Clark, (Sup. S. 1147; Barnes v. Waterman, (Sup. 1903) 79 App. Div. 502, 80 N. Y. 8. Sp. T. 1907) 54 Misc. 392, 104 N. Y. 471; Hunter v. McCammon, (Sup. S. 685. affirmed 129 App. Div. 929 190Y) 119 App. Div. 326, 104 N. Y. mem., 114 N. Y. S. 1118; Schanck v. S. 402; Belden v. Belden, (Sup. Hooper, (Sup. Sp. T. 1916) 160 N, 1910) 139 App. Div. 437, 124 N. Y. Y. S. 627. S. 225; Adamis v. Luoe, (Sup. 1917) 27. Cooke v. Higgina, (Sup. 1912) 181 App. Div. 232, 170 N. Y. S. 172; 152 App. Div. 204, 136 N. Y. S. 641. Piatt V. Piatt, (Sup. 1873) 2 Thomp. 156 NEW YORK LAW OF CONTEAOTS [§ 126 by deception, fraud, or other improper means, the instruments attacked do not express or are contrary to the real wish and intent of the party executing them or directing their execution.^ § 126. Proof of Undue Influence Generally. — Undue influence may be proved by circumstantial as well as direct evidence. It is not always revealed in words but must necessarily be gathered from acts, circumstances and the result of the relation of the parties.^ It cannot be inferred, however, from opportunity and interest alone ; it must be proved by acts tending to show its actual exercise.^" ' ' Inclination to take advantage of another and oppor- tunity to do so are, ' ' says Burr, J., ' ' important factors to be con- sidered. But inclination and opportunity are not sufficient unless there is also evidence that would warrant the conclusion that the inclination had been followed and the opportunity embraced. "^^ Unless the relation of the parties is of such a confidential nature as to give rise to a presumption of undue influence,^^ the burden of proving a charge of such influence, even in case of a voluntary gift or conveyance, is on the party alleging it.^' As said by Spring, J.: " Before the burden of proof is ever shifted and the onus cast upon the defendant to clear himself from an imputation resting upon him, the evidence must show unmistakably that the person charged not only bears a close relation to the one he is suspected of defrauding, but other facts are essential; that the one influenced is suffering from mental impairment and that he has been subservient to the over-mastering will power of the person 28. Cooke v. Higgins, (Sup. 1912) N. Y. 1. 126 N. E. 257, reversing 187 152 App. Div. 204, 136 N. Y. S. 641. Aipp. Div. 889 mem., 174 N. Y. S. 29. Schanek v. Hooper, (Sup. Sp. 900; Doheny v. Lacy, (Sup. 1899) T. 1916) 160 N. Y. S. 627. 42 App. Div. 21B, 230, 59 N". Y. S. 30. Cooke V. Higgins, (Sup. 1912) 724, affirmed 168 N. Y. 213, 61 N. E. 152 App. Div. 204, 136 N. Y. S. 641; 255; Murpliy v. Fay, (Sup. 1«11) Roberts v. Little, (Sup. Tt. T. 1915) 147 App. Div. 574, 132 N. Y. S. 574; 92 Misc. 497, 502, 157 N. Y. S. 121; Cooke v. Higgins, (Sup. 1912) 152 Gallery T. Miller, (Sup. G. T. 1888) App. Div. 204, 136 N. Y. S. 641; 16 State Eep. 437, 1 N. Y. S. 88, 28 Watson v. Holmes, (Sup. Eq. T. Wkly. Dig. 462. See also Cudney v. 1913) 80 Misc. 48, 140' N. Y. S. 727; Chidney, (1877) 68 N. Y. 148 (a will Roberts v. Little, (Sup. Tr. T. 1915) case). 92 Misc. 497, 157 N. Y. S. 121, 31. Cooke V. Higgins, (Sup. 1912) affirmed 179 App. Div. 951 mem., 165 152 App. Div. 204, 208, 136 N. Y. N. Y. S. 1110; Gallery v. Miller S. 641. (Sup. G. T. 1888) 16 State Rep. 437, 32. See the following sections. 1 N. Y. S. 88. S3. Davin v. Isman, (1920) 228 § 126] UNDUE INFLUENCE 157 accused."^* It lias been said that the proof must be clear and satisfactory, and that evidence which raises a mere suspicion is not sufficient,^^ and if the finding of the jury or the trial court upholding a charge of undue influence is clearly against the weight of the evidence, an appellate court should not hesitate to set it aside.^'' The fact that the instrument in question was drawn by a reputable attorney, selected by the person alleged to have been unduly influenced, under his or her direction and without any apparent participation by the one alleged to have exercised such influence, is considered a material consideration showing the absence of undue influence." On the other hand, in case of a voluntary conveyance or gift, the fact that the instrument of transfer was prepared at the instance of the grantee or donee, and that the grantor or donor was unadvised by counsel, is re- garded a material consideration in the establishment of a charge of undue influence.^^ Whatever presumption of undue influence may arise in case of a conveyance between persons standing in a confidential relation must of necessity be greatly weakened where a long time has elapsed before the deed is attacked in court.*' Where donations claimed to have been obtained through undue influence are numerous and extend over a considerable period of time and up to the date of the death of the donor, it does not 34. Doheny v. Lacy, (Sup. 1899) N. E. 022; Gabriel v. Gabriel, (Sup. 42 App. Div. 218, 230, 59 N. Y. S. Sp. T. 1913) 79 Misc. 346, 10 Milk 724. 341, 139 N. Y. S. 778, affirmed 16j0 35. Watson v. Holmes, (Sup. Eq. App. Div. 901 mem., 144 N. Y. S. T. 1913) 80 Misc. 48, 58, 140 N. Y. 1117; Watson v. Holmes, (Sup. Eq. S. 727. See also La Tourette v. La T. 1913) 80 Misc. 48, 62, 140 N. Y. Tourette, (Sup. 1900) 54 App. Div. S. 727; Roberts v. Little, (Sup. Tr. 137, 138, 66 N. Y. S. 430; Cooke v. T. 1915) 92 Misc. 497, 157 N. Y. S. Higgins, (Sup. 1912) 152 App. Div. 121, affirmed 179 App. Div. 951 mem., 204, 207, 136 N. Y. S. 641; Gallery 165 N. Y. S. 1110; Gallery v. Miller, V. Millei-, (Sujp. G. T. 1888) 16 (Sup. G. T. 1888) 16 State Rep. 436, State Rep. 436, 440, 1 N. Y. S. 88. 437, 1 N. Y. S. 88; Davis v. Culver, 36. Lamport v. Smedley, (Sup. (Sup. G. T. 1855) 13 How. Pr. 62. 19'13) 155 App. Div. 516, 140 N. Y. 38. Sears v. Shafer, (Sup. 1847) S. 567, affirmed 213 N. Y. 8!2, 106 1 Barb. 408, affirmed 6 N. Y. 268. N. E. 922; Parish v. Juekett, (Sup. See also Kinner v. Corning, (Sup. 1913) 157 App. Div. 27, 11 Mills 1914) 163 App. Div. 810, 149 N. Y. 207, 141 N. Y. S. 973; Lefurgy v. S. 237. Lefurgy, (Sup 1918) 183 App. Div. 39. Gabriel v. Gabriel, (Sup. Sp. 502, 169 N. Y. S. 970. T. 1913) 79 Misc. 346, 10 Mills 341, 37. Lamport v. Smedley, (Sup. 139 N. Y. S. 778, affirmed 160 App. 1913) 155 App. Div. 516, 140 N. Y. Div. 901 mem., 144 N. Y. S. 1117. S. 567, affirmed 213 N. Y. 82, 106 158 NEW YORK LAW OF CONTRACTS [§ 127 follow, from the fact that the later donations were the result of undue influence, that the earlier gifts were also the result of such an influence.^" § 127. Confidential and Fiduciary Relations Generally. — Where confidential and fiduciary relations exist between the parties, a court of equity will closely scrutinize transactions inter vivos for evidences of undue influence and fraud.^^ "A court of equity," says Gridley, J., " interposes its benign jurisdiction to set aside instruments executed between persons standing in relations of parent and child, guardian and ward, physician and patient, solicitor and client, and in various other relations in which one party is so situate as to exercise a controlling influence over the will and conduct and interests of another. ' ' ^^ And where con- fidential relations are shown to exist it is incumbent on the person taking securities, or making contracts inuring to his benefit, to show that the transaction is just and fair and that he has derived no unfair advantage from his confidential or fiduciary relation.*' 40. Watson v. Holmes, (Sup. Ec[. T. 1913) 80 Misc. 48, 140 N. Y. S. 727. 41. Fisher v. Bisliop, (1888) 108 N. Y. 25, 13 State Rep. 466, 14 N. E. 331, aflfirming 36 Hun 112; Rosevear V. Sullivan, (Sup. WOO) 47 App. Div. 421, ©2 N. Y. S. 447; Babcock V. Clark, (Sup. 1903) 79 App. Div. 502, 80 N. Y. S. 471; Sears v. Shafer, (Sup. 1847) 1 Barb. 408, af- firmed 6 N. Y. 268 (voluntary con- veyance by a sister, enfeebled in mind, to brothers who were also her confidential advisers) ; Bergen v. Udall, (Sup. 1858) 31 Barb. 9; Sweet V. Bean, (Sup. 1874) 67 Baxb. 91, 3 Thomp. & C. 772; Ross v. Ross, (Sup. 1875) 6 Hun 80. 42. Sears v. Shafer, (1852) 6 N. Y. 268, 271. See also Ross v. Rosis, (Sup. 1875) 6 Hun 80. 43. Sears v. Shafer, (1852) 6 N. Y. 268; 271; Nesbit v. Loekman, (1866) 34 N. Y. 167; Cowee v. Cor- nell, (1878) 75 N. Y. 91, 99; In re Smith, (1884) 95 N. Y. 516; Fisher V. Bishop, (1888) 108 N. Y. 25, 13 State Rep. 466, 15 N. E. 531; Green V. Roworth, (1889) 113 N. Y. 462, 23 State Rep. 149, £1 N. E. 165, affirming 3 State Rep. 568; Barnard V. Gantz, (1893) 140 N. Y. 249, 55 State Rep. 541, 35 N. E. 430, affirm- ing 50 iState Rep. 674, 21 N. Y. S. 349; Ten Eyek v. Whitbeck, (1898) 156 N. Y. 341, 50 N. E. 963, revers- ing 91 Hun 636 mem., 70 State Rep. 672, 35 N. Y. S. 1013; Adee v. Hal- lett, (Sup. 1896) 3 App. Div. 308, 73 State Rep. 754, 38 N. Y. S. 273; Harden v. Dorthy, (Sup. 1896) 12 App. Div. 176, 42 N. Y. S. 834; Hayes V. Kerr, (Sup. 1897) 19 App. Div. 91, 45 N. Y. S. 1050; Snook v. Sul- livan, (Sup. 1900) 53 App. Div. 602, 66 N. Y. S. 24, reversing 25 Misc. 578, 55 N. Y. S. 1073, and affirmed 167 N. Y. 536 mem., 60 N. E. 1120; Hunter v. 4tIoCamnion, (Sup. 1907) 119 App. Div. 326, 104 N. Y. S. 402; Belden v. Belden, (Sup. 1910) 139 App. Div. 437, 124 N. Y. S. 225; Parish v. Jackett, (Sup. 1911) 147 App. Div. 424, 131 N. Y. S. 715; Lefurgy v. Lefurgy, (Sup. 1918) 183 App. Div. 502, 169 N. Y. S. 970; Piatt V. Piatt, (Sup. 1873) 2 Thomp. & C. 25, affirmed 58 N. Y. 646; Ross v. Ross, (Sup. 1875) 6 Hun 80; Case § 128] UNDUE INFLUENCE 150 " Dealings between parties thus situated," says Andrews, J., " resulting in a benefit conferred upon or an advantage gained by the one holding the dominating situation, n^aturally excite suspicion, and when the situation is shown, then there is cast upon the party claiming the benefit or advantage the burden of relieving himself from the suspicion thus engendered, and of showing either by direct proof or by circumstances that the other party acted without restraint and under no coercion, or any pressure direct or indirect," of the party benefited. This rule does not proceed upon a presumption of the invalidity of the particular trans- action, without proof. The proof is made in the first instance when the relation and the personal intervention of the party claiming the benefit is shown. The law is not so impracticable as to refuse to ^ake notice of the influence of greed and selfishness upon human conduct, and in the ease supposed it wisely interposes by adjusting the quality and measure of proof to the circumstances, to protect the weaker party and, as far as may be, to make it certain that trust and confidence have not been perverted or abused. ' ' " The presumption of undue influence may be overcome by circumstantial evidence, and an appellate court should not hesitate to set aside a finding of undue influence based on such a presumption, where the surrounding circumstances clearly show that no such influence was in fact used, as where a gift is attacked after the death of the donor and the evidence clearly shows that the donee, though occupying a flduciary relation to the donor, was a favorite cousin, and in fact the only one who showed any affection for or solicitude as to the welfare of the donor.*° § 128. Particular Relations Considered Generally. — The rule requiring a person occupying a confidential relation to another to show that a transaction is free from fraud and undue influence V. Case, (Sup. 1888) 49 Hun 83, 17 fluence. In re Smith, (1884) 95 N. State Rep. 313, 1 N. Y. S. 714; Eiaher Y. 516, 523. V. Fisher, (Sup. G. T. 1890) 5 Silv. 44. In re Smith, (1884) 95 N. Y. Sup. Ct. 459, 30 State Eep. 363, 9 516, 522. This statement has heen N. Y. S. 4, affirmed 129 N. Y. 654, frequently quoted with approval. See 42 State Bep. 100, 29 N. E. 951, 3 for instance Green v. Roworth, Silv. a. App. 640, 22 Civ. Pro. 48; (1889) 113 N. Y. 462, 470, 23 State Tucker v. Dean, (Sup. G. T. 1885) Rep. 149, 21 N. E. 165; Barnard v. 21 Wkly. Dig. 519. Gantz, (1893) 140 N. Y. 249, 257, This rule, it seems, is applied only 55 State Rep. 541, 35 N. E. 430. to cases of transactions inter vivos 45. Lefurgy v. Lefurgy, (Sup. as distinguished from wills alleged 1918) 183 App. Div. 502, 169 N. Y. S. to have heen the result of undue in- 970. 160 NEW YORK LAW OF CONTRACTS [§ 128 " is not limited," says Ruger, C. J., " to cases of attorney and client, guardian and ward, trustee and cestui que trust, or other similar relations, but it holds good wherever fiduciary relations exist and there has been a confidence reposed which invests the person trusted with an advantage in treating with the person so confiding "^« — as where the relation was that of stepfather and stepson, the latter acting to a considerable extent as the stepfather's confidential business manager and adviser,*' or that of an aged and feeble-minded aunt and a nephew who acted as her confidential business adviser;** where a niece by marriage received from her aged, weakminded aunt, who lived with her, a transfer of all her property;" where an aged, weakminded woman shortly before her death conveyed her property to a sister, with whom she resided, and to the sister's children ; ^" and where an aged and feeble-minded woman transferred practically all her property, in consideration of future support, to a charitable institution which had assumed charge of her.'"^ In another case the plaintiffs, a man eighty years old, enfeebled by age and infirmity both in mind and body, and his wife who was in a similar condition from recent illness, conveyed a farm worth $6,500, and surrendered personal property of the value of $1,500, to the defendant, who had lived with them for many years and had their confidence, on the understanding that the defendant should pay their debts, amounting to $1,500, and support them during their lives. The deed contained a reservation of the use of the farm for life to the grantors or the survivor, but there was no covenant by the grantee to pay the debts or support the grantors. The deed was prepared under and by the direction of the defendant, the plaintiffs taking no counsel in regard to the propriety of the arrangement. The referee found that the defendant fraudulently took advantage of the condition of the husband's mind to induce him to make the conveyance and 46. Fisher v. Bishop, (1888) 108 951, 3 Silv. Ct. App. 640, 22 Civ. N. Y. 25, 13 State Rep. 466, 15 N. E. Pro. 48; Crousque v. Quinn, (Com. 331. PI. Sp. T. 1877) 14 Abb. N. Cas. 9 47. Ten Eyck v. Whitbeck, (1898) note. 156 N. Y. 341, 50 N. E. 963, reversing 49. Schank v. Hooper, (Sup. Sp. T. 91 Hun 636 mem., 70 State Rep. 672, 1916) 160 N. Y. S. 627. 35 N. Y. S. 1013. 50. Lyon v. Bailey, (Sup. Tr. T< 48. Fisher v. Fisher, (Sup. G. T. 1911) 130 N. Y. S. 815. 1890) 5 Silv. Sup. Ct. 459, 30 State 51. MeCormick v. St. Joseph's Rep. 363, 9 N. Y. S. 4, affirmed 129 Home, (Sup. Sp. T. 1899) 26 Misc. N. Y. 654, 42 State Rep. 100, 29 N. E. 36, 55 N. Y. S. 224. § 129] UNDUE INPLUENOE 161 surrender the personal property, and did in fact obtain the deed from him by fraud and undue influence. It was held that these findings were supported by the evidence, and warranted a judg- ment setting the deed aside for fraud and undue influence.^^ It may become a question for the jury whether the relation of the parties was of such a confidential nature as to place one of them in a position so as to exercise a controlling influence over the other and give rise to the presumption of undue influence requiring the one occupying such position to show that the transaction was free from fraud and undue influence."' In case of a gift no presumption of undue influence arises from the mere fact that both the donor and the donee were spiritualists. " Spiritualism," says Clark, J., " is simply a form of religious belief, and what a person's religious views may be should not be inquired into in a judicial proceed- ing. ... So far as this case is concerned, E. 's religious views must not be permitted to be controlling. It is no more than just that they lie buried with him, and the mere fact that he and defendant were spiritualists, and that at some time they had had seances and communications with spirits, as they believed, will not justify the inference that such belief was the inducing cause for the trans- fers in question. ' ' " § 129. Remote Family or Business Relations. — The law will not raise a presumption of undue influence from the ordi- nary relation of the parties in the business world or in the more remote family connection. The question as to parties so situ- ated is a question of fact dependent on the circumstances in each case.'°^ Thus the relation between brothers or sisters is not itself 52. Sweet v. Bean, (Sup. 1874) 67 55. Doheny v. Lacy, (1901) 168 Barb. 91, 3 Thomp. & C. 772. N. Y. 213, 61 N. E. 255; Kelly v. 53. BalKjock v. Clark, (Sup. 1903) Ashforth, (Sup. Sp. T. 1905) 47 79 App. Div. 502, 80 N. Y. S. 471. Misc. 498, 95 N. Y. S. 1004, affirmed In this case it appeared that an HI App. Div. 922 mem., 96 N. Y. S. aged and weak-minded woman a few 1131. See also Stout v. Smith, days before her death transferred (1885) 98 N. Y. 25; IngersoU v. all her property, including moneys Weld, (Sup. 1905) 103 App. Div. 554, in bank, to the defendant in consid- 93 N. Y. S. 291. eration of his agreement to support The legal principles which apply her for life. Prior to such agree- to persons not standing in a strictly ment the defendant had acted as the confidential relation are summarized agent of the woman and had provided in the leading case of Doheny v. for her support with money furnished Lacy, supra. Discussing the claim him by her. there alleged that the existence of 54. Watson v. Holmes, (Sup. Eq. T. confidential business relations throws 1913) 80 Misc. 48, 140 N. Y. S. 727. on the defendant the burden of 11 162 NEW YORK LAW OF CONTRACTS [§ 120 such as to raise any presumption of undue influence by one over the other as regards a conveyance by one to the other.'* And where property was transferred in trust, the income and corpus of the estate, if necessary, to be used for the support of the trans- feror and the residue to be divided among his next of kin, it was held that the fact that one of the trustees was the brother of the transferor and as such one of his next of kin, and also was the agent for the management of the property, did not raise a pre- sumption of undue influence on his part, especially where the transferor for many years, and in his will as well, recognized the proving the fairness of the con- tract, Gray, J., im an opinion con- curred in by all the judges, says (168 N. Y. 222) : "Granting all that we may as to their confidential relations, they would not bring their dealings within the operation of the rule, which, upon equitable considerations, was adopted at common law and is invoked by the plaintiffs. That rule, within the cases, requires as a basis for its application that a fiduciary relation exist between the parties, which will give to the one, in legal presumption, a controlling influence over the other. Such would be the relation of parent and child, guardian and ward, trustee and cestui que trust, physician and patient, and attorney and client. In these con- fidential relations, the situation of the parties is regarded as unequal and as conferring upon one a certain control, or domination, over the will, conduct, and interests of the other. Transactions between them are, there- fore, scrutinized closely and presump- tions arise of their impropriety, which must be met where an advantage is derived by the presumably domi- nant party. . . . The presumption is one born of a relation of parties, which would create a situation of more or less dependence by one upon the other. . . . While in the re- lations instanced this rule is gen- erally applied', it is also extended to other relations of trust, confidence, or inequality; but its application will then demand some previous proof of the trust and confidence, or of the superiority on the one side and of the weakness on the other. The law will not presume it from the ordinary relations between persons in the busi- ness world or in the family connec- tion. The question as. to parties so situated is a question of fact de- pendent upon the circumstances in each case. . . . Most of the busi- ness relations between persons, in a sense and to a degree, rest upon con- fidence reposed by the one in the other. Without it, the commercial dealings of the community would be seriously restricted. But the com- mon law presumption of impropriety, or of unfairness, was not intended to reach such cases; or any cases ex- cept those where the circumstances have created what the law regards as a fiduciary relation and where, as a safer general assumption, it regards one as the stronger party, and therefore as bound, in every transaction with the other, to estab- lish affirmatively its good faith and propriety." This statement is quoted with approval and acted on in Kelly V. Ashforth, (Sup. Sp. T. 1905) 47 Misc. 498, 95 N. Y. S. 1004, affirmed 111 App. Div. 922 mem., 96 N. Y. S. 1131. 56. Jones v. Jones, (1893) 137 N. Y. 610, 51 State Rep. 75, 33 N. B. 479, affirming 43 State Rep. 434, 17 N. Y. S. 905. § 130] UNDUE INFLUENCE 163 validity of the trust.''' On the other hand, where it appeared that a younger brother, sick and feeble and with weakened men- tality, was stripped of all his property by an instrument suggested by a strong and dominating eider brother and drawn by the latter 's personal counsel, it was held that the burden was on such elder brother to show the good faith and fairness of the transaction.^* And the court seems to have acted on a similar inference where one sister transferred, during her last illness, all of her property to another sister who had assumed, under suspicious circiimstances, entire charge of her.°' It has been held that the presumption of undue influence does not arise where the relation between the grantor, a lawyer, and the grantee, a clerk in his employ, was that of uncle and nephew ; ^^ where the relation was that of aunt and nephew, the latter at the request of the aunt sending to her a reputable lawyer by whom the deed was drawn in accordance with the aunt 's direction ; ^^ and where the relation was that of aunt and nephew and it further appeared that the aunt had lived with the nephew for many years as a member of his family, that although she was advanced in years her mental faculties were not apparently impaired, and that the nephew sometimes transacted for her minor business matters.^^ It has also been held that there was not such a confidential relation between the president of a bank and the cashier, between whom there were also business rela- tions as well as the relation of uncle and favorite nephew, as to give rise to a presumption of the exercise of undue influence by the ©ashier to secure a very advantageous contract for the pur- chase of stock of the bank, the attack on the contract being made after the death of the president.^' § 130. Undue Influence by Parent. — Parents exercise over children, and children over parents, powers that govern their actions, which we recognize as influence. If it be a just exercise 57 Townsend v. Allen, (Sup. G. T. 61. Absalon v. Sickinger, (Sup. 1891) 36 State Kep. 523, 13 N. Y. S. 1905) 102 App. Div. 383, 92 N. Y. S. 73, affirmed 126 N. Y. 646 mem., 27 601. jj g g53 62. Roberts v. Little, (Sup. Tr. T. 'sS.Belden v. Belden, (Sup. 1910) 1915) 92 Misc. 497, 157 N. Y. S. 139 App. Div. 437, 124 N. Y. S. 225. 121, affirmed 179 App. Div. 951 59. Kinner v. Coming, (Sup. 1914) mem., 165 N. Y. S. 1110. 163 App Div. 810, 13 Mills 268, 149 63. Doheny v. Lacy, (1901) 168 N Y S 237. N. Y. 213, 61 N. E. 255, affirming 42 60. Fellows V. Heermans, (Sup. App. Div. 218, 59 N. Y. S. 724. 1870) 4 Lans. 230, 245. IW NEW YORK LAW OF CONTEAjCTS [§ 130 of power, a discreet and proper influence, directed to accomplish lawful and reasonable ends, it is an influence to which the law will take no exception, but rather uphold and commend." In case of a voluntary transfer or conveyance by a child to his parent, while a court of equity will scrutinize the transaction with care for evi- dence of fraud or undue influence on the part of the parent, still there is ordinarily no presumption of the exercise of such influence, and in the absence of any proof thereof the transfer should not be set aside.*^ And where it appeared that a wife, after making a wiU leaving a life estate in her lands to her husband and the remainder to her children, changed her mind as to such disposition of her estate and desired that her husband should have the whole, but failed to change her will, and the children, actuated by this desire on the part of their mother, conveyed their interests in remainder to their father, the court refused to set aside the trans- action, there being no other proof of fraud or undue influence on the part of the father.*' On the other hand, where a parent enriches himself at the expense of his child, soon after it reaches its major- ity, he must ordinarily show that the child was not unduly influ- enced to enter into the transaction.'^ " There is no law," says Emott, J., ' ' against a child bestowing upon a parent any property of which she may be the owner because she loves him and desires to promote his interests. But there is an inflexible principle, both of public policy and private justice, which forbids a parent mak- ing use of his influence or his child's affection to impose upon her mind a purpose of bounty to him. If the design to make the gift originated in the mind of the child, or was at least unsuggested by any agency of the parent, the act is as unimpeachable in law as it may be laudable in morals. But if the mind of the donor was brought to a purpose preconceived by the parent for his own sole advantage by an influence which she could not escape, in the cir- cumstances in which she was placed, and which is deliberately used to effect such a purpose, then that influence or its exercise 64. Davis v. Culver, (Sup. G. T. 1913) 81 Misc. 431, 143 N. Y. S. 67, 1855) 13 How. Pr. 62. affirmed as to this but modified on 65. Jurgenson v. Dana, (Sup. Sp, other grounds 162 App. Div. 42, 146 T. 1913) 81 Misc. 431, 143 N. Y. S. N. Y. S. 1001. 67, aflirmed as to this but modified 67. Bergen v. Udall, (Sup. 1858) on other grounds 162 App. Div. 42, 31 Barb. 9 (voluntary conveyance by 146 N". Y. S. 1001. daughter to father soon after reach- 66. Jurgensoa V. Dana, (Sup. Sp. T. ing her majority). r 131] UNDUE I'NFLUEiKriaE 165 was undue and improper. And in all dealings between parent and child, under such circumstances, the most scrupulous good faith, uberrima fides, must be observed, and the weaker party must be put upon an equal footing with the stronger by a complete dis- closure of all material facts, and the abnegation as far as possible of any control or dominion, as well as of all mere selfish projects or attempts. ' ' ^* And a fortiori if it is shown that a conveyance by a child to its parent was the result of undue influence exercised by the parent, a court of equity should not hesitate to set it aside.'' § 131. Undue Influence by Child. — In ordinary cases there is no presumption that a gift or voluntary conveyance by a parent to a child was obtained by undue influence,'" even though the parent was considerably advanced in age, but of unimpaired mentality except such as is incident to ordinary old age.'"^ And where a son has been dutiful and affectionate to his father, rendering him valuable services until late in life without adequate compensation and to great detriment to his personal advancement, a charge of undue influence cannot be based on the fact that he reminds his father of his special claim to consideration over the other children and receives in recognition thereof a reasonable provision by way of a gift or conveyance of land.'^ The presumption of undue influ- ence, however, does, it seems, arise where a child obtains an unrea- sonable benefit from his aged, weakminded and infirm parent, who was largely under his influence.'^ For example, where a father, 68. Bergen v. Udall, (Sup. 1858) 71. Cooper v. Moore, (Sup. Sp. T. 31 Barb. 9, 25. 1907) 55 Misc. 102, 104 N. Y. S. 69. Nielson v. Lafflin, (Sup. G. T. 1049, aflBrmed 124 App. Div. 911 1893) 50 State Eep. 277, 21 N. Y. S. mem., 108 N. Y. S. 1128; Gabriel v. 731 (conveyance by daughter to Gabriel, (Sup. Sp. T. 1913) 79 Misc. mother for grossly inadequate con- 346, 139 N. Y. S. 778, affirmed 160 sideration at a time when the App. Ddv. 901 mem., 144 N. Y. S. daughter was weak dn both body and 1117. jjiiQ^\ 72. Davis v. Culver, (Sup. G. T. 70. Ferris v. Ferris, (Sup. Sp. T. 1855) 13 How. Pr. 62. 1898) 22 Misc. 5.77, 49 N. Y. S. 593, 73. Green v. Eoworth, (1889) 113 per Gaynor, J.; Cooper v. Moore, N. Y. 462, 23 State Rep. 149, 21 (Sup. Sp. T.' 1907) 55 Misc. 102, 104 N. E. 165; Barnard v. Gantz, (1893) N. Y. S. 1049, affirmed 124 App. 140 IST. Y. 249, 55 State Rep. 541, 35 Div. 911 mem., 108 N. Y. S. 1128; N. B 430, affirming 50 State Rep. Gabriel v. Gabrie]> (Sup. Sp. T. 674, 21 N. Y. S. 349; Allen v. Lsj 1913) 79 Misc. 346, 139 N. Y. S. 778, Vaud, (1915) 213 N. Y. 322, 107 affirmed 160 App. Div. 901 mem., 144 N. E. 570, reversing 159 App. Div. N. Y. S. 1117; Gallery v. Miller, (Sup. 914 mem., 144 N. Y. S. 1103; Hayes G T 1888) 16 State Rep. 437, 1 v. Kerr, (Sup. 1897) 19 App. Div. 91, Ij Y S 88 45 N. Y. S. 1050; Disbrow v. Dis- 1'66 NEW YOKK LAW OF CONTRACTS [§ 13a an aged man, who had heeome much enfeebled mentally and physi- cally, took his two sons into partnership and turned over to them the management and control of his property and business affairs, becoming accustomeid to rely on their advice and counsel, and after they had already obtained from him the larger portion of his property without any adequate recompense, he, without considera- tion, in the absence of a legal adviser, executed to them a deed of his real estate in ignorance of its legal effect, the conveyance leaving the grantor comparatively destitute, it was held that fraud and undue influence were legally imputable to the grantees, requiring explanation from them, and this not having been given, that a find- ing of fraud and undue influence was justified^* And in a recent ease, where it appeared that a mature child in control and posses- sion of a dependent parent stricken and weakened with a fatal and progressive disease which had disabled his body and to some extent affected his mind, necessitating the constant use of stimu- lants, a few days after taking possession of his parent and a few days before the latter 's death procured from him more or less gratuitous conveyances stripping him of all of his property and in utter disregard of others who were the natural objects of his affection and bounty, it was held that a case was presented within the rule which casts on the beneficiary the burden of showing that he has not exercised a forbidden influence and that the convey- ances are fair and honest and free from fault which demands the condemnation of a court of equity .'° The fact that one of the parties to a contract is old, and is the grandfather and the employer of the other, does not raise a presumption of such an inequality brow, (Sup. 1898) 31 App. Div. 624, Swanstrom v. Day, (Sup. Sp. T. 52 N. Y. S. 471, affirmed 164 N". Y. 1905) 46 Misc. 311, 93 N. Y. S. 192, 564 mem., 58 N. E. 1086, convey- affirmed 101 App. Div. 609 mem., 92 anee by aged father to son who was N. Y. S. 1147; Eckerson v. Eckerson, also his business adviser; Hunter v. (Sup. Sp. T. 1918) 102 Misc. 422, 169 McCammon, (Sup. 1907) 119 App. N. Y. S. 933; Carpenter v. Mosher, Div. 326, 104 N. Y. S. 402; Whelan (Sup. G. T. 1890) 32 State Rep. 82, V. Whelan, (Ct. Err. 1824) 3 Cow. 9 N. Y. S. 897; Brand v. Brand, 537; Ross v. Ross, (Sup. 1875) 6 (Sup. G. T. 1870) 39 How. Pr. 193. Hun 80; Weller v. Weller, (&u,p. 74. Green v. Roworth, (1889) 113 1887) 44 Hun 172, 7 State Rep. 768, N. Y. 462, 23 State Rep. 149, 21 N. 26 Wkly. Dig. 260, affirmed 112 N". Y. E. 165, affirming 3 State Rep. 568. 655 mem., 19 N. E. 433, 205 State 75. Allen v. La Vaud, (1915) 213 Rep. 227, 2 Silv. Ct. App. 134; Bell N. y. 322, 107 N. E. 570, reversing V. Smith, (Sup. 1894) 83 Hun 438, 159 App. Div. 914 mem., 144 N Y 65 State Rep. 211, 32 N. Y. S. 54; S. 1103. § 132] inSTDUE INFLUENOE 167 between them as imposes on the latter the burden of proving affirmatively that no deception was practiced, no undue influence used, and that all was fair, open, voluntary and well understood. While these relations are, as matter of fact, consistent with weak- ness and confidence on the one side, and strength and undue influ- ence on the other, this is not necessarily presumable from the rela- tions themselves, and it must be shown in order to impose this burden.'^ Any presumption of the exercise of undue influence by a child over his aged parent may be overcome by circumstantial evidence adequately accounting for the preference given the child." Thus where a release given by an aged mother to her son was attacked, after her death, for undue influence, evidence that the son, who, together with his family, lived happily with his mother and who occupied also towards her the position of a trustee, had always been the favorite child and was largely preferred over the other children by the will of his father, has been held sufficient to over- come any presumption of undue influence which arose from the relation of aged parent and child and trustee.''* And where a con- veyance by a parent to his child was attacked on the ground of undue influence, the fact that the grantor appeared to have been the moving actor, selecting his own counsel and dictating the terms of the deed, without the child being present, has been considered strong evidence of a want of any undue influence.''' § 132. Undue Influence by Husband. — The relation of husband and wife between the parties is one which has frequently given rise to a charge of undue influence, usually exercised on the part of the husband.*" From an early period a gift by a wife 76. Cowee v. Cornell, (1878) 75 593; Bell v. Smith, (Sup. 1894) 83 N. Y. 91. Hun 438, 65 State Rep. 211, 32 N". In Adee v. Hallett, (Sup. 1896) 3 Y. S. 54. App. Div. 308, 73 State Rep. 754, 38 78. Ferris v. Ferris, (Sup. 1898) N. Y. S. 273, the court assumes that 34 App. Div. 144, 54 N". Y. S. 523, the relation between a grandmother affirming 22 Misc. 577, 49 N. Y. S. and her grandchild, who lived as a 593. member of the family, gave rise to 79. Davis v. Culver, (Sup. G. T. the presumption of undue influence 1855) 13 How. Pr. 62. See also Cal- but held that the evidence sustained lery v. Miller, (Sup. G. T. 1888) 16 the finding of the trial court that State Rep. 437, 1 N. Y. S. 88. no undue influence was in fact used. 80. Aldridge v. Aldridge, (1890) 77. Ferris v. Ferris, (Sup. 1898) 120 N. Y. 614, 31 State Rep. 948, 24 34 App. Div. 144, 54 N. Y. S. 523, N. E. 1022 (reversing the decision of affirming 22 Misc. 577, 49 N. Y. S. the general term which reversed 168 NEW YORK LAW OF CONTRACTS [§ 132 having a separate estate with power of disposal, made to her hus- band, was sustained in equity if it was freely made without undue influence on the part of the husband.*^ So a conveyance of a wife's land to a third person for the benefit of her husband, if free from undue influence, would be valid, or under the Married "Woman's Property Act, a conveyance directly to her husband.^^ Where, however, a transaction between spouses results in the enrichment of the husband at the expense of the wife, courts of equity have always closely scrutinized the whole transaction for evidence of undue influence, and have not hesitated to grant relief to the wife if this is made to appear.*^ And the better view, as regards trans- actions inter vivos, seems to be that it is incumbent on the hus- band to show, in the first instance, the absence of any undue influ- ence or unfair dealing on his part.^* Thus in an action by a wife to compel her husband to reconvcy to her property conveyed to him previous to a contemplated surgical operation, Mills, J., said : " It is contended by the learned counsel for the plaintiff that, in view of the confidential relation then existing between the parties as wife and husband, and of the plaintiff's sick condition and heT probably consequent at least partial impairment of mental and physical strength, the burden of proof should be held to rest upon the defendant to establish that the transaction of the taking of the deed was fairly conducted upon his part and well understood by the plaintiff; that is, that she was making an absolute and final conveyance of the property. I think that this contention is well made and shall proceed to judge the evidence by that standard. ' ' *° And in an action brought by the executor of a wife to set aside a the decision of the trial court on 81. Jaques v. M. E. Church, (Ct. the ground that the evidence did not Err. 1820) 17 Johns. 548. show undue influence by the husband 82. Donlon v. Donlon, (Sup. 1912) as found by the trial court. The 154 App. Div. 212, 138 N. Y. S. evidence in this case Showed that the 1039. wife while sick and in an enfeebled 83. Fry v. Frey, (Chan. Ct. 1839) condition was subjected to continued 7 Paige 461; Ferris v. Brush, (Chan. persuasion and urging, from which Ct. 1833) 1 Edw. 572. she finally sought relief by acquies- 84. Boyd v. De La Montagnie, cence in the demands of her hus- (1878) 73 N. Y. 498; Siebrecht v. band); Dooley v. Holden, (Sup. Siebrecht, (Sup. Sp. T. 1911) 137 1900) 53 App. Div. 625, 65 N. Y. N. Y. S. 15. See also Sistare v. S. 713; Donlon v. Donlon, (Sup. Hecksher, (Sup. G. T. 1892) 45 State 1912) 154 App. Div. 212, 138 N. Y. Rep. 699. S. 1039; Sis^tare v. Hecksher, (Sup. 85. Siebrecht v. Siebrecht, (Sup. G. T. 1892) 45 State Rep. 699, 18 Sp. T. 1911) 137 N. Y. S. 15, N. Y. S. 475. § 132] tjndue influence im transfer by tlie wife to her husband for fraud and undue influ- ence, Church, C. J., said: " It is not found that the defendant acted with a fraudulent intent in procuring the transfer, but I do not understand that this is necessary to be affirmatively shown in this class of cases. A court of equity will interpose its jurisdic- tion to set aside instruments between persons occupying relations in which one party may naturally exercise an influence over the conduct of another. A husband occupies such a relation to the wife, and the equitable principles referred to would apply to them in respect to gratuitous transfers by the wife to the husband, how- ever it might be in ordinary business transactions, which the wife may legally engage in. When this relation exists the person obtain- ing the benefit must show, by the clearest evidence, that the gift was freely and deliberately made. The burden is upon the person taking the gift to show that the transaction was fair and proper. ' ' *^ On the other hand, where it appeared that a wife, sixty years of age, a few days before her death conveyed land to her husband, seventy years of age, which she had received from him, and there was no evidence that their married life had not been as harmonious and happy as that of the average couple, it was held that there was no presumption of undue influence by the husband which would cast on him the burden of disproof.^' The presumption of the exercise of undue influence by the husband arises, it has been held, only where the marital relation has not been disturbed and 86. Boyd v. De La Montagnie, inference can be drawn that lie was (1878) 73 N. Y. 498. anything less than a dutiful husband 87. Donlon v. Donlon, (Sup. 1912) and father, whose children are un- 154 App. Div. 212, 138 N. Y. S. willing to await the orderly proces- 1039. " In none of the adjudicated sion of life in order to enjoy the. cases," says Woodward, J., in this estate which their parents have un- case, "have the courts gone to doubtedly brought together by their the extent of holding that the re- common eflforts. We think this is lation of husband and wife, sane- not a case for the extension of the tioned by civil and ecclesiaBtical rule of presumptions, that the facts" law, and jealously guarded by the do not bring it within the exeeptiona public policy of the etate, consti- to the general rule that fraud, which tuted a condition which raised a pre- is criminal in its essence, must be sumption of undue influence, even proved, and that the judgment in where one of the parties was old all cases must be rendered in con- and feeble both in mind and body, formity with the allegations and and in the present case the person proofs of the parties." This state- presumed to have been guilty of a ment as regards wills is very prob- fraud is older by ten years than iis ably true, but it is not true as shown alleged victim, and there is not a above as regards a transfer inter fact or circumstance from which the vivos. 170 NEW YORK LAW OF CONTRACTS [§ 133 the parties are living on such terms of intimacy and confidence as exist between husband and wife.** And where it appeared that the wife had received from the husband before their separation considerable money under an agreement to save some of it for his support in his old age, that after the parties had been separated for a number of years the husband threatened the wife with a law- suit to enforce the agreement or to recover back the money, and that as the outcome of negotiations between the parties, conducted by a lawyer to bring about a settlement, the wife contracted to pay to the husband a reasonable amount weekly for his support, it was held that no presumption of undue influence on the part of the husband could bo inferred.*" To sustain a wife's act in making a reasonable provision from her estate for the benefit of her hus- band, as free from undue influence, it is not necessary that it should be the spontaneous and unaided impulse of her own mind.'" And it is not undue influence for a husband to endeavor by his own reasoning and the persuasion of the friends of his wife to induce her to make such a provision in his favor."^ § 133. Undue Influence by Wife. — Where a voluntary conveyance or transfer of property by a husband to or for the benefit of his wife is made, no presumption of undue influence ordinarily arises from the relation of the parties."^ " The law," says Jenks, J., ' ' does not presume that the head of the family is dominated by the wife. ' ' '^ And in such eases undue influence is not established by proof that the conveyance resulted from motives of great affection and gratitude.'^ ' ' It does not need the citation of any authorities," says Eussell, J., " for the maintenance of the proposition that one occupying a confidential relation to another, who receives a transfer of valuable property without consideration, should at the call of the grantor, or those succeeding him, give evidence tending to show the freedom of action of him who parted 88. Minor v. Parker, (Sup. 1901) N. Y. S. 430; Cooke v. Higgins, (Sup. 65 App. Div. 120, 72 N. Y. S. 549. 1912) 152 App. Div. 204, 136 N. Y. 89. Minor v. Parker, (Sup. 1901) S. 641; Hoey v. Hoey, (Sup. Sp. T. 65 App. Div. 120, 72 N. Y. S. 549. 1899) 28 Misc. 396, 59 N. Y. S. 946, 90. Oruger v. Cruger, (Sup. 1849) affirmed 53 App. Div. 208, 65 N. Y. 5 Barb. 225, affirming 4 Edw. 433, S. 778. 4 N. Y. Leg. Obs. 55 93. La Tourette v. La Tourette, 91. Cruger v. Cruger, (Sup. 1849) (Sup. 1900) 54 App. Div. 137, 66 5 Barb. 225, affirming 4 Edw. 433, N. Y. S. 430, appeal dismissed 167 4 N. Y. S. Leg. Obs. 55. N. Y. 613, 60 N. E. 1115. 92. La Tourette v. La Tourette, 94. Cooke v. Higgins, (Sup. 1912) (Sup. 190O) 54 App. Div. 137, 66 152 App. Div. 204, 136 N. Y. S. 641. §134] UNDUE INFLUBNOE 171 with his property. But the confidential relation here is that of the wife to the husband. At the common law she was supposed to be under his dominion, and not he under hers; and although at this later day such an inference has been seriously modified by the force of stem facts, yet the presumption has not as yet entirely shifted to the shoulders of the wife."^' And where a childless husband, at a time when his health and mind were failing, fearing possibly his future inability to deal properly with his property and apprehensive of early death, conveyed it to his loyal and affectionate wife, it was held that the wife was not called on, in order to sustain the conveyance as against the heirs of the husband, to give proof of the want of any undue influence on her part.'^ On the other hand, where it appears that the husband, due to Hi-health and mental weakness, was subject to his wife's influence and control, it then becomes her duty, it has been held, in order to sustain a voluntary conveyance by her husband, to show the want of undue influence on her part." And this has been held true where a husband, during the closing years of his life, con- veyed to his second wife, to whom he was very devoted, the greater portion of his property, leaving comparatively little to be divided between the children by his first wife.'* § 134. Betrothed Persons. — The courts will not hesitate to set aside an antenuptial contract between intended spouses, whereby the man obtains a valuable interest in the woman 's prop- erty, if the evidence shows that the woman was unduly influenced by the man.'' And it seems that the relation between persons betrothed is of such a confidential nature as to raise a presump- tion of undue influence, thereby casting on the man the burden of showing that an antenuptial contract executed on the eve of their marriage was free from fraud or undue influence. " The existence of such a rule," it is said, " is not open to discussion, but the difficulty lies in determining in what cas^ and to what extent it shall be applied. It is believed that the existence of the 95. Hoey v. Hoey, (Sup. Sp. T. 98. Cooke v. Higgins, (Sup. 1912) 1899) 28 Misc. 396, 397, 59 N. Y. 152 App. Div. 204, 136 N. Y. S. 641. S. 946. 99. Eing v. Ring, (Sup. Sp. T. 96. Hoey v. Hoey, (Sup. Sp. T. 1®07) 55 Misc. 420, 105 N. Y. S. 1899) -28 MiBC. 396, 59 N. Y. S. 946, 498, affirmed 127 App. Div. 411, 111 affirmed 53 App. Div. 208, 65 N. Y. N. Y. S. 713, which is affirmed 199 S. 778. N. Y. 574 mem., 93 N. E. 1130. 97. Eeilly v. Reilly, (Sup. 1901) 63 App. Div. 169, 71 N. Y. S. 287. 172 NEW YORK LAW OP CONTRACTS t§ 135 rule depends upon the assumption that because of the intimate relation of the parties their situation is unequal, so that they are not dealing at arm 's length, and the presumption is that the weaker party has yielded to undud influence or has been the victim of con- fidence misplaced because of that relation. ... It would seem then that the application of the rule would necessarily depend some- what upon the character of the parties to the agreement and some- what upon the character of the agreement itself. ' ' ^ And where an antenuptial contract provided that in the event of the death of one of the parties the survivor should take the entire estate of the deceased party, it has been held that any presumption of undue influence on the part of the husband was overcome, . . . where it further appeared that the parties were well advanced in years, the wife a business woman of considerable experience, fully cognizant of the fact that her husband's property wasi not equal in value to her own, and she having, prior to the marriage, made repeated statements showing her intention that her husband should succeed to her property rather than her relatives, and after an estrange- ment and separation she took no steps to have the contract set aside.^ § 135. Confidential Business Belatious Generally. — fThe fact that one party is engaged in a business from which it may be inferred that he was better qualified to make bargains and to obtain advantages, by reason of his capacity, shrewdness and superior ability, does not of itself lead to the conclusion or infer- ence that any advantage was obtained by undue influence. A per- son of greater intelligence, experience and adroitness in business affairs will naturally have an advantage over one more ignorant and less qualified to engage in such matters, and the superior mind must necessarily exercisd more or less control over the inferior, but this is not undue influence.' And the law will not raise a pre- sumption of undue influence from the ordinary relation of the parties in the business world, even though to a certain extent the relation is also that of principal and agent,* as where the relation is that of principal and an ordinary agent for the collection of 1. Green v. Benham, (Sup. 1900) 4. Kelly v. Ashforth, (Sup Sp T 57 App. Div. 9, 12, 68 N. Y. S. 248. 1905) 47 Misc. 498, 95 N. Y. S. 3. Green v. Benham, (Sup. 1900) 1004, affirmed 111 App. Div 922 57 App. Div. 9, 68 N. Y. S. 248. mem., 90 N. Y. S. 1131 3. Stout V. Smith, (1885) 98 N. Y. 25. See supra, section 129. § 136] UNDUE INFLUENCE 173 rents and interest." On the other hand, the relation of confidential business adviser has frequently been regarded as of such a nature as to require one holding that relation to a person largely under his influence and control, to show that he has taken no undue advantage of his position and has not unduly influenced such person.^ And this is especially true where there is also a close family relation/ It is also considered, as a general rule, that a confidential relation exists between partners, and where one partner procured a transfer of the other's interest in the firm property, he has been required to show, in the first instance, that the transaction was free from fraud and undue influence on his part.^ Where the relation is simply one of principal and agent, proof to sustain a donation as free from undue influence should be deemed sufficient and satisfactory where it is shown that the principal knew what he was about, the value of the thing donated, the exact situation of the property, the effect the transfer would have on his own estate, and if the gift is effected by a deed or an instrument in writing, that it was read over and explained before execution and its contents fully understood.^ § 136. 1 Attorney and Client. — The mere fact that one party to a contract is an attorney, the relation of attorney and client not existing between the parties, raises no presumption or inference of the exercise of undue influence on his part.^" And the fact that he offers to and does draw the necessary writing without charge 5. Kelly v. Ashforth, (Sup. Sp. T. 7. Ten Eyck v. Whitbeck, (1898) 1905) 47 Misc. 498, 95 N. Y. S. 1004, 156 N. Y. 341, 50 N. E. 963, revers- affirmed 111 App. Div. 922 mem., ing 91 Hun 636 mem., 70 State Eep. 96 N. Y. S. 1131. B72, 35 N. Y. S. 1013; Decker v. 6. Ten Eyck v. Whitbeck, (1898) Waterman, (Sup. 1876) 67 Barb. 156 N. Y. 341, 50 N. E. 963; Snook 460; Fisher v. Fisher, (Sup. G. T V. Sullivan, (Sup. 1900) 53 App. Div 602, 60' N. Y. S. 24, reversing 25 Misc. 578, 55 N. Y. S. 1073 and af- firmed 167 N. Y. 536 mem., 60 N. B 1120; Decker v. Waterman, (Sup 1876) 67 Barb. 460; Fisher v. Fisher (Sup. G. T. 1890) 5 Silv. Sup. Ct 459, 30 State Eep. 363, 9 N. Y. S. 4, affirmed 129 N. Y. 654, 42 State Kep 100, 29 N. E. 95, 3 Silv. Ct. App. 640 22 Civ. Pro. 48 ; Barnes v. Waterman (Sup. Sp. T. 1907) 54 Misc. 392 104 N. y. S. 685, affirmed 129 App Div. 929 mem., 114 N. Y. S. 1118. 1890) 5 Silv. Sup. Ct. 459, 30 State Rep. 363, 9 N. Y. S. 4, affirmed 129 N. Y. 654, 42 State Rep. 100, 29 N. E. 95, 3 Silv. Ct. App. 640, 22 Civ. Pro. 48. 8. Piatt V. Piatt, (Sup. 1873) 2 Thomp. & C. 25, affirmed 58 N. Y. 646. 9. Decker v. Waterman, (Sup. 1876) 67 Barb. 460. 10. Stout V. Smith, (1885) 98 N. Y. 25. 174 JSTEW YORK LAW OF CONTRACTS [§130 does not establi^ the relation of attorney and client and impose on the attorney the duties and obligations of that relation so as to raise any inference of undue influence.^^ And the relation of attor- ney and client does not preclude, where the transaction is free from fraud and undue influence, a voluntary conveyance or gift by the client to the attorney or other transactions.^^ The courts, however, scrutinize for evidence of fraud and undue influence transactions between an attorney and his client, by which the former enriches himself at the expense of the latter.^^ And the relation is regarded as of such a confidential nature that the attor- ney in order to sustain the transaction must show that he has taken no unfair advantage of his position." And this rule is not limited strictly to practicing attorneys. Thus it has been held to extend to a justice of the peace in a rural community, who had acted as the confidential and legal adviser of the complainant,^' and to one who had been a law student, though not admitted to the bar, and had acted as a confidential adviser on general busi- ness and legal matters.^^ The rule requiring the attorney to show 11. Stout V. Smith, (1885) 98 N. Y. 25; Wood v. Brown, (Super. Ct. 1884) 50 Super. Ct. 516. 12. Nesbit V. Lockman, (1866) 34 ISr. Y. 167; Audley v. Jester, (Sup. 1911) 148 App. Div. 94, 132 N. Y. S. 1061; Tragman v. Littlefield, (Com. PI. G. T. 1892) 45 State" Rep. 673, 18 N. Y. S. 583; Wendell v. Van Rensselaer, (Chan. Ct. 1815) 1 Johns. Ch. 344. 13. Werner v. Knowlton, (Sup. 1905) 107 App. Div. 158, 94 N. Y. S. 1054; Mason V. Ring, (App. 1861) 3 Abb. App. Div. 210, 2 Abb. Pr. N. S. 322 ; Howell v. Ransom, ( Chan. Ct. 1845) 11 Paige 538; Poillon v. Martin, (Chan. Ct. 1844) 1 Sandf. Ch. 569. 14. Whitehead v. Kennedy, (1877) 69 N. Y. 462, reversing 7 Hun 230; In re Smith, (1884) 95 N. Y. 516; Place V. Hayward, (1889) 117 N. Y. 487, 27 State Rep. 710, 23 N. E. 25, reversing 55 Super. Ct. 208, 13 State Rep. 288; Allen v. La Vaud, (1915) 213 N. Y. 322, 326, 107 N. E. 570 (dictum); Harden v. Dorthy, (Sup. 1896) 12 App. Div. 176, 42 N. Y. S. 834; Sheehan v. Erbe, (Sup. 1902) 77 App. Div. 176, 79 N. Y. S. 43; Bingham v. Sheldon, ( Sup. 1905 ) 101 App. Div. 48, 91 N. Y. S. 917; Sheehan v. Erbe, (Sup. 1905) 103 App. Div. 7, 92 N. Y. S. 862; Bur- ling v. King, (Sup. 1874) 2 Thomp. & C. 545, 46 How. Pr. 452; Brock V. Barnes, (Sup. 1863) 40 Barb. 521, 528; Petrie v. Williams, (Sup. 1893) 68 Hun 589, 52 State Rep. 587, 23 N. Y. S. 237; Pinlay v. Leary, (Sup. 1895) 87 Hun 8, 67 State Rep. 488, 33 N. Y. S. 872; Tragman v. Little- field, (Com. PI. G. T. 1892) 45 State Rep. 673, 18 N. Y. S. 583; De Rose V. Fay, (Chan. Ct. 1842) 4 Edw. 40. 15. Fisher v. Bishop, (1887) 108 N. Y. 25, 13 State Rep. 466, 28 Wkly. Dig. 131, 15 N. E. 331, affirming 36 Hun 112. 16. Snook V. Sullivan, (Sup. 1900) 53 App. Div. 602, 66 N. Y. S. 24, reversing 25 Misc. 578, 55 N. Y. S. 1073, and affirmed 167 N. Y. 536 mem., 60 N. E. 1120. §§ 137-ia9] UNDUE IXFLUENCE 175 that the transaction was free from fraud and undue influence does not apply to contracts of retainer by which the relation is created." § 137. Physician or Nurse and Patient. — It is recognized as a general rule that the relation between physician and patient is of a confidential nature requiring the physician, in case of dona- tions from the patient, to show that the transaction was free from undue influence on his part.^* The presumption of undue influence has been held to arise where a nurse received extravagant dona- tions from her patient; as where an aged woman during her last illness, and shortly before her death, transferred practically all her property to a friend with whom she had boarded for a number of years and who acted as her nurse during her illness, the papers having been prepared by the husband of the nurse." And the fact that the donee was the nurse of the donor during his last ill- ness, and while that relationship existed he transferred to her securities exceeding in value half a million dollars, has been held to place on the donee the burden of showing by clear and satis- factory evidence that the transfers were the free and voluntary acts of the donor .2"> § 138. Ratification. — (A contract procured by undue influence, , whether executory or executed, in its nature, is not void but merely voidable, and may be rendered valid by ratification by the party ^unduly influenced. ^^ In order to effect a ratification it is necessary to show that the party intended such a result after a knowledge of all the facts. If at the time of the alleged ratification it is shown that the party was mistaken as to the terms of the voidable instru- ment, there is no ratification of the instrument as it is; it could at the most operate as an intended ratification of the instrument as understood.^^ § 139. Rights of Third Persons. — Where a conveyance is induced by undue influence, the fact that third persons have acquired an 17. Clifford V. Braun, (Sup. 1902) T. 1898) 25 Misc. 556, 55 N. Y. S. 71 App. Div. 432, 75 N". Y. S. 856; 219. Boyd V. Daily, (Sup. 1903) 85 App. 20. Watson v. Holmes, (Sup. Eq. Div. 581, 83 N. Y. S. 539, affirmed T. 1913) 80 Misc. 48, 140 N. Y. S. 176 N. Y. 613, 68 N. E. 1114; Title ^27. Guarantee, etc., Co. v. Sternberg, ^ ^J; ^^salon v. Sickinger (Sup. (Sup. 1907) 119 App. Div. 28, 103 J^^IJi/"' ^^P' ^'^- '^'' '' ''• ''• N. Y. S. 857. 22. Barnard v. Gantz, (1893) 140 18. Sears v. Shafer, (1852) 6 N. x. Y. 249, 55 State Rep. 541, 3^ N. Y. 268, 271, (dictum). E. 430, affirming 50 State Rep. 674, 19. Schinotti v. Cuddy, (Sup. Sp. 21 N. Y. S. 349. 176 KEW YORK LAW OF CONTRACTS [§ 139 interest in the land without knowledge of the exercise of s^ieh influence will not prevent the conveyance from being set aside, if they do not occupy the position of bona fide purchasers for value, and as such entitled to protection'against the equity of the grantor.^^ Thus the fact that the grantee marries after the conveyance, and his wife has acquired thereby an inchoate dower interest, is imma- terial as regards the right of the grantor to have the conveyance set aside.^ So where a grantor is induced to make a voluntary conveyance by the undue influence of one of the grantees, the fact that the other had no knowledge that the grantor had been so influ- enced does not prevent the setting aside of the conveyance in toto.^' Undue influence, however, does not render the contract executed void, but voidable merely. Bona fide purchasers for value will therefore be protected against the equitable right of a grantor to avoid his conveyance for undue influence exercised by the grantee, and after the legal title has passed into the hands of such a pur- chaser the grantor's right to avoid his conveyance for the undue influence exercised over him is lost.^ Under this rule protection may be given a mortgagee who takes his mortgage in good faith for money advanced." " One who gets title to real or personal property," says Gaynor, J., " by fraud or undue influence, is able to convey good title to a purchaser for value and without notice. He has title until it is avoided by the grantor. . . . Such a case is different to one where there is no title, as in the case of chattels obtained of one who stole them, or of real estate of one whose title deed is a forgery, or was never delivered. ' ' ^^ 23 Dooley v. Holden, (Sup. 1900) N. E. 264, reversing 28 State Rep. 53 App. Div. 625, 65 N. Y. S. 713; 571, 8 N. Y. ,S. 435. Whelan v. Whelan, (Sup. 1824) 3 27. Valentine v. Lnint, (1889) 115 Cow. 537. N". Y. 496, 26 State Rep. 254, 22 N. 24 Whelan v. Whelan, (Sup. E. 209 ; Reilly v. Reilly, ( Sup. 1901 ) 1824) 3 Cow. 537. 63 App. Div. 169, 71 N. Y. S. 287; -IT TTTi 1 Tiri. 1 Id Swanstrcan v. Day, (Sup. SpL T. ,oo^\^ n"" I',, « ', * t''' 1905) 46 Misc. 31 1' 93 N. Y. S 192, l''t' M7^ w n«p«T itV V ^ffi™« jj /o TQoo\ 77. Wilcox V. American Telephone, 74. Whit« y. DoddB '|"P,„^„^^^' etc., Co.; (1903) 176 N. Y. 115, 68 42 Barb. 554, 18 Abb. Pr. 2o0, 28 ^_ '^ jgg^ ^^^^^^.^^ ^3 ^^^ '^.^ How. Pr. 197. 614 mem., 76 N. Y. S. 1037; Smith v. 75. Gary v. Hotailing, (Sup. 1841) Ryan, (1908) 191 N. Y. 452, 84 N. 1 Hill 311. E. 402. 196 NEW YOKK LAW OF CONTRACTS [§ 148 tion of the instrument, but to the contract which it evidences. In the second case there is procured only the signature to and execu- tion of the "written instrument, but not assent to the contract therein stated."'* Thus where a landowner was inveigled into executing a deed, conveying easements to a telegraph and telephone company, by misrepresentations to the effect that it was only a receipt for money at the time paid for injuries done by the com- pany in trimming a tree belonging to the landowner, it was held in an action of ejectment against the company, in which the com- pany set up the deed as a defense, that the landowner could avoid its effect without any necessity for a resort to equity.'* § 148. Rights of Third Persons — Bona Fide Purchasers.— If a person is induced by fraud to enter into a non-negotiable execu- tory contract, an assignee of such a contract, as a general rule, takes it subject to all defenses available against the assignor, which includes the defense of fraud.'" This is also true, where the instrument is in the form of a negotiable instrument, if the assignee is not a bona fide purchaser for value and without notice.'^ It is otherwise in case of negotiable instruments if the transferee is a bona fide purchaser in due course for value, and he will take free from the defense that the maker was induced by fraud to give the instrument ; *^ but in such a case the burden is on him, even independent of the Negotiable Instrument Law, to show that he was in fact a bona fide purchaser for value.'^ and also that he had no notice of the fraud.'* The reason sometimes given for this 78. Smith v. Ryan, (1908) 191 N. (1874) 56 N. Y. 478, affirming 36 Y. 452, 407, 84 N. E. 402. See also Super. Ct. 273, 45 How. Pr. 492. Whipple V. Brown Bros. Co., (1919) 83. Harger v. Wornall, (1877) 69 225 N. Y. 237, 121 N. E. 748, affirm- N. Y. 370; Vosburgh v. Diefendorf, mg 170 App. Div. 531, 156 N. Y. S. (1890) 119 N. Y. 357, 364, 29 State ^^- Rep. 448, 23 N. E. 801; AmericaJi 79. Wilcox V. American Telephone, Exch. Nat. Bank v. New York Belt- etc, Co., (1903) 176 N. Y. 115, 68 ing, etc., Co., (1896) 148 N. Y. 698, N. E. 153, reversing 73 App. Div. 703, 43 N. E. 168; Hurst v. Lee, 614 mem., 76 N. Y. S. 1037. (Sup. 1911) 143 App. Div. 614, 127 80. Lassall v. Pati, (Sup. Sp. T. N. Y. S. 1040; Hale v. Shannon, (Sup. 1898) 25 Misc. 561, 55 N. Y. S. 1084, 1890) 57 Hun 466, 32 State Kep. 28 Civ. Pro. 328. 1079, 11 N. Y. S. 129. 81. Baker v. Lever, (1876) 67 N. 84. Cortland First Nat. Bank v. Y. 304, affirming 5 Hun 114; Green, (1871) 43 N. Y. 298- Vos- Rochester Prmting Co. v. Loomia, hurgh v. Diefendorf, (1890) 119 N. (1887) 45 Hun 93, 9 State Rep. 592, Y. 357, 365, 29 State Rep. 448, 23 affirmed 120 N. Y. 659 mem., 24 N. N. E. 801; Canajoharie Nat. Bank •^- ^^"2- V. Diefendorf, (1890) 123 N. Y. 191, 82. Justh V. National Bank, 33 State Rep. 389, 25 N. E. 402; § 148] EEAUD 197 is that where there is fraud the presumption is that the payee will part with the note for the purpose of enabling some third person to recover on it, and such presumption operates against the holder and it devolves on him to show that he gave value for it.86 Where the contract is executed, as in case of sales of land or personal chattels after transfer of title, a bona fide purchaser for value acquiring title from the fraudulent buyer will acquire a good title as against the defrauded seller's right to rescind and reclaim the subject matter of the sale.*^ And this is also held true as to a bona fide transferee of a chose in action, such as a bond and mortgage or the like, taking from one who by fraud procured its unconditional assignment.*' This is based on the principle that where one of two innocent persons must neces- sarily suffer by the wrongful act of a third person, the loss should fall on the one who by his voluntary or negligent act has enabled the wrongdoer to produce the injury.** And according to the better view it is immaterial that the fraud of the buyer by which he obtained the possession and title may have constituted the statutory felony of obtaining goods by false pretenses.** A person, however, succeeding to the title of the fraudulent buyer or assignee, who does not occupy the position of a bona fide purchaser for value and without notice, takes subject to the seller's right of reclamation;*" and it is held that one who takes the property Bafsky V. Frederick A. Smith Co., Tenton, (Chan. Ct. 1848) 3 Barb. (Sup. Sp. T. 1913) 79 Misc. 353, 139 Ch. 451. N. y. S. 1088. 88. Mowrey v. Walsh, (Sup. 1828) 85. Cortland First Nat. Bank v. 8 Cow. 238; Moore v. Miller, (Sup. Green, (1871) 43 N. Y. 298. G. T. 1872) 6 Lans. 396; Peabody v. 86. Sinnott v. German-American Fenton, (Chan. Ct. 1848) 3 Barb. Bank, (1900) 164 N. Y. 386, 58 N. Ch. 451. E. 286, affirming 33 App. Div. 641 89. Malcom v. Loveridge, (Sup. mem., 54 N. Y. S. 1110; Mowrey v. 1851) 13 Barb. 372; Keyser v. Har- Walsh, (Sup. 1828) 8 Cow. 238; beck, (Super. Ct. 1854) 10 Super. Malcolm v. Loveridge, (Sup. 1851) Ct. 373, 12 N. Y. Leg. Obs. 201, 2 13 Barb. 372; Naugatuok Cutlery Liv. Law Mag. 548. See also Pea- Co. V. Babcock, (Sup. 1880) 22 Hun body v. Fenton, (Chan. Ct. 1848) 3 481; Keyser v. Harbeek, (Super. Ct. Barb. Ch. 451. But see Andrews v. 1854) 10 Super. Ct. 373, 12 N. Y. Dieterich, (Sup. 1835) 14 Wend. 31; L^. Obs. 201, 2 Liv. Law Mag. 548; Robinson v. Dauchy, (Sup. 1848) 3 Durbrow v. McDonald, (Super. Ct. Barb. 20. 1859) 18 Super. Ct. 130. 90. Hathorne v. Hodges, (1864) 28 87 Moore v. Miller, (Sup. G. T. N. Y. 486; Stevens v. Brennan," 1872) 6 Lans. 396, applying McNeil (1879) 79 N. Y. 254; Wise v. V New York Tenth Nat. Bank, ,1871) Grant, (1894) 140 N Y. 593, 56 46 N. Y. 325. See abo Peabody v. State Kep. 496, 35 N. E. 1078, affirm- 1»8 NEW YORK LAW OF CONTRACTS [§ 14i8 as security for or in payment of a pre-existing debt is not to be regarded as a purchaser for value.*^ If the goods are sold to a bona fide purchaser the seller may follow the proceeds as a trust fund as long as they can be traced and until they have passed into the hands of a person entitled to protection against the equity of the seller.'^ The burden is on the party claiming protection as a bona fide purchaser for value to establish such fact.^' If after knowledge of the fraud the seller ratifies the sale he loses any right to reclaim the goods in the hands of either the buyer or his successor in title, and after the title has passed from the buyer the seller cannot ratify the sale for the purpose of holding the buyer for the price and at the same time, even by an express provision in the contract of ratification, retain a right to reclaim the goods.'* Though the signature of the grantor to a convey- ance may be genuine, still if it was procured, without negligence on his part, by some trick or artifice, without any intention on the part of the grantor to execute a conveyance and without any ing as to this but reversing on other grounds 49 State Eep. 439, 20 N. Y. S. 828; Converse v. Sickles, (1895) 146 N. Y. 200, 2 N. Y. Annot. Cas. 16, 66 State Rep. 586, 40 N. E. 777; Bienenstok v. Ammidown,, (Super. Ct. Sp. T. 1894) 31 Ahb. N. Cas. 400, 59 State Eep. 471, 29 N. Y. S. 593, affirmed 11 Misc. 76, 32 N. Y. S. 1138 mem.; King v. Fitch, (App. 1864) 1 Keyes 432, 2 Abb. App. Dec. 508; Gale v. Gale, (Sup. 1855) 19 Barb. 249; Ward v. Woodbum, (Sup. 1858) 27 Barb. 346; Joslin v. Cowee, (Sup. 1871) 60 Barb. 48, re- versed on other grounds 52 N. Y. 90; Naugatuck Cutlery Co. v. Bab- cock, (Sup. 1880) 22 Hun 481; Merchants' Nat. Bank v. Tracy, (Sup. 1894) 77 Hun 443, 60 State Rep. 650, 29 N. Y. S. 77, affirmed] 150 N. Y. 565 mem., 44 N. E. 1126; Sommer v. Oppenheim, (Sup. App. T. 1897) 19 Misc. 605, 78 State Rep. 396, 44 N. Y. S. 396, affirm- ing 18 Misc. 736 mem., 41 N. Y. S. 1132; Grossman v. Walters, (Sup. G. T. 1890) 33 State Rep. 921, 11 N. Y. S. 471; Peabody v. Fenton, (Chan. Ct. 1848) 3 Barb. Ch. 451; Dykera v. Woodward, (Sup. Sp. T. 1852) 7 How. Pr. 313; Francheria V. Henriques, (Com. PI. G. T. 1862) 24 How. Pr. 165; Fraschieris v. Henriques, (Com. PI. G. T. 1868) 6 Abb. Pr. N. S. 251. See also Day- ton V. American Steel Barge Co., (Sup. Tr. T. 1901) 36 Misc. 223, 73 N. Y. S. 316, affirmed 76 App. Div. 454, 79 N. Y. S. 1130. 91. Stevens v. Brennan, (1879) 79 N. Y. 254. 92. Bienenstok v. Ammidown, (Super. Ct. Sp. T. 1894) 31 Abb. N. Cas. 400, 29 N. Y. S. 593, affirmed 11 Misc. 76, 32 N. Y. S. 1138 mem. 93. Stevens v. Brennan, (1879) 79 N. Y. 254; Canajoharie Nat. Bank V Diefendorf, (1890) 123 N. Y. 191, 33 State Rep. 389, 25 N. E. 402; King V. Fitch, (App^ 1864) 1 Keyes 432, 2 Abb. App. Dec. 508; Mer- chants' Nat. Bank v. Tracy, (Sup. 1894) 77 Hun 443, 60 State Rep. 650, 29 N. Y. S. 77, affirmed 150 N. Y. 565 mem., 44 N. E. 1126; Bienen- stok V. Ammidown, Super. Ct. Sp. T. 1894) 31 Abb. N. Cas. 400, 29 N. Y. S. 593, affirmed 11 Misc. 76, 32 N. Y. S. 1138 mem. 94. Joslin V. Cowee, (1873) 62 N. Y. 90, reversing 60 Barb. 48. § 149] URAUD 199 delivery as such, the instrument in so far as it purports to be a conveyance is in the nature of a forgery, and no one claiming under the grantee can claim any protection as against the grantor on the ground that he was a purchaser for value and without notice, as the instrument is in the first instance absolutely void and not merely voidable at the option of the grantor.^* § 149. Who May Take Advantage of Fraud. — Only such per- sons as are affected by the fraud may complain thereof.^ "A fraud," says Hunt, J., " upon one does not form a claim on behalf of a stranger to the transaction, not claiming under the party defrauded. A fraud is an individual and personal thing. It is a cause of complaint to the person only upon whom it is com- mitted. No other person can claim a benefit from it. A recovery by any other person is no defense to a claim by the party defrauded. " " It has been held that a receiver of a corporation is not necessarily entitled to sue to avoid a contract between the corporation and its directors, voidable for constructive fraud on the part of the directors. Therefore a complaint in an action brought by the receiver of a corporation to avoid or disaffirm acts of the corporation or its directors as fraudulent, which merely alleges the appointment of the plaintiff as receiver with- out specifying the nature of the receivership or of the action or proceeding in which he was appointed, and which does not state that there are creditors, that the company is insolvent, or that the stockholders have disafiirmed the transaction in question, fails to show a right in the plaintiff to disaffirm the transactions, and hence is insufficient.'* A sale of real or personal property, procured by the fraud of the buyer or grantee, transfers a good title as against all persons except the seller or grantor, and a 95. Harden v. Dorthy, No. 1, 480, 30 N. Y. S. 827; Bloomingdale (1899) 160 N. \. 39, 54 N. E. 726, v. Hodges, (Sup. App. T. 1897) 21 affirming 12 App. Div. 188, 76 State Misc. 6, 46 N. Y. S. 859; McGlynn Rep. 827, 42 N. Y. S. 827. v. Seymour, (Com. PI. 1888) 14 Daly 96. Graser v. Stellwagen, (1862) 420, 14 State Rep. 707. 25 N. Y. 315; Comstock v. Ames, 97. Comstock v. Ames, (App. 1867) (App. 1867) 3 Keyes 357, 1 Abb. App. 3 Keyes 357, 1 Abb. App. Dec. 411. Dec. 411; Jackson v. Eaton, (Sup. See also Bloomingdale v. Hodges, 1823) 20 Johns. 478; Butler v. Veile, (Sup. App. T. 1897) 21 Misc. 6, 46 (Sup. 1865) 44 Barb. 166; Bennett N. Y. S. 859. V. Bates, (Sup. 1882) 26 Hun 364, 98. Forker v. Brown, (Com. PI. G. 367, judgment modified 94 N. Y. T. 1894) 10 Misc. 161, 62 State Eep. 354; Forker v. Brown, (Com. PI. G. 480, 30 N. Y. S. 827, affirmed 159 T. 1894) 10 Misc. 161, 62 State Rep. N. Y. 540 mem., 53 N. E. 1125. 200 NEW YORK LAW OF CONTRACTS [§149 stranger not claiming under or in privity to the seller or grantor cannot set up the fraud to defeat the title of the buyer or grantee.'" It also seems that where land is purchased subject to a mortgage given by the grantor on a prior purchase, the purchaser cannot set up, in defense of a foreclosure of the mortgage, fraudulent representations made to his grantor to induce him to make the purchase.^ If an assignment of a chose in action is procured by fraud, and the assignor has asserted his right to avoid the assignment, the debtor may undoubtedly, in an action by the assignee to enforce the claim, set up the defense of want of title in the assignee.^ This view has been taken where the assignment of a bond and mortgage was obtained by fraud, and the mortgagor thereafter paid the indebtedness to the mortgagee and he was permitted to set up the defense, in an action by the assignee, of payment to the mortgagee and fraud in the procurement of the assignment by the assignee.' On the other hand, as the fraud would render the assignment or transfer of the chose in action voidable merely at the option of the assignor, it would seem that if he has not sought to repudiate the transaction, the debtor cannot without authorization of the assignor attack^ the title of the assignee for fraud in obtaining the assignment.* Still there is authority for the position that if there was actual mala fides on the part of the assignee, the debtor may set up that fact in defense to an action by him to enforce the indebtedness; this, it is said, proceeds on the general doctrine that no man can acquire a right by his own fraud to sustain an action in any court.^ If a 99. Graser v. Stellwager, (1862) 2. Hall v. Erwin, (Sup. 1871) 60 25 N. Y. 315; Comstx)ck v. Ames, Barb. 349, judgment modified 57 N. (App. 1867) 3 Keyes 357, 1 Abb. Y. 643; Talman v. Gibson, (Super. App. Dec. 411; Jackson v. Eaton, Ct. 1828) 1 Super. Ct. 308. (Sup. 1823) 20 Johns. 478; Gause 3. Hall v. Erwin, (Sup. 1871) 60 V. Commonwealth Trust Co., (Sup. Barb. 349, judgment modified 57 N. Sp. T. 1904) 44 Misc. 46, 89 N. ,Y. Y. 643. S. 723, reversed on other grounds 4. See City Bank v. Perkins, 100 App. Div. 427, 91 N. Y. S. 847. (1864) 29 N. Y. 554. 1. Commercial Bank v. Catto, 5. Talman v. Gibson, (Super. Ct. (Sup. 1897) 20 App. Div. 236, 46 1828) 1 Super. Ct. 308. In this case N. Y. S. 983, affirmed 163 N. Y. Oakley, J., said: "It is believed to 569, 57 N. E. 1107. See in this be well settled that if the holder of connection Bennett v. Bates, (Sup. a note obtains it by fraud he cannot 1882) 26 Hun 364, judgment modi- maintain an action on it against any fled 94 N. Y. 354. And compare of the parties to it. He must aver Crowe v. Malba Land Co., (Sup. and prove that the note was trans- Sp. T. 1912) 76 Misc. 676, 135 N. Y. ferred to him; and though his pos- S. 454. session of the note is prima facie § 149] FRAUD 201 buyer is induced by the fraud of the seller to make a purchase, and a note for the purchase price is given indorsed by third persons, it has been held that such third persons cannot set up, in defense to an action against them on their indorsements, the fraud practiced on the buyer, where the buyer has done nothing to rescind the sale, as the fraud is in such a case personal to the buyer, who alone is to determine what steps he will take in respect thereto.' It seems that where an extension of credit is procured by the debtor's fraudulent representations as to his financial stand- ing, and notes are given for the indebtedness, an assignee of the original claim and the notes may avoid the extension of credit and sue immediately on the original indebtedness.' And where the defendant obtained possession of a certificate of stock belong- ing to another of the same name, and sold and transferred it fraudulently to a third person, a bona fide purchaser from such third person has been permitted to take advantage of the fraud as a basis for the arrest of the defendant in a civil action.' Ordinarily a fraud practiced on an agent gives a right of action to his principal.' But where the agent of an undisclosed principal was induced by fraud to enter into a contract under seal, the right of his principal to maintain an action for damages without an assignment of the cause of action has been denied, as the same rule which denies to an undisclosed principal the right to enforce a contract made under seal entered into by his agent precludes the evidence of the transfer, yet, if the explained in City Bank v. Perkins, defendant can show that the plaintiff 29 N. Y. 554, the defense of fraud obtained the note by his own fraudu- on the part of the plaintiff in the lent act, he has a right to defeat procurement of the transfer of the the action on that ground, although note was in fact sanctioned by the he may be liable to pay the note to person claiming to be the true owner the true owner. He has not a right of the note. to question the consideration merely 6. Elliott v. Brady, (190S) 192 on which the holder received the N. Y. 221, 85 N. E. 69, affirming 118 note; but he may be permitted to App. Div. 208, 103 N. Y. S. 156. show that there was no eonsidera- 7. French v. White, (Super. Ct. tion paid by the holder, as one step 1856) 12 Super. Ct. 254. towards the proof of fraud on his 8. Faris v. Peck, (Super. Ct. G. part in obtaining it. This proceeds T. 1870) 32 Super. Ct. 689, 10 Abb. on the general doctrine that no man Pr. N. S. 55, 40 How. Pr. 484. can acquire a right by his own fraud 9. Culliford v. Gadd, (Super. Ct. to sustain an action in any court; G. T. 1892) 60 Super. Ct. 343, 44 and it is a principle of universal ap- State Rep. 222, 223, 17 N. Y. S. 457, plication." It is to be noted, how- affirmed 139 N. Y. 618 mem., 35 N. ever, in regard to this case, that as E. 205. 202 NEW YORK LAW OF CONTRACTS [§§ 150,161 principal from enforcing the contract indirectly." Where false representations were made to a wife that her husband's dog had killed the defendant's sheep, and in reliance thereon she paid, through her husband, her own money in satisfaction of the fraudu- lent claim, she has been permitted to maintain an action to recover the money.^^ § 150. " Wash " Sales as Basis of Charge of Fraud.— The mere fact that a person has been a party to what is known as a " wash ' ' sale, the purpose of which is to give to the public the impression that the stock being sold has a certain market value, cannot itself subject him to liability for fraud to persons who thereafter pur- chase such stock, though the purchaser was influenced in making his purchase by such "wash" sale. "A 'wash' sale," says Van Hoesen, J., in this connection, "is at most an affirmation that the buyer is paying a certain price for a certain lot of stock. It is not an affirmation that the stock has any intrinsic value, that a company owns any property of value, or that the buyer will ever again bid the same price for the stock. It is made on account of persons who are anonymous. If a man buys stock because he is led by ' wash ' sales to believe that he can make a fortunate speculation, he cannot have an action of deceit against those who have made the ' wash ' sales. The sales, though fictitious, are not representations of any fact on which a man has a right to rely. They are at most false affirmations of an opinion as to value. Such affirmations are not regarded as statements of fact. ' Wash ' sales are condemned, as they ought to be, because they are ficti- tious, but they are not false representations, made to the public in general, which give a right of action to any one who is led by them to take an erroneous view of market prices and to invest unprofitably in consequence."^ § 151. Giving: Check Without Having Funds in Bank.— As a general rule the giving of a check is an implied representation that the drawer has funds in bank to meet it if duly presented, and a charge of fraud may be based on the giving of a check without having funds in bank to meet it.^* " Even when no oral represen- 10. Denike v. De Graaf, (Sup. 12. McGlynn v. Seymour, (Com. 1895) 87 Hun. 61, 67 State Eep. 884, PI. 1888) 14 Daly 420, 14 State 33 N. Y. S. 1015, affirmed 152 N. Y. Rep. 707. 650 mem., 47 N. E. 1106. 13. Sieling v. Clark, (City Ct G. 11. Town V. King, (Sup. G. T. T. 1895) 18 Misc. 464, 75 State Rep. 1886) 2 State Rep. 254. 1360, 41 N. Y. S. 982; Fruohtbaum § l'5i2] flRAUD 203 tation is made, the act of drawing and issuing a check amounts to a representation that the drawer keeps an account with the drawee and that there are funds on deposit to meet it. ' ' " Thus where on the purchase of property for cash the buyer gives a check for the price, there is an implied representation on his part that he has or will have funds in the bank to meet the check when duly presented for payment, and a charge of fraud may be based on such representation, entitling the seller to recover as for a tort if the check is duly presented and payment refused for want of funds.^^ The same view has been taken where the defendant induced the plaintiff to exchange checks.^® Constructive Fraud § 152. Ill General. — Constructive fraud arises from a rule of public policy or the confidential or fiduciary relation which one of the parties sustains toward the other." No positive dishonesty of purpose is required to show constructive fraud,^* and in case of an alleged constructive fraud arising from the fiduciary rela- tion of the party charged therewith, the cestui que trust is not required to show that the contract was iniquitously conceived by the fiduciary." Thus one standing in a fiduciary relation is not permitted to contract with himself in regard to the subject matter of the trust. If he does so the contract is regarded as construc- tively fraudulent,^" and voidable at the option of the cestui que trust, and his right to avoid the contract cannot be defeated by showing that the contract was in every respect fair and reason- able and prompted by none but honest motives on the part of the V. Schinasi, (Sup. App. T. 1914) 147 18. Fulton v. Whitney, (1876) 66 N. Y. S. 401; King v. Murphy, N. Y. 548; Yeoman v. Townshend, (County Ct. 1914) 151 N. Y. S. 476. (1893) 74 Hun 625, 57 State Rep. 14. Fruohtbaum v. Schinasi, (Sup. 182, 26 N. Y. S. 606; Forker v. App. T. 1914) 147 F. Y. S. 401, per Brown, (Com. PI. G. T. 1894) 10 Whitaker, J. Misc. 161, 62 State Rep. 480, 30 15. King V. Murphy, (County Ct. N. Y. S. 827. 1914) 151 N. Y. S. 476. 19. Forker v. Brown, (Com. PI. 16. Fruchtbaum v. Schinasi, (Sup. G. T. 1894) 10 Misc. 161, 62 State App. T. 1914) 147 N. Y. S. 401. Rep. 480, 30 N. Y. S. 827. 17. Weller v. Waller, (Sup. 1887) 20. Munson v. Syracuse, etc., R. 44 Hun 172, 7 State Rep. 768, 26 Co., (1886) 103 N. Y. 58, 3 State Wkly. Dig. 260, affirmed 112 N. Y. Rep. 31, 8 N. E. 355; Forker v. 655 mem., 20 State Rep. 227, 2 Silv. Brown, (Com. PI. G. T. 1894) 10 App. 134; Forker v. Brown, (Com. Misc. 161, 62 State Rep. 480, 30 N". PI G T. 1894) 10 Misc. 161, 62 Y. S. 827; Davoue v. Fanning, State Rep. 480, 30 N. Y. S. 827. (Chan. Ct. 1816) 2 Johns. Oh. 252. 204 NEW YORK LAW OF CONTRACTS [§ 153 fiduciary." " The law," says Andrews, J., " permits no one to act in such inconsistent relations. It does not stop to inquire whether the contract or transaction was fair or unfair. It stops the inquiry when the relation is disclosed, and sets aside the transaction or refuses to enforce it, at the instance of the party whom the fiduciary undertook to represent, without undertaking to deal with the question of abstract justice in the particular case. It prevents frauds by making them, as far as may be, impossible, knowing that real motives often elude the most searching inquiry, and it leaves neither to .judge nor jury the right to determine, upon a consideration of its advantages or disadvantages, whether a contract made under such circumstances shall stand or fall. ' ' ^^ It is also well recognized that a fiduciary is not permitted to pur- chase for his own benefit claims or interests affecting the subject matter of the trust, antagonistic to the cestui que trust, and where he does so the cestui que trust may claim the benefit of the purchase.^' § 153. Particular Fiduciary Relations. — The rule as to con- structive fraud is applied to all persons holding a confidential or fiduciary relation, though such relation is not strictly that of a trustee. Thus directors of a corporation are fiduciaries and sub- ject to the rule that persons standing in that relation will not be suffered to retain a personal profit out of a transaction respecting the subject matter of the trust, but will be compelled to account to their cestui que trust therefor.^* Ordinarily in case of a volun- tary gift or conveyance by a parent to his child there is no pre- sumption of fraud or undue influence on the part of the child. A presumption of fraud or undue influence may, however, arise where in addition to such relation there is superseded a relation of trust and confidence, and proof may be required on the part of the child to show that the transaction was free from undue influence or fraudulent practices on his part.^^ It is also the gen- eral rule, in case of conveyances or transfers by a child to his 21. Forker v. Brown, (Com. PI. G. 24. Brock v. Barnes, (Sup. 1863) T. 1894) 10 Misc. 161, 62 State Rep. 40 Barb. 521, 528; Forker v. Brown, 480, 30 N. Y. S. 827. (Com. PI. G. T. 1894) 10 Misc. 161, 22. Munson v. Syracuse, etc., R. 62 State Rep. 480, 30 N. Y. S. 827. Co., (1886) 103 N. Y. 58, 74, 3 State 25. Weller v. Weller, (Sup. 1887) Rep. 31, 8 N. E. 355. 44 Hun 172, 7 State Rep. 768, af- 23. Hare v. De Young, (Sup. Sp. firmed 112 N. Y. 655 mem., 2 Silv. T. 1902) 3d Misc. 366, 79 N. Y. S. App. 134. 868. § 154] FRAUD 205 parent, that while a court of equity examines them with care for evidences of fraud or undue influence on the part of the parent, still there is ordinarily no presumption that fraud or undue influ- ence was so exercised, and in the absence of any proof thereof the transfer should not be set aside.^' § 154. Principal and Agent. — The relation between a principal and his agent is fiduciary in its nature and has frequently given rise to charges of constructive fratid. Thus, if an agent to purchase property buys from himself without the knowledge of his principal this is a constructive fraud and entitles the principal on discovery of the fact to rescind.^' As said by Porter, J., in regard to such a transaction: " There is no view of the facts in which the trans- action can be upheld. He [the agent] stood in a relation to his principal which disabled him from concluding a contract with him- self without the knowledge or assent of the party he assumed to represent. He undertook to act at once as seller and as purchaser ; he bought as agent, and sold as owner. The ex parte bargain, thus concluded, proved advantageous to him and very unfortunate for his principal. It was the right of the latter to rescind it on dis- covery of the breach of confidence. It is not material to inquire whether the defendant had any actual fraudulent purpose. The making of a purchase from himself, without authority from the plaintiff, was a constructive fraud, in view of the fiduciary rela- tion which existed between the parties. In such a case the law delivers the agent from temptation by a presumptio juris et de jure, which good intentions are unavailing to repel. ' '^^ The same is true where an agent to sell sells directly or indirectly to himself.^ It is also a cardinal principle of agency that an agent is not per- mitted to act secretly as the agent of the other party to the trans- action in which he is engaged. Thus, if an agent to buy or sell acts also, without the knowledge of his principal, as the agent of 26. Jurgensen v. Dana,, (Sup. 210; Carr v. National Bank, etc., Co., 1914) 162 App. Div. 42, 146 N. Y. (Sup. 1899) 43 App. Div. 10, 59 N. S. 1001, modifying 81 Misc. 431, 143 Y. S. 618, affirming 23 Misc. 368, 52 N. Y. S. 67. As to the presumption N. Y. S. 61. of undue influence in case of transac- 28. Conkey v. Bond, (1867) 36 N. tions between parent and child, see Y. 427, 429, 3 Abb. Pr. N. S. 415, 2 supra, sections 130-131. Trans. App. 200. 27. Conkey v. Bond, (1867) 36 N. 29. Gale v. Gale, (Sup. 1855) 19 Y. 427, 3 Abb. Pr. N. S. 415, 2 Trans. Barb. 249 ; Small v. Eobinson, ( Sup. App. 200; Mayo v. Knowlton, 1876) 9 Hun 418; Yoeman v. Town- (1892) 134 N. Y. 250, 47 State Rep. shend, (Sup. 1893) 74 Hun 625, 57 748, 31 N. E. 985, 29 Abb. N. Cas. State Rep. 182, 26 N. Y. S. 606. 20G imw YORK LAW OF CONTUACTS [§ 155 the other party, the transaction is voidable for constructive fraud at the option of the principal so defrauded or imposed on.'" Inadequacy of Consideration § 155. In General. — As a rule, fraud is not to be inferred from the mere inadequacy of the consideration on which a promise is based or a transfer of property made, and alone generally affords no ground for setting aside contracts.^^ In this connection Chan- cellor Kent says, in an early case: " There is no case where mere inadequacy of price, independent of other circumstances, has been held sufficient to set aside a sale made between parties standing on equal ground and dealing with each other without any imposition or oppression. And the inequality amounting to fraud must be so strong and manifest as to shock the conscience and confound the judgment of any men of common sense. " '^ On the other hand, inad- equacy of the consideration may be ground for denying equitable relief by way of specific performance of the contract. ' ' There is a very important distinction," continues Chancellor Kent, " which runs through the cases, between ordering a contract to be rescinded, and decreeing a specific performance. Though inadequacy of price is not a ground for decreeing an agreement to be delivered up, or a sale rescinded (unless its grossness amount to fraud), yet it may be sufficient for the court to refuse to enforce performance. It is not an uncommon, ease for the court to refuse to enforce for inad- equacy, and at the same time refuse to rescind. The two cases admit of very different views and considerations. ' ' '' On the question of fraud for the purpose of rescission, inadequacy of con- sideration is an element to be considered in connection with the other circumstances in the case.** And the statement of Lord 30. Carr v. National Bank, etc., 32. Osgood v. Franklin, (Chan. Ct. Co., (Sup. 1899) 43 App. Div. 10, 1816) 2 Johns. Ch. 1, 23. 59 N. Y. S. 618, affirming 23 Misc. 33. Osgood v. Franklin, (Chan. Ct. 368, 52 N. Y. S. 61. 1816) 2 Johns. Ch. 1, 23. 31. Blair v. Utica, etc., R. Co., 34. Dififendarfer v. Dicks, (1887) (Sup. 1906) 112 App. Div. 609, 98 105 N. Y. 445, 8 State Rep. 184, 11 N. Y. S. 614; Seymour v. Delancy, N. E. 825, 26 Wkly. Dig. 394; Smith (Ct. Err. 1824) 3 Cow. 445; Hagan v. Firth, (Sup. 1900) 53 App. Div. V.Ward, (Sup. Sp. T. 1902) 38 Misc. 369, 65 N. Y. S. 1096; Turner v. 367, 77 N. Y. S. 893, affirming 86 Pabst Brewing Co., (Sup. 1902) 74 App. Div. 620, 83 N. Y. S. 436, which App. Div. 106, 77 N. Y. S. 360; is affirmed 178 N. Y. 560, 70 N. E. Johnson v. Woodworth, (Sup. 1909) 1099; Bernhard v. McMaster, (Super. 134 App. Div. 715, 119 N. Y. S. 146; Ct. G. T. 1886) 3 State Rep. 531, Gugel v. Hiscox, (Sup. 1910) 138 54 Super. Ct. 104, 25 Wkly. Dig. 442. App. Div. 61, 122 N. Y. S. 557; Hall § 155] FRAUD 207 Hardwicke that if the contract is such as no man in his senses and not Tinder delusion would make, and such as no honest or fair man would accept, it indicates a case of fraud justifying equitable relief,'^ has been referred to with approval by our courts.^ Also, there is, it seems, authority for the position that the consideration may be so grossly inadequate as to render the contract uncon- scionable, and justify even a court of law in refusing to enforce it." "Where it appeared that a simple and ignorant young man was induced by his uncle, a shrewd man of business in whom the nephew naturally placed great confidence, to accept a conveyance of land in satisfaction of a debt, the land not being worth more than half the amount of the debt, equitable relief by way of rescission was granted the nephew.'* And where a woman lacking in knowledge of business aifairs, and owning land subject to a small mortgage the foreclosure of which was not threatened, made application to a shrewd business man to purchase a part of the land, and relied on him to give her a fair price for it, but instead of doing so he purchased it for less than half its unquestioned value, and financed the transaction entirely by the execution of mortgages on the property, the sale was set aside.^' Belief has been granted where persons of intemperate habits transferred their property for a grossly inadequate consideration ; *" as where such a person having an annuity transferred instalments to accrue to the amount of $20,400, for payments amounting to $2,614.50 ; *^ V. Perkins, (Ct. Err. 1829-) 3 Wend. 37. Chesterfield v. Janssen, (1750) 626; Dunn v. Chambers, (Sup. G. T. 2 Ves. 125, 155. See also In re Ben- 1848) 4 Barb. 376; Roux v. Roths- sel, (Sup. Sp. T. 1910) 68 Misc. 70, child, (Sup. Sp. T. 1902) 37 Misc. 124 N. Y. S. 726. 435, 75 N. Y. S. 763, affirmed 78 App. 38. Hall v. Perkins, ( Ct. Err. Div. 637, 79 N. Y. S. 1145; Heise v. 1829) 3 Wend. 626. See also Selected Securities Co., (Sup. Sp. T. Murphy v. Murphy, (Sup. App. T. 1907) 105 N. Y. S. 1079, affirmed 1912) 78 Misc. 178, 137 N. Y. S. 122 App. Div. 892 mem., 106 N. Y. S. 872. 1130; Friedman v. Hirsch, (Sup. G. 39. Smith v. Firth, (Sup. 1900) T. 1892) 44 .State Eep. 199, 201, 18 53 App. Div. 369, 65 N. Y. S. 1096. N. Y. S. 85, 87. 40. Dunn v. Chambers, (Sup. G. T. 35. Chesterfield v. Janissen, (1750) 1848) 4 Barb. 376; Roux v. Eoths- 2 Ves. 125, 155. child, (Sup. Sp. T. 1902) 37 Misc. 36. Turner v. Pabst Brewing Co., 435, 75 N. Y. S. 763, affirmed 78 (Sup. 1902) 74 App. Div. 106, 109, App. Div. 637, 79 N. Y. S. 1145. See 77 N. Y. S. 360; Hall v. Perkins, (Ct. also Flanigan v. Skelly, (Sup. 1903) Err. 1820) 3 Wend. 626, 631; Dunn 89 App. Div. 108, 85 N. Y. S. 4. v. Chambers, (Sup. G. T. 1848) 4 41. Roux v. Rothschild, (Sup. Sp. Barb. 376, 380; Roux v. Rothschild, T. 1902) 37 Misc. 435, 75 N. Y. S. (Sup. Sp. T. 1902) 37 Misc. 435, 438, 763, affirmed 78 App. Div. 637, 79 76 N. Y. S. 763. N. Y. S. 1145. 208 l>rEW YORK LAW OF CONTRACTS [§ 15€ and where a beneficiary o£ a trust fund transferred his interest amounting to $650, to his co-beneficiary for $100.*^ For the pur- pose of determining whether the consideration was inadequate or not, the transaction is to be viewed in the light of the circum- stances existing at the time it was entered into unaffected by subsequent events.^' § 156. Catching Bargains — Sale of Expectancy, Reversion or Remauider. — The rule has prevailed in the English courts from an early date that the dealings of heirs in reference to their expectancies, and of reversioners and remaindermen in reference to their vested property, are the subject of special protection by courts of equity, and transactions by persons belonging to those classes are set aside on much slighter grounds than those which ordinarily prevail. This rule, however, has not been enforced by our courts to the extent which has prevailed in the courts of England, and the evident inclination of our courts has been to restrict the rule in as great a degree as possible." This is shown by the decision of the court of appeals in a case where they refused to set aside a sale of a legacy payable at a future day.*^ In another case it appeared that a woman forty-seven years of age, in a pre- carious state of health from self-indulgence, and in pressing need of money, but without relatives in whom she was particularly interested, transferred to her co-remainderman her interest in a vested remainder which was subject to the life estate of her mother sixty-eight years of age, in consideration of a down pay- ment to relieve her present necessities and an annuity of six thousand dollars adequate for her comfortable support, with a further payment to her estate. The negotiations for the transfer were instituted by the transferor through her attorney and extended over a period of several months. The court refused to set the transfer aside at the suit of a legatee, though through the death of the life tenant and the transferor the transferee realized about $97,000 and paid out only $44,500.^* The necessity for the 42. Dunn v. Chambers, (Sup. G. ance in consideration of future sup- T. 1848) 4 Barb. 376. port; unexpected death of grantor). 43. Hagan v. Ward, (Sup. Sp. T. 44. Friedman v. Hirsch, (Sup. G. 1902) 38 Misc. 367, 77 N". Y. S. 893, T. 1892) 44 State Rep. 199, 18 N. Y. affirmed 86 App. Div. 620, 83 N. Y. S. 85. S. 436, which is also affirmed 178 N. 45. Parmelee v. Cameron, (1869) Y. 560 mem., 70 N. E. 1099; Sprague 41 N. Y. 392. V. Duel, (Chan. Ct. 1839) Clarke 46. Hagan v. Ward, (Sup. Sp. T. 90, affirmed 11 Paige 480 (convey- 1902) 38 Misc. 367, 77 N. Y. S. 893, §§ 157, 158] FRAUD 209 protection of such persons is not, however, wholly overlooked, and where the consideration was so grossly inadequate as to lead the court to believe that the bargain must have been obtained by some improper means, relief has been granted, though there was no direct evidence of fraud or imposition; as where a young man soon after reaching his majority sold his vested remainder which was subject to a life estate for not more than one-third to one- fifth of its value." Mental Weakness and the Like § 157. Mental Weakness. — Mental weakness and ignorance on the part of the person alleged to have been defrauded constitute a material consideration in determining whether there was a fraud, though it may not be such as incapacitates the party from con- tracting.^8 As said by Landon, J. : "It may be that a person of ordinary prudence would not have been deceived by such repre- sentations, but the law does not outlaw from its protection the old, the weak and the infirm. A pretense . . . calculated to mislead a weak mind, if practiced on such a mind, is just as obnoxious to the law as one calculated to overcome a strong mind if practiced upon it."« § 158. Belief in Spiritualism. — The fact that the complainant was a believer in spiritualism, which is regarded as in the nature of a religion, and there is no religion which the law condemns, does not of itself raise any inference of fraud on the part of a co-believer ; on the other hand, his case suffers no detriment because his belief exposes him to the arts of an impostor.^" And false representations and artifices practiced by an alleged spiritualist medium, whereby a person is induced to believe that the spirits command him to convey away his property, have been sustained as the basis of a charge of fraud.^^ Thus, where a shrewd, design- affirmed 86 App. Div. 620, 83 N. Y. 207; Hall v. Perkins, (Ct. Err. 1829) S. 436', which is also affirmed 178 N. 3 Wend. 626; Sprague v. Duel, Y. 560 mem., 70 N. E. 1099, and mo- (Chan. Ct. 1839) Clarke 90, affirmed tion for reargument denied 178 N. Y. 11 Paige 480; Hides v. Hides, (Sup. 591, 70 N. E. 1099. Sp. T. 1883) 65 How. Pr. 17. 47. Friedman v. Hirsch, (Sup. G. 49. Hides v. Hides, (Sup. Sp. T. T. 1892) 44 State Rep. 199, 201, 18 1883) 65 How. Pr. 17. N. Y. S. 85, S7. 50. Hides v. Hides, (Sup. Sp. T.) 48. Rosevear v. Sullivan, (Sup. 1883) 65 How. Pr. 17. See also 1900) 47 App. Div. 421, 62 N. Y. S. Watson v. Holmes, (Sup. Eq. T. 447; Smith v. Firth, (Sup. 1900) 1913) 80 Misc. 48, 140 N. Y. S. 727. 53 App. Div. 369, 65 N. Y. S. 1096; 51. Hides v. Hides, (Sup. Sp. X. Jackson v. King, (Sup. 1825) 4 Cow. 1883) 65 How. Pr. 17. 14 210 WEW YOKE LAW OP CONTRACTS [§ 159 ing, lewd and uncliaste woman, in middle age, knowing that an old man who was deaf and living in seclusion was a firm believer in spiritualism, took advantage of such belief, sought his acquaint- ance, pretended to be a medium and to receive communications from spirits commanding that they marry and that the old man convey to her valuable property, claimed to be a clairvoyant physician and to be able to cure his deafness, and by other fraudu- lent devices induced the old man to marry her and to convey to her the property, the marriage and conveyance were set aside as pro- cured by fraud and undue influence.^^ Nondisclosure or Concealment § 159. In General. — It is said by Chancellor Kent that "if there be an intentional concealment or suppression of material facts in the making of a contract, in cases in which both parties have not equal access to the means of information, it will be deemed unfair dealing, and will vitiate and avoid the contract." (2 Kent Com. (2d ed.) 482.) ^^ Ordinarily, however, where no relation of trust or confidence exists between the parties, a charge of fraud cannot be based on a failure of one party to make disclosure of matters of which he alone has knowledge.®* And a fortiori no affirmative duty is devolved on a vendor to make a disclosure as to matters not peculiarly within his knowledge.^" In this connec- tion Peckham, J., says : ' ' "We do not and cannot in courts of law practically and wisely deal with mere moral obligations, such obligations as only a man of very high honor would feel himself 52. Hides v. Hides, (Sup. Sp. T. Bench v. Sheldon, (Sup. 1852) .14 1883) 65 How. Pr. 17. Barb. 66; Clark v. Rankin, (Sup. 53. This statement is quoted with 1866) 46 Barb. 570, 576; Graham v. approval in Rawdon v. Blatchford, Meyer, (Sup. 1884) 33 Hun 489, ^f- (Chan. Ct. 1844) 1 Sandf. Ch. 344, firmed 99 N. Y. 611, 1 N". E. 143; 346. Recknagel v. Steinway, (Sup. Sp. T. 54. Shank v. Shoemaker, (1859) 18 1901) 33 Misc. 633, 68 N. Y. S. 957, N. Y. 489; Dambmann v. Schulting, modified on other grounds 58 App. (1878) 75 N. Y. 55; Wood v. Amory, Div. 352, 69 N. Y. S. 132; Coulson v. (1887) 105 N. Y. 278, 7 State Rep. Whiting, (Com. PL G. T.) 12 Daly 372, 11 N. E. 636; American Credit 408, 14 Abb. N. Cas. 60. Indemnity Co. v. Wimpfheimer, ( Sup. 55. Interborough Rapid Transit Co. 1897) 14 App. Div. 498, 43 N. Y. S. v. Littlefield, (Sup. 1914) 166 App. 909; Loos V. McCormack, (Sup. 1905) Div. 567, 149 N. Y. S. 741, affirmed 107 App. Div. 8, affirming 95 N. Y. S. 218 N". Y. 745 mem., 113 N. E. 1058. 1141, 46 Misc. 144, 93 N. Y. S. 1088; § IS®] FRAUD aw bound by, or such duties as alone grow out of the moral obligation of doing as you would be done by. These are matters for the conscience, and they are duties which in the extent of their obliga- tion open up the vast domain of ethics, into a discussion of which it is not practically possible for human courts to enter or to pro- nounce judgment concerning a violation of its doctrines. ' ' '°'^ And Goodrich, P. J., says: " Fraud in the suppression of a material fact arises only where one party to the contract fraudulently and intentionally conceals from the adverse party something which he knows and the other party does not know, and which the first party was bound to state, the suppression of which has induced the adverse party to enter into the contract. . . . "Where the parties deal at arm's length on equal terms, and no particular relation of trust or confidence exists between them, there is usually no obliga- tion to speak, and either may remain silent and be safe. ' ' ^^ The mere characterization as " fraudulent," in a pleading, of a party's silence or failure to make disclosure, does not suffice unless the facts pleaded disclose some duty on his part to speak, in order that the court may draw the inference of f raud.°^ Though nondisclosure may not constitute a fraud so as to prevent relief in an action at law by way of damages for breach of the contract, it may con- stitute ground for denying equitable relief by way of specific performance.^' A woman who is about to procure a divorce from her husband is not required to disclose to her father-in-law the fact that she intends to remarry, and her failure to do so is not such a fraud as will entitle the father-in-law to be relieved from 56. Kothmiller V. Stein, (1894) 143 make. A party buying or selling N. Y. 581, 590, 62 State Rep. 788, property, or executing instruments, 38 ]Sr. E. 718. must by inquiry or examination gain 57. American Credit Indemnity Co. all the knowledge he desires. He can- V. Wimpfheimer, (Sup. 1897) 14 App. not proceed blindly, omitting all in- Div. 498, 502, 43 N. Y. S. 909. In quiry and examination, and then com- this connection Earl, J., also says: plain that the other party did not " The general rule is that a party en- volunteer all the information he had. gaged in. a business transaction with Such is the general rule." Dambmann anbther can commit a legal fraud v. Schulting, (1878) 75 N. Y. 55. only by fraudulent misrepresentations 58. Loos v. McCormack, ( Sup. of facts, or by such conduct or such" 1905) 107 App. Div. 8, 95 N. Y. S. artifice for a fraudulent purpose as 1141, affirming 46 Misc. 144, 93 will mislead the other party or throw N. Y. S. 1088. him off from his guard, and thus 69. Rothmiller v. Stein, (1894) 143 cause him to omit inquiry or exam- KT. Y. 581, 62 State Rep. 788, 38 N. E. ination which he would otherwise 718. 212 NEW YORK LAW OF CONTRACTS [§ 160 his agreement to provide for the future support of the woman and her children.*" § 160. Artifices to Otonceal and Partial Disclosure.— Though there may be no duty on one's part to make any disclosure in the first instance, his remaining silent being entirely within his right, he must not resort to artifices to conceal, and thus prevent the other party from ascertaining, on proper examination and inquiry, the true state of f acts.'^ For example, in an early case it appeared that the plaintiff having lost a flock of sheep made search and inquiry for them without effect. Subsequently the sheep were taken up in the highway by one D., who informed one of the defendants thereof. The other defendant then went to the plaintiff, and concealing from him the knowledge of the sheep's having been found, inquired whether he had found them. Being informed that he had not, the defendant said he " supposed he never would find them," and offered the plaintiff ten dollars for them, which the plaintiff accepted, and gave the defendant a bill of sale thereof. The defendant then went to D. and claimed the sheep and their fleeces, and the same were delivered to him. In an action by the plaintiff to recover the value of the sheep and wool, on the ground that the sale had been procured by fraud, it was held that though the action could not be maintained on the ground of the defendants' neglect to disclose the facts within their knowledge, they were made liable by the expression of a belief that the plaintiff would never find his sheep, by means of which he was deceived and misled.*^ So where a purchaser of bonds, having at the time of his offer to purchase an offer for their repurchase at an advanced price, stated that his offer was the best price at which the bonds could be sold, a charge of fraud was sustained.^ A person is required, if he expressly or impliedly undertakes to make a disclosure of the material facts, to make a full disclosure; a partial disclosure, under circumstances which induce the other party to believe that a full disclosure is being made, is equally effective to deceive as a positive false representation, and may 60. Recknagel v. Steinway, (Sup. 62. Bench v. Sheldon, (Sup. 1852) Sp. T. 1901) 33 Misc. 633, 68 N. Y. S. 14 Barb. 66. 957, modified on other grounds 58 63. Taylor v. Guest, (Sup. G-. T.. App. Div. 352, 69 N. Y. S. 132. 1873) 45 How. Pr. 276, affirmed ag 61. Bench v. Sheldon, (Sup. 1852) to this hut reversed on other grounds 14 Barb. 66; Johnson v. IJuxton, 68 N. Y. 262. (Super. Ct. 1876) 41 Super, Ct. 481. i 160] FRAUD 213 itself be made a basis for a charge of fraud." As said by Van Hoesen, J. : " There is another kind of concealment called ' active concealment, ' and this is where one party does something to prevent the other from learning a material fact; as by using contrivances to hide defects, or where he contributes to produce by some overt act an erroneous belief by the other party of an essential fact, or where he tells a part only of the truth and withholds the remainder, which if told would entirely change the effect of what he has dis- closed; these are acts in the nature of ' aggressive deceit,' but they fall under the head of active concealment." "" Thus where in the sale of a horse the buyer asked if it was balky, and the seller replied that it had balked once with a former owner, who had made it go by whipping, but it had not balked with him; and it appeared that the seller had purchased it as a balky horse and had always used it carefully as such, and that the former owner had always used it as a balky horse and sold it to the seller as such, the failure to disclose these facts was held a basis for a charge of fraud, as, though the seller told the truth as far as he went, he did not tell the whole truth, and stating merely that the horse had balked once and was then made to go was calculated to mislead the buyer into the belief that the horse was not in fact a balky one.^ Also where it appeared that the seller of a note a few days before the sale had offered the note to several brokers, who refused to purchase on the ground that the note was not good, one of them stating at the time of his refusal that he had shortly before purchased a similar note and did not doubt but that he had been cheated, and it further appeared that at the time of the sale in question the seller repre- sented that one of such brokers had purchased a similar note, with- out, however, disclosing his further statement or that of the other broker, it was held that this was such a failure to make a full dis- 64. Gray v. Eiehmond Bicycle Co., Burdick v. Fox, (Sup. G. T. 1877) (1901) 167 N. Y. 348, 60 N. E. 663, 4 Wkly. Dig. 393. See also Duffuny reversing 40 App. Div. 506, 58 N. Y. v. Furgeson, (Sup. 1875) 5 Hun 106, S. 182; Continental Coal, etc., Co. v. reversed on other grounds 66 N. Y Kilpatricli, (Sup. 1916) 172 App. 482. Div. 541, 158 N. Y. S. 1056; Gough 65. Coulson v. Whiting, (Com. PI. V. Dennis, (Sup. 1843) Hill & D. G. T. 1884) 12 Daly 408, 14 Abb. N. Supp. 55; Nickley v. Thomas, (Sup. Cas. 60, 64. 1856) 22 Barb. 652; March v. Mobile 66. Nickley v. Thomas, (Sup. 1856) First Nat. Bank, (Sup. 1875) 4 Hun 22 Barb. 652. 466, affirmed 64 N. Y. 645 mem.; 214 NEW YORK LAW OF CONTRACTS [§161 closure as to constitute fraud." Aiid it has been held that if a bill of lading as security is attached to a draft, and the holder of the draft knows that the bill of lading is worthless as a security for want of title in the consignor to the goods shipped, and without disclosing such fact presents the draft for acceptance with the bill of lading attached, he is guilty of a fraudulent concealment.'* While a vendor may remain silent and is not bound to disclose defects in his title, yet if he assumes to disclose the defects he must make a full disclosure, and his failure to disclose a material defect known to him may constitute fraud.* So in ease of a lease, though the lessor is not required to disclose ordinary defects in the premises, yet if he states that they are in thorough repair, without disclosing a serious defect in the cesspool, a charge of fraud may be based on such nondisclosure.'"* § 161. Contracts Eequiring Uberrima Fides Generally. — There is a class of contracts designated as contracts requiring the utmost good faith, fides uberrima. In regard to such contracts Parsons (2 Pars, on Cont. 777) says: " For, although one may have a right to be silent under ordinary circumstances, there are many cases in which the very propositions of a party imply that certain things, if not told, do not exist. This is peculiarly the case in contracts of insurance, where the insured is bound to state all facts within his knowledge which would have an influence upon the terms of the contract and are not known, or may be supposed by him not to be known, to the insurer. In these cases, and in others which come within this principle, the suppressio veri has the same effect in law as the expressio falsi. ' ' '^ And it has been recognized 67. Gough V. Dennis, (Sup. 1843) of no value, the defendants had no Hill & D. Supp. 55. righ-t to induce the acceptance of the 68. March v. Mobile First Nat. bill of exchange, by presenting the Bank, (Sup. 1875) 4 Hun 466, af- bill of lading as one of value, con- firmed 64 N. Y. 645 mem. In this cealing their knowledge of its true case Davis, P. J., said: "The de- character." fendants were under no obligations to 69. Continental Coal, etc., Co. v. make any disclosure of facts to the Kilpatrick, Sup. 1916) 172 App. Div. plaintiffs to prevent their acceptance 541, 158 N. Y. S. 1056. of the bill, but they were also under 70. Ash v. Weeks, (Sup. 1909) 134 obligations to do nothing and say App. Div. 154, 118 N. Y. S. 821. nothing, with knowledge of the real 71. This statement is quoted in facts, which would operate to secure American Credit Indemnity Co. V. an acceptance by an expression of Wimpfheimer, (Sup. 1897) 14 App. falsehood or a suppression of truth. Div. 498, 43 N. Y. S. 909. Knowing that the bill of lading was § 162] FRAUD 2,19 that contracts of marine and life insurance belong to this elass.''^ And a fortiori a charge of fraud for the .purpose of rescission may be based on misrepresentations knowingly made as to the condition of the insured's healthJ^ Contracts of guaranty, however, are not regarded as belonging to this class. This was the conclusion reached in England at quite an early date,'* and it has been approved by the courts in this state. ' ' "We think, ' ' says Goodrich, P. J., in this connection, "it is going too far to say that the creditor is, in all cases and without being inquired of, bound to communicate everything that it is important for the surety to know and that would increase his risk. Under such a rule no one would ever know when he could rely on a bond, and it would lead to a good deal of litigation. " '^ It has been held in case of a renewal of a bond indemnifying a merchant against loss through the insolvency of his customers, the original bond contemplating such an extension to cover sales made prior to the extension, that the mere failure of the merchant to disclose the fact that insolvency proceedings were pending against one of his customers was not a fraud which would entitle the indemnitor to have his bond set aside.'^ § 162. Confidential Relations. — The relation between the parties to a transaction is always an element for consideration where the question of fraud is involved.''' And the existence of a confidential or fiduciary relation may, and ordinarily does, impose on the fiduciary a duty to make full disclosure to the other party, and the failure to do so may constitute a fraud.'* " Suppressio veri, 72. See Rothmiller v. Stein, (1894) 78. Dambmann v. Schulting, (1878) 143 N. Y. 581, 591, 62 State Rep. 788, 75 N. Y. 55, 62; Cowee v. Cornell, 38 N. E. 718. (1878) 75 N. Y. 91, 99; Dolan v. 73. Harris v. Equitable L. Assur. Cummings, (Sup. 1907) 116 App. Div. Soc, (1876) 64 N. Y. 196. 787, 102 N. Y. S. 91, affirmed 193 74. Nortli British Ins. Co. v. Lloyd, N. Y. 638 mem., 86 N. E. 1123; Kelly (1854) 10 Exeh. 523. v. Delaney, (Sup. 1910) 136 App. Div. 75. American Credit Indemnity Co. 604, 121 N. Y. S. 241; Gugel v. His- V. Wimpfheimer, (Sup. 1897) 14 App. cox, (Sup. 1910) 138 App. Div. 61, 122 Div. 498, 503, 43 N. Y. S. 909. See N. Y. S. 557; McMichael v. Kilmer, also Rothmiller v. Stein, (1894) 143 (Sup. 1877) 12 Hun 336, affirmed as N. Y. 581, 591, 62 State Rep. 788, to this but reversed on other grounds 38 isr. E. 718. ' 76 N. Y. 36; Cherrie v. Reynolds, 76.' American Credit Indemnity Co. (Sup. Sp. T. 1919) 108 Misc. 732, 178 V. Wimpfheimer, (Sup. 1897) 14 App. N. Y. S. 339, affirmed on opinion Div. 498, 43 N. Y. S. 909. below 189 App. Div. 904; Lafayette 77. Ha,ll V. Perkins, (Sup. 1829) 3 St. Church Soc. v. Norton, (Sup. Eq. Wend. 626. T. 1912) 133 N. Y. S. 671, reversed 216 NEW YORK LAW OF CONTRACTS [§ 162 or concealment," says Goodrich, P. J., "will amount to fraud where the concealment is of material facts, where there is such a relation of trust and confidence between the parties that the one party is under some legal or equitable duty to give full informa- tion to the other, and which the latter has a right, juris et de jure, to know, and then the withholding of such information purposely may be a fraud."'* And it is the general rule that " whenever the relations between the contracting parties appear to be of such a character as to render it certain that they do not deal on terms of equality, but that either on the one side from superior knowledge of the matters derived from a fiduciary relation, or on the other from dependence or trust, justifiably reposed, unfair advantage is rendered probable, the transaction is presumed void, and it is incumbent upon the stronger party to show affirmatively that no deception was practiced, and all was open, fair and understood. ' ' *" This principle is distinct from that absolutely forbidding a pur- chase by a trustee or agent, from himself for his own benefit, of the subject of the trust, and charging it when so purchased with the trust, which in its proper sense is known as constructive fraud.*^ " That amounts," says Hand, J., "to an incapacity in the fiduciary to purchase of himself. He cannot act for himself at all, however fairly or innocently, in any dealing as to which he has duties as trustee or agent. The reason of this rule is sub- jective. It removes from the trustee, with the power, all temptation to commit any breach of trust for his own benefit. " *^ It is not always easy to define where this relation of trust and confidence exists, and no general rule can be formulated by which its existence can be known.*^ It is well settled, however, that certain relations are of a fiduciary nature and fall within this rule, such as the 159 App. Div. 1, 144 N. Y. S. 265, Cuaunings, (Sup. 1907) 116 App. Div. on the ground that no material fact 787, 102 N. Y. S. 91, affirmed 193 was undisclosed; Hasberg v. MeCarty, N. Y. 638 mem., 86 N. E. 1123. See (Coon. PI. Sp. T. 1886) 13 Daly 415, supra, section 127 et seq., as to the affirmed 14 Daly 414, which is af- presumption of undue influence aris^ firmed as modified 127 N. Y. 655, 27 ing in case of confidential relations. N. E. 817, 38 State Rep. 266, 3 Silv. 81. Cowee v. Cornell, (1878) 75 App. 464. N. Y. 91, 99, 100. 79. American Credit Indemnity Co. 82. Cowee v. Cornell, (1878) 75 V. Wimpfheimer, (Sup. 1897) 14 App. N. Y. 91, 99, 100. Div. 498, 502, 43 N. Y. S. 909. 83. Dambmann v. Schulting, (1878) 80. Gugel V. Hiseox, (Sup. 1910) 75 N. Y. 55, reversing 12 Hun 1, 138 App. Div. 61, 73, 122 N. Y. S. which affirmed 54 How. Pr. 289. 557, per Rich, J. See also Dolan v. § 162] FRAUD 217 relation of trustee and cestui que trust,^* an executor or adminis- trator and a legatee or distributee,*^ guardian and ward, parent and child, principal and agent,*^ and intended spouses.*' It has been held that a relation of trust and confidence exists between brothers and sisters who are tenants in common of land, such that if one conceals the fact that he has received a specific offer for the land and induces the others to sell their interests at a much lower price, he is guilty of fraud for which the sale may be rescinded;*^ and also between partners in case of a purchase by one of the interest of the others in the firm or firm property.** There is not, however, such a confidential relation between a debtor and a creditor as to require the former in negotiating for a release for less than the amount owing by hiin to disclose the nature of his financial condition.** Where a full disclosure has once been made by the fiduciary, the fact that he, on a subsequent settlement and compromise of the account between the parties as presented by the other party, :^th a threat of a suit if the account is not paid, does not again call such other party's attention to a matter which might swell the account as presented by the latter, cannot, it has been held, be considered a fraud.*^ 84. " It is a familiar principle," 88. Dolan v. Cummiugs, ( Sup. says Van Brunt, P. J., "that a trus- 1907) 116 App. Div. 787, 102 N. Y. S. tee, in order that he may establish 91, affirmed 193 N. Y. 638 mem., 86 and claim a benefit from a contract N. E. 1123. See also Gugel v. His- with his cestui que trust, must show cox, (Sup. 1910) 138 App. Div. 61, 122 that it is just and fair, that the N. Y. S. 557. cestui que trust understood his rights, 89. Kelly v. Delaney, (Sup. 1910) and that it was a voluntary and in- 136 App. Div. 604, 121 N. Y. S. 241, telligent action of such cestui que holding that where one partner, know- trust." Wildey v. Robinson, (Sup. ing that actions brought by and 1895) 85 Hun 362, 66 State Rep. 423, against the iirm had been settled so 32 N. Y. S. 1018. as to increase materially the firm's 85. Button V. Monroe, (Sup. Gt. T. assets, purchases the interest of his 1885) 22 Wkly. Dig. 407. copartner without disclosing that fact, 86. Murray v. Beard, (1886) 102 this constitutes a fraud entitling the N. Y. 505, 2 State Rep. 466, 7 N. E. other partner to appropriate relief. 553; Brown v. Post, (Sup. 1874) 1 90. Dambmann v. Schulting, (1878) Hun 303, affirmed 62 N. Y. 651 mem. 75 N. Y. 55, 62; Graham v. Meyer, 87. Pierce v. Pierce, (1877) 71 (1885) 99 N. Y. 611, 1 N. E. 143, N. Y. 154; Graham v. Graham, affirming 33 Hun 489. (1894) 143 N. Y. 573, 62 State Rep. 91. MoMichael v. Kilmer, (1879) 784, 38 N. E. 722, affirming 67 Hun 76 N. Y. 36, reversing 12 Hun 336. 329, 51 State Rep. 789, 22 N. Y. S. 299. 21S NEW YORK LAW OP CONTRACTS [§ 163 § 163. Particular Application of General Rule as to Nondis- closure. — Where property has been sold to be paid for according to its weight, the seller may, instead of having the property weighed, agree to accept a gross price, and if he does so he cannot, in the absence of fraud on the part of the buyer, thereafter sue to recover the difference between the gross price received and what would have been the price by weight j and in such a case the mere fact that the buyer had ascertained the actual weight and failed to disclose the fact to the seller has been held not to con- stitute a fraud on his part.'^ And where a debtor obtaining a release on the payment of less than the amount owing fails to disclose the fact that he has ample means to pay all his indebted- ness in full, this is held not to constitute a fraud invalidating the release.'^ "Where a father-in-law contracted for a sufficient con- sideration to make a certain provision for his daughter-in-law and her children, the failure of the daughter to disclose her intention to secure a divorce and marry a third person has been held not to constitute a fraud on the father-in-law.'^ It has also been held that in bidding for excavation work, on estimates by the public officers of the different kinds of materials to be excavated, a bidder is not required, under penalty of being charged with fraud, to disclose his knowledge of the amount of the different materials, though thereby he obtains, through an unbalanced bid, an excess- ive price for rock excavation the amount of which was greatly underestimated in the proposal to bidders, as he has the right to take advantage of his own knowledge honestly acquired, so long as he does nothing to mislead or deceive the public officers.'^ If, however, there is collusion between the bidder and the public officers, resulting in the underestimation of a particular class of material, this will constitute fraud.^ It has been held that a surety or guarantor cannot base a claim of fraud, for the purpose 92. Gage V. Parker, (Sup. 1857) 25 95. People v. Roberts, (Sup. 1899) Barb. 141. 45 App. Div. 145, 61 N. Y. S. 148, 93. Dambmann V. Schulting, (1878) reversed on other grounds 163 N. Y. 75 N. Y. 55, reversing 12 Hun 1, 70, 601, 57 N. E. 98, 1121. See also whici affirmed 54 How. Pr. 289 ; Gra- Reilly v. Nevsr York, (1906) 111 ham. V. Meyer, (1885) 99 N. Y. 611, N. Y. 473, 19 State Rep. 72, 18 N. E. 1 N. E. 143, affirming 33 Hun 489. 623. 94. Recknagel v. Steinway, (1901) 96. See In re Anderson, (1888) 109 58 App. Div. 352, 69 N. Y. S. 132, N. Y. 554, 16 State Rep. 168, 17 N. E. affirming as to this 33 Misc. 633, 68 209. N. Y. S. 957. § 164] FRAUD 219 of avoiding his consent to the extending of further credit to the debtor, on the failure of the creditor to inform him that he has exacted a bonus, or will do so, from the debtor as a consideration for the extension, even though this exaction may amount to usury as between the debtor and creditor .^^ Nor can a surety or guarantor base a charge of fraud on the creditor's failure to inform him of the precarious financial condition of the debtor.'* Where a sale is made by an agent of the owner, there is no duty on the agent 's part to disclose to the purchaser the amount of the commission or benefit he is to receive for effectuating the sale.'' As a general rule a charge of fraud cannot be based on the failure of a lessor to disclose defects in the structure or condition of the leased premises.^ This, however, is subject to the qualification that where the defects are latent and dangerous to the health or life of the lessee, as where the premises have been recently occupied by a person who had a dangerous contagious disease, public policy requires that this fact be disclosed, and the failure to do so may subject the lessor to liability for fraud.^ § 164. Sale of Chattels. — > In case of sales of chattels the general rule as regards the seller's duty to make disclosures is announced by the maxim caveat emptor, buyer beware, and if no deceptive artifices are used by the seller he is under no obligation generally to make disclosures as to patent defects affecting the character or condition of the property, and his failure to do so cannot ordinarily be made the basis of a charge of fraud.' " The great maxim caveat emptor," says Peckham, J., " is by this law applied in a variety of cases, and unless there be some misrepresentation or artifice to disguise the thing sold, or some warranty as to its character or quality, the vendee is bound by the sale, notwith- standing the existence of intrinsic defects and vices known to the vendor and unknown to the vendee materially affecting its value. . . . This is the rule in regard to those who deal at arm's length 97. Loos V. McCormack, (1905) 107 G. T. 1884) 12 Daly 408, 14 Abb, App. Div. 8, 95 N. Y. S. 1141, affirm- N. Cas. 60. ing 46 Misc. 144, 93 N. Y. S. 1088. 2. Ooulson v. Whiting, (Com. PI. 98. Loos V. McCormack, (1905) 107 G. T. 1884) 12 Daly 408, 14 Abb. N. App. Div. 8, 95 N. Y. 8. 1141, affirm- Cas. 60. ing 46 Misc. 144, 93 N. Y. S. 1088. 3. Peoples' Bank v. Bogart, (1880) 99. Millan v. Arthur, (Super. Ct. 81 N. Y. 101, 109; Rothmiller v. 1882) 48 Super. Ct. 424, affirmed 98 Stein, (1894) 143 N. Y. 581, 62 State If_ Y. 167. Rep. 788, 38 N. E. 718; Clark v. Ran- 1. Coulson V. WMting, (Com. PI. kin, (1866) 46 Barb. 570, 576. 220 NEW YORK LAW OF CONTRACTS [§164 with each other, and between whom there is no condition of special confidence or fiduciary relationship existing."* So where there exists no confidential relation between the parties, a buyer in nego- tiating for the purchase of property is not required to disclose information he may have as to its value or the interest of the other party therein, provided he does nothing to mislead the seller ; and a charge of fraud cannot be based on the mere failure to make disclosure.^ " In ordinary cases," says Johnson, J., " the vendor reposes no such confidence in the purchaser. The former does not look to the latter for information in regard to the qualities or condition of the thing sold, and is not deceived or misled by any information the latter may have in regard to it. And hence it has been held that a purchaser may use any information he may have in regard to property, for his own advantage, without dis- closing it, providing he does nothing to mislead or deceive. ' ' * The rule of caveat emptor, even in regard to a sale of a chattel, is applied with certain restrictions, and is not permitted to obtain where it is plain that it was the duty of the seller to acquaint the buyer with a material fact known to the seller and unknown to the buyer,'' and the broad view has been taken that the seller is under an obligation to disclose latent defects of which he has knowledge and which he knows are unknown to the buyer. " It is a universal doctrine," says Selden, J., " founded upon the plainest principles of natural justice, that whenever the article sold has some latent defect, which is known to the seller but not to the purchaser, the former is liable for this defect if he fail to disclose his knowledge on the subject at the time of the sale. In aU such cases, where the knowledge of the vendor is proved by direct evidence, his respon- sibility rests upon the ground of fraud. ' ' ' This is especially true where the latent defect in an animal sold consisted of a dangerous contagious disease.' On the other hand, in case of ordinary dis- eases and defects in animals, it has been held that no duty to disclose the fact is imposed on the seller, where no questions are 4. Rothmiller v. Stein, (1894) 143 N. Y. 581, 592, 62 State Rep. 788, 38 N. Y. 581, 591, 62 State Rep. 788, N. E. 718. 38 N. E. 718. 8. Hoe v. Sanborn, (1860) 21 N. Y. 5. Stevens v. New York, (Super. Ct. 552, 554. 1880) 46 Super. Ct. 274. 9. Jeffrey v. Bigelow, (Sup. 1835) 6. Bench v. Sheldon, (Sup. 1852) 13 Wend. 518. See also Clark v. 14 Barb. 66, 73. Earner, (Sup. G. T. 1869) 2 Lans. 7. Rothmiller v. Stein, (1894) 143 67. §§ 165, 166] FRAUD 221 asked of him and no artifices to conceal are used.^" To impose liability as for a fraud the seller must, of course, have had knowl- edge of the defect, whether latent or patent." And if the seller of an animal infected with a contagious disease believes in good faith that it is all right, he cannot be held liable for a failure to disclose facts which tended to show that the animal was diseased.^^ § 165. Sale of Land. — As a general rule there is no relation of trust or confidence between persons negotiating for the sale of land, and ordinarily the vendor is under no obligation to make dis- closures as to the character or condition of the land which affect its value. And where the sale has been consummated by a conveyance, the mere failure of the vendor to disclose incumbrances on the land or defects in his title cannot ordinarily be made the basis of a charge of fraud. The view has been taken, however, where a vendor's first wife had died and he had shortly thereafter secretly married again, and he knew that an old friend who was negotiating with him for the purchase of land did so on the basis that he was unmarried, that it was his duty to disclose the fact of his second marriage, though he may have thought it invalid, and that his failure to make such disclosure constituted a fraud that entitled the purchaser to rescind, though the conveyance was with warranty of title." § 166. Sale of Chose in Action and Securities. — The general rule of caveat emptor is not restricted to the sale of personal chattels. It has been applied to the sale of corporate stock, and it has been held, in such a case, that the seller is not required to disclose the fact that the corporation was insolvent. ' ' The purchase of stock in a business corporation," says Peckham, J., " is made under so many different circumstances and urged by so many different motives, wholly apart from the present alleged or assumed insolvency of the corporation, that we cannot, and, as we think, ought not, to place the sale of such stock in the same class and subject to the same rules as the sale of commercial paper." " In 10. McDonald v. Christie, (Sup. 13. Shiffer v. Dietz, (Soap. Ct. Sp, 1863) 42 Barb. 36; Howell v. Bid- 1877) 53 How. Pr. 372, affirmed as dlecom, (Sup. 1862) 62 Barb. 131. to this but reversed on other grounds 11. Paul V. Hadley, (Sup. 1857) 23 83 N. Y. 300. Barb. 521. As to the scienter as an 14. Rothmiller v. Stein, (1894) 143 element of fraud, see infra, section N. Y. 581, 62 State Rep. 788, 38 201. N. E. 718. 12. Clark v. Bamer, (Sup. G. T. 1869) 2 Lans. 67. 222 NEW YORK LAW OF CONTRAiCTS [§ 166 the sale of commercial paper the view has been taken that if the seller knows that the maker is insolvent and has failed or is about to fail, and that the buyer is ignorant of such fact, it is the duty of the seller to make disclosure, and if he fails to do so he is guilty of a fraudulent suppression,^^ or is to be deemed to have impliedly warranted that he has no knowledge of facts which render the paper worthless." Thus in the sale of a post-dated check it has been held that to withhold information that another check of the drawer, a business man, had been protested, was a fraudulent suppression, although the information to the seller had been accompanied by the informant's opinion that the maker was solvent, as a business man's failure to meet his check is usually due to his insolvency." This qualification does not require that the seller of commercial paper disclose all facts within his knowledge which may incidentally bear on its value or the financial condition of the parties thereto. Thus it has been held that in the sale of a bill of exchange the seller is not required to disclose the fact that the bill was drawn for the accommodation of the acceptor and purchased directly from him, though this may be considered a material fact in the business world, bearing on the quality of the paper. Andrews, J., in the course of his opinion in this case said : " In the absence then of any representation by the defendants in respect to the origin or consideration of the bills, the remaining question is whether the defendants were under a legal duty to inform the plaintiff, at the time of sale, of the circumstances under which they were made. The general proposition is asserted by the learned counsel for the plaintiff, that the holder of negotiable paper who knows a material fact affecting its market value, and who sells it for full value without disclosing such fact, is liable to the purchaser for the amount paid for the paper, if after the discovery of the suppression the purchaser elects to rescind the sale. But the proposition asserted is broader than the recent authorities warrant. The law requires disclosure to be made only when there is a duty to make it, and this duty is not raised by the mere circumstance that the undisclosed fact is material, and is 15. Brown v. Montgomery, (1859) 143 N. Y. 581, 592, 62 State Rep. 20 N. Y. 287. See also Boston Nat. 788, 38 N. E. 718, explaining Brown Bank v. Armour, (Sup. 1889) 1 Silv. v. Montgomery, (1859) 20 N. Y. 287. Sup. Ct. 444, 23 State Rep. 832, 6 17. Brown v. Montgomery, (1859) N. Y. S. 714. 20 N. Y. 287. 16. See Rothmiller v. Stein, (1894) § 167] FRAUD 223 known to the one party and not to the other, or by the additional circumstance that the party to whom it is known knows that the other party is acting in ignorance of it. ' ' ^* § 167. Nondisclosure of Insolvency. — In case of sales on credit, where no inquiries are made of the buyer on the subject and he makes no false statements and resorts to no artifice to mislead the seller, he may, as a general rule, remain silent on the subject of his financial condition, and his mere omission to disclose his insol- vency is not a fraud.^' As said by Pratt, J., in an early well con- sidered case: " To constitute fraud in such cases, there must be an intention to cheat; at least, there must be intention to do an act the necessary result of which will be to cheat and defraud another. But it is clear that such intention is not necessarily inferable from the fact that a man in good credit, going on with his regular business, makes his usual purchases for the purpose of continuing that business, after he is made aware that his property is not sufficient to pay his debts. It is not fraudulent in him to make reasonable efforts to retrieve his fortune and to extricate himself from his embarrassment. It is not unnatural that he should cling to the hope that better times would come, that tomorrow should be as this day and much more abundant; and that with this hope, however delusive results may have shown it to be, he 18. Peoples' Bank v. Bogart, (1880) App. Div. 641 mem., 54 N. Y. S. 1110; 81 N. Y. 101, affirming 16 Hun 270, Van Kleek v. Leroy, (1867) 4 Abb. and distinguishing Brown v. Mont- App. Dec. 479, 4 Abb. Pr. N. S. 431, gomery, (1859) 20 N. Y. 287. 4 Trans. App. 295, affirming 37 Barb. 19. Nichols V. Pinner, (1858) 18 544; Buckley v. Artcher, (Sup. 1854) N. Y. 295, on later appeal 23 N. Y. 21 Barb. 585; Wheeler, etc., Mfg. Co. 264 (sub nom. Nichols v. Michael); v. Keeler, (Sup. 1892) 65 Hun 508, Hall V. Naylor, (1859) 18 N. Y. 588, 48 State Pep. 184, 20 N. Y. S. 388; affirming as to this but reversing on Coffin v. Hollister, (Sup. G. T. 1839) other grounds 13 Super. Ct. 71; Hen- 5 Silv. Sup. 172, 27 State Rep. 637, 7 nequin v. Naylor, (1861) 24 N. Y. N. Y. S. 734, affirmed 124 N. Y. 644, 139; Stiles v. Howland, (1865) 32 36 State Rep. 271, 26 N. E. 812, 3 N. Y. 309, 316, per Brown, J.; Peo- Silv. App. 400; Du Pont De Nemours pies' Bank'v. Bogart, (1880) 81 N. Y. Powder Co. v. Schwenger, (Sup. App. 101, 108; Van Dyck v. McQuade, T. 1915) 90 Misc. 678, 154 N. Y. S. (18'81) 86 N. Y. 38, 44; Morris v. 186; Bach v. Tuch, (Sup. G. T. 1890) Taleott, (1884) 96 N. Y. 100; 32 State Rep. 941, 10 N. Y. S. 884, Hotchldn v. Malone Third Nat. Bank, affirmed on other grounds 126 N. Y. (1891) 127 N. Y. 329, 38 State Rep. 53, 36 State Rep. 363, 26 N. E. 1019; 754, 27 N. E. 1050, affirming 33 State Cantor v. Claflin, (Sup. G. T. 1890) Rep. 195, 11 N. Y. S. 220; Sinnott v. 35 State Rep. 247, 12 N. Y. S. 759; German American Bank, (1900) 164 Fisher v. Conant, (Com. PI. 1854) N. Y. 386, 58 N. E. 286, affirming 33 3 E. D. Smith 199. 224 NEW YORK LAW OF CONTRACTS [§ 167 should have been impelled to buy more goods, contract new debts, and struggle on until some casualty should precipitate the catas- trophe upon him, and he find himself in hopeless bankruptcy. This is an every-day experience in the commercial world; and it would be hard, indeed, if the unfortunate victim of hopes that looked to him at the time as reasonable must, in his misfortunes, be judged by the actual instead of the possible results. The authorities do not sustain any such harsh doctrine, but the reverse. ' ' ^^ But where, as a basis for a sale on credit, representations as to the buyer's financial condition are made which may not have been fraudulent at the time when made, the view has been taken that if there is a great change for the worse in his condition before the sale is com- pleted, the buyer is bound in honesty to notify the seller thereof, and that if he does not do so he is to be considered as ratifying the former representations.^ The relation between a banker and a depositor requires a greater degree of good faith on the former 's part than is required in dealings between merchants generally, and it has been held that a charge of fraud against a banker may be based on his failure to disclose his hopeless insolvency at the time a deposit is made with him.^ ' ' The relation between a banker and his customers," says Bradley, J., "is in some degree confi- dential, and he, it must be assumed, understands that they make with him deposits upon the faith and reliance that he is financially able to pay their drafts upon him for an amount equal to their deposits. And the relation that he assumes in view of the nature of his business as such banker is, in practical effect, a representa- tion on his part that he is able to do so. And if he is in an irre- trievable condition of insolvency, so that he knows or has reason to suppose that he cannot meet the engagements he assumes when he takes the funds of his customers deposited to be placed to their credit, the transaction may involve an implied representation or concealment which characterizes it as fraudulent on the part of the banker. ' ' ^ 20. Nichols V. Pinner, (1858) 18 Rochester Printing Co. v. Loomis, N. Y. 295, 299. (Sup. 1887) 45 Hun 93, 9 State Rep. 21. Smith V. Frank, (Super. Ct. 592, 27 Wkly. Dig. 101, affirmed 120 1864) 25 Super. Ct. 626. N. Y. 659 mem., 24 N. E. 1103. 22. Anonymous, (1876) 67 N. Y. 23. Rochester Printing Co. v. 598; Cragie v. Hadley, (1885) 99 Loomis, (Sup. 1887) 45 Hun 93, 97, N. Y. 131, 1 N. E. 537 ; Hall v. Per- 9 State Rep. 592, 27 Wlcly. Dig. 101. kins, (Ct. Err. 1829) 3 Wend. 626; § 168] FRAUD 225 Failure to Perform Contract or Promise § 168. In General. — Fraud on which an action of tort may be predicated must consist in a false statement, misrepresentation or concealment of the existence or nonexistence of some fact or cir- cumstance.^* And it is the general rule that a charge of fraud cannot be based on the failure of a person to perform his contract or promise,^ as where, to induce a person to take a lease, the lessor promised to make certain repairs prior to the commencement of the lease ; ^ and the fact that the defendant was, at the time of a loan by the plaintiff to him, under a promise to marry the lender and that the marriage did not take place, is insufficient to sustain a finding that the loan was procured by fraud." This is true, gen- erally, though the promise may have been made without any intent to perform it;^ and, a fortiori, it is true when the promise is without consideration and hence unenforceable as a promise,^' or where the contract is one unenforceable by reason of the statute 24. Farrington v. BuUard, (Sup. 1863) 40 Barb. 512. 25. Adams v. Gillig, (Sup. 1909) 131 App. Div. 494, 115 N. Y. S. 999, affirmed: 199 N. Y. 314, 92 N. E. 670; People V. Majorana, (Sup. 1913) 155 App. Div. 431, 140 N. Y. S. 8; Hone V. Burr, (County Ct. 1915) 91 Mise. 520, 155 N. Y. S. 377; Hamilton v. Lomax, (Sup. Sp. T. 1858) 26 Barb. 615, 6 Abb. Pr. 142; Farrington v. Bullard, (Sup. 1863) 40 Barb. 512; Henry W. Boettger Silk Finishing Co. V. Electrical Audit, etc., Co., (Sup. App. T. 1909) 115 N. Y. S. 1102; Milwitsky v. Selm'an, (Sup. App. T. 1916) 159 N. Y. S. 825; Lynch V. Dowling, (Marine Tr. T. 1878) 1 City Ct. 163. 26. Hone v. Burr, (County Ct. 1915) 91 Misc. 520, 155 N. Y. S. 377. 27. Podolsky v. Sandler, (Sup. App< T. 1916) 161 N. Y. S. 363. 28. Adams v. Gillig, (Sup. 1909) 131 App. Div. 494, 115 N. Y. S. 999, reversed on other grounds 199 N. Y. 314, 92 K. E. 670 ; Gallager v. Brunei, (Sup. 1826) 6 Cow. 346; Farrington V. Bullard, (Sup. 1863) 40 Barb. 512. But see Rawson v. Silo, (Sup. 1906) 15 114 App. Div. 358, 99 N. Y. S. 934; Jones V. Jones, (Sup. Sp. T. 1903) 40 Misc. 360, 82 N. Y. S. 325; Bowell V. Haines, ( Sup. Sp. T. 1909 ) 63 Misc. 102, 116 N. Y. S. 446; Watson v. Blossom, (Sup. G. T. 1888) 18 State Rep. 726, 4 N. Y. S. 489. In Adams v. Gillig, (Sup. 1909) 131 App. Div. 494, 115 N. Y. S. 999, Williams, J., says : " Our judgment is that the law in this state is that fraud cannot be founded solely upon a promise not performed, even if the promisor never intended to fulfil the same." And on. appeal (199 N. Y. 314) Chase, J., says: "The rule is quite universal that statements prom- issory in their nature and relating to future actions must be enforced if at all by an action upon the contract. It is unnecessary to decide or discuss the question whether under some pos- sible circumstances the courts will not in equity lay hold of false state- ments that are contractual in their nature to prevent the consummation of a fraud." 29. Farrington v. Bullard, (Sup. 1863) 40 Barb. 512. 226 NEW YORK LAW OF CONTEACTS [§ 16& of frauds.^" If a party plaintiff promises to discontinue an action, and in reliance thereon the defendant fails to interpose a defense, and the plaintiff, in violation of his promise, takes judgment by- default, which is paid by the defendant, he cannot maintain an action for fraud.^^ Where the parties stood in confidential relation a charge of fraud has been sustained. Thus, where a husband and wife were living apart and the husband was induced to convey land to the wife by her promise to return to and live with him, made without any intention to perform, it was held that this con- stituted a fraud which entitled the husband to a decree setting aside the conveyance.^^ If a promise of future action is accom- panied with misrepresentations of existing facts, fraud may be based on the latter though they may not have been the sole induce- ment. As said by Vann, J. : " Even if reliance is placed upon the mere promises of the defendant, as well as upon his false repre- sentations, still a cause of action for fraud may be maintained, provided the representations had a material effect in accomplishing the deception. ... It is not necessary that they should be the sole inducing cause. The cases cited by the defendant to the effect that fraud cannot be founded solely upon a promise not performed, even if the promisor never intended to fulfil, are therefore not applicable. ' ' ^^ Where the promise is to perform something in the future, and does not relate to some existing fact or circumstance, 30. Levy V. Brush, (1871) 45 N. Y. 31. White v. Merritt, (1852) 7 589; Wheeler v. Reynolds, (1876) 66 N. Y. 352; Farrington. v. Bullard, N. Y. 227; Steiner v. American Alco- (Sup. 1863) 40 Barb. 512. hoi Co., (Sup. 1918) 181 App. Div. 32. Jones v. Jones, (Sup. Sp. T. 309, 168 N. Y. S. 739; Gallager v. 1893) 40 Misc. 360, 82 N. Y. S. 325. Brunei, (Sup. 1826) 6 Cow. 346; The court in this case does not, how- Baum V. Holstein, (Sup. Tr. T. 1916) ever, restrict its decision but an- 93 Misc. 268, 157 N. Y. S. 966; Wil- nounces the broad rule that a prom- liamsburg City F. Ins. Co. v. Lichten- ise made without any intention to stein, (Sup. Sp. T. 1916) 98 Misc. perform it may be made the basis of 342, 164 N. Y. S. 345. See also La- a charge of fraud, and considers the fayette St. Church Soc. v. Norton, rule that a purchase by an insolvent (1911) 202 N. Y. 379, 95 N. E. 819, without any intention to pay consti- reversing 134 App. Div. 994 mem., tutes a fraud (see following section), 119 N. Y. S. 1132; Todd v. Pratt, as authority for the broad rule and (Sup. 1912) 149 App. Div. 459, 463, not an exception. 133 N. Y. S. 949. But see Hill v. 33. Kley v. Healy, (1891) 127 N. Y. Chamberlain, (Sup. 1901) 64 App. 555, 561, 40 State Rep. 215, 28 N E. Div. 609, 71 N. Y. S. 639, affirmed 170 593. N. Y. 595 mem., 63 N. E. 1117. it cannot be made the basis of a charge of fraud by any number of innuendoes as to fraudulent design or purpose.^* § 169. Intent Not to Pay for Goods Purchased, or the Like, Generally. — If an insolvent makes a purchase of goods without any intent to pay therefor this is regarded as a fraud.^" And where a person obtained money on a promise to deliver certain goods out of his stock on hand, without any intent to do so, and subsequently transferred his entire stock, a charge of fraud was sustained.^^ So if an insolvent, with intent not to meet his obliga- tion when due, obtains a credit with a bank by way of a discount of his obligation, the latter may, after an assignment by the insol- vent for the benefit of creditors, rescind and retain the proceeds of the discount which remain in its hands.^'' Where the cashier of a bank having been guilty of embezzling its funds, and being insolvent, made known these facts to the bank, and borrowed stock from a friend, to be replaced in kind, in order to enable him to make good his defalcation, but did not disclose this fact, the failure to make the disclosure was held a fraudulent suppression, which entitled the lender to rescind and to recover the stock from the bank to which it was turned over by the borrower.^* To charac- 34. Farrington v. Bullard, (Sup. v. Artcher, (Sup. 1854) 21 Barb. 1863) 40 Barb. 512. 585; Joalin v. Cowee, (Sup. 1871) 35. Hall V. Naylor, ( 1859) 18 N. Y. 60 Barb. 48, reversed on other grounds 588, affirming as to this but revers- 52 N. Y. 90; Hersey v. Bendict, (Sup. ing on other grounds 13 Super. Ct. 1878) 15 Hun 282; Davenport Glu- 71; Nichols V. Pinner, (1858) 18 cose Mfg. Co. v. Taussig, (Sup. 1884) N.'y. 295, on later appeal 23 N. Y. 31 Hun 563, 5 Civ. Pro. 69; Thomas 264 (sub nom. Nichols v. Michaels) ; v. Snyder, (Sup. 1894) 77 Hun 365, Hennequin v. Naylor, (1861) 24 N. Y. 60 State Rep. 415, 28 N. Y. S. 877; 139- Wright v. Brown, (1876) 67 Pilcher v. Levino, (Sup. 1894) 80 N. Y. 1; Hotchkin v. Malone Third Hun 399, 62 State Rep. 42, 30 N. Y. S. Nat. Bait, (1891) 127 N. Y. 329, 38 314; Durell v. Haley, (Chan. a. State Rep. 754, 27 N. E. 1050, affirm- 1829) 1 Paige 492; Lupin v. Marie, ing 33 State Rep. 195, 11 N. Y. S. (Ohan. Ct. 1830) 2 Paige 169; Bie- 220- Whitten v. Fitzwater, (1891) nenstok v. Ammidown, (Super. Ct. 129 N. Y. 626, 41 State Rep. 379, 29 Sp. T. 1894) 31 Abb. N. Cas. 400, 59 N E 298, 3 Silv. App. 600, reversing State Rep. 471, 29 N. Y. S. 593, af- on other grounds 33 State Rep. 953, firmed 11 Misc. 76, 32 N. Y. S. 1138 11 N. Y. S. 297; Van Kleek v. Leroy, mem. (1867) 4 Abb App. Dec. 479, 4 Abb. 36. Bernstein v. Lester, (Sup. App. Pr. N. S. 431, 4 Trans. App. 295; T. 1903) 84 N. Y. S. 496. Bvrd V Hall (App. 1866) 2 Keyes 37. Stallcup v. National Park Bank, 646 1 Abb. App Dec. 285; Johnson (Sup. G. T. 1887) 6 State Rep. 512. V. Monell, (App. 1866) 2 Keyes 655, 38. Rawdon v. Blatchford, (Chan. 660, 2 Abb. App. Dec. 470; Buckley Ct. 1844) 1 Sandf. Ch. 344. 22,8 NEW YORK LAW OF CONTRACTS t§ 170 terize a purchase as fraudulent the intent not to pay must ordi- narily have existed at the time of the purchase ; the fact that the buyer may have conceived such an intent after the delivery of the goods is not itself sufficient.^' But though at the time an order for goods was given the insolvent merchant had not conceived an intent not to pay, yet if he does conceive such an intent prior to the delivery to and acceptance by him of the goods, this, it has been held, will constitute a fraud authorizing the seller to avoid the sale.*" "Where at the time of the purchase a buyer gives his check for the price, and the cheek is dishonored because of want of funds, this itself is sufficient to establish fraud on his part.*^ It is otherwise, however, where the sale was on credit and there- after the buyer gives in payment his post-dated check which is dishonored.*^ § 170. Proof of Intent Not to Pay. — It is said that the evidence of the buyer's intent or design not to pay should be clear and satisfactory ; it should be on no doubtful testimony, on no equivocal circumstances, that the seller be allowed to repudiate the sale and reclaim the goods, thus gaining a preference over other creditors equally meritorious;*^ and such intent is not to be inferred, as a general rule, from the mere insolvency of the buyer.** Thi^ is especially true where it appears that the negotiations for the sale were instituted by the seller and special inducement was 39. Hotchkin v. Malone Third Nat. 42. Goldstein, v. Messing, (Sup. Bank, (1891) 127 N. Y. 329, 38 State App. T. 1907) 104 N. Y. S. 724. Rep. 754, affirming 27 N. E. 1050, 33 43. Nichols v. Pinner, (1858) 18 State Rep. 195, 11 N. Y. S. 220. See N. Y. 295, on later appeal 23 N. Y. also Brackett V. Griswold, (1889) 112 264 (sub nom. Nichols v. Michaels). N. Y. 454, 21 State Rep. 791, 20 44. Morris v. Talcott, (1884) 96 N. E. 376. N. Y. 100; Hotchkin v. Malone Third 40. Whitten v. Fitzwater, (1891) ^at Bank, (1891) 127 N. Y. 329, 38 129 N. Y. 626, 41 State Rep. 379, 29 ^^^^"^ ^T ^^^' ^^ ^- ^- ^°^^' ''*™' N. E. 298, 3 Sllv. App. 600, reversing ^^^ 33^State Rep. 195, 11 N. Y. S. 'IS Stfltp T?PT> o.ti-t n w V S 9Q7 ^^^' »iniiott V. German-American 33 btate Rep. 953, UN Y S^ 297, ^^^^ ^^^ ^^ as to the effect as . whole o the in- ^^^^.J ' structions given by the trial court; r^ 4t at- o ?nin o ±-l i. ^«- -„. i , A -A ,0 ^i. 54 N. Y. S. 1110; Swarthout v. Mer- Bienenstok v. Ammidown, (Super. Ct. i, i. ,0 moov 4>, tt ,„» ^^r, a T, lon^v 01 AVI, TVT Vi Ar.r, ^.^ chant, Sup. 1888 47 Hun 106, 107, Sp. T. 1894 31 Abb. N. Gas. 400, 59 ,-. q,', -o kki r^ cr tt n- i. S?ate Rep. 471, 29 N. Y. S. 593, af- %l^% ^^'Sa "gt" J' Su^ m' firmed 11 Misc. 76, 32 N. Y. S. 1138 'f^;,?, ^,^^^^3}, V N. y'I S,' ™^™- affirmed 124 N. Y. 644, 36 State 41. Dykers v. Woodward, (Sup. Rep. 271, 26 N. E. 812, 3 Silv. App. Sp. T. 1852) 7 How. Pr. 313. 400. § 170] FRAUD 229 offered to the buyer.^^ ^^d this view has been taken though the capital on which the insolvent buyer was conducting business was. largely procured by borrowing money on notes to which he had forged the names of third persons.*^ The fact of insolvency is a material consideration bearing on the question of intent to pay, and in connection with other circum- stantial evidence may justify a finding that the buyer in fact did not intend to pay." And it has been held, where it is shown that 45. Hotchkin v. Malone Third Nat. Bank, (1891) 127 N. Y. 329, 38 State Rep. 754, 27 N. E. 1050, affirming 33 State Rep. 195, 11 N. Y. S. 220. 46. Sinnott v. German-American Bank, ( 1900) 164 N. Y. 386, 58 N. E. 286, affirming 33 App. Div. 641 mem., 54 N". Y. S. 1110, reargument denied 165 N. Y. 646, 59 N. E. 1130. In this case Gray, J., delivering the opinion of the majority of the court, says : " The appellant claims that the character of the financial trans- actions between F. and the bank was such as to negative the inference of an honest intention upon F.'s part to pay for the goods, which he had pur- chased of the plaintiffs, and that, therefore, they were entitled, for the fraud practiced, to rescind the sale and to repossess themselves of the goods sold, as they had not passed into the possession of a bona fide purchaser. It is conceded that F.'s insolvency, alone, furnished no in- ference of an intention not to pay for the goods. The testimony was that he did intend to pay; but it is argued that the circumstances were such, and that the nature of the in- solvency was so affected by his rela- tions to the bank, as to furnish the legal conclusion that the intention and reasonable expectation of the ability to pay did not exist. No case is cited in support of the plaintiffs' position, and I do not think that any can be found in the books. I do not think it can find support in any legal principle. F. was under no obliga- tion to communicate to persons deal- ing with him the extent and nature of his transactions with others. The presumption was that, having pro- cured the capital upon which to carry on his business, he would use it in the discharge of his current obligations, with the reasonable ex- pectation that the business would prove profitable enough to satisfy, eventually, what indebtedness had been incurred. Whether in the pro- curing of his capital his conduct was fraudulent, whether his schemes ren- dered him amenable to legal punish- ment, were not matters of which it could be predicated that they evi- denced an intention on his part not to pay for goods purchased in the conduct of the business. His pur- pose was to continue his business. It might be abortive, or liable to defeat by reason of his fraud in raising moneys for capital; hut not only there might be, but there would be, the clear intention to pay for goods purchased." Bartlett and Vann, JJ., dissent to this proposition, and in their dissenting opinion say : " We are of opinion that a man conduct- ing business, the sole basis of which is the floating of forged paper and its renewals in his bank, is in a situ- ation where he cannot entertain the honest intention to pay his debts, and that all his purchases of goods are fraudulent." 47. Hennequin v. Nay lor, (1861) 24 N. Y. 139; Byrd v. Hall, (App. 1866) 2 Keyes 646, 1 Abb. App. Dec. 285; Johnson v. Monell, (App. 1866) 2 Keyes 655, 2 Abb. App. Dec. 470; Buckley v. Arteher, (Sup. 1854) 21 Barb. 585; Franeheris v. Henriquaa, (Com. PI. G. T. 1862) 24 How. Pr. 165; Bienenstok v. Ammidown, 230 NEW YORK LAW OF CONTRACTS [§ 171 the purchase was made on the eve of suspension and assignment, , that this fact alone, in the absence of explanatory proof, is suffi- cient to carry the case to the jury.** It has also been held that the intent not to pay or meet an obligation when due may be inferred from the debtor's knowledge of his insolvency, and the absence of any reasonable grounds for believing that he would be able to fulfil his obligations.*' And though the insolvent may believe that he will be able to continue business and meet his obligations as they fall due, it seems that he must have reasonable grounds for such belief; otherwise his obtaining credit should be deemed to have been obtained without the intent to pay.^» Testimony of the buyer that he did not purchase with an intent not to pay is admissible on the issue as to whether the purchase was made with such intent." Representations Generally § 171. Falsity of Representation Generally. — ^As a general rule a representation must be false to be made the basis of a charge of fraud, ^^ and false when made.^' The party complaining must allege in his complaint the falsity of the representations,^* and prove that they were false.^^ An allegation that the defendant made (Super. Ct. Sp. T. 1894) 31 Abb. N. N. Y. S. 731; Hudson P. Rose Co. v. Cas. 400, 59 State Rep. 471, 29 N. Goodale, (Sup. App. T. 1918) 169 Y. S. 593, affirmed 11 Misc. 76, 32 N. Y. S. 446. N. Y. S. 1138 mem. 53. Bell v. Mali, (Sup. Sp: T. 48. Johnson v. Monell, (App. 1855) 11 How. Pr. 254. See also 1866) 2 Keyea 655, 660, 2 Abb. App. Kierana v. Wolfif, (Sup. G. T. 1890) Dec. 470. 32 State Rep. 83, 10 N. Y. S. 79. 49. Stallcup V. National Park 54. L. D. Garret Co. v. Astor, Bank, (Sup. G. T. 1887) 6 State (Sup. 1902) 67 App. Div. 595, 73 Rep. 512. See also Hotchkin v. N. Y. S. 966; Brown v. Morrill, (Sup. Malone TMrd Nat. Bank, (1891) 127 App. T. 1907) 55 Misc. 224, 105 N. N. Y. 329, 347, 38 State Rep. 754, Y. S. 191; Fox v. Trigger, (Sup. 27 N. E. 1050, per Vann, J., dissent- App. T. 1910) 126 N. Y. S. 78. See ing; Whitten v. Fitzwater, (1891) also Furlong v. Gair, (Super. Ct. 129 N. Y. 62«, 41 State Rep. 379, 29 1880) 46 Super. Ct. 573, affirmed 94 N. E. 298, 3 Silv. App. 600. N. Y. 635 mem. 50. Stallcup V. National Park 55. Babcock v. Libbey, (1880) 82 Bank, (Sup. G. T. 1887) 6 State N. Y. 144, affirming 17 Hun 131, Rep. 512. whicli affirmed 53 How. Pr. 255, 10 51. Morris v. Wells, (Sup. G. T. Wkly. Dig. 573; Reno v. Bull, 1889) 4 Silv. Sup. 34, 26 State Rep. (1919) 226 N. Y. 546, 124 N. E. 144, 9, 7 N. Y. S. 61. reversing 179 App. Div. 891 mem., 52. Seis v. Plaisantin, (Sup. 1900) 165 N. Y. S. 1109; Sperling v. Boll, 52 App. Div. 206, 65 N. Y. S. 70; (iSup. 1896) 10 App. Div. 290, 75 Scarsdale Pub. Co. v. Carter, (Sup. State Rep. 1256, 41 N. Y. S. 889; App. T. 1909) 63 Misc. 271, 275, 116 Carson v. Eisner, (Sup. 1899) 42 § 171] FRAUD 231 certain representations, well knowing the truth to be to the eon- verse, has been held to allege sufficiently the falsity of the repre- sentations.^^ Where, in the sale of a business and a leasehold of the premises on which the business was conducted, the seller repre- sented that the lease was a " four year straight lease," it was held that the fact that the lease contained a forfeiture clause for breach of covenants did not show that the representation was false." The truth of the representation must be determined by the facts existing at the time it was made, but evidence of con- ditions at a later date may be relevant to show the actual condi- tions at the earlier time and the consequent falsity of the repre- sentation,^^ and may be sufficient for such purpose if from the later App. Div. 614, 58 N. Y. S. 826; Powell V. F. C. Linde Co., (Sup. 1901) 58 App. Div. 261, 68 N. Y. S. 1070, affirmed 171 N. Y. 675 mem., 64 N. E. 1125; Grosjean v. Gallo- way, (Sup. 1903) 82 App. Div. 380, 81 N. Y. S. 871; Thayer v. Schley, (Sup. 1910) 137 App. Div. 166, 121 N. Y. S. 1064; Allen-Kingston Motor Car Co. V. Consolidated Nat. Bank, (Sup. 1914) 162 App. Div. 178, 147 N. Y. S. 251, affirmed 222 N. Y. 623 mem., 118 N. E. 1050; Willoughby V. Fredonia Nat. Bank, (Sup. 1893) 68 Hun 275, 52 State Rep. 387, 23 N. Y. S. 46; Miner v. Daly, (Sup. 1893) 69 Hun 337, 53 State Rep. 232, 23 N. Y. S. 475, affirmed 144 N. Y. 658 mem., 39 N. E. 858; Wheadon v. Huntington, (Sup. 1894) 83 Hun 371, 64 State Rep. 648, 31 N. Y. S. 912; Bellettiere v. Lawlor, (Sup. App. T. 1905) 47 Misc. 161, 93 N Y. S. 471; Fox v. Trigger, (Sup App. T. 1910) 126 N. Y. S. 78; King V. Murphy, (County Ct. 1914) 151 N. Y. S. 476; McAvoy v. Maxwell, (Sup. App. T. 1916), 158 N. Y. S. 844; Catlin v. Vietor, (Super. Ct. 1885) 52 Super. Ct. 169; Goldstein v. Parker, (Super. Ct. G. T. 1890) 58 Super. Ct. 580, 30 State Rep. 245, 8 N. Y. S. 865, affirmed 128 N. Y. 577 mem., 28 N. E. 250; Sullivan v. Warner, (Sup. 1872) 43 How. Pr. 188. 5'G. Ballard v. Lookwood, (Com. PI. 1861) 1 Daly 158. 57. Goldman v. Kleinberg, (Sup. App. T. 1911) 129 N. Y. S. 374. 58. Mason v. Raplee, (Sup. 1869) 66 Barb. 180. The necessity for the admittance of such evidence is^ ap- parent. As said by Mullin, J., in this case : " Such evidence must be received, or therd will be, in many instances, a, failure of justice. If no evidence can be received except such as relates to the conditioii of the premises at the time to which the representations refer, men would cheat with impunity. A man own- ing lands in Iowa represents, during £1. negotiation for a sale or exchange of them, that they are well timbered, situated near a railroad or stream, and on the strength of these repre- sentations the ^bargain is concluded. It might well be impossible to find any person who had been on the premises before the trade, bu-t it can be proved that two years thereafter there was not a tree, or a vestige of a tree, on the land, and that there was neither railroad nor stream within miles of it. Can the vendor escape because no one can be found who had seen it before the bargain was made? The subsequent condi- tion, in the case supposed, is evi- dence that there could not have been timber on the land two years before, and that neither railroad nor stream could have been near it." 232 NEW YORK LAW OP CONTRACTS [§172 facts it is incredible that the facts at the earlier date could have been as represented.^' § 172. Qualification of Rule as to Falsity. — A representa- tion may be literally, iu point of fact, true., yet made under cir- cumstances which evidence an intent to deceive and may have this effect, and where this is the case a charge of fraud may be based thereon.«» ' ' One who uses words, ' ' says Porter, J., " in a deceptive and double sense, for the purpose of misleading the party with whom he contracts, is bound by them in the sense in which he intended they should be understood. ' ' " Thus books of account are generally supposed to be kept for the purpose of showing truly and accurately the condition of one's business, and if they do not do this they serve no purpose whatever except to mislead. And when, in negotiations for the purchase of a business or an interest therein, the buyer is given a statement of the assets and liabilities of the business as they appear from the books of the business, he has the right to assume that all the assets and liabilities are on the books and therefore appear on the statement. If nothing is said to the contrary he has a right to assume that it is a truthful statement of the affairs of the business and that the assets and liabilities are correctly set forth. If the seller presenting such a statement knows that it does not show a true statement of the affairs of the business, because liabilities of the business are not entered on the books, he cannot escape liability by stating merely that the statement represents the affairs of the business as they appear from the books.^^ If, however, the seller has no knowledge of the fact that the books do not contain a true statement of the affairs of the business and is not to be charged as a matter of law with such knowledge, he cannot be charged with fraud where he merely represents that the statement is true according to the books, which in point of fact is the truth.*^ In determining whether representations are false or not they are to be taken as a whole. If by a number of statements one intentionally gives a false im- 59. Mason v. Raplee, (Sup. 1869) Keyes 476, 2 Abb. App. Dec. 465, 468, 66 Barb. 180. 3 Keyes 126. 60. Foots V. Leary, (Sup. 1905) 62. Foote v. Leary, (Sup. 1905) 103 App. Div. 547, 93 N. Y. S. 169. 103 App. Div. 547, 93 N. Y. S. 169. See also Deyo v. Hudson, (Sup. 63. Worthington v. Herrmann, 1916) 174 App. Div. 746, 161 N. Y. (Sup. 1903) 89 App. Div. 627, 88 S. 494, reversing 89 Misc. 525, 153 N. Y. S. 76, affirmed 180 N. Y. 559 N. Y. S. 693. mem., 73 N. E. 1134 61. Jcdinson v. Hathorn, (1866) 2 § 173] FRAUD 233 pression and induces another to act on it, it is not the less false, although if each statement is taken by itself there may be diffi- culty in showing that any specific statement was itself untrue.'^ § 173. Materiality of Representation. — It is stated as a gen- eral rule that a representation, to be made the ground for a charge of fraud, must have been a material one.'^ And a representation by a lessor that he owns the demised premises, whereas he had only a leasehold estate, sufficient, however, fully to sustain the term demised, is not, under ordinary circumstances, a material one on which a charge of fraud may be based.** Also, as a general rule the same would be true as to a representation by a vendor or lessor as to his ownership of neighboring property.*' In an English case, the gauge by which the materiality of the statement is to be determined is stated in substance as follows: A contract may be avoided by a false and fraudulent representation, though not relating directly to the nature and character of its subject matter, if it is so closely connected with the contract as that the party sued on it would not but for the representation have entered into it, and was induced to enter into it, to the knowledge of the other party, by such representation.*^ Under this rule either party to a contract may make a collateral statement of the other party during the negotiations, as to the existence or nonexistence of a particular fact, a material one in his own judgment; so if it turns out to be untrue, and was falsely and fraudulently made, it will vitiate the contract, if he relied on it as true and would not have entered into the contract but for the statement. This standard by which it is to be determined whether the representation be material or 64. Downey v. Finueane, (1912) Corp. v. Pathe Excli., (Sup. App. T. 205 N. Y. 251, 264, 98 N. E. 391; 1918) 105 Misc. 39, 172 N. Y. S. 364; Churchill v. St. George Development Tockerson v. Chapin, (Super. Ct. Co., (Sup. 1916) 174 App. Div. 1, 4, 1885) 52 Super. Ct. 16; Rosenbaum 160 N. Y. S. 357. v. Gunter, (Com. PI. 1854) 3 E. D. 65. Smith v. Countryman, (1864) Smith 203, 204. 30 N. Y. 655, 670; Robinson v. Syra- 66. Robinson v. Syracuse Rapid cuse Rapid Transit R. Co., (Sup. Transit R. Co., (Sup. 1905) 100 App. 1905) 100 App. Div. 214, 91 N. Y. S. Div. 214, 91 N. Y. S. 909. See also 909; Becker v. Colonial L. Ins. Co., Zagarino v. Kurzrok, (Sup. 1909) 135 (Sup. 1912) 153 App. Div. 382, 384, App. Div. 763, 119 N. Y. S. 907. 138 N. Y. S. 491; Canadian Agency 67. Robinson v. Syracuse Rapid V Assets Realization Co., (Sup. Transit R. Co., (Sup. 1905) 100 App. 1914) 165 App. Div. 96, 150 N. Y. S. Div. 214, 91 N. Y. S. 909. 769- Ansbacher v. Pfeiffer, (Sup. 68. Canham v. Barry, (1855) 15 1891) 59 Hun 624 mem., 36 State C. B. 597, 80 E. C. L. 597. Rep. 634, 13 N. Y. S. 418; A. F. T. 234 NEW YORK LAW OF CONTEACTS [§ 173 not has been adopted and applied by the courts in this state.^ It is said that, as a general rule, it is a question of fact whether the representation was a material one or not." And where a vendor represented that the building on the land did not encroach on the adjoining premises, it cannot be said, as a matter of law, that an encroachment of from one to two inches is immaterial." It is not necessary that a false representation, to be material, and to operate on a party as an inducement to make a purchase, should be as to the qualities or condition of the article which is intended to be sold. If it be made with reference to any fact which affects the desirability of the article in the mind of the person who is besought to buy it, it may be a material inducement, just as much as though it contained something about the qualities themselves of the article presented for sale.'^ Thus where a president of a corporation was induced to purchase its stock in order to retain control for his own interest and the good of the corporation, by the seller's false representation that a combination of the stock- holders, theretofore friendly, had agreed among themselves and intended to oust the buyer from his position as president, it was held that a charge of fraud could be based thereon.'^ And in a case involving a subscription to the stock of a corporation, a representation that certain individuals of character and pecuniary means had subscribed has been considered a material representa- tion, where it was relied on and influenced the plaintiff in making his subscription.'* It has also been held, in case of the sale of a secret receipt for yeast intended for use in distilling grain or the like, that a representation that it was a distiller's receipt and had been tested by the seller and found valuable, and also used suc- cessfully for such purpose by another distiller, was a material 69. Valton v. National Loan Fund 72. Delano v. Rice, (Sup. 1897) 23 L. Assur. Co., (1859) 20 N. Y. 32; App. Div. 327, 48 N. Y. S. 295. Stewart v. Lester, (Sup. 1888) 49 73. Delano v. Rice, (Sup. 1897) 23 Hun 58, 17 State Rep. 248, 1 N. Y. App. Div. 327, 48 N. Y. S. 295, S. 699. .affirming 26 Misc. 502, 57 N. Y. S. 70. Carr v. Schermerliom, (Sup. 678. G. T. 1870) 3 Lans. 189; Stewart v. 74. Carr v. Schermerhorn, (Sup. Lester, (Sup. 1888) 49 Hun 58, 17 G. T. 1870) 3 Lans. 189. State Rep. 248, 1 N. Y. S. 699. 75. Swikehard v. Russell, (Sup. 71. Kreshover v. Berger, (Sup. '1872) 66 Barb. 560. 1909) 135 App. Div. 27, 119 N. Y. S. 737. §§ 174, 175] FRAUD 235 § 174. " Dealers' Talk." — In sales of real or personal property or the like, representations amounting to conunendatory expres- sions, thoiigli exaggerated, are not as a general rule regarded as a basis for a charge of fraud.'^ And this includes commendatory representations as to the commercial possibilities of inventions. The owner of an invention, as in case of sellers of other chattels, has the right to puff his invention so long as he makes no false statements of fact, and any statement as to revolutionizing a par- ticular trade by reason of the invention has been considered as merely the expression of an opinion and the pufiftng of one's wares." § 175. Representation as to Matter of Law Generally. — Ordi- narily a charge of fraud cannot be based on a misrepresentation as to the law. Not only is every one presumed to know the law, but also a representation as to the law governing a known state of facts must necessarily be in the nature of an expression of opinion.''* This rule is applicable to a representation as to the legal construction to be placed on a written instrument,'* such as a representation that a legacy was made a charge on the testa- tor's land;*" a representation by a debtor that the claim against 76. Arnold v. Norfolk, etc.. Hosiery 282, 43 N. Y. S. 69, affirmed 31 App. Co., (1896) 148 N. Y. 392/ 42 N. B. Div. 623, 52 N. Y. S. 270; Anony- 980, affirming 76 Hun 15, 58 mous, (Sup. Sp. T. 1896) 19 Misc. State Rep. 351, 28 N. Y. S. 638; 197, 43 N. Y. S 63; Brady v. Ed- Kleyv. Healy, (1866) 149 N. Y. 346, wards, (Sup. Sp. T. 1901) 35 Misc. 351, 44 N. E. 150; Stumpf v. Sar- 436, 71 N. Y. S. 972; Leszynsky v. gent, (Sup. App. T. 1897) 21 Misc. Ross, (Sup. Sp. T. 1901) 35 Misc. 674, 47 N. Y. S. 1086. 652, 72 N. Y. S. 352; Gomprecht v. 77. Arnold V. Norfolk, etc.. Hosiery Ludwig, (Sup. App. T. 1910) 65 Co., (1896) 148 N. Y. 392, 42 N. E. Misc. 557, 120 N. Y. S. 986. See 980 affirming 76 Hun 15, 58 State also Williams v. Whittell, (Sup. Rep. 351, 28 N. Y. S. 638. 1902) 69 App. Div. 340, 74 N. Y. S. 78. Levin v. Sweet, (Sup. 1911) 820; Rose v. Saunders, (Sup. 1886) 147 App. Div. 899, 132 N. Y. S. 110; 38 Hun 575, 576. As to a statement Reiss V. Levy, (Sup. 1916) 175 App. of opinion or the like, see infra, sec- Div. 938, 161 N. Y. S. 1048; Starr v. tion 181 et seq. Bennett, (Sup. 1843) 5 Hill 303; 79. Leszynsky v. Ross, (Sup. Sp. Holdredge v. Webb, (Sup. 1872) 64 T. 1901) 35 Misc. 652, 72 N. Y. S. Barb 9- Lexow v. Julian, (Sup. 352; Du Moulin v. Board of Educa- 1880) 21 Hun 577, affirmed 86 N. Y. tion, (Sup. Tr. T. 1907) 124 N. Y. S. 638 mem • Willoughby v. Fredonia 901. See also Nesbit v. Jeneks, Nat. Bank, (Sup. 1893) 68 Hun 275, (Sup. 1903) 81 App. Div. 140, 80 52 State Rep. 387, 23 N. Y. S. 46; N. Y. S. 1085. Ashner v. Abenheim, (Sup. 1894) 83 80. Duffany v. Ferguson, (1876) Hun 34, 64 State Rep. 129, 31 N. Y. 66 N. Y. 482, reversing 5 Hun 106, S. 514,' on later appeal 19 Misc. decided on other grounds. 236 NEW YORK LAW OF CONTRACTS [§ 176 him is a lien on his seat in the stock exchange ; ^^ a representation by a lessor, to induce the lessee to take the lease, that an assign- ment of the lease will relieve him from liability for subsequently accruing rents /^ and a representation that a return to a fieri facias was "in due form of law."^' A fortiori, where there is a compromise of litigation a charge of fraud cannot be based on the fact that the contention set forth by one of the parties as to the law of the case was incorrect and not in fact his true opinion of the law. In settling the litigation the parties deal at arm's length, and one has the right to keep his opinion of the law to himself ; if he neither wrongfully withholds nor misstates the facts he cannot be adjudged guilty of fraud because his contentions as to the law are incorrect.** § 176. Qualification of General Rule. — The view has been taken that if one of the parties to a contract is ignorant of a matter of law involved therein, and the other party knows him to be so, and takes advantage of the circumstance, this may con- stitute a fraud which will entitle the party deceived to equitable relief.*^ For example, where a written guaranty was given that a note was " good," which in law is a contract that the maker is solvent, but the guarantor was ignorant of this, and the guar- antee with knowledge of this fact stated to the guarantor that the effect of the guaranty was merely that the note was a valid one, it was held that this was a fraud entitling the guarantor to be relieved from his contract.'^ And where an insurance company induced the holder of a benefit certificate, enforceable for its face value, to accept a less amount in satisfaction thereof, by a rep- resentation that a by-law adopted after the issuance of the certifi- cate limited its liability to such amount, with knowledge that the by-law had been declared invalid by the courts, a charge of fraud was sustained on the ground that the representation was not as 81. Lexow V. Julian, (Sup. 1880) 85. Cooke v. Nathan, (Sup. 1853) 21 Hun 577, affirmed 86 N. Y. 638 16 Barb. 342; Eysman v. Nelson, mem. (Sup. Eq. T. 1913) 79 Misc. 304, 140 82. Jomprecht v. Ludwig, (Sup. N. Y. S. 183, affirmed 165 App. Div. App. T. 1910) 65 Misc. 557, 120 N. 950 mem., 150 N. Y. S. 1085. See Y. S. 986. also Cramsey v. Sterling, (Sup. 83. Starr v. Bennett, (Sup. 1843) 1906) 111 App. Div. 568 mem., 5 Hill 303. 97 N. Y. S. 1082, affirmed 188 N. Y. 84. Amherst College v. Ritch, 602 mem., 81 N. E. 1162. (1897) 151 N. Y. 282, 321, 45 N. E. 86. Cooke v. Nathan, (Sup. 1853) 876, affirming 91 Hun 509, 71 State 16 Barb. 342. Rep. 607, 36 N. Y. S. 576. § 177] FRAUD 237 to a matter of law but as to a fact, namely, the existence of a by-law which did not in fact exist." A charge of fraud has also been sustained where an insured was induced to accept less than he was entitled to by a misrepresentation by the insurer that the policy had been rendered invalid on account of an alleged mis- representation by the insured as to his title.^* A representation as to the unexpired term of a leasehold estate has also been held a representation of a matter of f act.^' In the sale of stock a rep- resentation that the stock was nonassessable may be a representa- tion as to a matter of law or one as to an existing fact. If the representation is that under the law as construed by the party making the representation it is nonassessable, then it is a repre- sentation as to a matter of law, and consequently an expression of opinion, and a charge of fraud cannot be based thereon.^" But if it appears that the stock was assessable, and assessable because the party had not complied with a plain mandate of a statute requisite to give the stock immunity from assessment, then it is a representation as to an existing fact, and may as such be made the basis of a charge of fraud.'^ § 177. Promissory Representation. — A representation, to be the basis of a charge of fraud, must, as a general rule, be of an exist- ing fact as distinguished from a promissory representation.^^ Thus 87. Simon v. American Legion of subject and to surrender to it his Honor, (Sup. IQO*) 91 App. Div. claim. This clearly constituted 390, 86 N. Y. S. 866, affirmed 181 fraud, and there would be manifest N. Y. 578 mem., 74 N. E. 1125. injustice in upholding a settlement 88. Berry v. American Cent. Ins. under such circumstances. We think Co., (1892) 132 N. Y. 49, 43 State the case falls within well settled Rep. 400, 30 N. E. 254. In thia rules of equitable jurisdiction." case Brown, J., said : " There is no 89. Cunningham v. Wathen, ( Sup. question, of course, but that a court 1897) 14 App. Div. 553, 43 N. Y. S. of equity cannot grant relief solely 886. upon a mistake of law. But there 90. Van Slochem v. Villard, (19'13) was here more than a mistake. 2D7 N. Y. 587, 101 N. E. 467. There was a surrender of legal 91. Van Slochemr v. Villard, (1913) rights intentionally induced and pro- 207 K. Y. 587, 101 N. E. 467. cured by a false representation, as to 92. Ranney v. People, ( 1860 ) 22 the law governing the case. The de- N. Y. 413; Stitt v. Little, (1875) 63 fendant mu^t be presumed to have N. Y. 427, 431; People v. Blanchard, known that it was liable for the (1882) 90 N. Y. 314; Taylor v. Com- whole loss, and by falsely represent- mercial Bank, (1903) 174 N. Y. 181, ing that under the law applicable to 184, 66 N. E. 726; Adams v. Gillig, the case the policy was void, when (1910) 199 N. Y. 3-14, 92 N. E. 678; in fact it was valid, it induced the People v. Majorana, (Sup. 1913) 155 plaintiff to rely upon the superior App. Div. 431, 140 N. Y. S. 8, 29 knowledge that it possessed upon the N. Y. Crim. 206; Meritas Realty Co. 238 NEW YOEK LAW OF CONTRACTS [§ 177 in case of a sale of goods to be thereafter manufactured, a rep- resentation in the nature of a warranty as to the character or quality of the goods cannot be made the basis of such a charge.'' And where an agent for a corporation induced the plaintiff to view land owned by the corporation, and to purchase it and give back a purchase money mortgage in reliance on the statement, which proved to be false, that he would sell it for the purchaser at a profit before the maturity of the mortgage, it was held that there was not a misstatement as to an existing fact which would entitle the pur- chaser to rescind, as the statement related wholly to future events, and, being speculative, could not be made the basis of a charge of fraud.'* Also where the defendant secured the plaintiff's indorse- ment of a treasury draft by representations that he would use the proceeds in paying off certain claims, that he would not take the proceeds to a foreign state, that he would immediately return the remainder of the proceeds to the plaintiff, and that he would V. Farley, (Sup. 1915) 166 App. Div. 420, 151 N. Y. S. 1052, revers- ing 85 Misc. 321, 147 N. Y. S. 503; Eeisa v. Levy, (Sup. 1916) 175 App. Div. 938, 161 N. Y. S. 1048; Field v. Seubert Bearing Co., (Sup. 1917) 179 App. Div. 780, 167 N. Y. S. 294; Barbrick v. Carrero, (Sup. 1918) 184 App. Div. 160, 171 N. Y. S. 447; Hamilton v. Lomax, (Sup. Sp. T. 1858) 26 Barb. 615, 6 Abb. Pr. 142; Lexow V. Julian, (Sup. 1880) 21 Hun 577, affirmed 86 N. Y. 638 mem.; Mason v. Wbeeler, (Super. Ct. Eq. T. 1893) 2 Misc. 523, 24 N. Y. S. 879; Kley v. Healy, (Com. PI. G. T. 1894) 9 Misc. 93, 59 State Kep. 692, 29 N. Y. S. 3, affirmed 149 N. Y. 346, 44 N. E. 150; Seaman V. Becar, (Sup. Sp. T. 1896) 15 Misc. 616, 38 N. Y. S. 69; Wheeler V. Mowers, (County Ct. 1896) 16 Misc. 143, 74 State Rep. 540, 38 N. Y. S. 950; Construction Re- porter Co. V. Crowninshield, (Sup. App. T. 1896) 16 Misc. 381, 38 N. Y. S. 72; Stumpf V. Sargent, (Sup. App. T. 1897) 21 Misc. 674, 47 N. Y. S. 1086; Townsend v. Greenwich. Ins. Co., (Sup. 1902) 39 Misc. 87, 78 N. Y. S. 897, affirmed 86 App. Div. 323, 83 N. Y. S. 909, which la affirmed 178 N. Y. 634, 71 N. B. 1140; Scarsdale Pub. Co. v. Carter, (Sup. App. T. 1909) 63 Misc. 271, 275, 116 N. Y. S. 731; Hone v. Burr, (County Ct. 1915) 91 Misc. 520, 155 N. Y. S. 377; McAvoy v. Maxwell, (Sup. App. T. 1916) 158 N. Y. S. 844; Stoltz V. Reynolds, (Sup. App. T. 1918) 169 N. Y. S. 170; Oliver Typewriter Co. v. Eastman Pub. Co., (Sup. App. T. 1918) 16a N. Y. S. 1029; Polcik V. Korff, (Sup. App. T. 1920) 180 N. Y. S. 401; Gray v. Palmer, (Super. Ct. 1864) 25 Super. Ct. 500, affirmed 41 N. Y. 620 mem.; Sparman v. Keim, (Super. Ct. 1878) 44 Super. Ct. 163, affirmed as to this but reversed on other grounds 83 N. Y. 245, 9 Abb. N. Cas. 1; Francis v. New York, etc.. El. R. Co., (Sup. G. T. 1885) 17 Abb. N. Cas. 1. 93. Mason v. Wheeler, (Super. Ct. Eq. T.) 2 Misc. 523, 24 N. Y. S. 879. 94. Meritas Realty Co. v. Farley, (Sup. 1915) 166 App. Div. 420, 151 N. Y. S. 1052, reversing 85 Misc. 321, 147 N. Y. S. 503. See also Gotte- berg V. Park Terrace Co., (Sup. 1915) 168 App. Div. 800, 154 N. Y. S. 387, affirmed 222 N. Y. 600 mem., 118 N. E. 1060. § 178] FRAUD 239 advise her how to invest the same, it was held that as these rep- resentations were promissory in their nature a charge of fraud could not be sustained thereon-^^ The same view has been taken regarding a representation as to what a heating plant to be installed would do toward heating the house,^^ and regarding a representation, on the sale of a business or an interest therein, that the business ' ' would yield large profits. ' ' " The fact that promissory representations accompany representations as to mat- ters of fact does not, of course, prevent a charge of fraud being based on the latter, if they were a controlling though not the sole inducement.'* This has been held true where representations by a vendor of lots as to improvements then being made in a new real estate development were accompanied by promissory representa- tions as to other improvements.'^ § 178. Kepresentation as to Present Intention or State of Mind Generally. — The present intention of a person or his state of mind is in its nature a fact, and a misrepresentation in respect thereto may constitute a fraud.^ As said by Chase, J., in a case involving a statement by a purchaser as to his intention with regard to the use of the land purchased: " The simple question in this case is . . . whether the alleged intention of the defendant to build a dwelling or dwellings upon the lot which he sought to purchase is such a statement of an existing material fact as authorizes the court to cancel the deed because of the fraud. ... A promise as such to be enforceable must be based upon a consideration, and it must be put in such form as to be available under the rules relat- 95. Gray v. Palmer, (Super. Ct. van v. France, (Sup. App. T. 1918) 1864) 25 Super. Ct. 1500, affirmed 41 168 N. Y. S. 28. N Y 620 mem 99- Sicklick v. Interurban Home 96. Wheeler 'v. Mowers, (Couuty ^o. (Sup. App. T. 1909) 116 N. Y. Ct. 1896) 16 Misc. 143, 74 State Rep. S. 553. 540, 38 N. Y. S. 950. jj y 3^^^ 92 j^ ^ g^Q. ^^^^ ^ 97. Sparman v. Kiem, (Super. Ct. Hudson, (1919) 225 N. Y. 602, 122 1878) 44 Super. Ct. 163, affirmed N. E. 635; Gabriel v. Graham, (1915) as to this but reversed on other jgg ^pp. jjiv. §47^ 154 n. Y. S. 493; grounds 83 N. Y. 245, 9 Abb. N. Podolsky v. Sandler, (Sup. App. T. Cas. 1. 1916) 161 N. Y. S. 363; Stoltz v. 98. Oliver v. Bennett, (1875) 65 Reynolds, (Sup. App. T. 1918) 169 N. Y. 559. Darners v. Sternberger, N. Y. S. 170, 171; Marcus Brown (Sup. App. T. 1905) 95N. Y. S. 532; Constr. Co. v. Schlivek, (Sup. App. Damers v. Sternberger, (Sup. App. T. 1918) 170 N. Y. S. 430. See also T. 1907) 102 N. Y. S. 732; Sicklick Delano v. Rice, (Sup. 1897) 23 App. V. Interurban Home Co., (Sup. App. Div. 327, 48 N. Y. S. 295; Rose v. T. 1909) 116 N. Y. S. 553; O'Sulli- Saunders, (Sup. 1886) 38 Hun 575. 240 NEW YORK LAW OP CONTRACTS [§ 179 ing to contracts and the admission of evidence relating thereto. It may include a present intention, but as it also relates to the future it can only be enforced as a promise under the general rules relating to contracts. A mere statement of intention is a different thing. It is not the basis of an action on contract. It may in good faith be changed without affecting the obligations of the parties. A statement of intention does not relate to a fact that has a corporal and physical existence, but to a material and existing fact nevertheless, not amounting to a promise, but which as in the case under discussion affects and determines important transactions. . . . The intent of a person is sometimes difficult to prove, but it is nevertheless a fact, and a material and existing fact that must be ascertained in many cases, and when ascer- tained determines the rights of the parties to controversies. The intent of [the purchaser] was a material existing fact in this case, and the plaintiff's reliance upon such fact induced her to enter into a contract that she would not otherwise have entered into. The effect of such false statement by the defendant of his inten- tion cannot be cast aside as immaterial simply because it was possible for him in good faith to have changed his mind or to have sold the property to another who might have a different pur- pose relating thereto. As the defendant's intention was subject to change in good faith at any time it was of uncertain value. It was, however, of some value. It was of sufficient value so that the plaintiff was willing to stand upon it and make the conveyance in reliance upon it. . . . We are of the opinion that the false statements made by the defendant of his intention should, under the circumstances of this case, be deemed to be a statement of a material existing fact. " ^ A similar view is taken by the English courts, as quaintly said by Bowen, L. J.: " The state of a man's mind is as much a fact as the state of his digestion. ' ' ' § 179. Application of General Rule. — A representation by a purchaser of land, as to the use he intends to make of the prem- ises, has been held a representation of an existing fact on which a charge of fraud may be based for the purpose of relief by way of rescission. As where it appeared that the defendant purposely, intentional^ and falsely stated to the plaintiff that he desired to purchase a portion of her vacant lot, located in a residence dis- 2. Adams v. Gillig, (1910) 199 3. Edgington v. Fitzmaurice,(1884) N. Y. 314, 319, 92 N. E. 670. 29 Ch. D. 459. § 179] FRAUD 241 trict, for the purpose of building a dwelling or dwellings thereon. These representations were false and fraudulent and made with the intent to deceive the plaintiff, who relied thereon and executed a conveyance to the defendant. While negotiating, the defendant intended to build, and immediately after the purchase proceeded to arrange for building, a public garage on the lot, the construc- tion of which would greatly damage the plaintiff's remaining prop- erty. The plaintiff without delay communicated with the defendant and offered to procure another site for his garage, pay all the ex- penses he had incurred up to that time, and restore the consideration he had paid for the property if he would convey the property to her. This the defendant refused to do. It was held that since equity will interfere to grant relief where necessary to prevent the con- summation of a fraud, the false statements made by the defendant of his intention should, under the circumstances, be deemed to be a statement of a material existing fact of which the court would lay hold for the purpose of defeating the wrong that would other- wise be consummated thereby.* The same has been held true where a defendant represented that he desired to marry the plain- tiff's daughter, and thereby obtained money from him, and it appeared that at the same time he was obtaining money from another person on similar representations ; ^ and where the defend- ant represented that he and a third person were about to engage in a certain business, this being a representation that it was their present intention to do so.* In case of a contract for the sale of a lease, not assignable without the consent of the lessor, a charge of fraud may be based on a false representation that the lessor had consented to the assignment of the lease.'^ It has also been held that a charge of fraud, for the purpose of rescission, could be founded on a representation made by a purchaser that a third person, holding a mortgage on the subject of the sale, would fore- close the mortgage and that the vendor would lose the property and get nothing for it, and that the vendor was not required to verify the truth of the representation.* Where the plaintiff trans- 4. Adams v. Gillig, (1910) 199 73 App. Div. 329, 76 N. Y. S. 716, N. Y. 314, 92 N. E. 670, aflarming aflBrming 36 Misc. 871 mem., 74 N. 131 App. Div. 494, 115 N. Y. S. 999. Y. S. 1140. 5. Podolsky V. Sandler, (Sup. App. 8. Fox v. Duffy, (Sup. 1904) 95 T. 1916) 161 N. Y. S. 363. App. Div. 202, 88 N. Y. S. 401. 6. Gabriel V. Graham, (Sup. 1915) Jenks, J., in this case said: "I 168 App. Div. 847, 154 N. Y. S. 493. think that the allegation that if the 7. Oehlhof v. Solomon, (Sup. 1902) plaintiff did not sell to the defend- 16 242 NEW YORK LAW OF CONTRACTS [§ 179 f erred his stock in a corporation to the defendant, induced to do so loj the defendant's misrepresentation that it was his intention to retransfer the stock to a third person to induce him to render financial assistance to the corporation, having at the time no inten- tion of so doing, this was held a fraud entitling the transferor to a return of the stock.' A charge of fraud has also been sustained on false representations by the defendant that the architects of a corporation, with which the plaintiff had a contract for furnish- ing stone for a building, objected to carrying out the contract, whereby the plaintiff was induced to waive his right under the contract and to furnish the defendant with the stone for a lesser price." On the other hand, the view has been taken that a charge of fraud cannot be based on a representation by a defendant that his principal had decided to re-employ the plaintiff for another year, made to induce the plaintiff not to seek employment. The reason given for this is that it is immaterial whether or not the principal had so decided, since if it had done so the determina- tion would not answer the statute of frauds and constitute a valid contract, and it is likened to the case where an agent makes an oral contract, unenforceable by reason of the statute of frauds, and falsely represents that he had authority from his principal to make the contract." If the intention as represented existed the ant the mortgagee would foreclose (Sup. 1912) 153 App. Div. 435, 138 is not to be construed aa a repre- N. Y. S. 361. sentation of opinion, or as concerning 11. Magee v. Fish, (Sup. 1916) a future event. The plaintifif did not 175 App. Div. 125, 161 N. Y. S. 1057. say that in his opinion the mort- It would seem that the correctness gagee would foreclose, or that the of this view is very doubtful, and mortgagee intended to foreclose, that the case is not analogous to the thereby conveying the idea that it one referred to. The representation was merely the present disposition as to whether or not the principal of the mortgagee, but he asserted as had decided or intended to re-employ a fact that the mortgagee had de- the plaintiff is a representation of an termined to foreclose. It was a poSi- existing fact, and if the plaintiff tive statement of the mortgagee's acted thereon to his injury the fact decisionr, and none the less a fact be- that he had no enforceable contract cause it was a mental determina- for his re-employment should not tion, or, as such, possible of change. preclude a recovery from the defend- The foreclosure was a future act, but ant for his misrepresentation if it the determination to foreclose was a was made with an intent to deceive, present fact of which the foreclosure The court, however, states as an proceedings were but the outcome." additional reason for the dismissal 9. Slayback v. Raymond, (Sup. of the complaint that there was no 1904) 93 App. Div. 326, 331, a7 N. evidence tending to show an intent Y. S. 931, affirming 40 Misc. 601, 83 to deceive. This, of course, if true N. Y. S. 15. places the decision on a good 10. Mix V. Charles P. Boland Co., foundation. §§ 180, 181] FRAUD 243 fact that tlie party thereafter changes his mind is no ground for a charge of frand.^^ And the mere fact that he does not do what he represented that he intended to do does not itself show that his representation was not true." § 180. Eepresentation by Agent as to Authority. — A repre- sentation by the person as to his agency for another is a representa- tion of a fact on which a charge of fraud may be based." And un- der the general principles of agency, where an agent assumes to con- tract on behalf of a principal, this is a representation that he has authority to do so, and if he has no authority it may furnish a basis for a charge of fraud on his part ;" but in such a case, if it appears that the contract was unenforceable by reason of the statute of frauds, no injury results from the misrepresentation, and consequently no recovery can be had against the agent.^* Statement of Opinion, Expectation or Hope § 181. General Rule. — A charge of fraud cannot ordinarily be based on a representation in the nature of a statement of belief or opinion, hope or expectation, as distinguished from a statement of a matter of fact." "It is a familiar rule," says Gray, J., 12. Carson v. Eisner, (Sup. 1899) N. Y. S. 996; Mecum v. Mooyer, 42 App. Div. 614, 58 N. Y. S. 826; (Sup. 1915) 166 App. Div. 793, 801, Stoltz V. Reynolds, (Sup. App. 1918) 152 N. Y. 8. 385; Gill v. Jamaica 169 N. Y. S. 170. Bay Mfg. Co., (Sup. 1916) 171 App. 13. Stoltz V. Reynolds, (Sup. App. Div. 165, 172, 157 N. Y. S. 52; Hol- T. 1918) 169 N. Y. S. 170. dredge v. Webb, (Sup. 1872) 64 Barb. 14. O'Sullivan v. France, (Suj). 9; Remington v. Van Ingen, (C. PI. App. T. 1918) 168 N. Y. S. 28. G. T. 1894) 9 Misc. 128, 59 State 15. Lord V. Van Gelder, (Sup. App. Rep. 704, aiiirmed 29 N. Y. S. 301, T. 1896) 16 Misc. 22, 73 State Rep. 6 Misc. 215, 26 N. Y. S. 878; Seaman 268, 37 N. Y. S. 668. v. Becar, (Sup. Sp. T. 1896) 15 Misc. 16. Dung V. Parker, (1873) 52 616, 38 N. Y. S. 69; Leszynsky v. N Y. 494, reversing 3 Daly 89. Ross, (Sup. Sp. T. 1901) 35 Misc. 17. Oberlander v. Spiess, (1871) 45 652, 72 N. Y. S. 352; Toledo Com- N. Y. 175; Hubbell v. Meigs, (1872) puting Scale Co. v. Borick, (Sup. 50 N". Y. 480, 489, reversing on other App. T. 1909) 64 Misc. 63, 117 N". Y. grounds' 4 Lans. 214; DufFany v. S. 914; Renard v. Grenthal, (Sup. Ferguson, (1876) 66 N. Y. 482, re- App. T. 1913) 81 Misc. 135, 142 versing 5 Hun 106, decided on other N. Y. S. 328; Henry W. Boettger grounds; Schumaker v. Mather, SiUi Finishing Co. v. Electrical Audit, (1892) 133 N Y. 590, 594 mem., 44 etc., Co., (Sup. App. T. 1909) 115 State Rep. 754, 30 N. E. 755, 4 Silv. N. Y. 8. 1102; Podolsky v. Sandler, App. 224; De 8t. Laurent v. Slater, (Sup. App. T. 1916) 161 N. Y. S. (Sup 1897) 23 App. Div. 70, 48 363; Porter v. Thoens, (Sup. App. N Y S 1103; McNuIty v. Gilbert, T. 1920) 180 N. Y. S. 733; Redmond (Sup 1912) 154 App. Div. 297, 138 v. Tone, (Sup. G. T. 1890) 32 State 244 NEW YORK LAW OF CONTRACTS [§ 1S2 " where representations consist in mere expressions of hope, expectations and the like, that the party to whom they are made is not legally justified in relying upon them and assuming them to be true. The representation of what one expects, or hopes, as about to take place, in order to induce action on the part of the person to whom made, may be honest, or may be fraudulent. If the former, then no action will lie upon the ground of fraud, if the expectation is not realized. If the representation is made fraudulently and with the intention to deceive, then the evidence must exhibit it in that character. For the presumption will be, in the absence of such evidence, that the person making the rep- resentation did so honestly, however extravagant in his hopes. ' ' " Nor can a charge of fraud be based on an estimate as to quantity or the like, especially where such estimate is made in good faith." The rule that representation as to a matter of opinion cannot be made the basis of a charge of fraud applies, it has been said, only where the opinion stands by itself and is intended to be taken as distinct from anything else.^" And the fact that representations of material facts are accompanied with representations of matters of opinion and the like does not prevent a charge of fraud from being based on the former.^' § 182. Application cf General Rule. — In case of a sale of cor- porate bonds secured by mortgage a statement by the seller that the bonds are good, or the like, is ordinarily to be regarded as a statement of a matter of belief or opinion, where his statement does not imply that he has made an examination of the pecuniary affairs of the corporation by which they were issued or of the value of property by which they are secured, and thus has acquired personal knowledge of the value of the bonds and that he is speak- Rep. 260, 10 N. Y. S. 506; Hatch v. posal Corp., (Sup. Sp. T. 1917) 100 Spooner, (Sup. G. T. 1891) 37 State Misc. 536, 549, 166 N. Y. S. 963. Rep. 151, 13 N. Y. S. 642; McCall v. 20. Hickey v. Morrell, (1886) 102 Proal, (Super. Ct. 1882) 48 Super. N. Y. 454, 463, 2 State Rep. 408, 7 Ct. 403; Twenty-third St. R. Co. v. N. E. 321. See also Gray v. Rich- Bay Ridge Ferry Co., (Super. Ct. mond Bicycle Co., (1901) 167 N. Y. 1883) 49 Super. Ct. 485; Tockerson v. 348, 357, 60 N. E. 663, reversing Chapin, (Super. Ct. 1885) 52 Super. 40 App. Div. 506, 58 N. Y. S. 182; Ct. 16; Stewart v. Potter, (Com. PI. Fox v. Duffy, (Sup. 1904) 95 App. G. T. 1868) 37 How. Pr. 68; Scher- Div. 202, 204, 88 N. Y. S. 401. merhorn v. Gouge, (Sup. Sp. T. 1861) 21. Motley v. Mercantile Trust Co., 13 Abb. Pr. 315. (Sup. Sp. T. 1906) 51 Misc. 460, 100 18. Kley v. Healy, (1896) 149 N. Y. N. Y. S. 281, affirmed 114 App. Div. 346, 352, 44 N E. 150, per Gray, J. 904 mem. 19. New York v. New York Dis- § 182] FRAUD 245 ing from such knowledge, and therefore a charge of fraud cannot be based on such a statement.^^ The same view has been taken regarding a statement as to the future profits of a business, which are necessarily matter of opinion, dependent on future con- tingencies ; ^^ a statement by the vendor, in negotiations for the sale of an apartment house, that the house can be altered so that a larger income can be obtained ; ^* a representation as to the char- acter or quality of the soil of a farm, if properly cultivated,, as compared with another ; ^^ a representation in the sale of accounts that they can and will be collected in time to meet a note given for the price ; '^ a statement by a book agent, made to induce a wife to make the purchase, that her husband, who has refused to buy, will not be angry with her for making the purchase ; ^' and a representation by a traveling salesman, made to induce another to employ him, as to the amount of sales he can or expects to make.^* So where the plaintiff, who had been with his present employer for a number of years during which his salary had been increased several times, in negotiations with the defendant for employment stated that his present employer was satisfied with his services, nothing having happened to show the contrary, this was held a statement of matter of opinion merely and therefore not the basis of a charge of fraud.^' A statement by a book agent in selling a set of Voltaire's works that " they were very fine reading matter, and fit for any one to read," has been considered a state- ment of opinion and not therefore tlie subject of a charge of fraud.'" The same view has been taken as regards a statement by a college student that he expected to graduate in a year and a half, though he was then in the sophomore class and in the ordi- 22. Oberlander v. Spiess, (1871) 45 25. Davis v. Sims, (Sup. 1843) 6 jf y 175 Hill & D. Supp. 234. 23.' Hatcli V. Spooner, (Sup. G. T. ^f f^Call v. Proal (Super. Ct. 1891 ) 37 State R^. 151, 13 N. Y. S. 1^82) 48 Super Ct. 403. „,„ „ t;^ • ,0 n+ 27. Funk, etc., Co. v. Kobner, 642; Sparman v. Keim, (Super. Ct. ^ ^^^2) 137 N. Y. S. 863. 1878) 44 Super. Ct. 163, affirmed as ^g steinbach v. La Roche, (Sup. to this but reversed on other grounds . rp ^^g^g^ g^ j^j^^ g^g ^^^^ gg 83 N. Y. 245, 9 Abb. N. Cas. 1. See j^,- y. s. 672. also Jackson v. Foley, (Sup. 1900) 29. Remington v. Van Ingen, (Com. 53 App. Div. 97, 31 Civ. Pro. 161, 65 pj q.. t. 1894) 9 Misc. 128, 59 State N. Y. S. 920. Rep. 704, aflfirmingi 29 N. Y. S. 301, 24. Phyfe v. Cohen, (Sup. Sp. T. 6 Misc. 215, 26 N. Y. S. 878. 1911) 74 Misc. 269, 131 N. Y. S. 620, 30. St. Hubert Guild v. Quinn, affirmed 153 App. Div. 899 mem., 138 (Sup. App. T. 1909) 64 Misc. 336, 118 N. Y. S. 1137. N. Y. S. 582. 246 NEW YORK LAW OF CONTRACTS [§ 183 nary course of events would not graduate within such time, but could have done so if he had been a bright student and worked hard ; '^ a statement by an agent, in selling a law publication, to the effect that the several articles would be written by prominent members of the bar of a certain state and would contain the decisions relating to the law in such state ;'^ and a representation, made before the application for a patent, that the device is patent- able.'^ Also, as a general rule, in case of contracts let on com- petitive biddings, a charge of fraud cannot be based on the inaccuracy of estimates as to the amount of work required, fur- nished for the guidance of the bidders.^ § 183. Representations on Which Charge of Fraud Sustained. — Where a member of a firm doing business in a Montana city, for the purpose of inducing a woman residing in New York to take charge of a department in its store, made representations to her con- cerning the number of inhabitants of the city, their financial stand- ing, the kind of help she could obtain there, the compensation she would be required to pay such help, the living accommodation which she could procure for herself, the nature of the climate and the sanitary condition of the city, it was held that it could not be said as a matter of law that such representations were expres- sions of opinion, but that it should, at least, have been submitted to the jury to determine whether they were representations of existing facts or not.^' And it has been held that a charge of fraud 31. Podolsky v. Sandler, ( Sup. App. the same time, representations of this T. 1916) 161 N. Y. S. 363. character relate to facts rather than 32. L. D. Powell Co. v. Bernstein, to opinions, and when made by a resi- (Sup. App. T. 1917) 164 N. Y. S. 795. dent of the city referred to, to induce 33. Porter v. Thoens, (Sup. App. T. the resident of another city to enter 1920) 180 N. Y. S. 733. into a contract which involves the 34. Riley v. Brooklyn, (App. 1871) residence of the person to whom the 46 N. Y. 444, reversing 56 Barb. 559. representations were made in the city 35. Marshall v. Seelig, (Sup. 1900) about which the representationa are 49 App. Div. 433, 63 N. Y. S. 355. In made, there is at least a question for this case Ingraham, J., said; the jury as to whether or not it was " Whether or not the climate of a intended by the person making the particular locality is 'very healthy,' representations to refer to the exist- and whether the population of a city ence of a condition which depended is from 7,000 to 10,000, of whom a upon facts which must exist to ren- large percentage are wealthy, repre- der the representations true. It may sents an existing condition which is be said that the representations were not solely a question of opinion. It conclusions to be drawn from facts is true that persons may have a diflfer- v»-hich must necessarily be true to ent standard by which the health of render the statement as a whole true; a city is to be determined; but, at but, alleging that condition to exist § 183] FRAUD 247 may be based on a representation in a sale of bonds that no other bonds of the same issue were on the market and that they were soon to be retired at an advanced priee.^* The same view was taken where the defendant, engaged in the business of factor for silk manufacturers, as an inducement to the plaintiff's entering his employ represented that he was financially in a position to act as factor for such manufacturers and to effectuate any sales which the plaintiff might make to a stated amount, and it was shown that in order so to act a person must have a cash or credit account sufficient to enable him to obtain the merchandise from such manu- facturers.*' It has also been held that a representation that the cellar of a house was " as dry as a nut " was not merely an expres- sion of opinion but of an existing fact ; ^* and the same has been held true as to a representation that a leased building was suf- ficient in its construction to permit and sustain the operation therein of an engine of a certain type and capacity for the genera- tion of power.^ In regard to a representation as to the continuity of the flow of a salt well, it has been held that if the defendant intended to represent that it would continue to flow forever this was the expression of an opinion merely, but if he intended to say that the supply of the water had been tested and was such that it could not be exhausted by pumping this was a statement as a fact by one who has means of to see how the representation as to knowing whether or not such a con- their retirement can be so consid- dition does as a fact exist, it must be ered. It would seem more properly presumed that the person making the to be classed as one of opinion, or at representations intended to have the least promissory in its nature (as to person to whom the representatione promissory representations see supra, were made believe that he had knowl- section 177) ; still if the representa- edge of the facts to justify the conclu- tion can be construed to mean that sion and that such facts did exist. it was the present intention of the We think, therefore, that this com- party issuing the bonds to retire plaint alleged! facts which entitled them, then it might be one of an ex- the plaintiff to give evidence which, isting fact (see supra, section 181, as if believed by the jury, would entitle to representation of present inten- the plaintiff to a verdict, and that tion). the complaint did state a cause of 37. Hurwitz v. Dryfoos, (Sup. App. action." T. 1916) 95 Misc. 147, 159 N. Y. S. 36. Veil V. Thompson, (Sup. App. 228. T 1914) 150 N. Y. S. 659. In this 38. Frank v. Bradley, etc., Co., case both representations were held (Sup. 1899) 42 App. Div. 178, 58 representations of fact and not of N. Y. S. 1032. opinion The representations as to 39. Meyers v. Rosenback, (City Ct. other bonds being on the market G. T. 1893) 5 Misc. 337, 55 State might well be considered one of an Rep. 498, 25 N. Y. S. 521. existing fact. It is diflBcult, however. 248 NEW YORK LAW OF CONTRACTS t§ 184 of fact." In the sale of ancient objects of art, such as pictures, sculpture, musical instruments and the like, the seller cannot of course have actual knowledge of the painter, sculptor or maker, and his statement in this regard is necessarily to a large extent a matter of opinion. This, however, it would seem, will not relieve him from liability to a charge of fraud if his representation is based on his assumed knowledge as an expert and is wilfully false." A charge of fraud has also been sustained where the owner of a patent falsely represented the nature and character of the work which the machine was capable of doing ; *^ though mere expressions regarding the effect of a patented machine as revolu- tionizing a particular industry or manufacture have been held expressions of opinion or in the nature of dealers' talk, and not, therefore, the basis of a charge of fraud.^' It has been held that a representation by a storage warehouseman that his building was " fireproof " in its exterior construction, whereas its window frames were of wood with no outside metal shutters and therefore not fireproof as commonly understood and as shown by expert testi- mony, was a statement of an existing fact and not a matter of opinion, and therefore might be made the basis of a charge of fraud." Representation as to Title § 184. In General. — Title to property may be a question of law, or a mixed question of law and fact, or a simple question of fact. If a person has no title or if his title is defective in certain par- ticulars, his representation that he has title or that his title is good has frequently been considered a representation of a matter 40. Mason v. Raplee, (1869) 66 demurrer to the declaration, which Barb. 180. was upheld. The court does not 41. Powell V. Fletcher, (Com. PI. specifically discuss the question G. T. 1892) 45 State Rep. 294, 18 whether the representations were mat- N. Y. S. 451. In this case, which ters of opinion or of existing facts, involved the sale of an old violin, 43. Arnold v. Norfolk, etc.. Hosiery there were two representations, one Co., (1896) 148 N. Y. 392, 42 N. E. as to the value ( see infra, section 189 980, affirming 76 Hun 15, 58 State et seq.) and the other that it was Rep. 351, 28 N. Y. 8. 638. See also made by a certain celebrated maker Porter v. Thoens, (Sup. App. T. 1920) of the sixteenth century, and the re- 180 N. Y. S. 733. covery was based chiefly on the rep- 44. Hickey v. Morrell, (1886) 102 resentation as to value, because no N. Y. 454, 2 State Rep. 408, 7 N. E. importance was attached by the buyer 321, reversing 12 Daly 482. See also to the representation as to the maker. Dietz v. Yetter, (Sup. 1898) 34 App. 42. Corwin v. Davison, (Sup. 1828) Div. 453, 54 N. Y. S. 258. 9 Cow. 22. This case passed off on a In Hickey v. Morrell, supra, Dan- § 184] FRAUD 249 of fact on which a charge of fraud may be based.^^ In an early- case where the objection was taken that a charge of fraud could not be based on representations as to one 's title to land, Gardiner, J., said: " There is no middle ground of principle, between exclud- ing evidence of fraudulent representations in all cases of the con- veyance of land, or admitting them when they refer to the title. They all are or may be equally obnoxious to objections arising from the statute of frauds, and in each case the vendee can protect himself by appropriate covenants. The rule thus settled, affect- ing as it does the right of property, should be upheld unless its maintenance would conflict with established principles. No such conflict is perceived. On the contrary, it harmonizes with the law in relation to personal property, requires fair dealing from the vendor in each case, and permits the vendee, without a penalty upon his credulity, to trust to declarations of material facts within the knowledge of the other party. In a word, to treat with the forth, J., said (102 N. Y. 459): " Here the allegation is that the ex- terior of the building is fireproof. It necessarily refer® to the quality of the material out of which it is constructed, or which forms its ex- posed surface. To say of any arti- cle it is fireproof conveys no other idea than that the material out of which it is formed is incombustible. That statement as regards certain well-known substances usually em- ployed in the construction of build- ings, while it might in some final sense be deemed the expression of an opinion, could in practical aflfairs be properly regarded only as a repre- sentation of a fact. To say of a building that it is fireproof excludes the idea that it is of wood, and neces- sarily implies that it is of some sub- stance fitted for the erection of fire- proof buildings. To say of a certain portion of a building it is fireproof suggests a comparison between that portion and other parts of the build- ing not so characterized, and war- rants the conclusion that it is of a different material. In regard to such a matter of common knowledge, the statement is more than the expression of opinion; no one would have any reason to suspect that any two per- sons could differ in regard to it." 45. Whitney v. Allaire, (1848) 1 N. Y. 305, 4 How. Pr. 447, affirming 4 Denio 554; Clark v. Baird, (1853) 9 N. Y. 183, 1 Seld. Notes 187; Haight V. Hoyt, (1859) 19 N. Y. 464; Schwenk v. Naylor, (1886) 102 N. Y. 683, 7 N. E. 788, 2 State Rep. 477, 1 Silv. App. 133, reversing 50 Super. Ct. 57 ; Grosjean v. Galloway, ( Sup. 1901) 64 App. Div. 547, 72 N. Y. S. 331, on later appeal 82 App. Div. 380, 81 N. Y. S. 871; Carr v. Sanger, (Sup. 1910) 138 App. Div. 32, 122 ]Sr. Y. S. 593; Continental Coal, etc., Co. V. Kilpatrick, (Sup. 1916) 172 App. Div. 541, 158 N. Y. S. 1056; Barney v. Dewey, (Sup. 1816) 13 Johns. 224; Wardell v. Fosdick, (Sup. 1816) 13 Johns. 325; Monell v. Colder, (Sup. 1816) 13 Johns. 395, 402; Culver v. Avery, (Sup. 1831) 7 Wend. 380, 386; Case v. Hall, (Sup. 1840) 24 Wend. 102; Camp v. Pulver, (Sup. 1848) 5 Barb. 91; White v. Seaver, (Sup. 1857) 25 Barb. 235; Sharp V. New York, (Sup. 1863) 40 Barb. 256, 257, 25 How. Pr. 389; Updike V. Abel, (Sup. 1871) 60 Barb. 250 NEW YORK LAW OF CONTRACTS [§ 186 vendor upon the presumption that he is an honest man. ' ' ^° And where it was urged that a representation as to title to real property was at most but a matter of opinion, on which a charge of deceit could not he founded, and that the rule of caveat emptor applied and required the vendee to exercise due diligence instead of rely- ing on the representation, Carr, J., said: " Whether this be true or not depends upon the form of the representation, for if the vendor assumes to represent his title as good when he knows it is bad, and the vendee is deceived thereby, he cannot escape liability for deceit by claiming that the question was but a matter of opinion."" The fact that the grantee could by an examination of the public records have informed himself as to the incumbrances on the land, does not preclude him from basing a charge of fraud on the grantor's representation that no incumbrances existed.** It is said by Nelson, C. J., that " there is no doubt if the vendor fraudulently represents the goods sold to be his own, when he knows them to belong to a stranger, an action on the case lies to recover damages therefor, though the real owner has not recovered the property."*' Where, however, the purchaser relies on a war- ranty of title, express or implied, there must be a recovery by the real owner before an action can be maintained. This is in the nature of an eviction, and is the only evidence of the breach of the contract in analogy to the ease of covenants real.^* It is also said that, even in the case of a gift, the donor may be liable in dam- ages for a false affirmation as to his title.'^ § 185. Application of General Rule. — The general rule regard- ing misrepresentations as to title includes representations as to the nonexistence or the amount of liens and incumbrances.^^ And 15; Cross V. Devlne, (Sup. 1887) 46 affirming 96 App. Div. 160, 89 N. Y. S. Hun 421, 11 State Rep. 801, 27 Wkly. 85. Dig. 454; Ryder V. WaU, (Sup. Sp. T. 49. Case v. Hall, (Sup. 1840) 24 1899) 29 Misc. 377, 60 N. Y. S. 535, Wend. 102, 103. reversed on other grounds 47 App. 50. Case v. Hall, (Sup. 1840) 24 Div. 182, 62 N. Y. S. 343; Humphreys Wend. 102. V. Roberts, (Sup. App. T. 1908) 61 51. Barney v. Dewey, (Sup. 1816) Misc. 284, 113 N. Y. S. 982; Cran- 13 Johns. 224. dall V.Bryan, (Sup. 1857) 5 Abb. Pr. 52. Ward v. Wiman, (Sup. 1837) 162, 15 How. Pr. 48. 17 Wend. 193; Gage v. Peetsch, (City 46. Whitney v. Allaire, (1848) 1 Ct. G. T. 1896) 16 Misc. 291, 74 State N. Y. 305, 309, 4 How. Pr. 447. Rep. 577, 38 N. Y. S. 124; Blumen- 47. Carr V. Sanger, (Sup. 1910) 138 feld v. Stine, (Sup. Sp. T. 1904) 42 App. Div. 32, 122 N. Y. S. 593. Misc. 411, 87 N. Y. S. 81, affirmed 48. Blumenfeld v. Stine, (Sup. Sp. 96 App. Div. 160, 89 N. Y. S. 85. T. 1904) 42 Misc. 411, 87 N. Y. S. 81, § ISe] FRAUD 251 where the purchaser was to take title subject to an existing mort- gage, and besides the down payment was to make monthly pay- ments for a number of years before he could call for a transfer of the title, it has been held that a charge of fraud could be based on a misrepresentation as to the time of maturity of the mortgage, which in fact became due and payable at a much earlier period than that represented and before the purchaser would under the contract be entitled to call for a transfer of the title.^^ Though the vendor supposed, as a matter of law, that the alleged incum- brance, conceding the truth of the incumbrancer's statements, had no legal validity, he is still responsible if he wilfully misled the purchaser by a denial of the existence of the incumbrance, not expressed as a matter of opinion but in terms which negatived the fact." In case of a sublease a charge of fraud may be based on a misrepresentation by the lessor as to the restrictions contained in the overlease.^^ In case of a contract for the use of a device for which an application for a patent has been made, a charge of fraud may be based on a representation as to the status of the application before the patent office, as where a representation is made that the application is pending, when in fact it has been rejected and declared abandoned."^ Where a fraudulent represen- tation is made as to title, such as the nonexistence of incxmibrances or the like, the purchaser may maintain an action for damages though the deed also contains a covenant of title or against incum- brances. The fraud in such a case is not merged in the covenant but affords to the purchaser an additional and sometimes a more complete remedy." And where the fraud consists in a misrepresen- tation by a lessor as to his title, the fact that the lessee attorns to the owner of the paramount title does not affect his right of action for damages.^* Representation as to Financial Condition § 186. In General. — Misrepresentations as to a person's finan- cial condition may be made the basis of a charge of f raud.°' Where 53 Lasbury v. Scarpulla, (Sup. Batavia Rubber Co., (Sup. Eq. T. App. T. 1916) 156 N. Y. S. 744. 1915) 90 Misc. 418, 153 N. Y. S. 779. 54. Haight v. Hoyt, (1859) 19 57. Ward v. Wiman, (Sup. 1837) N. Y. 464. 17 Wend. 193. See also Wardell v. 55. Humphreys v. Roberts, (Sup. Fosdick, (Sup. 1816) 13 Johns. 325. App T 1908) 61 Misc. 284, 113 58. Dearborn v. Fry, (Com. PI. NY S 792. 1842) 1 N. Y. Leg. Obs. 329. 56. Buffalo Rubber Mfg. Co. v. 59. Kley v. Healy, (1891) 127 N. Y. 252 KEW YORK LAW OF CONTRACTS [§ 187 one undertakes to give a statement of his affairs in order to obtain credit, he must state all his liabilities; there is as much fraud in suppressing an integral part of his liabilities as in making a false representation as to the amount of his assets.^" And there may be a false statement by a merchant of his financial condition with- out a statement of his assets and liabilities.^^ Immaterial discrep- ancies in a declaration of one 's financial condition cannot, be made the basis of a charge of fraud. Thus where one represents that his property is free and clear of incumbrances and it appears that he is amply able to pay the indebtedness incurred, the fact that there is a small mortgage on one of the several tracts of land owned by him cannot be made the basis for such a charge.^^ Scienter or knowledge of the falsity of the representation is, as in other cases, essential.^' § 187. Particular Transactions Generally. — Where an extension of credit is secured by the debtor's fraudulent representation as to his financial standing, the creditor may avoid the credit and sue immediately for the debt.** And if a creditor is induced to release his debtor, on payment of less than is owing, by the latter 's fraudulent representations as to his financial condition, this may entitle the creditor to appropriate relief.*^ A charge of fraud has 555, 40 State Rep. 215, 28 N. E. 593; not afifect liabilities for obtaining Smith V. Mott, (Sup. G. T. 1893) 70 property by false representations. Hun 597, 53 State Rep. 346, 23 N. Y. 60. Claain v. Moore, (Super. Ct. S. 940, reversing on reargument 48 1877) 42 Super. Ct. 262. State Rep. 300, 20 N. \. S. 582; Hur- 61. Francheris v. Henriques, (Com. witz V. Dryfoos, (Sup. App. T. 1916) PI. G. T. 1862) 24 How. Pr. 165. 95 Misc. 147, 159 N. Y. S. 228; Wat- &Z. Wilson v. Ryder, (Com. PI. son V. Blossom, (Sup. G. T. 1888) G. T. 1890) 32 State Rep. 305, 10 18 State Rep. 726, 4 N. Y. S. 489; N. Y. S. 233. Frencbv. White, (Super. Ct. 1856) 12 63. Marsh v. Falker, (1869) 40 Super. Ct. 254; Ballard v. Lockwood, N. Y. 562, 565; Wakeman v. Dalley, (Com. PI. 1861) 1 Daly 158. (1872) 51 N. Y. 27, affirming 44 Barb. In In re Dunfee, (1916) 219 N. Y. 498; Rothschild v. Porter, (City Ct. 188, 114 N. B. 52, reversing 173 App. G. T. 1892) 46 State Rep. 262, 19 Div. 100, mem., 159 N. Y. S. 703, N. Y. S. 177; Gossler v. Lissburger, which affirmed 94 Misc. 628, 159 N. Y. (Sup. G. T. 1884) 19 Wkly. Dig. 291. S. 703, it was held that a misrepre- See infra, section 201 et seq. as to sentation by the defendant as to his scienter generally, financial condition, whereby he in- 64. French v. White, (Super Ct duced the plaintiff to became his 1856) 12 Super. Ct. 254. surety on a refunding bond, consti- 65. Hardt v. Schulting, (1881) 85 tuted a fraud, and that his liability N. Y. 624, 12 Wkly. Dig. 514, affirm- to reimburse the surety was within ing 24 Hun 345; Wessels v. Carr, the provision of the Bankruptcy Act (Sup. 1897) 15 App. Div. 360, 44 that a discharge in bankruptcy shall N. Y. S. 114, 4 N". Y. Annot. 223, af- § 187] FRAUD 253 been sustained where a merchant, to induce a creditor to compro- mise his claim, falsely represented that another creditor had agreed to accept a similar compromise.'* Where a lessor's right to re-enter and terminate a lease for nonpayment of i^ent had attached, and he was induced to refrain from exercising such right and sub- letting the premises to a responsible tenant by the lessee 's fraudu- lent representations as to his resources, it has been held that an action for damages could be maintained.*^ The right to rescind is recognized where an insured was induced to take out a life insur- ance policy by false representations by the insurer as to its financial condition.*' "Where a loan is secured by such representations the lender may rescind and immediately sue to recover the money loaned,*^ and where a bank is induced to discount a note by the maker's false representations as to his standing, the bank has been permitted, in case of the borrower's insolvency or bankruptcy, to rescind so as to enable it to apply the balance on deposit toward the satisfaction of its claim for the money loaned.'" The value of a contract for the purchase or sale of a large amount of a com- modity, extending over a considerable period of time, is materially afEected by the financial condition of a party and his consequent firming 16 Misc. 440, 74 State Rep. erty, part of which the husband would 227, 38 N. Y. S. 600 ; Smith v. Salo- receive. The husband knew of her mon, (Com. PI. 1877) 7 Daly 216. death, but the agent did not. It was See also Cox V. Stillman, (Sup. 1909) held that the husband's knowledge 132 App. Div. 433, 116 N. Y. S. 931, of his changed financial condition reversing 59 Misc. 248, 112 N. Y. S. would be imputed to his agent and 328. ' that the creditor was entitled to have In Van Campen v. Burns, (Sup. the assignment set aside. 1900) 54 App. Div. 86, 66 N. Y. S. 66. Whiteside v. Hyman, (Sup. 344, it appeared that a judgment had 1872) 10 Hun 218. been recovered against an insolvent 67. New York Land Imp. Co. v. husband. His wife was induced to Chapman, (1890) 118 N. Y. 288, 28 make an offer to settle the judgment. State Rep. 780, 23 N. E. 187, revers- An attorney, authorized to act as the ing 54 Super. Ct. 297. agent for the husband and wife, in- 68. Moore v. Mutual Reserve Fund duced the judgment creditor to accept L. Ass'n, (Sup. 1907) 121 App. Div. the offer and assign the judgment 335, 106 N. Y. S. 255. to him in blank, by representations 69. Rothschild v. Mack, (1889) 115 that the husband was insolvent and N. Y. 1, 23 State Rep. 922, 21 N. B. would not, in all likelihood, survive 726. his wife, and therefore, unless the 70. Bradley v. Seaboard Nat. Bank, offer was accepted, the creditor would (1901) 167 N. Y. 427, 60 N. E. 771; receive nothing. On the morning Wolf v. National City Bank, (Sup. prior to the making of the offer of 1915) 170 App. Div. 565, 156 N. Y. S. settlement and its acceptance, the 575. wife died, leaving considerable prop- 254 NEW tOVtK LAW 6V CONTMCtS t§ 188 ability to perform the contract or respond to the other party in damages in case of a breach, and it would seem that misrepresen- tations as to one's financial condition might constitute such a fraud as would entitle the other party to rescind the contract.'^ § 188. Sales on Credit. — In case of purchases on credit, state- ments by the buyer as to his financial condition constitute a material inducement to the giving of the credit, and, if false, may be made the basis of a charge of fraud which will entitle the seller to avoid the sale and reclaim the goods from the buyer or from any one who is not protected as a bona fide purchaser for value,'^ or to main- tain an action for damages.'^ Such statements may also subject the buyer to civil arrest for fraud in the ineurment or contracting of the indebtedness.'* The fact that the buyer may in good faith have intended to and have believed that he could pay for the goods does not refute the charge of fraud, as the intent not to pay is material only where the charge of fraud is based on the failure to disclose the insolvency of the buyer.'^ If the seller did not rely on the buyer's representation a charge of fraud cannot be 71. Curtiss V. Howell, (1868) 39 N. Y. 211, 214, 6 Trans. App. 290. 72. Nichols v. Michael, (1861) 23 N. Y. 264, on prior appeal 18 N. Y. 295 (sub nom. Nichols v. Piurier); Converse v. Sickles, (Sup. 1897) 16 App. Div. 49, 44 N. Y. S. 1080, af- firmed 161 N. Y. 666 mem., 57 N. E. 1107; Van Kleek v. Leroy, (1867) 4 Abb. App. Dec. 479, 4 Abb. Pr. N. S. 431, 4 Trans. App. 295; Gary v. Hotailing, (Sup. 1841) 1 Hill 311; VanNestev. Conover, (Sup. 1855) 20 Barb. 547; White v. Dodds, (Sup. 1863) 42 Barb. 554, 18 Abb. Pr. 250, 28 How. Pr. 197; Hersey v. Bendict, (Sup. 1878) 15 Hun 282; Myers v. King, (Sup. 1888) 48 Hun 106, 15 State Rep. 482; Welch v. Seligman, (Sup. 1893) 72 Hun 138, 55 State Rep. 477, 25 N. Y. S. 363; Sommer V. Oppenheim, (Sup. App. T. 1897) 19 Misc. 605, 44 N. Y. S. 396, afBrm- ing 18 Misc. 736 mem., 41 N. Y. S. 1132; Wise V. Grant, (Sup. G. T. 1892) 49 State Rep. 439, 20 N. Y. S. 828, affirming as to this but reversed on other grounds 140 N. Y. 593, 56 State Rep. 496, 35 N. E. 1078; Bliss V. Sickles, (Sup. G. T. 1892) 50 State Rep. 139, 21 N. Y. S. 273, affirmed 142 N. Y. 647, 59 State Rep. 168, 36 N. E. 1064; Smith v. Prank, (Super. Ct. 1864) 25 Super. Ct. 626; Fran- cheris v. Henriques, (Com. PI. G. T. 1862) 24 How. Pr. 165. 73. Howell V. Bennett, (Sup. 1893) 74 Hun 555, 57 State Rep. 233, 26 N. Y. S. 627. 74. Claflin v. Moore, (Super. Ct. 1877) 42 Super. Ct. 262; Witmark v. Herman, (Super. Ct. 1878) 44 Super. Ct. 144. See also Sherman v. Smith, (Sup. Sp. T. 1871) 42 How. Pr. 198. 75. Pier v. Doheny, (Sup. 1904) 93 App. Div. 1, 86 N. Y. S. 971; Fitchard V. Doheny, (Sup. 1904) 93 App. Div. 9, 86 N. Y. S. 964; Mills v. Brill, (Sup. 1905) 105 App. Div. 389, 94 N. Y. S. 163. As to the effect of the failure to disclose insolvency, see supra, section 167; and as to the ef- fect of an intention not to pay for goods purchased by an insolvent, see supra, section 169. I 189] tRAUt) 2S5 based thereon,'* and where it appeared that the sale was c. 0. D., the seller refusing to make the sale on credit, it was held that this showed that the seller did not rely on the buyer's representations as to his standing, and therefore the seller was not entitled to rescind when the goods were afterwards delivered without pay- ment, it not appearing that the delivery was not unconditional." The burden is of course on the seller to show that the representa- tions of the buyer as to his financial condition were in fact false, but this may be inferred from the fact that immediately after the purchase the buyer failed and made an assignment for the benefit of creditors.'* A seller may testify directly as to whether he relied on and gave the credit on the faith of the buyer's representations. This is not objectionable as opinion evidence, and if the seller may not so testify it becomes a matter for the jury to guess at, without the only positive evidence there can be on the subject.'^ Representation as to Value Generally § 189. General Rule. — As a general rule, in contracts of sale and the like, representations as to the value of the subject matter cannot be made the basis of a charge of fraud.*" A representation 76. Leavitt v. Rosenthal, (Sup. Plaisantin, (Sup. 1900) 52 App. Div. App. T. 1903) 54 N. Y. S. 530; Wil- 206, 65 N. Y. S. 70; Schmaltz v. son V. Ryder, (Com. PL G. T. 1890) Weed, (Sup. 1901) 57 App. Div. 245, 32 State Rep. 305, 10 N. Y. S. 233. 68 N. Y. S. 212; Nichols v. Smith, See infra, section 204 et seq. as to (Sup. 1914) 164 App. Div. 304, 309, reliance on representations generally. 150 N. Y. 8. 410; Meritas Realty 77. Leavitt v. Rosenthal, (Sup. Co. v. Farley, (Sup. 1915) 166 App. App. T. 1903) 84 N. Y. S. 530. Div. 420, 151 N. Y. S. 1052, revers- 78. Smith v. Frank, (Super. Ct. ing 85 Misc. 321, 147 N. Y. S. 503; 1864) 25 Super. Ct. 626. Mecum v. Mooyer, (Sup. 1915) 166 79. King v. Fitch, (Sup. 1864) 1 App. Div. 793, 801, 152 N. Y. S. 385; Keyes 432, 2 Abb. App. Dec. 508. Sandford v. Handy, (Sup. 1840) 23 80. Ellis V. Andrews, (1874) 56 Wend. 260; Weidner v. Phillips, (Sup. N. Y. 83; Long v. Warren, (1877) 1886) 39 Hun 1, reversed on other 68 N. Y. 426; Chrysler v. Canaday, grounds 114 N. Y. 458, 23 State Rep. (1882) 90 N. Y. 272, reversing 12 762, 21 N. E. 1011; Yeomans v. Bell, Wkly. Dig. 214, and distinguishing (Sup. 1894) 79 Hun 215, 61 State Simar v. Canaday, (1873) 53 N. Y. Rep. 399, 29 N. Y. S. 502, reversed 298; Schumaker v. Mather, (1892) on other grounds 151 N. Y. 230, 45 133 N Y 590 mem., 44 State Rep. N. E. 552; Harlow v. LaBrum, 754 30 N. E. 755, 4 Silv. App. 244; (Sup. 1894) 82 Hun 292, 64 State Titus V. Poole, (1895) 145 N. Y. 414, Rep. 72, 31 N. Y. S. 487; Ashner v. 65 State Rep. 344, 40 N. E. 228; Van Abenheim, (Sup. 1894) 83 Hun 34, Slochem v. Villard, (1913) 207 N. Y. 64 State Rep. 129, 31 N. Y. S. 514, 587 101 N. E. 467, affirming 154 App. on later hearing 19 Misc. 282, 43 Div. 161, 138 N. Y. S. 852; Seis v. N. Y. S. 69, affirmed 31 App. Div. 623, 256 NEW YORK LAW OF CONTRACTS t§ 18& of this character is generally regarded as a matter of opinion,** and furthermore, the buyer has access to the open market to deter- mine the value, and may freely exercise his own judgment in. respect thereto.*^ " It is well settled, ' ' says Goodrich, P. J., ' ' that a false statement as to the value of property, made by a vendor for the purpose of obtaining a higher price than he knows the property is worth, will not sustain an action for fraud by a pur- chaser who contracts for the purchase in reliance upon such state- ment; that the purchaser must rely upon his own judgment as to value, and that it is folly to rely upon the representation of the vendor in that respect. ' ' *^ And it is said by Andrews, C. J., that " it is well settled that a mere naked representation by a vendor of the value of property sold is to be regarded as an expression of opinion merely, and will not sustain an action for deceit, although the representation was known to the vendor to be untrue and was made with intention to deceive the purchaser. ' ' ^* And where one representing himself as formerly a minister of the gospel, after gaining the confidence of another minister under the guise of reli- gious interest and friendship, induced the latter to purchase land for speculation by a grossly false statement as to its value, and promised to resell at a profit, it was held that a charge of fraud for the purpose of rescission could not be based on the' representa- tion.*" A representation by an agent, acting for the seller, that the property cannot be secured for less than a certain price, is 52 N. Y. S. 270; Seaman v. Becar, Eosentaum v. Gunter, (Com. PI. (Sup. Sp. T. 1896) 15 Misc. 616, 38 1854) 3 E. D. Smith 203. N. Y. S. 69; Merry Realty Co. v. Mar- 81. Redmond v. Tone, (Sup. G. T. tin, (Sup. Sp. T. 1918) 103 Misc. 9, 1890) 32 State Rep. 260, 10 N. Y. S. 13, 169 N. Y. S. 696; Redmond v. 506; Cooper v. Harvey, (Sup. G. T. Tone, (Sup. G. T. 1890) 32 State l^^^) ^1 State Rep. 594, 16 N. Y. S. Hep. 260, 10 N. Y. S. 506; Cooper v. ^^0; Hutchinson v. Brown, (Chan. Harvey, (Sup. G. T. 1891) 41 State ^t- 1840) Clarke 408. Rep. 594, 16 N. Y. S. 660; Griffing ,804, ^f^"^ <,o, IfllT'-p ^^7o V. Diller, (Sup. 6. T. 1892) 50 State Jf ^> f s TsT ^^" ' Rep. 435, 21 N. Y. S. 407; Hutchin- o, ' q". J,{ . .. ,„ ,.„„, ' ,„, U, ,„.„, 83. Seis V. Plaisantm, Sup. 1900 son V. Brown, (Chan. Ct. 1840) 52 App. Div. 206, 207, 65 N. Y. S. 70. Clarke 408; Furman V.Titus, (Super. 84. Titus v. Poole, (1895) 145 Ct. 1876) 40 Super. Ct. 284; MdMil- jj. Y. 414, 65 State Rep. 344, 40 N. E. Ian V. Arthur, (Super. Ct. 1882) 48 228. See also Chrysler v. Canaday, Super. Ct. 424, affirmed 98 N. Y. 167; (1882) 90 N. Y. 272 Schwenk v. Naylor, (Super. Ct. 1883) 85. Meritas Realty Co. v. Farley, 49 Super. Ct. 98; Bernhard v. Mc- (Sup. 1915) 166 App. Div. 420, 151 Master, (Super. Ct. G. T. 1886) 54 N. Y. S. 1052, reversing 85 Misc. 321, Super. Ct. 104, 3 State Rep. 531; 147 N. Y. S. 503. § 190] FRAUD 257 ill the nature of a representation as to value and therefore cannot be made the basis of a charge of f raud.*^ § 190. Qualification of General Eule. — In a number of cases the general rule that a representation as to value cannot be made the basis for a charge of fraud has been subjected to qualification.*'' Immunity is not given to a seller who takes advantage of the fact that the buyer has not the opportunity of ascertaining the value of the subject matter of the sale, and who makes the sale by the use of means which cause the buyer to forbear from taking steps to obtain information, and thus induces the buyer to rely on the representation of value which the seller knows to be excessive.'* As, for instance, where the value of land is wilfully misrepre- sented, and the purchaser is induced to rely on the representation and not to examine it for himself.*' It is also recognized that if there is a confidential relation between the parties, justifying the one in relying on a representation of the other as to the value of the subject matter of a sale, a charge of fraud may then be based 86. McMillan v. Arthur, (Super. Ct. 1882) 48 Super. Ct. 424, affirmed 98 N. Y. 167. 87. Simar v. Canaday, (1873) 53 N. Y. 298; Chrysler v. Canaday, (1882) 90 N. Y. 272, 279; Bacon v. Frisbie, (Sup. 1878) 15 Hun 26, modi- fled on other grounds 80 N. Y. 394; Cullen V. Hernz, (Sup. 1888) 47 Hun 635 mem., 13 State Kep. 333; Merry Realty Co. v. Martin, (Sup. Sp. T. 1918) 103 Misc. 9, 169 N. Y. S. 696; Powell V. Fletcher, (Com. PI. G. T. 1892) 45 State Rep. 294, 18 N. Y. S. 451. See also Hawley v. Wicker, (Sup. 1907) 117 App. Div. 638, 102 N. Y. S. 711. 88. Weidner v. Phillips, (Sup. 1886) 39 Hun 1, reversed on other grounds 114 N. Y. 458, 23 State Rep. 762, 21 N. E. 1011 (in which case, aside from misstatements as to the cost price of marble [see infra, sec- tion 193], there was evidence to show that the seller had a fictitious ap- praisal made) ; Merry Realty Co. v. Martin, (Sup. Sp. T. 1918) 103 Misc. 9, 169 N. Y. S. 696. In Simar v. Canaday, (1873) 53 N. Y. 298, 306, Folger, J., said: " It 17 is first insisted that the statements as to the value of the lands and of the mortgages thereon were mere mat- ter of opinion and belief, and that no action can be maintained upon them if false. If they were such, no liability is created by the utterance of them; but all statements as to value of property sold are not such. They may be, under certain circum- stances, affirmations of fact. When known to the utterer to be untrue, if made with the intention of mis- leading the vendee, if he does rely upon them and is misled to his in- jury, they avoid the contract. . . . And where they are fraudulently made of particulars in relation to the estate which the vendee has not equal means of knowing, and where he is induced to forbear inquiries which he would otherwise have made, and dam- age ensues, the party guilty of the fraud will be liable for the damage sustained." 89. Bacon v. Frisbie, (Sup. 1878) 15 Hun 26, modified on other grounds 80 N. Y. 394; Merry Realty Co. v. Martin, (Sup. Sp. T. 1918) 103 Misc. 9, 109 N. Y. S. 696. 258 NEW YORK LAW OP CONTRACTS [§ 190 thereon.'" This has been held true where a nephew, shortly after coming of age, was induced by his uncle to sell his interest as co-heir in land which had been owned by his grandfather, by a gross misrepresentation as to its value.'^ The view has also been taken that if a seller, himself acquainted with the value of a com- modity and conscious that the buyer reposes confidence in his opinion as that of an expert, and also aware that the buyer is incompetent to estimate the worth of the article, wilfully exag- gerates its value, with the intent and effect of defrauding the buyer, this may be made the basis of a charge of fraud.^^ And it has been held, where a business man of long experience sells his busi- ness and the property appurtenant thereto to a person entirely ignorant of the business, who has no knowledge of the value of the property purchased and no opportunity to make inquiries in respect thereto, that representations made by the seller as to the value of the machinery and of the stock on hand become represen- tations of fact, which, if intentionally false and relied on by the buyer, may entitle the latter to repudiate the purchase.^' The view has also been taken, where land is situated at a great distance, and knowledge of its value is confined solely to the vendor, that statements as to its value are to be regarded as something more than expressions of opinion, and if such statements are false and made with intent to deceive, a charge of fraud may be based thereon.'* So in case of property having what is known as a fixed market price, at a place where there is a constant market for it, a misrepresentation in respect thereto may be made the basis of a 90. Dunn v. Dunn, (Sup. 1912) 151 53 App. Div. 97, 31 Civ. Pro. 161, 65 App. Div. 800, 136 N. Y. S. 282; N. Y. S. 920. This decision was Murphy v. Murphy, (Sup. App. T. rendered by a divided court. Van 1912) 78 Misc. 178, 137 N. Y. S. 872. Brunt, P. J., and O'Brien, J., dis- 91. Murphy v. Murphy, ( Sup. App. senting. T. 1912) 78 Misc. 178, 137 N. Y. S. 94. Daiker v. Strelinger, (Sup. 872. See also Cramsey v. Sterling, 1898) 28 App. Div. 220, 50 N. Y. S. (Sup. 1906) 111 App. Div. 568, 97 1074. See also Simar v. Canaday, N. Y. S. 1082, aifirmed 188 N. Y. 602 (1873) 53 N. Y. 298; Schmnaker v. mem., 81 N- E. 1162. Mather, (1892) 133 N. Y. 590, 595 92. Powell V. Fletcher, (Com. PI. mem., 44 State Rep. 754, 30 N. E. G. T. 1892) 45 State Rep. 294, 18 555, 4 Silv. App. 224; CuUen v. N. Y. S. 451 (sale of very old violin). Hernz, (Sup. 1888) 47 Hun 635 See also Merry Realty Co. v. Martin, mem., 13 State Rep. 333; White v. (Sup. Sp. T. 1918) 103 Misc. 9, 169 London, (Sup. 1895) 90 Hun 218, 70 N. Y. S. 696. State Rep. 913, 36 N. Y. S. 1135. 93. Jackson v. Foley, (Sup. 1900) § 191] FRAUD 259 charge of fraud.'= " While it is true," says "Ward, J., " that mere statements as to the value of property in negotiations for sale, standing alone and disconnected from other statements, and not made with fraudulent intent, and where the subject of the repre- sentations is equally open to both parties for examination, and where the party making the representations has not special or superior knowledge, and is in no sense speaking as an expert, such statements do not form a ground of action ; but where the parties do not stand upon equal ground, and the situation is such that the purchaser has not the same opportunity of forming an opinion as the seller, or there are circumstances which place the seller in a position to know the condition, quality, or value of the property, over and above those enjoyed by the purchaser, and the purchaser must, to a greater or less extent, depend upon the judgment or opinion of ,the seller in reaching his own conclusions as to whether he win make the purchase, and the seller's statements do not appear upon their face unreasonable, and the purchaser has not a fair and present opportunity to see for himself, and the seller knows that the purchaser relies or has reason to believe that he relies upon his statement, and the statements are made that he may rely upon them, then the statements as to the value may become statements of fact, and may be so found by the court or jury ; and if such statements are false and made with the intent to defraud, and do defraud the purchaser, they vitiate the transaction into which they enter and subject the seller to damages." '^ § 191. Representation as to Collateral Facts Affecting Value Generally. — The rule that a representation as to value cannot be made the basis of a charge of fraud does not apply where the representation is also connected with a false representation of an extrinsic fact calculated to impose on the other party, to put him off his guard, and to induce him to give credit to the representation of value.^' Thus where, in the sale of stock of a corporation formed 95. Mason v. Raplee, (Sup. 1869) ber, (1876) 66 N. Y. 558; Hickey v. 66 Barb. 180, 184. See also Seaman Morrell, (1886) 10-2 N. Y. 454, 463, V. Becar, (Sup. Sp. T. 1896) 15 Misc. 2 State Rep. 408, 7 N. E. 321; Daiker 616, 618, 38 N. Y. S. 69. v. Strelinger, (Sup. 1898) 28 App. 96. White v. Loudon, (Sup; 1895) Div. 220, 50 N. Y. S. 1074; Carr v. 90 Hun 218, 221, 70 State Rep. 913, National Bank, etc., Co., (Sup. 1899) 36 N. Y. S. 1135. 43 App. Div. 10, 59 N. Y. S. 618, af- 97. Simar v. Canaday, (1873) 53 firming 23 Misc. 368, 53 N. Y. S. 61; N. Y. 298; Hammond v. Pennock, Yeomans v. Bell, (Sup. 1894) 79 Hun (1874) 61 N. Y. 145; Miller v. Bar- 215, 61 State Rep. 399, 29 N. Y. S. 260 NEW YORK LAW OF CONTRACTS t§ 192 to exploit a patented device, false representations as to the value of the device were connected with false representations as to sub- scriptions by third persons and their supposed judgment as to its value, a charge of fraud has been sustained.'^ A representation that a title insurance company had accepted a certain loan on the land sold, whereas in fact it had refused to make the loan on account of a defect in the construction of the building, will support a charge of fraud.'' § 192. Representation as to Previous Offers. — False statements by a seller as to offers by third persons for the property natu- rally have the effect of misleading the intended purchaser as to its value and as to the necessity for prompt action on his part if he desires to secure the property, and may, it has been held, form the basis of a charge of fraud.^ As the making of the offer by a third person is a fact peculiarly within the knowledge of the seller, the buyer has a right to rely thereon without making inquiry from such third person as to the truth of the representation.^ It has been held that a charge of fraud, for the purpose of rescind- ing an executory contract of sale, may be based on a false repre- sentation by the seller that he had never offered the property for less than a stated amount, whereas on numerous occasions he had offered it for a much less price.^ Thus where it was sought to avoid liability on a contract to purchase land on the ground that the vendor falsely represented that he had not theretofore offered the farm for sale for less than the price asked, Barker, P. J., said : ' ' The circumstance that the farm had been offered by the plaintiff for sale on numerous occasions for the sum of $6000 would have 502, reversed on other grounds 151 1909) 135 App. Div. 27, 119 N. Y. S. N. Y. 230, 45 N. E. 552; Ashner v. 737, reversing 62 Misc. 613, 116 N. Y. Abenheim, (Sup. 1894) 83 Hun 34, S. 20. 64 State Kep. 129, 31 N. Y. S. 514, l. Hammond v. Pennock, (1874) on later appeal 19 Misc. 282, 43 N. Y. 61 N. Y. 145 ; Hawley v. Wicker, S. 60, affirmed 31 App. Div. 623, 52 (Sup. 1907) 117 App. Div. 638, 102 N. Y. S. 270; White v. Loudon, N. Y. S. 711; Isman v. Loring, (Sup. (1895) 90 Hun 218, 70 State Rep. 1909) 130 App. Div. 845, 115 N. Y. S. 913, 36 N. Y. S. 1135; Griffing v. 933. See also Turner v. Pabst Brew- Diller, (Sup. G. T. 1892) 50 State ing Co., (Sup. 1902) 74 App. Div. Rep. 435, 21 N. Y. S. 407. See also 106, 109, 77 N. Y. S. 360. Meritas Realty Co. v. Farley, (Sup. 2. Isman v. Loring, (Sup. 1909) 1915) 160 App. Div. 420, 424, 151 130 App. Div. 845, 115 N. Y. S. 933. N. Y. S. 1052 (reversing cases). 3. Stewart v. Lester, (Sup. 1888) 98. Miller v. Barber, (1876) 66 49 Hun 58, 17 State Rep. 248, 1 N. Y. N. Y. 558. S. 699. 99. Kreshover v. Berger, (Sup. § 193] FRAUD 261 the effect in a measure, to hinder and make it difficult for the owner to sell it for the price of $8500, although its intrinsic value was the last mentioned sum. A person negotiating for the purchase of property for the purpose of resale on the same market would ordi- narily regard it as a material circumstance in determining, in his own judgment, whether it would be a wise and proper invest- ment to make, to purchase the same at a particular price, in the face of the fact that the owner had repeatedly offered it for sale at a much less amount. Suppose a person treating for the pur- chase of a span of horses for which the owner gave his price, and the proposed buyer should inquire whether they had been offered on that market at a less figure, and the answer should be that they had not, could the seller misapprehend the purpose of the inquiry and doubt that the buyer was not influenced by his statement? " * A similar view has been taken as regards a representation as to the price at which surrounding land was held by the owners." In case of a loan on the security of a leasehold estate, a charge of fraud may be based, it has been held, on the representation that the borrower had a cash customer for the leasehold, who was then and always willing to give a certain bonus for an assignment of the lease.* § 193. Representation as to Cost. — In the sale of real or per- sonal property it is generally recognized that a charge of fraud may be based on false statements by the seller or vendor as to the price paid by himself on his purchase of the property.' As said by O'Brien, J., the question in such a case " is not one arising out of a representation as to value. The representation was with respect to a fact which might, in the ordinary course of business, influence the action and control the judgment of the purchaser, 4. Stewart v. Lester, (Sup. 1888) 51 N. E. 279; Nanes v. Peck, etc., 49 Hun 58, 63, 17 State Rep. 248, 1 Co., (Sup. 1918) 181 App. Div. 760, N. y. S. 699. 169 N. Y. S. 224; Sandford v. Handy, 5. White V. Loudon, (Sup. 1895) (Sup. 1840) 23 Wend. 260; Van 90 Hun 218, 70 State Rep. 913, 36 Epps v. Harrison, (Sup. 1843) 5 Hill N. y. S. 1135. 63; Weidner v. Pkillips, (Sup. G. T. 6. Seaman v. Becar, (Sup. Sp. T. 1886) 39 Hun 1, reversed on other 1896) 15 Misc. 616, 3» N. y. S. 69. grounds 114 N. y. 458, 23 State Rep. 7. Smith V. Countryman, (1864) 762, 21 N. E. 1011; Harlow v. La 30 N. y. 655; Fairchild v. McMahon, Brum, (Sup. 1894) 82 Hun 292, 64 (1893) 139 N. y. 290, 54 State Rep. State Rep. 72, 31 N. y. S. 487, af- 495, 34 N. E. 779; Townsend v. Felt- firmed 151 N. Y. 278, 45 N. E. 859. housen, (1898) 156 N. Y. 618, 627, 262 NEW YORK LAW OF CONTRACTS [§ 193 namely, the price paid for the property about to be sold by the vendor, . . . and so we think that a false statement with respect to the price paid under such circumstances, which is intended to influence the purchaser, and does influence him, constitutes a suffi- cient basis for the finding of fraud."* And a representation by a seller of stock that it was fully paid up stock has been considered as in the nature of a representation as to the price paid originally for such stock, and, therefore, the basis of a charge of fraud.* Where parties enter into an agreement for the joint purchase of land or other property, and the party intrusted with making the purchase falsely represents the price and thereby obtains from the other party a contribution to the purchase in excess of his propor- tionate share of the actual price, this constitutes a fraud which will entitle the latter to recover back the excess paid over his due and proper proportion.^* And in such a case it is immaterial that the agreement for such joiat purchase is oral and could not have been enforced if the party guilty of the fraud had repudiated and made the purchase for his own benefit." In case of a sublease, it would seem that a representation by the sublessor as to the amount of rent paid by him is in the nature of a representation as to price paid by a vendor and may be made the basis of a charge of f raud.^^ It has been held otherwise, however, where the sublease was of a part of the premises only, for the reason that it was immaterial to the sublessee what price the sublessor was paying under his lease.^' 8. Fairchild v. McMahon, (1893) derveer, (Sup. 1847) 1 Barb. 599. 139 N. Y. 290, 294, 54 State Rep. See also Crowe v. Malba Land Co., 495, 34 N. E. 779. TMs statement is (Sup. Sp. T. 1912) 76 Misc. 676, 135 quoted with approval by Mayham, N. Y. S. 454. P. J., in Harlow v. La Brum, (Sup. 11. Willink v. Vanderveer, (Sup. 1894) 82 Hun 292, 297, 64 State 1847) 1 Barb. 599. Rep. 72, 31 N. Y. S. 487. lH. Powell v. F. C. Linde Co., 9. Van Slochem v. Villard, (1913) (Sup. 1900) 49 App. Div. 286, 64 207 N. Y. 587, 101 N. E. 467, affirm- N. Y. S. 163. But see Humphreys v. ing 154 App. Div. 161, 138 N. Y. S. Roberts, (Sup. App. T. 1908) 61 852. See also Johnson v. Hathorn, Misc. 284, 113 N. Y. S. 792. (App. 1866) 2 Keyes 472, 2 Abb. 13. Rosenbaum v. Gunter, (Com. App. Dec. 465; Gavin v. Duckwitz, PI. 1854) 3 E. D. Smith 203, 204. (Sup. G. T. 1885) 20 Wkly. Dig. This ease is approved in Humphreys 422. V. Roberts, (Sup. App. T. 1908) 61 10. Tuomey v. Walsh, (1917) 222 Misc. 284, 113 N. Y. S. 792, but it N. Y. 572 mem., 118 N. E. 1079, does not appear in the latter case affirming 169 App. Div. 933 mem., whether or not the sublease was of a 153 N. Y. S. 1147; Willink v. Van- part or the whole of the premises. § 194,] FRAUD 263 § 194. Representation as to Rents and Profits. — Though a charge of fraud cannot be based on statements as to the future earnings or profits of a. business, this being necessarily a matter of opinion dependent on future contingencies," it is otherwise as regards representations as to past earnings or profits or the extent of the business, which are representations of facts.^^ This includes a statement as to the rents and profits theretofore received from land which is the subject matter of a sale or lease," and also a representation as to the rentals which the present tenants have agreed to pay ; " and the failure of the purchaser to examine the leases to such tenants is not negligence which will preclude him from asserting the claim of f raud.^* It has been held that a repre- sentation that no free rents had been given present tenants, where in fact they were not required to pay rent for one month of the year, may be made the basis of a charge of fraud." It also seems 14. See supra, section 182. 15. More v. Rand, (1875) 60 N. Y. 208; Keefuss v. Weilmunater, (Sup. 1903) 89 App. Div. 306, 85 N. Y. S. 913; Poote V. Leary, (Sup. 1905) 103 App. Div. 547, 93 N. Y. S. 169 ; Roes- sle V. Lancaster, (Sup. 1909) 130 App. Div. 1, 114 N. Y. S. 387; Hop- kins V Riggs, (Sup. G. T. 1890) 55 Hun 611, 5 Silv. Sup. 485, 30 State Rep. 371, 8 N. Y. S. 713; Hewlett v. Saratoga Carlsbad Spring Co., (Sup. 1895) 84 Hun 248, 65 State Rep. 843, 32 N. Y. S. 697; Bridger v. Goldsmith, (Com. PI. G. T. 1893) 3 Misc. 535, 52 State Rep. 409, 23 N. Y. S. 9, affirmed 143 N. Y. 424, 62 State Rep. 435, 38 N. E. 458; Mahoney v. O'Neill, (City Ct. G. T. 1901) 36 Misc. 843 mem., 74 N. Y. S. 918; Harding v. Taylor, (Sup. Sp. T. 1902) 37 Misc. 684, 76 N. Y. S. 365; Butler V. Alter, (Sup. App. T. 1913) 139 N. Y. S. 882; Tilden v. Wash- burn, (Super. Ct. G. T. 1889) 24 State Rep. 925, 6 N. Y. S. 556. See also Jackson v. Foley, (Sup. 190O) 53 App. Div. 97, 31 Civ. Pro. 161, 65 N Y. S. 920; Turner v. Pabst Brew- ing Co., (Sup. 1902) 74 App. Div. 106, 109, 77 N. Y. S. 360. le. Kramer v. Bjerrum, (Sup. 1897) 19 App. Div. 332, 46 N. Y. S. 496; Daiker v. Strelinger, (Sup. 1898) 28 App. Div. 220, 50 N. Y. S. 1074; Prince v. Jacobs, (Sup. 1903) 80 App. Div. 243, 80 N. Y. S. 304; Ettlinger v. Weil, (Sup. 1904) 94 App. Div. 291, 87 N. Y. S. 1049, re- versed on other grounds 184 N. Y. 179, 77 N. E. 31; Del Piano v. Capo- nigri, (Sup. App. T. 1897) 20 Misc. 541, 46 N. Y. S. 452, affirming 19 Misc. 708, 43 N. Y. S. 1153; Fonda v. Lape, (Sup. G. T. 1890) 29 State Rep. 327, 8 N. Y. S. 792; Griffing v. Diller, (Sup. G. T. 1892) 50 State Rep. 435, 21 N. Y. S. 407. See also Powell V. F. C. Linde Co., (Sup. 1900) 49 App. Div. 286, 64 N. Y. S. 153; Hutchinson v. Brown, (Chan. Ct. 1840) Clarke 408, 416. 17. Ettlinger v. Weil, (Sup. 1904) 94 App. Div. 291, 87 N. Y. S. 1049, reversed on other grounds 184 N. Y. 179, 77 N. E. 31; Clark v. Rankin, (Sup. 186-6) 46 Barb. 570. 18. Clark v. Rankin, (Sup. 1866) 46 Barb. 570. 19. Kreshover v. Berger, (Sup. 1909) 135 App. Div. 27, 119 N. Y. S. 737, reversang 62 Misc. 613, 116 N. Y. S. 20. See also L. C. G. Realty Co. V. Schlesinger-Gilman Constr. Co., (Sup. App. T. 1917) 164 N. Y. S. 694. 264 NEW YORK LAW OF CONTRACTS [§ 195 that such a charge may be based on a representation by a vendor that the premises were fully rented to responsible tenantSj^" or that he had a responsible tenant ready to take a lease of the prem- ises at a certain rent for a certain term.^^ Where the defendant was the owner by way of assignment of a leasehold, but did not know the amount of rent reserved therein, a representation by the plaintiff, the lessor, as to the amount of such rent, whereby the defendant was induced to surrender the lease and take a new lease, has been held a basis for a charge of fraud.^^ Representation as to Character and Condition of Property § 195. Personal Property Generally. — ^There is no doubt but that in a sale of personal property a misrepresentation as to the nature, character or condition of the property may, other elements of fraud being present, furnish the basis of a charge of fraud.^^ This is especially true where artifices are used to present a decep- tive appearance and to mislead the buyer and prevent him from making an examination ; ^^ and it is immaterial in such a case that the property is sold " as is," ^^ or that it is sold with a warranty.^* Scienter or knowledge of the falsity of the representation is, as in other cases, essential to characterize the representation as fraudu- lent, and therefore, as a general rule, if a seller is ignorant of any unsoundness or defect in the article sold, a mere representation of soundness cannot be made the basis of a charge of fraud.'' The complaint in an action for fraudulent representation as to 20. Kingsland v. Haines, (Sup. Carlsbad Spring Co., (Sup. 1895) 84 1901 ) 62 App. Div. 146, 70 N. Y. S. Hxin 248, 250, 65 State Rep. 843, 32 873. N. Y. S. 697; Rafsky v. Frederick A. 21. Seis V. Plaisantin, (Sup. 1900) Smith Co., (Sup. Sp. T. 1913) 79 52 App. Div. 206, 65 N. Y. S. 70. Misc. 353, 139 N. Y. S. 1088. 22. Powell V. F. C. Linde Co., 24. Ruben v. Lewis, (Sup. App. T. (Sup. 1900) 49 App. Div. 286, 64 1897) 20 Misc. 583, 46 N. Y. S. 426. N. Y. S. 153. 25. Ruben v. Lewis, (Sup. App. T. 23. Caur v. National Bank, etc., 1897 ) 20 Misc. 583, 46 N. Y. S. 426. Co., (Sup. 1899) 43 App. Div. 10, 26. Indianapolis, etc., R. Co. v. 59 N. Y. S. 618, affirming 23 Misc. Tyng, (Soip. 1874) 2 Hun 311, 4 368, 52 N. Y. S. 61 ; Taylor v. Tillot- Thomp. & C. 524, 48 How. Pr. 193, son, (Ct. Err. 1836) 16 Wend. 494; affirmed 63 N. Y. 653. Indianapolis, etc., R. Co. v. Tyng, 27. Binnard v. Spring, (Sup. 1864) (Sup. 1874) 2 Hun 311, 4 Thomp. 42 Barb. 470. See supra, section 201 & C. 524, 48 How. Pr. 1103, affirmed et seq., as to scienter senerallv 63 N. Y. 653; Hewlett v. Saratoga. 196] FRAUD 266 chattels sold need not set out the contract or state the price paid, as the action is not on the contract.^ § 196. Sale of Choses in Action. — The general rule that a charge of fraud may be based on false representations as to the character or condition of the property sold is applied not only to personal chattels but also to securities and choses in action.^ Thus in a sale of bonds secured by a mortgage on land a charge of fraud may be based on misrepresentations as to the character and condition of the land,^* and on a representation that the bonds were secured by a first mortgage, whereas they were second mort- gage bonds ; ^^ and in case of a sale of bonds or notes, representa- tions as to the financial condition of the obligor or corporation issuing the same may be the basis for a charge of fraud.^^ It has 28. Barney v. Dewey, (Sup. 1816) 13 Johns. 224; Corwin v. Davison, (Sup. 1828) 9 Cow. 22. 29. Carr v. National Bank, etc., Co., (Sup. 1899) 43 App. Div. 10, 59 N. Y. S. 618; Bloomquist v. Far- son, (Sup. Eq. T. 1915) 88 Misc. 615, 151 N. Y. S. 356, affirmed as to this but modified on other grounds 170 App. Div. 64, 156 N. Y. S. 47; Du Flon V. Powers, (City Ct. Sp. T. 1873) 14 Abb. Pr. N. S. 391. 30. Du Flon v. Powers, (City Ct. Sp. T. 1873) 14 Abb. Pr. N. S. 391. 31. Carr v. National Bank, etc., Co, (Sup. 1899) 43 App. Div. 10, 59 N. Y. S. 618, affirming 23 Misc. 368, 52 N. Y. S. 61 ; Wickham v. Roberts, (Sup. 1906) 112 App. Div. 742, 37 Civ. Pro. 102, 98 N. Y. S. 1092. See also Davidge v. Guardian Trust Co., (Sup. 1909) 136 App. Div. 78, 120 N Y. S. 628, reversed on other grounds 203 N. Y. 331, 96 N. B. 751. 32. Willets V. Poor, (Sup. 1913) 155 App. Div. 312, 140 N. Y. S. 299; Barrett v. Western, (Sup. 1870) 66 Barb. 205; Slingerland v. Bennett, (Sup. 1875) 4 Hun 277, 6 Thomp. & C. 446; Drake v. Grant, (Sup. 1885) 36 Hun 464. Where fraudulent representations are made by the seller of corporate bonds, the fact that the bonds have not matured or default in the inter- est has not occurred, does not affect the buyer's right to recover damages for the fraud. Currier v. Poor. (1898) 155 N. Y. 344, 49 N. E. 937, reversing 84 Hun 45, 65 State Rep. 237, 32 N. Y. S. 74. In this case O'Brien, J., said : " It may be true that interest is paid' for years on bonds of a corporation and yet one who has purchased them at par be grossly defrauded in the purchase, and when a party who has been in- duced by fraud to purchase bonds that have no substantial or adequate property security behind them, he may have redress for the fraud with- out waiting for the inevitable day when default will be made in the pay- ment of interest. The mere payment of interest oo a debt does not show that it is secured or that the debtor is then or ever will be able to pay the principal. The damage that a purchaser of such securities suffers by the fraud is capable of being as^ certained when he learns the true condition of the corporation and the property upon which the mortgage bonds are liens. Where fraud has been committed in such a sale the right of action is not dependent upon the payment or default of interest. It depends on proof of fraud in the sale of personal property in the form of corporate securities, and the pay- ment of interest is only a circimi- 266 NEW YORK LAW OF CONTRACTS [§ 196 been held that a charge of fraud may be based on fraudulent rep- resentations, in the sale of a bond secured by mortgage, that the obligation was enforceable for its face value, whereas it was enforce- able for only a part thereof .^^ The same is true of misrepresenta- tions in the sale of stock as to the nature and extent of the busi- ness of the corporation, its assets, or other matters of fact affecting the value of the stock,^* And the purchaser is entitled to rely on stance in the disposition of such an issue." 33. Miller v. Zeimer, (Com. PI. 1883) 12 Daly 126, 17 Wkly. Dig. 391. 34. Lefever v. Lefever, (1864) 30 N. Y. 27; Hubbell v. Meigs, (1872) 50 N. Y. 480, reversing on other grounds 4 Lans. 214; Hawkins v. Palmer, (1874) 57 N. Y. 664 mem.; Schwenk v. Naylor, (1886) 102 N. Y. 683 mem., 2 State Rep. 477, 7 N. E. 788, 1 Silv. App. 133, reversing 50 Super. Ct. 57; Townsend v. Felt- housen, (1898) 156 N. Y. 618, 51 N. E. 279, affirming 90 Hun 89, 70 State Rep. 124, 35 N. Y. S. 538 ; Rey- nolds V. Leyden, (Sup. 1899) 39 App. Div. 650 mem., 57 N. Y. S. 210; Chis- holm V. Eisenhuth, (Sup. 1902) 69 App. Div. 134, 74 N. Y. S. 496; Foote V. Leary, (Sup. 1905) 103 App. Div. 547, 93 N. Y. S. 169; Keeler v. Dun- ham, (Sup. 1906) 114 App. Div. 94, 99 N. Y. S. 669, 37 Civ. Pro. 158; Hawley v. Wicker, (Sup. 1907) 117 App. Div. 638, 102 N. Y. S. 711; Stern v. Stern, (Sup. 1907) 122 App. Div. 821, 107 N. Y. S. 900; Lambert v. Elmendorf, (Sup. 1908) 124 App. Div. 758, 109 N. Y. S. 574; Gaylord v. Brown (No. 1), (Sup. 1908) 128 App. Div. 340, 112 N. Y. S. 745; Gaylord v. Brown (No. 2), (Sup. 1908) 128 App. Div. 343, 112 N. Y. S. 748; Fredricks v. Kreuder, (Sup. 1910) 137 App. Div. 325, 121 N. Y. S. 1001; Canadian Agency v. Assets Realization Co., (Sup. 1914) 165 App. Div. 96, 150 N. Y. S. 758; Churchill v. St. George Development Co., (Sup. 1916) 174 App. Div. 1, 160 N. Y. S. 357; Niles v. Yoakum, (Sup. 1917) 179 App. Div. 75, 166 N. Y. S. 94; Cross v. Sackett, (Super. Ct. G. T. 1858) 6 Abb. Pr. 247, 15 Super. Ct. 617, 16 How. Pr. 62; Johnson v. Hathorn, (App. 1866) 2 Keyes 476, 2 Abb. App. Dec. 465 (misrepresenting stock as fully paid up) ; Newbery v. Garland, (Sup. 1860) 31 Barb. 121; Yates v. Alden, (Sup. 1863) 41 Barb. 172; Barber v. Morgan, (Sup. 1867) 51 Barb. 116; Mason v. Raplee, (Sup. 1869) 66 Barb. 180; Carr v. Schermerhorn, (Sup. 1870) 3 Lans. 189; Merchants' Nat. Bank v. Tracy, (Sup. 1894) 77 Hun 443, 60 State Rep. 650, 29 N. Y. S. 77, affirmed 150 N. Y. 565 mem., 44 N. E. 1126 (misrepresentation as to the capital and character of the business of the corporation ) ; Yeo- mans v. Bell, (Sup. 1894) 79 Hun 215, 61 State Rep. 399, 29 N. Y. S. 502, reversed on other grounds 151 N. Y. 230, 45 N. E. 552; Mason v. Corbin, (Sup. 1895) 88 Hun 540, 68 State Rep. 707, 34 N. Y. S. 773; Ma- honey V. O'Neill, (City Ct. G. T. 1899) 28 Misc. 437, 59 N. Y. S. 378, reversed on other grounds 29 Misc. 619, 61 N. Y. S. 69; Keeler v. Sea- man, (Sup. Sp. T. 1905) 47 Misc. 292, 95 N. Y. S. 920; Harlow v. Haines, (Sup. Sp. T. 1909) 63 Misc. 98, 116 N. Y. S. 449, affirmed 136 App. Div. 938 mem., 121 N. Y. S. 1134; Stirrup v. Trafton, (Sup. Sp. T. 1912) 77 Misc. 473, 136 N. Y. S. 1052. In Niles v. Yoakum, (Sup. 1917) 179 App. Div. 75, 166 N. Y. S. 94, where a charge of fraud was based on misrepresentations as to the assets of the corporation, portions of the complaint stricken out related to the fraudulent concealment of the facts § 196] FRAUD 267 representations as to the financial condition of the corporation, though he could, by an examination of its books, have ascertained its actual condition. The failure to make such an examination is not negligence depriving him of the right to relief.^" The right of the buyer to sue for damages is not affected by the fact that, after knowledge of the fraud, he retains the stock and becomes an officer or employee of the corporation.^* In the sale of a note, the fact that the seller indorses it does not affect his liability in tort for misrepresentations as to the financial condition of the maker or other parties liable for its payment, if, in fact, the buyer relied on such representations and not solely on the seller 's indorsement.^^ In case of a sale of stock, the fact that the buyer is a director of the corporation does not, as a matter of law, charge him with notice of the actual condition of the corporation, and consequently with knowledge of the falsity of the representations.^' If the repre- sentation as to the character of a chose in action is made in good faith, a charge of fraud cannot be based thereon as a basis for an action for damages.'' pertaining to the purchase of rolling stock, railroad materials and sup- plies at prices in excess of the mar- ket price and the true value thereof, by means of which the defendants withdrew from the company secret profits, bonuses and commissions; also the purchase at prices largely in excess of the cost or true value thereof of properties and securities and branch lines of the railroad which had been purchased, con- structed or procured to be con- structed by the defendants or some of them, and the advance by the rail- road company of large sums of money, obtained by it from the sale of its bonds and securities at large discounts below the face value thereof, made to aid in the construc- tion of lines of railroad in which said company had no ownership, but which were sold to it at large profits, and in these profits made by the de- fendants they all shared; and these various purchases were carried into the annual report at their false and fraudulent value, the true cost and value thereof being concealed, whereby the assets were given an excessive valuation. This was held to consti- tute false and fraudulent representa- tions, which, if proved by the plain- tiff to be art inducing cause of his purchase of stock, would entitle him to recover; and as there were no other allegations of the complaint under which the proof of these facts would be admissible, it was held error to strike out such portions of the complaint. 35. Yeomans v. Bell, (Sup. 1894) 79 Hun 215, 61 State Kep. 399, 29 N. Y. S. 502, reversed on other grounds 151 N. Y. 230, 45 N. B. 552. 36. Mason v. Corbin, (Sup. 1895) 88 Hun 540, 68 State Kep. 707, 34 N. y. S. 773; Mahoney v. O'Neill, (City Ct. G. T. 1899) 28 Misc. 437, 59 N. Y. S. 378, reversed on other grounds 29 Misc. 619, 61 N. Y. S. 69. 37. Barrett v. Western, (Sup. 1870) 66 Barb. 205. 38. Lefever v. Lefever, (1864) 30 N. Y. 27. 39. Oberlander v. Spiess, (1871) 45 N. Y. 175. 26S NEW YORK LAW OF CONTRACTS [§ 197 § 197. Character and Condition of Land Sold or Leased Gen- erally. — The view has been taken, where the land sold or leased is easily accessible, that it is the duty of the purchaser or lessee to inspect it and that he is not justified in relying on statements by the vendor as to its visible characteristics, and that therefore the purchaser or lessee cannot base a charge of fraud on such statements." " Eepresentations of a grantor," says Dykman, J., " which will entitle a grantee to relief in equity must be of such a character that the purchaser has no means of discovering their falsity. In fact, it has come to be a legal maxim that knowledge will be imputed to him who is able to inquire into a known thing. A court of equity will refuse its aid to those who, by their own negligence, have incurred the loss or suffered inconvenience. If a party does not avail himself of the knowledge within his reach, he will never be entitled to the aid of equity. ' ' *^ And where it was sought to charge a vendor with fraud on account of a repre- sentation as to the nonexistence of noxious weeds on the farm sold, relief has been denied, the purchaser having examined the land, because he could readily have discovered the existence of such weeds if on his inspection he had used even slight care.^^ As a general rule, however, it is recognized that a charge of fraud may be based on misrepresentations by a vendor or lessor as to the character or condition of the land,^^ and this is especially true where the land is situated at a distance or the condition is not subject to discovery on a reasonable inspection by the purchaser or lessee ; ^* such, for instance, in case of a lease of a house, as a 40. Long V. Warren, (1877) 68 (Sup. App. T. 1912) 137 N. Y. S. N. Y. 426; De Milt v. Hill, (Sup. 787. 1895) 89 Hun 56, 69 State Rep. 4, 44. Bennett v. Judson, (I860) 21 34 N. Y. S. 1060; Creamer v. Pesh- N. Y. 238; Hammond v. Pennock, kin, (Sup. App. T. 1913) 81 Misc. (1874) 61 N. Y. 145; Oliver v. Ben- 167, 142 N. Y. S. 333; Sehermerhorn nett, (1875) 65 N. Y. 559 mem.; V. Gouge, (Sup. Sp. T. 1861) 13 Abb. Schumaker v. Mather, (1892) 133 Pr. 315, N. Y. 590 mem., 4 Silv. App. 224, 44 41. De Milt V. Hill, (Sup. 1895) State Rep. 754, 30 N. E. 755, affirm- 89 Hun 56, 69 State Rep. 4, 34 N. Y. ing 38 State Rep. 542, 14 N. Y. S. 411; S. 1060. Baiker v. Strelinger, (Sup. 1898) 28 42. Long V. Warren, (1877) 68 App. Div. 220, 50 N. Y. S. 1074; Van N. Y. 426; Vandewalker v. Osmer, Bpps v. Harrison, (Sup. 1843) 5 Hill (Sup. 1873) 1 Thomp. & C. 50, 65 63; Du Flon v. Powers, (City Ct. Barb. 556, appeal dismissed 56 N. Y. Sp. T. 1873) 14 App. Pr. N. S. 391. 658. See also White v. Loudon, (Sup. 43. Ash V. Meeks, (Sup. 1909) 134 1895) 90 Hun 218, 70 State Rep. App. Div. 154, 118 N. Y. S. 821; 913, 36 N. Y. S. 1135. Hataaatach Realty Co. v. Guliek, In Van Epps v. Harrison, (Sup. § 197] FRAUD 269 representation by a lessor as to the capacity of the heating appa- ratus," or, in case of a sale of land, a representation as to the number of cattle and other domestic animals which the vendor was running on a farm, as this is a material representation of a matter of fact in relation to the quality and value of the land, and peculiarly within the knowledge of the vendor.^^ So a charge of fraud has been sustained where the contract of sale was made in this state and the land, situated in an inaccessible part of Michi- gan, was falsely represented as being dry land, well covered with timber, and crossed by a river or stream over which the timber could be floated." In case of a lease a charge of fraud has been 1843) 5 Hill 63, where a purchase was made in New York of land lo- cated near Albany, Bronson, J., said: " It will seem marvelous, if not wholly incredible, to those who did not live in the years eighteen hun- dred thirty-five and six, that men should purchase lands lying within ten hours' ride of their residence and agree to pay $32,000, without ever having taken the trouble to look at the property either in person or by an agent. But farms lying in the vicinity of cities and villages were then so much in demand for the building of new towns, that many persons thought it best not to hazard the loss of a bargain by stopping to look or inquire, when they could purchase at a thousand dollars per acre. They might better lose the little sum of $32,000 than be absent one whole day from Wall street, and thus mis8 the possible chance of pur- chasing the site of some other pros- pective city of much greater magni- tude. Wonderful aa it may seem to the next generation, such things did happen; and in this case the defend- ant offered to prove that he knew nothing about the land, except that it lay on the opposite side of the river from the city of Albany. He trusted to the representations of the plaintiff in relation to the condition of the property, and the only ques- tion is whether the defendant must charge the loss upon his own folly and the madness of the times, or vi^hether the plaintiff has done such a wrong as may be redressed by ac- tion. The credulity of the defend- ant furnishes but a poor excuse for the falsehood and fraud of the plain- tiff, and the latter will have no just ground for complaint if he is held responsible for his misconduct. lam not entirely without apprehension that some bad consequences may re- sult from giving an action against the vendor for misrepresentations concerning the quality or condition of the land he sells. Common pru- dence requires that the vendee should ascertain the truth of such assertions before he acts. But I am unable to distinguish this case from Sanford V. Handy, 23 Wend. 260. There the alleged misrepresentation related to the location of the land. Here the false representation related to the condition of the property, or the practicability of using it for building purposes with little or no expense." 45. Pry or v. Foster, (1891) 130 N. y. 171, 41 State Rep. 320, 29 N. E. 125, affirming 24 State Rep. 917, 7 N. Y. S. 4, which affirms de- cision on prior appeal 17 State Rep. 472, 1 N. Y. S. 774; Ash v. Meeks, (Sup. 1909) 134 App. Div. 154, 118 N. Y. S. 821. 46. Schumaker v. Mather, (1892) 133 N. Y. 590 mem., 44 State Rep. 754, 30 N. E. 755, 4 Silv. App. 224, affirming 38 State Rep. 542, 14 N. Y. S. 411. 47. Hammond v. Pennock, (1874) 61 N. Y. 145, affirming 5 Lans. 358. 270 NEW YORK LAW OF CONTRACTS [§ 198 sustained on a representation that certain repairs, contemplated in the prior negotiations, had been made.*' Where a lot sold is situ- ated in a new residential development, a representation as to improvements being made, at the time, for the general benefit of the development, is one as to existing facts." Where a written description of farm land, situated at a distance, grossly misrepre- sents its general character and the improvements thereon, the fact that it concludes with the words " examine for yourself and find out the particulars and value of the farm " has been considered as a mere device to cover up the fraud, and ineffectual to relieve the seller from liability.^" § 198. Identity, Location or Acreage. — A charge of fraud may be based on a representation as to the identity or location of land sold,°i also on its territorial extent or limits,*^^ and if a vendor represents that a fixed monument marks the boundary of the land, a charge of fraud may be based thereon though the conveyance does not refer to the monument as marking the boundary .^^ Fraud may also be based on a representation as to acreage or quantity,'* and in such a case it is immaterial whether the sale is in gross or by the acre."' It is also immaterial that the purchaser could have ascertained by a survey or other investigation the boundaries or acreage.'^ If the vendor does not assume to have any actual and positive knowledge as to the acreage of the land, and correctly points out its boundaries, and gives the source of his information, 48. Ash V. Meeka, (Sup. 1909) 134 N. Y. 305, 4 How. Pr. 447, affirming App. Div. 154, 118 N. Y. S. 821. 4 Denio 554; Clark v. Baird, (1853) 49. Sicklick v. Interurban Home 9 N. Y. 183, 1 Seld. Notes 187, dis- Co., (Sup. App. T. 1909) 116 N. Y. approving as to this 7 Barb. 64; King S. 553. V. Knapp, (1875) 59 N. Y. 462; 50. Du rion V. Powers, (City Ct. Beardsley v. Duntley, (1877) 69 N. Y. Sp. T. 1873) 14 Abb. Pr. N. S. 391. 577; Krumm v. Beach, (1884) 96 See also Scarsdale Pub. Co. v. Carter, N. Y. 398, affirming 25 Hun 293; (Sup. App. T. 1909) 63 Misc. 271, Allaire v. Whitney, (Sup. 1841) 1 116 N. Y. S. 731. Hill 484; Tyler v. Guy, (Sup. G. T. 51. Goodman v. Lahorn, (Sup. 1886) 24 Wkly. Dig. 39. 1896) 11 App. Div. 617, 42 N. Y. S. 53. Clark v. Baird, (1853) 9 N. Y. 166, 76 State Rep. 166; Sandford v. 183, 1 Seld. Notes 187. Handy, (Sup. 1840) 23 Wend. 260; 54. Thomas v. Beebe, (1862) 25 Scarsdale Pub. Co. v. Carter, (Sup. n. Y. 244. App. T. 1909) 63 Misc. 271, 116 55. Thomas v. Beebe, (1862) 25 N. Y. S. 731; Tnimble v. Peck, (Sup. N. Y. 244. G. T. 1891) 35 State Rep. 529, 13 56. Clark v. Baird, (1853) 9 N. Y. N. Y. S. 130. 183, 1 Seld. Notes 187, disapproving 52. Whitney v. Allaire, (1848) 1 as to this 7 Barb. 64. § 199] FRAUD 271 knowledge on his part of the falsity of his representation as to the acreage is necessary to establish a charge of fraud." Intent to Deceive or Defraud § 199. In General. — The intent to deceive or defraud is said to be an essential element in a charge of fraud.^* Every person, however, must be deemed to have intended the natural and inevi- table consequences of his acts; and where his acts are voluntary, and necessarily operate to defraud others, he must be deemed to have intended the fraud.^ Where an insolvent buyer secures 57. Tyler v. Guy, (Sup. G. T. 1885) 21 Wkly. Dig. 56. 58. Meyer v. Amidon, (1871) 45 2Sr. Y. 169; Stitt V. Little, (1875) 63 N. Y. 427; MacuUar v. McKinley, (1885) 99 K. Y. 353, 2 N. E. 9; Gray V. Richmond Bicycle Co., (1901) 167 N. Y. 348, 359, 60 N. E. 663; Robin- sou V. Vaughan, (Sup. 1900) 49 App. Div. 170, 63 2Sr. Y. S. 197; Powell v. F. O. Linde Co., (Sup. 1901) 58 App. Div. 261, 68 N. Y. S. 1070, affirmed 171 N. Y. 675 mem., 64 N. E. 1125; Kingsland v. Haines, (Sup. 1901) 62 App. Div. 146, 70 N. Y. S. 873 ; Gros- jean v. GaUoway, (Sup. 1903) 82 App. Div. 380, 81 N". Y. S. 871; Inderlied V. Honeywell, (Sup. 1903) 88 App. Div. 144, 84 N. Y. S. 333; Zagarino V. Kurzrok, (Sup. 1909) 135 App. Div. 763, 119 N. Y. S. 907; Potts v. Lambie, (Sup. 1913) 157 App. Div. 800, 142 N. Y. S. 795 ; Magee v. Fish, (Sup. 1916) 175 App. Div. 125, 161 N. Y. S. 1057; Young v. Covell, (Sup. 1811) 8 Johns. 23; Van Alstyne v. Crane, (Sup. 1874) 4 Thomp. & C. 113, 1 Hun 537; Wakeman v. Dalley, (Sup. 1865) 44 Barb. 498, affirmed 51 N. Y. 27; Weed v. Case, (Sup. 1869) 55 Barb. 534; Robinson v. Flint, (Sup. 1870) 58 Barb. 100; Enright v. Fellheimer, (Sup. Tr. T. 1898) 25 Misc. 664, 56 N. Y. S. 366; Scarsdale Pub. Co. v. Carter, (Sup. App T. 1909) 63 Misc. 271, 275, 116 N. Y. S. 731; Sadallah v. Mandour, (Sup. App. T. 1905) 94 N". Y. S. 562; Fox V. Trigger, (Sup. App. T. 1910) 126 N. Y. S. 78; L. D. Powell Co. v. Bernstein, (Sup. App. T. 1917) 164 N. Y. S. 795; Hudson P. Rose Co. v. Goodale, (Sup. App. T. 1918) 169 N. Y. S. 446; CuUen v. Hernz, (Sup. G. T. 1888) 13 State Rep. 333; Roths- child V. Porter, (City Ct. G. T. 1892) 46 State Rep. 262, 19 N. Y. S. 177; Livingston v. Keech, (Super. Ct. 1872) 34 Super. Ct. 547; Nelson v. Luling, (Super. Ct. 1873) 36 Super. Ct. 544, 46 How. Pr. 355, affirmed 62 N. Y. 645; Hilsen v. Libby, (Super. Ct. 1878) 44 Super. Ct. 12; Lawrence v. Foxwell, (Super. Ct. 1883) 49 Super. Ct. 273, 4 Civ. Pro. 340; Brown v. Ashbough, (Sup. Sp. T. 1870) 40 How. Pr. 226; Brick v. Fowler, (Sup. G. T. 1881) 12 Wkly. Dig. 310; Roome v. Riley, (Sup. G. T. 1881) 13 Wkly. Dig. 459; Sibley v. Hastings, (Sup. G. T. 1883) 16 Wkly. Dig. 335; Whitmore v. Patter- son, (App. 1883) 16 Wkly. Dig. 544. 59. Coursey v. Morton, (1892) 132 N. Y. 556, 43 State Rep. 673, 30 N". B. 231, 4 Silv. App. 112; Mills v. Brill, (Sup. 1905) 105 App. Div. 389, 94 N. Y. S. 163; Frisbee v. Pitzsimons, (Sup. 1875) 3 Hun 674; Meyer v. Amidon, (Sup. 1881) 23 Hun 553; Trankla v. McLean, (Sup. App. T. 1896) 18 Misc. 221, 75 State Rep. 796, 41 N. Y. S. 385 ; Habeeb v. Daas, (Sup. Tr. T. 1920) 111 Misc. 437, 181 N. Y. S. 392; Dykers v. Wood- ward, (Sup. Sp. T. 1852) 7 How. Pr. 313. 272 XEW YORK LAW OF CONTRACTS [§ 199 credit by a false representation as to his financial condition the fact that he in good faith intends to and thinks he will be able to pay for the goods, and in this sense has no intent to defraud the seller, will not relieve him of liability to a charge of fraud based on the false representations.'" That a person, in violation of statute, transacts business in a firm name, does not necessarily show an intent to deceive, so as to enable another person,' who sells goods to him, to base a charge of fraud on such fact.*"- A corpo- ration may in a legal sense be guilty of a fraud. As a mere legal entity it can have no will and cannot act at all, but in its relations to the public it is represented by its officers and agents, and their fraud in the course of the corporate dealings is, in law, the fraud of the corporation.'^ In equity it has frequently been held that a mis- representation or suppression of a material fact may authorize relief by way of rescission though there was no intent to defraud.^' 60. Pier v. Doheny, (Sup. 1904) 93 App. Div. 1, 9, 86 N. Y. S. 971; Pitch.- ard V. Doheny, (Sup. 1904) 93 App. Div. 9, 86 N. Y. S. 964; Mills v. Brill, (Sup. 1905) 105 App. Div. 389, 94 N. Y. S. 163. See supra, section 188, as to representations in case of sales on credit as to the buyer's financial condition generally. In Fitehard v. Doheny, (Sup. 1904) 93 App. Div. 9, 12, 86 N. Y. S. 964, Williams, J., said : " In the face of these well-established, facts the ref- eree found that G., when he made the statements, did not intend to deceive or defraud the plaintiff. The idea of the referee, in making such a find- ing, is apparent from a subsequent finding that G. did not intend to ac- quire or obtain possession of the hops without paying for them when the term of credit expired, and he then had reasonable grounds to believe that the hops would be paid for. That is, there was no intent to defraud or deceive, because he believed upon rea- sonable grounds that the hops would be paid for when the term of credit expired. There can be no doubt that he made the false statements for the purpose of securing the ninety days' credit instead of paying cash for the hops, and that the plaintiff was in- duced to part with her property on credit in reliance upon the truth of such statements. It follows, there- fore, as a matter of course that G. intended to and did deceive the plaintiff and thereby to secure the property on credit, and such deceit resulted in damage to the plaintiff '^o the extent of the value of the hops sold and delivered. That was a fraud upon the plaintiff whether G. believed the property would be paid for or not." 61. Thompson v. Gray, (Com. PI. 1882) 11 Daly 183. 62. Cragie v. Hadley, (1885) 09 N. Y. 131, 1 N. E. 537. 63. Belknap v. Sealey, (1856) 14 N". Y. 143; Hammond v. Pennock, (1874) 61 N. Y. 145, affirming 5 Lans. 358; Dayton v. American Steel Barge Co., (Sup. 1902) 76 App. Div. 454, 79 N. Y. S. 1130, affirming 36 Misc. 223, 73 N. Y. S. 316; Knapp v. Fowler, (Sup. 1883) 30 Hun 512, 516, 18 Wkly. Dig. 230; Weller v. Bartlett, (Sup. Sp. T. 1894) 79 State Rep. 626, 45 N. Y. S. 626; Dale v. Roosevelt, (Chan. Ct. 1821) 5 Johns. Ch. 174, affirmed 2 Cow. 129. 200] FRAUD 273 § 200. Pleading and Proof of Intent.— The intent to deceive or defraud must be alleged in the pleading.^* While it is the better practice to allege expressly that the false representations were made with intent to deceive, it has been held that if the facts alleged show an intent to deceive it is not necessary that the pleader should so define and characterize them.^^ Thus where, in case of a sale on credit, relief by way of rescission is sought, an allegation that false reports to a mercantile agency of his financial condition were made by the buyer with intent to obtain credit and induce merchants and others to sell goods to him, when he knew the reports to be false, has been held sufficient to allege the intent to deceive.^^ It is also essential that the intent be proved, and it cannot, as a general rule, be inferred merely from the falsity of the repre- sentation.^^ Thus where the plaintiff took a lease from the defend- 64. Dubois V. Hei>mance, (1874) 56 N. Y. 673, affirming 1 Thomp. & C. 293; Walsh V. Hyatt, (Sup. 1902) 74 App. Div. 20, 77 N. Y. S. 8, affirmed 176 N. Y. 550 mem., 68 N. E. 1125; Inderlied v. Honeywell, (Sup. 1903) 88 App. Div. 144, 84 N. Y. S. 333; Bar- ber V. Morgan, (Sup. 1867) 51 Barb. 116; Shields v. Clement (Super. Ct. G. T. 1895) 12 Misc. 506, 67 State Eep. 370, 33 N. Y. S. 676; Brown v. Morrill, (Sup. App. T. 1907) 55 Misc. 224, 105 N. Y. S. 191; Coyle v. Nies, (Sup. G. X. 1887) 6 State Rep. 194, affirmed 120 N. Y. 621 mem., 23 N. E. 1152; DriscoU v. Sanderson, (Sup. G. T. 1888) 15 State Rep. 134; King V. Murphy, (County Ot. 1914) 151 N. Y. S. 476; Taylor v. Stern, (Sup. App. T. 1916) 159 N. Y. S. 787. The rule that one who makes a representation as of his own knowl- edge, without knowing whether it is true or not, may be charged with fraud (see infra, section 202) is ap- plicable only to the question of the sufficiency of evidence to establish alleged fraud. When a party assumes knowledge of a material fact, and makes a statement of it in such man- ner as to import knowledge of its existence by which another is induced 18 to rely and act on it, he may be chargeable with fraud, although ignorant of the fact so represented, because the intent to deceive and de- fraud is imputable to him. This rests in inference as matter of fact and goes in support of a charge to that effect. But such inference arising on the evidence does not go in qualifica- tion of the necessity to allege, in some form, such intent in pleading. Coyle V. Nies, (Sup. G. T. 1887) 6 State Rep. 194, affirmed 120 N. Y. 621 mem., 23 N. E. 1152. 65. Zabriskie v. Smith, (1855) 13 N. Y. 322, 330 ; Fredricks v. Kreuder, (Sup. 1910) 137 App. Div. 325, 121 N. Y. S. 1001; Habeeb v. Daas, (Sup. Tr. T. 1920) 111 Misc. 437, 181 N. Y. S. 392. 66. Morrison v. Lewis., (Super. 1883) 49 Super. Ct. 178, 4 Civ. Pro. 437. See infra, section 214, as to representations to mercantile agencies as a basis of a charge of fraud. 67. Coffin V. Hollister, (1891) 124 N. Y. 644, 36 State Eep. 271, 26 N. E. 812, 3 Silv. App 400, affirming 5 Silv. Sup. 172, 27 State Rep. 637, 7 N. Y. S. 734; Buchall v. Higgins, (Sup. 1905) 109 App. Div 607, 96 N. Y. S. 241; Ward v. Woodburn, 274 NEW YORK LAW OF CONTRAOTS [§ 201 ant, who himself held only a leasehold estate, and after fitting up the premises for a cafe was unable to procure a liquor license because the owner of the freehold refused his consent, it was held that the fact that the defendant told the plaintiff at their first meeting that he was the owner of the premises could not be made the basis of a charge of fraud, as his statement was in a sense true and so related to the negotiations as to be consistent with an honest intent.^* If, however, a false representation is made with knowledge that it was untrue, an intent to deceive may be inferred by the jury as a question of fact,^' but such intent is not to be inferred as a matter of law.'" " The intent to deceive," says Daniel, J., ' ' may very well be inferred from the fact that the rep- resentations made are known by the person making them to be false. But the law does not infer that to have been the intent of the party. It is for the jury to determine under the evidence whether that inference is legitimate or reasonably well supported in the case. If it is, then it is the duty of the jury to infer intent to deceive. ' ' '^ Where a referee found that the seller of stock made representations as to the condition of the corporation knowing them to be false, and with the intention and for the purpose of inducing the plaintiff to purchase the stock, this was held in effect a finding that there was an intent to deceive.'^ To disprove the intent to deceive, the defendant may testify as to the fact of his belief in the truth of his representations and his want of intent to deceive.'' Scienter or Knowledge of Falsity of Representation § 201. In General. — As a general rule, to constitute a fraud which will give rise to an action for damages the misrepresenta- (Sup. 1858) 27 Barb. 346; Fox v. 87 N. Y. 128, ISWkly. Dig. 448. Trigger, (Sup. App. T. 1910) 126 71. CuUen v. Hernz, (Sup. G. T. N. Y. S. 78 ; Nelson V. Luling, (Super. 1888) 13 State Rep. 333, 386, 28 1873) 36 Super. Ct. 544, 46 How. Wkly. Dig. 128. Pr. 355, affirmed 62 N. Y. 645. 72. Mason v. Corbin, ( Sup. 1895 ) 68. Zagarinn v. Kurzrok, (Sup. 88 Hun 540, 68 State Rep. 707, 34 1909) 135 App. Div. 763, 119 N. Y. S. N. Y. S. 773. 907. 73. Hubbell v. Meigs, (Sup. G. T. 69. Redfernv. Cornell, (Sup. 1896) 1870) 4 Lans. 214, 228, reversed on 6 App. Div. 436, 39 N. Y. S. 656; other grounds 50 N. Y. 480; Barrett Meyers v. Rosenback, (City Ct. G. T. v. Western, (Sup. 1870) 66 Barb. 1893) 5 Misc. 337, 55 State Rep. 498, 205. But see Ballard v. Lockwood, 25 N. Y. S. 521. (Com. Pl. 1861) 1 Daly 158. 70. Salisbury v. Howe, (App. 1881) § 201] FRAUD 275 tion must have been made with knowledge of its falsity. If it was innocently made, without an intent to deceive and without any reasonable grounds for believing it to be untrue, it does not con- stitute ground for such an action.''* And the same view is usually 74. Hubbard v. Briggs, (1865) 31 N. Y. 518, 529; Marsh v. Falker, (186&) 40 N. Y. 562; Chester v. Comstock, (1869) 40 N. Y. 575, note; Meyer v. Amidon, (1871) 45 N. Y. 169; Oberlander v. Spiess, (1871) 45 N. Y. 175; Atkins v. El- well, (1871) 45 N. Y. 753, 760; De Graw V. Elmore, (1872) 50 N. Y. 1; Hubbell V. Meigs, (1872) 50 N. Y. 480; Wakeman v. Dalley, (1872) 51 N. Y. 27, aflarming 44 Barb. 498; Ross V. Mather, (1872) 51 N. Y. 108; Lamb v. Kelsey, (1873) 54 N. Y. 645; Stitt V. Little, (1875) 63 N. Y. 427; Duffany v. Ferguson, (1876) 66 N. Y. 482, reversing 5 Hun 106, decided on other grounds; Salisbury v. Howe, (1881) 87 N. Y. 128, 13 Wkly. Dig. 448; Mclntyre v. Buell, (1892) 132 N. Y. 192, 43 State Rep. 715, 30 N. E. 396; Town- send V. Felthousen, (1898) 156 N. Y. 618, 623, 51 N. E. 279; Reno v. Bull, (1919) 226 N. Y. 546, 124 N. E. 144, reversing 179 App. Div. 891 mem., 165 N. Y. S. 1109; Com- stock V. Ames, (1867) 3 Keyes 357, 1 Abb. App. Dec. 411; Unckles v. Hentz, (Sup. 1897) 19 App. Div. 165, 166, 45 N. Y. S. 894, affirming 18 Misc. 644, 77 State Rep. 749, 43 N. Y. S. 749; Powell v. F. C. Linde Co., (Sup. 1901) 58 App. Div. 261, 68 N. Y. S. 1070, affirmed 171 N. Y. 675 mem., 64 N. E. 1125; Kingsland V. Haines, (Sup. 1901) 62 App. Div. 146, 70 N. Y. S. 873; Bloomingdale V. Southern Nat. Bank, (Sup. 1901) 63 App. Div. 72, 71 N. Y. S. 306; Eccardt v. Eisenhauer, (Sup. 1902) 74 App. Div. 35, 77 N. Y. S. 18; Inderlied v. Honeywell, (Sup. 1903) 88 App. Div. 144, 84 N. Y. S. 333; Worthington v. Herrmann, (Sup. 1903) 89 App. Div. 627, 88 N. Y. S. 76, affirmed 180 N. Y. 559 mem., 73 N. B. 1134; Bell v. James, (Sup. 1908) 128 App. Div. 241, 112 N. Y. S. 750, affirmed 198 N. Y. 513 mem., 92 N. E. 1078; Thayer v. Schley, (Sup. 1910) 137 App. Div. 106, 121 N. Y. S. 1064; Willets v. Poor, (Sup. 1910) 141 App. Div. 743, 126 N. Y. S. 926; Given v. Powell, (Sup. 1911) 145 App. Div. 559, 129 N. Y. S. 869; Stolitzky V. Linscheid, (Sup. 1912) 150 App. Div. 253, 134 N. Y. S. 805; Potts V. Lanibie, (Sup. 1913) 157 App. Div. 800, 142 N. Y. S. 795; Allen-Kingston Motor Car Co. v. Consolidated Nat. Bank, (Sup. 1914) 162 App. Div. 178, 147 N. Y. S. 251, affirmed 222 N. Y. 623 mem., 118 N. E. 1050; Wood V. Dudley, (Sup. 1919) 188 App. Div. 136, 176 N. Y. S. 494; Taylor v. Manning, (Sup. 1920) 190 App. Div. 559, 179 N. Y. S. 827; Binnard v. Spring, (Sup. 1864) 42 Barb. 470; Moore v. Noble, (Sup. 1867) 53 Barb. 425, 36 How. Pr. 385; Weed v. Case, (Sup. 1869) 55 Barb. 534; Robinson v. Flint, (1870) 58 Barb. 100; Marshall v. Fowler, (Sup. 1876) 7 Hun 237j Kountze v. Kennedy, (Sup. 1873) 72 Hun 311, 55 State Rep. 353, 25 N. Y. S. 682, affirmed 147 N. Y. 124, 69 State Rep. 388, 2 N. Y. Annot. Cas. 327, 41 N. E. 414; Thomas v. Snyder, (Sup. 1894) 77 Hun 365, 60 State Rep. 415, 28 N. Y. S. 877; Hemen- way v. Keeler, (Sup. 1895) 88 Hun 405, 68 State Rep. 819, 34 N. Y. S. 808; Lawton v. Goodrich, (Sup. G. T. 1889) 4 Silv. Sup. 24, 28 State Rep. 25, 7 N. Y. S. 76; Enright v. Fellheimer, (Sup. Tr. T. 1898) 25 Misc. 664, 56 N. Y. S. 366; Clover Farms Co. v. Schubert, (Sup. App. T. 1905) 46 Misc. 434, 92 N. Y. S. 260; Cowan v. Ganung, (County Ct. 1908) 58 Misc. 141, 110 N. Y. S. 470; Matter of Cushman, (Surr. Ct. 1916) 95 Misc. 9, 160 N. Y. S. 661; King V. Murphy, (County Ct. 1914) 151 N. Y. S. 476; B. & W. Bldg. Co. V. Commonwealth Sav. Bank, (Sup. 276 NEW YORK LAW OF CONTRACTS [§ 201 taken where the relief sought is by way of rescission or in defense to the enforcement of an executory contract.''^ Thus if a merchant makes an innocent misstatement as to his financial standing, and in reliance thereon a sale on credit is made, this is not a fraud giving the seller the right to avoid the saleJ* And where a charge of fraud is based on a misrepresentation as to the value of cor- porate securities, evidence that the person making the representa- tion had made an investigation of the affairs of the corporation or inquiries as to the value of the securities, and from the informa- tion thus received believed the securities to be good, should be admitted." In case of representations by a director of a corpora- tion as to its financial condition, knowledge of all its affairs can- not be imputed to him for the purpose of charging him with App. T.. 1917) 164 N. Y. S. 666; Hudson P. Rose Co. v. Goodale, (Sup. App. T. 1918) 169 N. Y. S. 446; Oliver Typewriter Co. v. East- man Pub. Co., (Sup. App. T. 1918) 169 N. Y. S. 1029; Porter v. Thoens, (Sup. App. T. 1920) 180 N. Y. S. 733; Livingston V. Keech, (1872) 34 Super. Ct. 547; Stevens v. New York, (Super. Ct. 1880) 46 Super. Ct. 274; Lawrence v. Foxwell, (Super. 1883) 49 Super. Ct. 273, 4 Civ. Pro. 351; Tockerson v. Chapin, (Super. Ct. 1885) 52 Super. Ct. 16; Ryan v. Manufacturers', etc.. Bank, (Com. PI. 1880) 9 Daly 308; Marshall v. Gray, (Sup. G. T. 1870) 39 How. Pr. 172, 57 Barb. 414; Brown v. Ashbough, (Sup. Sp. T. 1870) 40 Pow. Pr. 226; Doty v. Campbell, (County Ct. 1884) 1 How. Pr. N. S. 101; Watson v. Smitb, (Sup. G. T. 1883) 16 Wkly. Dig. 358, affirmed 100 N. Y. 612 mem.; Gossler v. Liss- berger, (Sup. G. T. 1884) 19 Wkly. Dig. 291. 75. Daly v. Wise, (1892) 132 N. Y. 306, 44 State Rep. 422, 30 N. B. 837; Schmaltz v. Weed, (Sup. 1901) 57 App. Div. 245, 68 N. Y. S. 212; L. D. Garret Co. v. Astor, (Sup. 1902) 67 App. Div. 595, 73 N. Y. S. 966; Spier V. Hyde, (Sup. 1903) 78 App. Div. 151, 79 N. Y. S. 699; L. D. Garrett Co. V. Appleton, (Sup. 1905) 101 App. Div. 507, 92 N. Y. S. 136, affirmed 184 N. Y. 557, 76 N. E. 1099; Baylis v. Clark, (Sup. 1906) 115 App. Div. 33, 100 N. Y. S. 586; Rothstein v. Isaac, (Sup. 1908) 124 App. Div. 133, 108 N. Y. S. 896; Schoepf V. Bender, (Sup. 1911) 147 App. Div. 894, 131 N. Y. S. 875; Leger v. Bonnaffe, (Sup. Sp. T. 1848) 2 Barb. 475; Erwin v. Voorhees, (Sup. 1857) 26- Barb. 127; Morris v. Wells, (Sup. G. T. 1889) 4 Silv. Sup. 34, 26 State! Rep. 9, 7 N. Y. S. 61; Mason v. Wheeler, ( Super. Ct. Eq. T. 1893) 2 Misc. 523, 24 N. Y. S. 879; Remington v. Van Ingen, (Com. PI. G. T. 1894) 9 Misc. 128, 59 State Rep. 704, 29 N. Y. S. 301, affirming 6 Misc. 215, 26 N. Y. S. 878; Caton Business College Co. v. Hertel, (Super. Ct. G. T. 1891) 35 State Rep. 671, 12 N. Y. S. 721; Hatch v. Spooner, (Sup. G. T. 1891) 37 State Rep. 151, 13 N. Y. S. 642; Schneider V. Quosbarth, (Com. PI. G. T. 1884) 19 Wkly. Dig. 527. But see Wood V. Dudley, (Sup. 1919) 188 App. Div. 136, 176 N. Y. S. 494. 76. Morrisi v. Wells, (Sup. G. T. 1889) 4 Silv. Sup. 34, 26 State Rep. 9, 7 N. Y. S. 61. 77. Oberlander v. Spiess, (1871) 45 N. Y. 175, on second appeal 63 N. Y. 634, reversing 4 Hun 605. § 202] FKAUD 277 fraud." Thus the fact that a seller of corporate stock is a director of the corporation does not charge him with notice of all its affairs, such as the extent of its assets and liabilities, so as to enable the buyer to base a charge of fraud on the seller's state- ment of the assets and liabilities of the corporation, where the statement was made in good faith and was taken from its books and furnished him by its bookkeeper." On the other hand, where a seller of stock represents the statement of assets and liabilities of the corporation to be a correct statement from its books, and the representation is true in point of fact, this will not relieve him from a charge of fraud if it appears that all of the liabilities of the corporation were not entered on the books and that the seller knew they were not.^" § 202. Qualification of General Rule as to Scienter. — The gen- eral rule requiring knowledge of the falsity of the representation does not permit one to make statements recklessly or without some foundation for belief in their truth. Before one positively affirms the existence of a fact, it has been said that he must make reason- able inquiry and must have some apparently good ground for his affirmation.*^ And it is generally recognized that if a party making a representation of fact asserts its existence as within his personal knowledge, as distinguished from belief or opinion, and he had no knowledge whether the statement was false or true, the fact that he did not know that it was untrue does not relieve him from a charge of fraud.*^ "A party cannot represent a fact as 78. Wakeman v. Dalley, (1872) & C. 524, 48 How. Pr. 193; Daly v. 51 N. Y. 27, affirming 44 Barb. 498. Wise, (1892) 132 N. Y. 306, 44 State 79. Worthington V.Herrmann, (Sup. Rep. 422, 30 N. E. 837; Hadcock v. 1903) 89 App. Div. 627, 88 N. Y. S. Osmer, (1897) 153 N. Y. 604, 47 N. 76, affirmed 180 N. Y. 559 mem., 73 E. 923, affirming 4 App. Div. 435, 38 N. E. 1134. See also Kountze v. N. Y. S. 618; Kramer v. Bjerrum, Kennedy, (Sup. 1893) 72 Hun 311, (Sup. 1897) 19 App. Div. 332, 46 55 State Rep. 353, 25 N. Y. S. 682, N. Y. S. 496; Frank v. Bradley, etc., affirmed 147 N. Y. 124, 69 State Rep. Co., (Sup. 1899) 42 App. Div. 178, 388, 2 N. Y. Annot. Cas. 327, 41 N. B. 58 N. Y. S. 1032; Schoeneman v. 414 Chamberlin, (Sup. 1900) 55 App. 80. Foote v. Leary, (Sup. 1905) Div. 351, 67 N. Y. S. 284; Taylor v. 103 App. Div. 547, 93 N. Y. S. 169. Commercial Bank, (Sup. 1902) 68 81. Hammond v. Pennock, (1874) App. Div. 458, 73 N. Y. S. 924, re- 61 N. Y. 145, affirming 5 Lans. 358. versed on other grounds 174 N. Y. 82. Bennett v. Judson, (1860) 21 181, 66 N. E. 726; Arnold v. Rich- N. Y. 238; Elwell v. Chamberlin, ardson, (Sup. 1902) 74 App. Div. (1864) 31 N. Y. 611; Indianapolis, 581, 77 N. Y. S. 763; Prahan y. etc R Co. v. Tyng, (1875) 63 N. Y. Tousey, (Sup. 1904) 93 App. Div. 653^ affirming 2 Hun 311, 4 Thomp. 507, 87 N. Y. S. 845; Lambert v. 278 NEW YORK LAW OF CONTRACTS [§ 202 being of his own knowledge and escape the consequence of such a representation by claiming subsequently that he did not know anj-thing upon the subject."*^ And it has been said that " if a party makes a material representation without knowing whether it is true or false and it turns out to be false, the action lies for the fraudulent misrepresentation. ' ' ** Also that ' ' one who falsely asserts a material fact, susceptible of accurate knowledge, to be true of his own knowledge, and thereby induces another to act upon the fact represented, to his prejudice, commits a fraud which will sustain an action for deceit. " *^ A fortiori this is true if the person making the representation had knowledge of facts which in the exercise of ordinary prudence should have put him on inquiry as to the truth of his representation and he failed to make the inquiry.*® It has also been held that if the representation is affirmative in character, positive and unequivocal, without condi- tion or qualification, as distinguished from information and belief or resting in opinion, it must be regarded as designed to convey actual knowledge of its truth.'^ A distinction has sometimes been Elmendorf, (Sup. 1908) 124 App. Div. 758, 109 N. Y. S. 574; Churchill V. St. George Developmei>t Co., (Sup. 1916) 174 App. Div. 1, 160 N. Y. S. 357; Weisheit v. Pabst Brewing Co., (Sup. 1917) 181 App. Div. 275, 168 N. Y. S. 340; Sharp v. New York, (Sup. 1863) 40 Barb. 256, 25 How. Pr. 389; Bishop v. Davis, (Sup. 1876) 9 Hun 342; Meyer v. Amidon, (Sup. 1881) 23 Hun 553; Meyers v. Rosenback, (City Ct. G. T. 1893) 5 Misc. 337, 25 N. Y. S. 521, 55 State Rep. 498; Del Piano v. Caponigri, (Sup. App. T. 1897) 20 Misc. 541, 46 N. Y. S. 452, affirming 19 Misc. 708 mem., 43 N. Y. S. 1153; Ruben V. Lewis, (Sup. App. T. 1897) 20/ Misc. 583, 46 N. Y. S. 426; Ryder j V. Wall, (Sup. Sp. T. 1899) 29 Misc., 377, 60 N. Y. S. 535, reversed on other grounds 47 App. Div. 182, 62 N. Y. S. 343; L. D. Garrett Co. v. Clark, (Sup. Sp. T. 1904) 42 Misc. 610, 87 N. Y. S. 579, reversed on other grounds 102 App. Div. 611, 92 N. Y. S. 1132; Bloomquistv. Farson, (Sup. Eq. T. 1915) 88 Misc. 615, 151 N. Y. S. 356, affirmed as to this and modified on other grounds 170 App. Div. 64, 156 N. Y. S. 47; Trumble v. Peck, (Sup. G. T. 1891) 35 State Rep. 529, 13 N. Y. S. 130; Rabino- witz v. Cohen, (Com. PI. G. T. 1892) 44 State Rep. 123, 17 N. Y. S. 502; Soilson V. Nemeth, (Sup. App. T. 1920) 184 N. Y. S. 627; Stewart v. Potter, (Com. PI. G. T. 1868) 37 How. Pr. 68; Du Flon v. Powers, (City Ct. Sp. T. 1873) 14 Abb. Pr. N. S. 391. But see Barrett v. West- ern, (Sup. 1870) 66 Barb. 205. 83. Kramer v. Bjerrum, (Sup. 1897) 19 App. Div. 332, 333, 46 N. Y. S. 496, per Van Brunt, P. J. 84. Craig v. Ward, (Sup. 1862) 36 Barb. 377, 385, per Johnson, J. , 85. Kountze v. Kennedy, (Sup. 1895) 147 N. Y. 124, 130, 2 N. Y. Annot. Cas. 327, 69 State Rep. 388, 41 N. E. 414, per Andrews, C. J. 86. Craig v. Ward, (1867) 3 Keyes 387, 1 Abb. App. Dec. 454, 3 Abb. Pr. N. S. 235, 2 Trans. App. 281, affirm- ing 36 Barb. 377; Morehouse v. Yeager, (Super. 1876) 41 Super. Ct. 135, affirmed 71 N. Y. 594. 87. Bishop v. Davis, (Sup. 1876) 9 Hun 342. § 202] FRAUD 279 made between cases where the relief sought is in an action for damages and those where it is sought to rescind or to defend against the enforcement of an existing contract, and in the latter cases it has been held that innocent misrepresentations may warrant relief.*^ And this has also been held of false representations made in good faith on information derived from an agent or third person.** Cases of this character are frequently treated as involv- ing a mutual mistake, and relief is granted in equity on this ground ; '" still it is generally recognized that in such cases there is more than mistake. " This doctrine," says Commissioner Dwight, " is substantially grounded in fraud, since the misrep- resentation operates as a surprise and imposition upon the opposite 88. Hammond v. Pennock, (1874) 61 N. Y. 145; Kountze v. Kennedy, (1895) 147 N. Y. 124, 129, 2 N. Y. Annot. Cas. 327, 69 State Rep. 388, 41 N. E. 414; Carr v. National Bank, etc., Co., (1901) 167 N. Y. 375, 60 N. E. 649; Squires v. Thompson, (Sup. 1902) 73 App. Div. 552, 556, 76 N. Y. S. 734, 11 N. Y. Annot. Cas. 160, affirmed 172 N. Y. 652 mem., 65 N. E. 1122; Dayton v. American Steel Barge Co., (Sup. 1902) 76 App. Div. 454, 462, 79 N. Y. S. 1130, affirming 36 Misc. 223, 73 N. Y. S. 316; Lyon v. James, (Sup. 1904) 97 App. Div. 385, 90 N. Y. S. 28, af- firmed 181 N. Y. 512, 73 N. E. 1126; Canadian Agency v. Assets Realiza- tion Co., (Sup. 1914) 165 App. Div. 96, 115 N. Y. S. 758; Bloomquist v. Farson, (Sup. Eq. T. 1915) 88 Misc. 615, 151 N. Y. S. 356, affirmed as to this but modified on other grounds 170 App. Div. 64, 156 N. Y. S. 47; Buffalo Rubber Mfg. Co. v. Batavia Rubber Co., (Sup. Eq. T. 1915) 90 Misc. 418, 153 N. Y. S. 779; Farjeon V. Indian, Illuminating Oil Co., (Sup. Sp. T. 1909) 120 N. Y. S. 298, re- versed on other grounds 146 App. Div. 23, 130 N. Y. S. 532. See also Cramsey V. Sterling, (Sup. 1906) 111 App. Div. 568, 97 N. Y. S. 1082, affirmed 188 N. Y. 602 mem., 81 N. E. 1162. In Bloomquist v. Farson, ( Sup. Bq. T. 1915) 88 Misc. 615, 621, 151 N. Y. S. 356, where a suit in equity was brought by a purchaser of bonds to rescind for false representation of the seller, Wheeler, J., said : " If we may assume that the defendants in this case were innocent of any fraudulent intent, and acted in good faith in negotiating the bonds sold, relying on the truth of the represen- tations made, nevertheless, after their falsity became known, it would be a species of fraud on their part to retain the fruits of the transac- tions. To permit such transactions to stand would, in our opinion, be a denial of plain ordinary justice. If these views of the law are not al- ready fully established by the deci- sions of the courts, it is quite time they should be. . . . In the last analysis, the right of recovery in such a case rests on the fundamental proposition that where one of two innocent parties must suffer he must bear the loss who was instrumental in causing the damage. Assuming the defendants to be free from any intentional wrong in selling the bonds upon the representations made, nevertheless, their representations caused the sales to be made, and they must be held liable for the consequences." 89. Bloomquist v. Farson, (Sup. Iftl5) 88 Misc. 615, 151 N. Y. S. 356, affirmed as to this but modified on other grounds 170 App. Div. 64, 156 N. Y. S. 47. 90. See supra, section 71 et seq. 280 NEW YORK LAW OF CONTRACTS [§ 203 party to the contract. It is inequitable and unconscientious for a party to insist on holding the benefit of a contract which he has obtained through misrepresentations, however innocently made. ' ' '^ § 203. Pleading and Proving Scienter; Instructions. — As scienter is essential it must be alleged in the pleading,'^ and an allegation that a party made certain ' ' false ' ' representations does not sufficiently allege scienter.^' An allegation, however, that the 91. Hammond v. Pennock, (1874) 61 N. Y. 145, 152. In Canadian Agency v. Assets Realization Co., (Sup. 1914) 165 App. Div. 96, 150 N. Y. S. 758, where a charge of fraud for the purpose of rescinding a purchase of stock was based on misrepresentation as' to the business and assets of the corpora- tion, Cowling, J., said: "While the court at special term deemed this a case of mutual mistake (and it is such from one point of view, since both parties were mistaken as to ma- terial facts affecting the property sold ) , still it is something more than that, for tlie defendants, desirous of including the sale of the property which they owned, voluntarily made representations concerning it for the purpose of inducing others to pur- chase, intending and knowing that prospective purchasers would rely upon such representations as an in- ducement for their acquisition of the defendant's property." 92. L. D. Garret Co. v. Astor, (Sup. 1902) 67 App. Div. 595, 73 N. Y. S. 966; Van Pub. Co. v. West- inghouse, (Sup. 1902) 72 App. Div. 121, 76 N. Y. S. 340; Walsh v. Hyatt, (Sup. 1902) 74 App. Div. 20, 77 N. Y. S. 20, affirmed 176 N. Y. 550 mem., 68 N. E. 1125; Inderlied v. Honey- well, (Sup. 1903) 88 App. Div. 144, 84 N. Y. S. 333; Kushes v. Ginsberg, (Sup. 1904) 99 App. Div. 417, 91 N". Y. S. 216, affirmed 188 N. Y. 630 mem., 81 N. E. 1168; Hodgens v. Jennings, (Sup. 1912) 148 App. Div 879, 133 N. Y. S. 584; Stolitzky v. Linscheid, (Sup. 1912) 150 App. Div. 253, 134 N. Y. S. 805; Thomas V. Snyder, (Sup. 1894) 77 Hun 365, 60 State Rep. 415, 28 N. Y. S. 877; Brown v. Morrill, (Sup. App. T. 1907) 55 Misc. 224, 105 N. Y. S. 191; Fox V. Trigger, (Sup. App. T. 1910) 126 N. Y. S. 78; Oliver Typewriter Co. V. Eastman Pub. Co., (Sup. App. T. 1918) 169 N. Y. S. 1029. In L. D. Garrett Co. v. Astor, (Sup. 1902) 67 App. Div. 595, 73 N. Y. S. 966, a complaint alleging that the representations " were made to the plaintiff, not as expressions of be- lief or opinion, but as true to the knowledge of the parties making them on behalf of the defendant, and with the intent that the plaintiff should act upon them; that the plain- tiff relied on the same and would not have purchased the said shares' if the true assets and liabilities of the said insurance company had been known to it; that by reason of the falsity of such statements, the said contract for the purchase of the said shares by this plaintiff from the de- fendant is fraudulent and void, and the plaintiff is entitled to recover the consideration paid therefor," was held insufficient for failure to allege knowledge of the falsity of the rep- resentations. "The statement," says Hatch, J., " is that he made the rep- resentation as true to his knowledge and with the intent that the plaintiff should act upon it, and that the plaintiff relied thereon, but there is no statement of scienter that the defendant in making the representa- tion knew that it was false; and this averment is essential to estab- lish fraud except in those cases where the representation is made as of personal knowledge and it is false." 93. Hodgens v. Jennings, (Sup. 1912) 148 App. Div. 879, 133 N. Y. § 204] FRAUD 281 representation was " falsely and fraudulently " made sufficiently alleges the necessary scienter or knowledge of its falsity.** The required scienter must be proved by the party alleging fraud.*'^ It may, of course, be proved by circumstantial evidence.*" And for the purpose of proving knowledge on the part of a vendor of defects in his title, evidence that he had taken from one having the better title an option to purchase, which fact he concealed, is admissible.*^ Ordinarily the court should, at the request of the party charged with fraud, give an instruction embodying the necessity of scienter ;*' still an instruction that the defendant must have made the representation with an intent to deceive and defraud has been held to embody with sufficient certainty the required scienter, as it would be impossible for a jury to find that the false representation was made by the party with such intent, without coming also to the conclusion that he knew or believed the repre- sentation to be false.** Reliance on Representation § 204. In General. — In order that a false representation may be made the basis of a charge of fraud, it is essential that the party complaining should have relied on the representation and in eon- sequence of such reliance have been misled thereby.^ In a legal S. 584; Coyle v. Nies, (Sup. G. T. 9G. Redfern v. Cornell, (Sup. 1896) 1887) 6 State Rep. 194, 25 Wkly. 6 App. Div. 436, 39 N. Y. S. 656; Dig. 556, affirmed 120 N. Y. 621 Stern v. Kareski, (Com. PI. G. T. mem., 23 N. E. 1152. See also 1895) 12 Misc. 144, 66 State Rep. Thomas v. Snyder, (Sup. 1894) 77 665, 32 N. Y. S. 1128; Soilson v. Hun 365, 60 State Rep. 415, 28 N. Nemeth, (Sup. App. T. 1920) 184 N. Y. S. 877. Y. S. 627; Moorehead v. Holden, '94! Thomas v. Beebe, (1862) 25 (City Ct. 1884) 7 Civ. Pro. 188. N. Y. 244; Dudley v. Scranton, 97. Continental Coal, etc., Co. v. (1874) 57 N. Y. 424; Carr v. San- Kilpatrick, (Sup. 1916) 172 App. ger, (Sup. 1910) 138 App. Div. 32, Div. 541, 158 N. Y. S. 1056. 122 N. Y. S. 593; De Silver v. Hoi- 98. Stitt v. Little, (1875) 63 N. den, (Super. Ct. 1884) 50 Super. Ct. Y. 427. 236, 6 Civ. Pro. 121. See also Bay- 99. Armstrong v. Tuffts, (Sup. ard V. Malcolm, (Ct. Err. 1807) 2 1849) 6 Barb. 432. Johns 550, reversing 1 Johns. 453. 1. Bronson v. Wiman, (1853) 8 95. Wakeman v. Dalley, (1872) 51 N. Y. 182, affirming 10 Barb. 406, 1 N Y 27 affirming 44 Barb. 498; Seld. Notes 85; Oberlander v. Spiess, Reno V. Bull, (1919) 226 N. Y. 546, (1871) 45 N. Y. 175; Taylor v. 124 N E. 144, reversing 179 App. Guest, (1874) 58 N. Y. 262, reversing Div 891 mem., 165 N. Y. S. 1109; 45 How. Pr. 276; Brackett v. Gris- Moore v. Noble, (Sup. 1867) 53 Barb. wold, (1889) 112 N. Y. 454, 21 State 425- Fox V. Trigger, (Sup. App. T. Rep. 791, 20 N. E. 376, reversing 14 I&16) 126 N. Y. S. 78. State Rep. 449; Hotchkin v. Malone 282 NEW YORK LAW OF CONTRACTS [§ 204 sense a party is not damaged by a false representation that does not influence him ; ^ and if he knows that the representation is untrue or if he does not believe that it is true, a charge of fraud cannot be based thereon,^ as where a purchaser of land knows that the description of the land sold does not include land represented to be within the description.^ This also requires that the com- plainant not only believe the fact to be as represented, but that such belief be founded on the representation.^ If he relies on Third Nat. Bank, (1891) 127 N. Y. 329, 38 State Rep. 754, 27 N. E. 1050, affirming 33 State Rep. 195, 11 N. Y. S. 220; Reno v. Bull, (1919) 226 N. Y. 546, 124 N. E. 144, re- versing 179 App. Div. 891 mem., 165 N. Y. S. 1109; Comstock v. Ames, (App. 1867) 3 Keyea 357, 1 Abb. App. Dec. 411; De St. Laurent v. Slater, (Sup. 1897) 23 App. Div. 70, 48 N. Y. S. 1103; Robinson, v. Vaughan, (Sup. 1900) 49 App. Div. 170, 63 N. Y. S. 197; Powell v. F. C. Linde Co., (Sup. 1901) 58 App. Div. 261, 68 N. Y. S. 1070, affirmed 171 N. Y. 675 mem., 64 N. E. 1125; Kingsland v. Haines, (Sup. 1901) 62 App. Div. 146, 70 N. Y. S. 873; Gros- jean v. Galloway, (Sup. 1903) 82 App. Div. 380, 81 N. Y. S. 871; Eppley V. Kennedy, (Sup. 1909) 131 App. Div. 1, 115 N. Y. S. 360, re- versed on other grounds 198 N. Y. 348, 91 N. E. 797; Kreshover v. Ber- ger, (Sup. 1909) 135 App. Div. 27, 119 N. Y. S. 737, affirming as to this but reversing on other grounds 62 Misc. 613, 116 N. Y. S. 20; Thayer V. Schley, (Sup. 1910) 137 App. Div. 166, 121 N. Y. S. 1064; Hurst v. Lee, (Sup. 1911) 143 App. Div. 614, 127 N. Y. S. 104; Saitta v. New York, etc.. Mail Steamship Co., (Sup. 1911) 146 App. Div. 105, 130 N. Y. S. 375; Becker v. Colonial L. Ins. Co., (Sup. 1912) 153 App. Div. 382, 138 N. Y. S. 491; Gilsey v. Lancaster, (Sup. 1914) 164 App. Div. 663, 150 N. Y. S. 178; Canadian Agency v. Assets Re- alization Co., (Sup. 1914) 165 App. Div. 96, 150 N. Y. S. 769 ; Mecum v. Mooyer, (Sup. 1915) 166 App. Div. 793, 801, 152 N. Y. S. 385; Saxton V. Dodge, (Sup. 1870) 57 Barb. 84; Howell V. Biddlecom, (Sup. 1862) 62 Barb. 131; Anonymous, (Sup. Sp. T. 1896) 19 Misc. 197, 43 N. Y. S. 63; Stevens v. Reed, (Sup. Eq. T. 1899) 60 N. Y. S. 726; Leavitt v. Rosen- thal, (Sup. App. T. 1903) 84 N. Y. S. 530; Sadallah v. Mandour, (Sup. App. T. 1905) 94 N. Y. S. 562; Caton Business College Co. v. Hertel, (Super. Ct. G. T. 1891) 35 State Rep. 671, 12 N. Y. S. 721; Ansbacher V. Pfeiffer, (Sup. G. T. 1891) 36 State Rep. 634, 13 N. Y. S. 418, 59 Hun 624 mem.; Gouverneur v. El- mendorf, (Chan. Ct. 1821) 5 Johns. Ch. 79; Elwell v. Chamberlain, (Super. Ct. 1859) 17 Super. Ct. 320, affirmed 31 N. Y. 611; Furman v. Titus, (Super. Ct. 1876) 40 Super. Ct. 284; Hilsen v. Libby, (Super. Ct. 1878) 44 Super. Ct. 12; Tockerson v. Chapin, (Super. Ct. 1885) 52 Super. Ct. 16; Catlin v. Victor, (Super. Ct. 1885) 52 Super. Ct. 169; Winkler v. Moritz, (Super. Sp. T. 1880) 2 Month. L. Bui. 26. 2. Taylor v. Guest, (1874) 58N. Y. 262; Caton Business College Co. v. Hertel, (Super. Ct. G. T. 1891) 35 State Rep. 671, 672, 12 N. Y. S. 721. 3. Stern V. Stern, (Sup. 1907) 122 App. Div. 821, 107 N. Y. S. 900; Edick V. Crim, (Sup. 1851) 10 Barb. 445; Isham v. Davison, (Sup. 1874) 1 Hun 114, 3 Thomp. & C. 745; Scarsdale Pub. Co. v. Carter, (Sup. App. T. 1909) 63 Misc. 271, 275, 116 N. Y. S. 731. 4. Isham v. Davison, (Sup. 1874) 1 Hun 114, 3 Thomp. & C. 745. 5. Elwell v. Chamberlain, (Super. Ct. 1859) 17 Super. Ct. 320, affirmed 31 N. Y. 611. § 204] FRAUD 283 his own investigation solely and not on the representation, he can- not base a charge of fraud on the representation for the purpose of avoiding a contract which he makes in reliance on his investiga- tion; this, however, would not prevent him from basing a charge of fraud on the representation for the purpose of recovering dam- ages due to the expense incurred in making the investigation, the result of which was to disclose the falsity of the representation, where he was induced to make the investigation by means of the false representation ; to this extent he relies on the representation and is thereby damaged to the extent of the expenses so incurred.* If a party, after entering into a contract wholly executory, dis- covers the fraud and thereafter reaffirms the contract, a charge of fraud cannot be based on the prior representation, as he cannot be considered as having relied on the representation when he reaffirmed or renewed the contract.'' Where a charge of fraud is sought to be based on representations made to the public, it must be shown that the complainant had knowledge of such rep- resentations at the time he acted, otherwise he could not have relied thereon.* If the party to whom the representation is made seeks information for himself as to the truth of the fact and finally acts on a belief founded on the information derived from other persons or resting on circumstances not connected with the representation, he is not misled by the representation, as he did not act in reliance thereon and therefore cannot avoid his con- tract on account of the representation.* A seller, therefore, cannot avoid a sale on credit on account of false representations .by the buyer as to his financial condition, without showing that in giving the credit and parting with the property he relied on and was influenced by the representations." And where goods have been purchased on credit, the fact that the buyer, sometime after the purchase and after the delivery and passage of title to him and before the credit had expired, makes false statements to the seller as to his financial condition is not a fraud for which the sale may 6. Williams Patent Crusher, etc., 1920) 193 App. Div. 727, 184 N. Y. S. Co. V. Lyth Tile Co., (Sup. Sp. T. 508. 1914) 150 N. Y. S. 6. 9- Elwell v. Chamberlain, (Super. 7. Urbansky v. Shirmer, (Sup. Ct. 1859) 17 Super. Ct. 320, affirmed 1906) 111 App. Div. 50, 97 N. Y. S. 31 N. Y. 611. 577 10. Hotehkin v. Malone Third Nat. s! Brackett v. Griswold, (1889) Bank, (1891) 127 N. Y. 329, 38 State 112 N. Y. 454, 468, 21 State Rep. Rep. 754, 27 N. B. 1050, affirming 791, 20 N. E. 376, reversing 14 State 33 State Rep. 195. Rep. 449; Ward v. Richmond, (Sup. 284 NEW YORK LAW OF CONTRACTS t§ 205 be avoided, as the false statements were not the inducing cause of the sale. The only object or eifect which such representations could have would be to quiet the apprehensions of the seller, who had no right to reclaim the goods and whose debt was not due and could not therefore be enf orced.^^ In case of the sale of a franchise, if the purchaser relies on the opinion of his attorney, after an ■investigation of all the facts, as to its validity, he cannot base a charge of fraud on the seller's misrepresentations as to its validity.i^ Somewhat of a departure from the rule that a seller must have relied on the representations of the buyer seems to have been made in a case the circumstances of which were very peculiar. In this case, for the purpose of the decision, it was assumed that the buyer and another had entered into a conspiracy for the purpose of procuring goods and palming off therefor the notes of an insol- vent third person. In negotiating the purchase the buyer made fraudulent representations as to the solvency of the maker of the notes and the circumstances under which they came into his hands. The seller before agreeing to the sale discovered the fraud, and for the purpose of entrapping the buyer into what he thought was a crime agreed to make the sale and received the notes, but afterwards refused to deliver the lumber. The notes were turned over by him to the public authorities as a basis for a criminal prosecution, which was in fact instituted and the buyer acquitted. Thereafter the buyer sued for damages for the failure of the seller to make delivery. It was held that the seller could defend, not on the ground of rescission for the buy- er's fraud but on the ground that in fact no contract of sale was made by him under the circumstances.^* § 205. Representation as Sole Inducement. — The rule as to the necessity for reliance on the representation does not require that the party complaining should have acted solely in reliance on the representation made by the party charged with the fraud; it is sufficient if the representation was in fact a material 11. Hall V. Naylor, (1859) 18 N. Y. diet for the jury. On appeal the re- 588. versal was on the ground that the 12. Eppley V.Kennedy, (Sup. 1909) seller was entitled to rescind for the 131 App. Div. 1, 115 N. Y. S. 360, fraud of the buyer, and the offer on reversed on other grounds 198 N. Y. the trial to return the worthless 348, 91 N. E. 797. notes was sufficient. The decision of 13. Royce v. Watrous, (1878) 73 the court of appeals, however, was as N. Y. 597, affirming 7 Daly 87. The stated above that no contract of sale trial court in this case directed a ver- was made. § 205] FRAUD 285 inducement or had a material effect in accomplishing the decep- tion." As said by Vann, J. : " Even if reliance is placed upon the mere promises of the defendant, as well as upon his false rep- resentations, still a cause of action for fraud may be maintained, provided the representations had a material effect in accomplishing the deception. ... It is not necessary that they should be the sole inducing cause. The cases cited by the defendant to the effect that fraud cannot be founded solely upon a promise not performed, even if the promisor never intended to fulfil, are therefore not applicable. " ^^ So a charge of fraud may be based on a buyer 's misrepresentation as to his financial condition, though the seller, in giving the credit, was influenced also by the report of a mer- cantile agency.^* A charge of fraud may likewise be based on a misrepresentation as to the financial condition of a third person, such as a buyer, though in making the sale the seller relied also on the oral, and therefore unenforceable, promise of the party mak- ing the representation to indorse the buyer's note for the price." 14. Morgan v. Skiddy, (1875) 62 N. Y. 319, affirming 36 Super. Ct. 152; Strong v. Strong, (1886) 102 N. Y. 69, 5 N. E. 799; Kley v. Healy, (1891) 127 N. Y. 555, 40 State Rep. 215, 28 N. E. 593; Oclis v. Woods, (1917) 221 N. Y. 335, 338, 117 N. E. 305; Delano v. Rice, (Sup. 1897) 23 App. Div. 327, 48 N. Y. S. 295; Daiker v. Strelinger, (Sup. 1898) 28 App. Div. 220, 50 N. Y. S. 1074; Deyo V. Hudson, (Sup. 1916) 174 App. Div. 746, 753, 161 N. Y. S. 494; Barrett v. Western, (Sup. 1870) 66 Barb. 205; Hersey v. Benedict, (Sup. 1878) 15 Hun 282; Rose v. Saunders, (Sup. 1886) 38 Hun 575, 577; Hahlo V. Grant, (Sup. G. T. 1890) 31 State Rep. 919, 10 N. Y. S. 188, affirmed 132 N. Y. 593 mem., 30 N. E. 1151; Powell V. Fletcher, (Com. PI. G. T. 1892) 45 State Rep. 294, 18 N. Y. S. 451; Shaw V. Stine, (Super. Ct. 1861) 21 Super. Ct. 157. 15. Kley v. Healy, (1891) 127 N. Y. 555, 40 State Rep. 215, 28 N. E. 593. IG. Hahlo V. Grant, (Sup. G. T. 1890) 31 State Rep. 919, 10 N. Y. S. 188, affirmed 132 N. Y. 593 mem., 30 N. E. 1151. 17. Shaw V. Stine, (Super. Ct. 1861) 21 Super. Ct. 157. In this case White, J., said : " In an action like the present, in order to entitle the plaintiff to recover, it is not necessary that the fraudulent repre- sentations complained of should be the sole consideration or inducement moving the plaintiff to make the sale which deprived him of his property. If the representations contributed to the formation of the conclusion in his mind to sell, that is enough, al- though there may have been other inducements operating at the same time, and aiding in leading him to that determination. ... A true test in such cases may be found in the inquiry whether the plaintiff would have sold the goods if the false rep- resentations had not been made. If he would, then the false representa- tions did not contribute to the sale, for he would have made the sale without them. But if he would not have sold them without the represen- tations, then they contributed to the sale; and the party making them is responsible for the damage which the plaintiff suffered, notwithstanding that other equally powerful motives 286 NEW YORK LAW OF CONTRACTS t§ 206 It is also held, where fraudulent misrepresentations were made as to a secret process of manufacture, that the fact that the party to whom such representations were made required tests to prove that the representations were true, and in making such tests fraudulent practices were resorted to to make the result bear out the represen- tations, does not prevent a charge of fraud from being based on the representations, as the making of the fraudulent test was both a continuation and a repetition of the original fraud.^* If from the nature of the transaction, the relation of the parties, and the cir- cumstances surrounding the transaction, it may fairly be inferred that the complainant relied on the representations in entering into the transaction and that they were the inducing cause, the mere fact that he has not testified to the conclusion that he relied on the representations is of little moment.^* § 206. Negligence in Relying on Representation. — It has fre- quently been asserted that if the party complaining was guilty of negligence or carelessness in relying on the representation, or did not use due diligence in determining whether it was true, he cannot base a charge of fraud thereon.^* "A person of ordinary intelligence, in the full possession of his faculties, must exercise some care to protect himself in his business transactions, and not blindly rely upon what another tells him, especially when he has all the means within his reach to know the exact truth. A party is bound to exercise ordinary prudence and caution to guard against imposition and fraud, otherwise the courts will not inter- fere." ^i Again, it is said by Dykman, J.: " It has come to be a may have influenced his mind at the v. Daiker, (Sup. Sp. T. 1900) 33 same time in, the same direction, and Misc. 70, 68 S. Y. S. 348, afiSrmed without the existence of which he 63 App. Div. 614, 71 N. Y. S. 247j would not have came to the conclu- Sinclair v. Higgins, (Sup. Tr. T. sion to sell." 1905) 46 Misc. 136, 93 N. Y. S. 195, 18. Pelly V. Naylor, (1893,) 139 reversed on other grounds 111 App. N. y. 598, 55 State Rep. 453, 35 Div. 206, 97 N. Y. S. 415; Toledo N. E. 317, reversing 66 Hun 626 Computing Scale Co. v. Borick, (Sup. mem., 49 State Rep. 791, 21 N. Y. S. App. T. 1909) 64 Misc. 63, 117 N. Y. 25- S. 914; Caton Business. College Co. 19. Hatch V. Spooner, (Sup. Cfc. v. Hertel, (Super. Ct. G. T. 1891) 35 G. T. 1891) 37 State Rep. 151, 13 State Rep. 671, 12 N. Y. S. 721; N. Y. S. 642. Schermerhorn v. Gouge, (Sup. Sp. 20. Starr v. Bennett, (Sup. 1843) T. 1861) 13 Abb. Pr. 315. 5 Hill 303; White v. Seaver, (Sup. 21. Caton Business College Co. v. 1857) 25 Barb. 235; De Milt v. Hill, Hertel, (Super. Ct. G. T. 1891) 35 (Sup. 1895) 89 Hun 56, 64 State State Rep. 671, 672, 12 N. Y. S. 721, Rep. 4, 34 N. Y. S. 1060; Williams per Titus, J. § 206] FRAUD 2«7 legal maxim that knowledge will be imputed to him who is able to inquire into a known thing. A court of equity will refuse its aid to those who, by their own negligence, have incurred the loss or suffered inconvenience. If a party does not avail himself of the knowledge within his reach, he will never be entitled to the aid of equity. "^^ And where a father gave his note for the tuition of his son in a business college on the representation that the son had consented to go to the school, and it appeared that he was living at home at the time and the father made no inquiry of him in regard to the matter, it was held that the father could not avoid liability on his contract because the representation was untrue.^' It has also been held that if a purchaser is notified by a third person of the latter 's ownership of the land, he cannot base a charge of fraud on his vendor's representation that he has a good title.^* Again, where the representation of the vendor was to the effect that he held a written contract for the purchase of the land from the owner at that time, it was held that the failure of the pur- chaser to require the production of the contract or to inquire of the owner of the land, who lived in the neighborhood, as to the vendor's rights, precluded the purchaser from basing a charge of fraud on such representation.^^ And where a person assigns or surrenders his interest under a contract which he has signed per- sonally or through his agent, it has been held that he cannot base a charge of fraud on the other party's misrepresentation as to his rights under the contract, as in such a case he is charged with notice of the contents of the contract and has no right to rely on the representation.^^ According to the better view, however, con- tributory negligence is not a defense to an action for fraud and deceit, and a party is not precluded from recovering property which he has been induced to part with by fraud because he may have been negligent in reposing confidence in the wrong- doer.^^ And one party to a transaction is not required to verify 22. De Milt v. Hill, (Sup. 1895) 25. White v. Seaver, (Sup. 1857) 89 Hun 56, 64 State Rep. 4, 54 N. Y. 25 Barb. 235. S_ 1060. ^' Leszynsky v. Ross, (Sup. Sp. 23. Caton Business College Co. v. T. 1901) 35 Misc. 652, 72 N. Y. S. Hertel, (Super. G. T. 1891) 35 State 352. Rep. 671, 12 N. Y. S. 721. 27. Albany City Sav. Inst. v. Bur- 24. Groaiean v. Galloway, (Sup. dick, (1881) 87 N. Y. 40; Smith v. 1903) 82 App. Div. 380, 81 N. Y. S. Smith, (1892) 134 N. Y. 62, 45 State 871. But see Haight V. Hoyt, (1859) Rep. 591, 31 N. E. 258; Wilcox v. 19 N. Y. 464. American Telephone, etc., Co., (1903) 288 NEW YORK LAW OF CONTRACTS t§ 206 representations made by the other party and based on means of knowledge possessed by him and not equally so by the complain- ant. As said by Porter, J.: " Every contracting party has an absolute right to rely on the express statement of an existing fact, the truth of which is known to the opposite party and unknown to him, as the basis of a mutual engagement; and he is under no obligation to investigate and verify statements, to the truth of which the other party to the contract, with full means of knowledge, has deliberately pledged his faith. "^^ And as is said by Earl, J. : " Where one sues another for negligence, his own negligence contributing to the injury will constitute a defense to the action; but where one sues another for a positive, wilful wrong or fraud, negligence by which the party injured exposed himself to the wrong or fraud will not bar relief. If the rule were otherwise, the unwary and confiding, who need the protection of the law the most, would be left a prey to the fraudulent and artful practices of evildoers."^' Thus where the charge of fraud is based on ^ misrepresentation as to the incumbrances on land sold, the fact that the purchaser could have informed himself in respect thereto by an examination of the records is no defense ; ^" nor is it a defense that the purchaser at a public sale was notified of the claim of a third person under an unrecorded mortgage, where he relied on the vendor's absolute denial of its existence and his assertion that the claim was interposed merely to injure the sale.*' As a general rule, in case of a sale or lease of real estate, the pur- chaser or lessee may rely, without investigation, on the vendor's or lessor's representation as to the rents paid by the occupying tenants.'^ And where a vendor made a false representation as to the actual rents paid by present tenants, the fact that he refused 176 N. Y. 115, 68 N. E. 153; Delano 30. Blumenfeld v. Stine, (Sup. Sp. V. Riee, (Sup. 1897) 23 App. Div. T. 1904) 42 Misc. 411, 87 N. Y. S. 327, 48 N. Y. S. 295; Ettlinger v. 81, affirmed 96 App. Div. 160, 89 Weil, (Sup. 1904) 94, App. Div. 291, N. Y. S. 85. 294, 87 N. Y. S. 1049; Hudson Iron 31. Haight v. Hayt, (1859) 19 Co. V. Mershom, (Sup. 1912) 149 N. Y. 464. App. Div. 556, 133 N. Y. S. 998; 3a. Ettlinger v. Weil, (Sup. 1904) Clark V. Rankin, (Sup. 1866) 46 94 App. Div. 291, 87 N. Y. S. 1049, Barb. 570; Bullion v. Bullion, (Sup. reversed on other grounds 184 N. Y. 1893) 73 Hun 437, 56 State Rep. 24, 179, 77 N. E. 31; Del Piano v. Capo- 26 N. Y. S. 337. nigri, (Sup. App. T. 1897) 20 Misc. 28. Mead V. Bunn, (1865) 32 N. Y. 541, 46 N. Y. S. 452, affirming 19 275, 280. Misc. 708 mem., 43 N. Y. S. 1153. 29. Albany City Sav. Inst. v. Bur- dick, (1881) 87 N. Y. 40, 49. § 207] FRAUD 289 to sign a written statement that his representation was true, expressing indignation that the truth of his statement should be questioned, it was held that this did not put the purchaser on inquiry as to the truth of the representation and for this reason preclude him from basing a charge of fraud thereon.^' An officer of a corporation is not necessarily charged with notice of the affairs of the corporation so as to preclude him from basing a charge of fraud on misrepresentations as to the affairs of the corporation by one from whom he purchases its stock.'* Thus a director of a bank who purchases, as an individual, stock of the bank from the cashier, is not precluded from basing a charge of fraud on mis- representations as to the affairs and condition of the bank.'* § 207. Pleading and Proof of Reliance on -Bepresentation. — As reliance on the false representations and deception is essential to a charge of fraud, it must be alleged in the pleading.'^ It is usual to allege that the plaintiff believed the representation to be true. An express allegation to this effect is not essential if other facts are alleged which fairly import such belief ; and it has been held that an allegation that the representation was false and made with the intent to deceive, and that the plaintiff relied thereon, fairly imports his belief that it was true." Eeliance on the representations must be proved by the party alleging the fraud, and whether there was such reliance is Ordi- narily a question of fact.^ Reliance on the representations may be inferred from the circumstances attending the transaction.^' " It is incumbent," says Collin, J., " upon a plaintiff in an action for deceit through false representations to show that he was influenced by them. It does not require very strong proof to 33. Ettlinger v. Weil, (Sup. 1904) 159 N. Y. S. 787; Simmons v. Kay- 94 App. Div. 291, 87 N. Y. S. 1049, ser, (Super. Ct. 1878) 43 Super. Ct. reversed on other grounds 184 N. Y. 131; Van De Sande v. Hall, (Sup. 179, 77 N. E. 31. 1856) 13 How. Pr. 458. 34. Lefever v. Lefever, (1864) 30 37. Douglas v. McDermott, (Sup. N. Y. 27; Foote V. Leary, (Sup. 1905) 1897) 21 App. Div. 8, 47 N. Y. S. 103 App. Div. 547, 93 N. Y. S. 169. 336. 35. Lefever v. Lefever, (1864) 30 38. Ochs v. Woods, (1917) 221 N. Y. 27. N. Y. 335, 117 N. E. 305, reversing 36. Eccardt v. Eisenhauer, (Sup. 160 App. Div. 740, 146 N. Y. S. 4; 1902) 74 App. Div. 35, 77 N. Y. S. Lasbury v Scarpulla, (Sup. App. T. 18; Barber v. Morgan, (Sup. 1867) 1916) 156 N. Y. S. 744. 51 Barb. 116; King v. Murphy, 39. Taylor v. Guest, (1874) 58 (County Ct. 1914) 151 N. Y. S. 476; N. Y. 262, 266; Henn v. Douglass, Taylor v. Stern, (Sup. App. T. 1916) (Sup. 191.1) 147 App. Div. 473, 131 19 290 NEW YORK LAW OF CONTRACTS [§ 208 establish it. In most cases it may be inferred from the circum- stances attending the transaction."^" "If from the nature of the transaction, the relation of the parties,' and the circumstances surrounding the transaction," says Van Brunt, P. J., " it may fairly be presumed that the plaintiff relied upon the representa- tions in entering into the transaction, and that they were the inducing cause, the mere fact that he has or has not sworn to the conclusion that he relied upon the representations is of little moment. In fact, it is only of recent years that such questions were permitted."" The party complaining of the alleged fraud may, if he is a competent witness, testify directly as to whether he believed and relied on the representation. This is not a matter of opinion, but the statement of a fact within his knowledge.^^ Where at the suit of a manufacturer it is sought to charge his broker with fraud for misrepresentations as to the financial con- dition of the person to whom the sale is made, the fact that no reliance was placed on the broker's representations cannot be shown by proof of a usage Or custom that no reliance was placed by manufacturers on such representations but that they ascer- tained for themselves the financial condition of purchasers, as such a usage or custom would be unreasonable or absurd." Time of Making Misrepresentation § 208. In General. — A misrepresentation, as a general rule, in order to be made the basis of a charge of fraud, must have been N. Y. S. 810; Hatch v. Spooner, App. Dec. 408; Hubbell v. Meigs, (Sup. a. T. 1891) 37 State Rep. 151, (Sup. G. T. 1870) 4 Lans. 214, 228, 13 N. Y. S. 642. reversed on other grounds 50 N. Y. 40. Ochs V. Woods, (1917) 221 480; Continental Coal, etc., Co. v. N. Y. 335, 117 N. E. 305, reversing Kilpatrick, (Sup. App. Div. 1916) 160 App. Div. 740, 146 N. Y. S. 4, 172 App. Div. 541, 158 N. Y. S. 1056; on the ground that the evidence was Barrett v. Western, (Sup. 1870) 66 sufficient to carry to the jury the Barb. 205 ; Trankla v. McLean, ( Sup. question vrhether the representations App. T. 1896) 18 Misc. 221, 75 State were relied on. Rep. 796, 41 N. Y. S. 385; Strauss 41. Hatch V. Spooner, (Sup. G. T. v. Welsbach Gas Lamp Co., (Sup. 1891) 37 State Rep. 151, 153, 13 App. T. 1903) 42 Misc. 184, 85 N.Y. N. Y. S. 642. S. 367. But see Shaw v. Stine, 42. Bradner v. Strang, (1882) 89 (Super. Ct. 1861) 21 Super. Ct. 157. N. Y. 299, affirming 23 Hun 445; 43. Fuller v. Robinson, (App. King V. Fitch, (App. 1864) 1 Keyes 1881) 13 Wkly. Dig. 176, reversing 432, 2 Abb. App. Dec. 508; Thorn 10 Wkly. Dig. 487. V. Helmer, (1865) 2 Keyes 27, 4 Abb. § 20S] FRAUD 291 made at the time of or as a part of the transaction in question." Thus a representation as to a vendor's title, made many years before the sale in question, cannot be considered as a part of or as an inducement to the purchase.^" So a representation as to one's financial standing, made long prior to a sale on credit and not as the basis for future sales or in contemplation of any new credit, cannot be made the ground for a charge of fraud.^' As said by Ruger, C. J. : " While representations made by a party with a view of procuring credit with another may be held to apply to and affect subsequent credits extended by the vendor to the vendee, yet such representations, in order to have that effect, must be made in the course of the dealing and under circumstances from which it may be inferred that they were made with an intent to induce a continued credit. ' ' ^^ On the other hand, if prior repre- sentations were a part and parcel of the entire relations of the parties to each other and influenced the transaction in question, a charge of fraud may be based thereon.*^ And where a represen- tation is made for the purpose of influencing the other party in giving future credit, as where it is made as a basis for future sales on credit or loans, it may be made the basis of a charge of fraud.*' In such cases the inquiry is whether the buyer made any false statements by which the seller was deceived. The fraud may be practiced by a continuous course of ' misrepresentation during a series of transactions and still continued notwithstanding the first purchases were paid for. In fact, such payments may be a part of the scheme to gain the confidence of the seller and induce him 44. Morris v. Talcott, (1884) 9& 49. Zabriskie v. Smith, (1855) 13 N. y. 100. N. Y. 322, 332; Bradley v. Seaboard 4'5. Grosjean v. Galloway, (Sup. Nat. Bank, (1901) 167 N. Y. 427, 60 1903) 82 App. Div. 380, 81 N. Y. S. N. E. 771, affirming as to this but 871. reversing on other grounds 46 App. 46. Morris v. Talcott, (1884) 96 Div. 550, 62 N. Y. S. 51; King v. N. Y. 100, reversing 29 Hun 426; Fiteh, (App. 1864) 1 Keyes 432, 2 Macullar v. McKinley, (1-885) 99 Abb. App. Dec. 508; Coffin v. Hol- N. y. 353, 358, 2 N. E. 9; Hotchkin lister, (Sup. 1883) 31 Hun 81; Levy V. Malone Third Nat. Bank, (1891) v. Abramsohn, (Sup. App. T. 1902) 127 N. Y. 329, 38 State Rep. 754, 27 39 Misc. 781, 81 N. Y. S. 344; Gold- N. E. 1050, affirming 33 State Rep. smith v. Stern, (Sup. App. T. 1903) 195 11 N Y S 220. 84 N. Y. S. 869; Lewisiohn v. Apple, 47. Morris' V.' Talcott, (1884) 96 (Sup. G. T. 1887) 12 Civ. Pro. 274, N. Y. 100, 106. 7 State Rep. 223. See also Von 48. Universal Audit Co. v. Cam- Bruck v. Peyser, (Super. Ct. 1864) eron, (Sup. 1915) 169 App. Div. 879, 25 Super. Ct. 468, 28 How. Pr. 292. 155 N. Y. S. 1025. See also Yates v. Alden, (1863) 41 Barb. 172. 292 NEW YORK LAW OF CONTRACTS [§ 209 to make further sales and give larger credit.^" The same view has been taken where a second purchase was entered into by a buyer, in reliance on false representations made by the seller at an earlier sale, and a charge of fraud sustained on such earlier representations.^^ § 209. Representation after Transaction Completed. — ^A repre- sentation made after the transaction is completed cannot be made a basis for a charge of fraud, as it could not have been relied on, nor could it have formed any part of the consideration for the contract."^ Thus where there was an enforceable oral lease for a year, before any representations by the lessor as to the condition of the premises, a charge of fraud cannot be based on subsequent misrepresentations, though used as an inducement to the execution of a written lease for such period.^^ The fact, however, that an order for goods to be manufactured had been given and accepted prior to the time the buyer's representation as to his financial standing was made, does not prevent a charge of fraud from being based thereon, where the delivery of the goods in pursuance of the order was induced by the representation. The extension of credit was not completed and irrevocable until the delivery, and until then no title passed to the buyer. If, therefore, in delivering the goods and thus passing title to the buyer the seller acted in reliance on the representation he should be permitted to rescind.^* Where parties enter into a joint venture for the purchase of land, the fraud of one of the parties after the purchase has been made, in carrying out the original contract, does not give the other party the right to rescind the entire transaction and recover from the party guilty of the fraud what he has contributed to the joint purchase."^ 50. King V. Fitch, (App. 1864) 1 1889) 5 Silv. Sup. 172, 27 State Rep. Keyes 432, 2 Abb. App. Dec. 508. 637, 7 N. Y. S. 734, affirmed 124 51. Chisholm v. Eisenhuth, (Sup. N. Y. 644 mem., 36 State Rep. 271, 1902) 69 App. Div. 134, 74 N. Y. S. 26 N. E. 812; MeCall v. Proal, 496. (Super. Ct. 1882) 48 Super. Ct. 403, 52. Kingsland v. Haines, (Sup. 407. 1901) 62 App. Div. 146, 70 N. Y. S. 53. Bayles v. Clark, (Sup. 1906) 873; Bayles v. Clark, (Sup. 1906) 115 App. Div. 33, 100 N. Y. S. 586. 115 App. Div. 33, 100 N. Y. S. 586; 54. Bliss v. Sickles, (Sup. G. T. Duryea v. Zimmerman, (Sup. 1911) 1892) 50 State Rep. 139, 21 N. Y. S. 143 App. Div. 60, 127 N. Y. S. 664; 273, affirmed 142 N Y. 647, 59 State Mahoney v. O'Neill, (Sup. App. T. Rep. 168, 36 N. E. 1064. 1901) 36 Misc. 795, 74 N. Y. S. 917, 55. Hollister v. Simonson, (1902) reversing 36 Misc. 43, 74 N. Y. S. 170 N. Y. 357, 63 N. E. 342, affirm- 918; Hart v. Walsh, (Sup. App. T. ing as to this 36 App. Div. 63, 55 1914) 84 Misc. 421, 146 N. Y. S. N. Y. S. 372. 235; Coffin V. Hollister, (Sup. G. T. § 210] FRAUD 293 Resultant Injury § 210. In General.— As a general rule, a misrepresentation to be the basis of a charge of fraud must result in an injury to the complainant.^* And where damages do not necessarily and naturally flow from a false representation, additional facts show- ing damages must be alleged." " Pecuniary loss," says Collier, J., " to the deceived party is absolutely essential to the mainte- 56. Arthur v. Griswold, (1874) 55 N. Y. 400; Taylor v. Guest, (1874) 58 N. Y. 262, 266; Deobold v. Opper- mann, (1888) 111 N. Y. 531, 20 State Rep. 81, 19 N. E. 94; Taylor v. Com- mercial Bank, (1903) 174 N. Y. 181, 185, 66 N. E. 726; Urtz v. New York Cent., etc., R. Co., (1911) 202 N. Y. 170, 95 N. E. 711, reversing 140 App. Div. 915 mem., 124 N. Y. S. 1132; Reno V. Bull, (1919) 226 N. Y. 546, 124 N. E. 144, reversing 179 App. Div. 891 mem., 165 N. Y. S. 1109; Robinson v. Syracuse Rapid Transit R. Co., (Sup. 1905) 100 App. Div. 214, 91 N. Y. S. 909; Tregner v. Hazen, (Sup. 1907) 116 App. Div. 829, 102 N. Y. S. 139; Badger v. Pond, (Sup. 1907) 120 App. Div. 619, 105 N. Y. S. 546; Isman v. Lor- ing, (Sup. 1909) 130 App. Div. 845, 115 N. Y. S. 933;. Anderson v. Smit- ley No. 1, (Sup. 1910) 141 App. Div. 421, 126 N. Y. S. 25; Goldan v. Dela- ware, etc., R. Co., (Nos. 1, 2), (Sup. 1911) 144 App. Div. 78, 81, 128 N. Y. S. 936, 939; Mackmull v. Brandlein, (Sup. 1912) 152 App. Div. 733, 137 N. Y. S. 607; Krohnthal v. Ranger, (Sup. 1919) 188 App. Div. 594, 177 N. Y. S. 280; Taylor v. Scoville, (Sup. 1868) 54 Barb. 34; Hewlett v. Saratoga Carlsbad Spring Co., (Sup. 1895) 84 Hun 248, 65 State Rep. 843, 32 N. Y. S. 697; Brehm v. Gushal, (Sup. Sp. T. 1900) 31 Misc. 112, 64 N. Y. S. 927; Brady v. Ed- wards, (Sup. Sp. T. 1901) 35 Misc. 435, 71 N. Y. S. 972; Jamestown v. Arter, (County Ct. 1907) 55 Misc. 629, 106 N. Y. S. 1027; Aron v. De Castro, (Sup. G. T. 1891) 36 State Rep. 716, 13 N. Y. S. 372, affirmed on other grounds 131 N. Y. 648, 43 State Rep. 660, 30 N. E. 491, 4 Silv. App. 95; William A. Thomas Co. v. Hoist, (Sup. App. T. 1910) 120 N. Y. S. 747; Pappademetriou v. Boubou- lis, (Sup. Eq. T. 1910) 134 N. Y. S. 183. 57. Cohen v. Kohler, (Sup. 1913) 158 App. Div. 435, 143 N. Y. S. 497; New York Lubricating Oil Co. v. C. E. Mills Oil Co., (Sup. 1916) 173 App. Div. 628, 160 N. Y. S. 239; Mahon v. Equitable Trust Co., (Sup. 1918) 181 App. Div. 335, 168 N. Y. S. 757; Krohnthal v. Ranger, (Sup. 1919) 188 App. Div. 594, 177 N. Y. S. 280; Seaman v. Becar, (Sup. Sp. T. 1896) 15 Misc. 616, 38 N. Y. S. 69. In Cohen v. Kohler, (Sup. 1913) 158 App. Div. 435, 143 N. Y. S. 497, a charge of fraud in an action for damages was sought to be based on a purchaser's representation, made to induce a sale of stock to him, that the corporation was not a " paying proposition," and a dismissal of the complaint was sustained on the ground that there was no showing that the seller was damaged. Burr, J., saying : " Notwithstanding that the New York Pie Baking Company was a paying proposition, and not- withstanding that defendant falsely stated and represented to plaintiff that it was not, and notwithstand- ing that plaintiff believed such rep- resentation and sold her stock on ac- count thereof, if as matter of fact she received for it all that it was actually worth, no damage has re- sulted to her. It does not appear from the complaint what the stock was worth. For anything that ap- pears therein she may have received 294 NEW YORK LAW OF CONTRACTS [§ 210 nance of the action. Fraud and deceit alone do not warrant the recovery of damages. Deceit and injury must concur.""* And says Van Brunt, P. J. : "It is the well settled rule that it is the very essence of the action of fraud and deceit that the same should be accompanied by damage." ^' A party cannot claim to have been defrauded who has been induced by artifice or false representations to do that which the law would otherwise have compelled him to perform.*" Consequently where the defendant, to induce the plaintiff to render him services and to show his ability to pay therefor, stated that he was the owner of a certain farm, a charge of fraud cannot be based thereon if the defendant, though not the owner of the farm, is solvent and amply able to pay for the services. In such a case, unless the defendant is insolvent or unable to pay, no injury can result from his misrepresentation, and it is a matter of indifference whether he is the owner of the farm or not." It has also been held, where an action was brought to recover damages for the fraud of the defendant whereby the plaintiff was induced to execute a release of a claim for unliqui- dated damages, that the action cannot be maintained where there is no proof that the released claim 'of the plaintiff exceeded in for it more than it was worth, if the less than the value thereof or less pie baking company had been a pay- than the plaintiff would have ing concern." charged if it had known that the And in New York Lubricating Oil oil was intended 'for domestic sale. Co. V. C. E. Mills Oil Co., (Sup. 1916) So that every fact which might have 173 App. Div. 628, 160 N. Y. S. 239, shown pecuniary damages to plaintiff where a charge of fraud was sought to because it was induced to sell the be based on a representation by a pur- oil upon false representations was chaser of oil from a manufacturer conspicuously absent from the com- that he intended the oil for export, plaint." the complaint was held fatally de- 58. Urtz v. New York Cent., etc., fective for failure to allege damages R. Co., (1911) 202 N. Y. 170, 95 to the seller from the misrepresenta- N. E. 711. tion, Scott, J., saying: "It is appar- 59. Aron v. De Castro, (Sup. G. T. ent that no sufiBcient cause of action 1891) 36 State Rep. 716, 13 N. Y. S. for damages is set up in this portion 372. See also Deobold v. Opper- of the complaint. It is not alleged mann, (1888) 111 N. Y. 531, 539, that plaintiff was not paid the price 20 State Rep. 81, 19 N. E. 94. for which it sold the oil, or that it 60. Deobold v. Oppermann, (1888) sold the oil for a lower price because 111 N. Y. 531, 542, 20 State Rep. 81, it believed that it was bought for 19 N. E. 94; Crouch v. Wagner, (Sup. export than it would have demanded 1901) 63 App. Div. 526, 71 N. Y. S. if it had understood that it was 607. bought for domestic consumption, or 61. Taylor v. Scoville, (Sup. 1868) that the price paid for the oil wasi 54 Barb. 34. § 211] FRAUD 295 value the amount paid for the release.'^ And where a chattel mortgage was given to secure an existing indebtedness, it was held that the mortgagee could not maintain an action for damages on account of the mortgagor's false representations as to his title, as no damage resulted to the mortgagee therefrom.^^ Where a claim is such that its assignment is illegal as against public policy, such as an assignment of the salary of a public officer,** a charge of fraud by the assignee cannot be based on a representation as to the existence and validity of the elaim.*^ § 211. Inference of Injury; Rescission. — Injury is not neces- sarily to be inferred from the falsity of a representation, where affirmative relief is sought.** " Before a party can be relieved from his contract on account of fraud," says Mayham, P. J., " the rule seems to be that he must show ' some pecuniary loss or injury as the natural consequence of the conduct induced by the mis- representation. In short, the representation must be so material that its falsity renders it unconscientious in the person making it to enforce the agreement or other transaction which it has caused. Fraud without resulting in pecuniary damage is not a ground for the exercise of remedial jurisdiction. ' " " And where it was sought to rescind a sale of stock. Van Brunt, P. J., said: " It may be urged that the mere showing that the representations which were the inducing cause of the purchase upon the part of the plaintiff were false implies damage. But there is no presumption of damage arising from a representation which is proved to be false. It rests upon the plaintiff to prove not only the falsity of the representation but that some damage at least has been sustained thereby ; and there is no difference in this respect between proceed- ings in equity and proceedings at law. It may be true that upon proof of false representations and damage thereby upon the part of the plaintiff a court of equity will grant relief where the action 62. Urtz V. New York Cent., etc., 65. August v. Crane, (Sup. App. T. R. Co., (1911) 202 N. Y. 170, 95 1899) 28 Misc. 549, 59 N. Y. S. 583. N. E. 711, reversing 140 App. Div. 66. Aron v. De Castro, (Sup. 6. T. 915 inem., 124 N. Y. S. 1132, on prior 1891} 36 State Rep. 716, 131 N. Y. S. appeal 137 App. Div. 404, 121 N. Y. 372, affirmed on other grounds 131 S. 879, explaining Gould v. Cayuga N. Y. 648, 30 N. E. 491, 43 State County Nat. Bank, (1885) 99 N. Y. Rep. 660, 4 Silv. App. 95. 333 2 N. E. 16. 67. Hewlett v. Saratoga Carlsbad 63 Badger v. Pond, (Sup. 1907) Spring Co., (Sup. 1895) 84 Hun 248, 120 App. Div. 619, 105 N. Y. S. 546. 65 State Rep. 843, 32 N. Y. S. 697. 64. See infra, section 431. 296 NEW YORK LAW OF CONTRACTS [§ 211 for fraud and deceit will not lie ; but the proof of damage must be furnished the court in both cases in order that it may appear that there is a substantial wrong to be redressed. ' ' *^ For the purpose of affirmative relief, such as relief by way of rescission, if any pecuniary loss is shown, the court will not inquire into the extent of the injury; it is sufficient if the party misled has been very slightly injured, if the amount is at all appreciable.^' In some cases the view is taken that the defendant may defend against the enforcement of an executory contract without showing affirmatively that loss resulted to him from the false representations.'" And in case of a purchase induced by false representation the buyer has been permitted to rescind without any showing of damage.'^ This has also been held true where the plaintiff was induced by fraudulent representations to subscribe to the stocks of a corpora- tion, and he has been permitted to rescind and recover the amount paid on his subscription, irrespective of whether the stock was in fact worth the amount agreed to be paid.''^ The view has also 68. Aron v. De Castro, ( Sup. G. T. 1891) 36 State Rep. 716, 718, 131 N. Y. S. 372. 69. Stewart v. Lester, (Sup. 1888) 49 Hun 58, 17 State Rep. 248, 1 N. Y. S. 699. 70. Roscoe v. Safford, (Sup. 1901) 61 App. Div. 289, 70 N. Y. S. 309; Stewart v. Lester, (Sup. 1888) 49 Hun 58, 17 State Rep. 248, 1 N. Y. S. 699. " The rule invoked by the plain- tiflf," says Barker, P. J., " that fraud, without damages resulting therefrom, never gives a right of action in favor of the defrauded party, applies to those cases where the injured party is seeking to recover damages from the wrong-doer in an action on the case ex delicto as an indemnity against the injury which he has sus- tained by reason of the fraud, and has no just application to a case like the one in hand, where the fraud is relied upon as a defense to the enforcement of an executory con- tract. If the false statement relates to a material fact, the law implies that the defrauded party has suffered an injury sufficient to defeat a re- covery. By showing that the mis- statement was a material one rela- tive to the subject matter of the con- tract, is proof that damages, in some degree, have been sustained by the defrauded party, but he is not called upon to give direct proof of the nature and extent of his damages. Where a party is seeking affirmative relief upon the ground of fraud, whether it be legal or equitable, then he is called upon to prove that he has sustained damages in some tan- gible amount." Stewart v. Lester, (Sup. 1888) 49 Hun 58, 63, 17 State Rep. 248, 1 N. Y. S. 699. 71. Rose V. Merchants' Trust Co., (Sup. Sp. T. 1905) 96 N. Y. S. 946. 72. Mack v. Latta, (Sup. 1903) 83 App. Div. 242, 82 N. Y. S. 130, af- firmed as to this but reversed on other grounds 178 N. Y. 525, 71 N. E. 97. In this case Ingraham, J., said: " It would seem to follow that if those representations were false and made for the purpose of inducing the plaintiff to subscribe to the stock of the company, and upon the faith of which he did subscribe, he would be entitled to rescind the subscription and to recover from the defendant corporation the amount that he had § 211] FRAUD 297 been taken that where material fraudulent representations are established by which the plaintiff was induced to make a pur- chase, he may recover nominal damages though no special dam- ages are shown." And the fact that property purchased may have been worth the purchase price is no defense, the measure of damages being the difference between what the property was actually worth and what it would have been worth if it had been as represented.'^ In certain contracts implying a high degree of mutual confidence between the parties, a charge of fraud for the purpose of rescission may, it has been held, be based on a false representation, though no direct injury may result therefrom to the complainant. Partnership agreements belong to this class, and it has been held that a charge of fraud may be based on a false representation as to the cost of property put into the partnership by one party though in fact the property may have been worth paid thereon. Whether the stock was worth the amount that he sub- scribed for it or not would be im- material upon the question. What he subscribed for was stock in a, cor- poration having the advantages that these representations, if true, would give to it; and if these representations were untrue, and the corporation was not what it was represented to be, the plaintiff would be entitled to have the subscription canceled. I do not understand that in such an- ac- tion it is necessary to allege that the stock was not of the value that it was when the plaintiff made the sub- scription, for it is not the damages sustained by reason of the fraud that is sought to be recovered from the corporation. The question is, whether the plaintiff is entitled to rescind a subscription to stock induced by rep- resentations as to the condition of the company and which related to its prospects, when these representations were false and fraudulent." 73. Northrop v. Hill, (1874) 57 N. Y. 351; Allaire v. Whitney, (Sup. 1841) 1 Hill 484; Isman v. Loring, (Sup. 1909) 130 App. Div. 845, 115 N. Y. S. 933; Blumenfeld v. Stine, (Sup. Sp. T. 1904) 42 Misc. 411, 87 N. Y. S. 81, affirmed 96 App. Div. 160, 89 N. Y. S. 85. 74. Durst V. Burton, (1905) 47 N. Y. 167; Jeffrey v. Bigelow, (Sup. 1835) 13 Wend. 518; Van Epps v. Harrison, (Sup. 1843) 5 Hill 63; Fox V. Hirschfeld, (Sup. 1913) 157 App. Div. 364, 142 N. Y. S. 261; Churchill v. St. George Development Co., (Sup. 1916) 174 App. Div. 1, 7, 160 N. Y. S. 357 ; Harlow v. Haines, (Sup. Sp. T. 1909) 63 Misc. 98, 116 N. Y. S. 449, affirmed 136 App. Div. 938 mem., 121 N. Y. S. 1134. " I think that it is clear," says Dwight, C, " that when a party to a contract is guilty of fraud, he com- mits a wrong for which he is liable to the defrauded party, to pay, at least, nominal damages. The act of entering into contract relations im- plies that the parties are to deal in good faith with each other. On no other basis can the minds of the par- ties be expected to meet. If one of them, professing in this way to act in good faith, in fact, commits a, fraud, he breaks the implied obliga- tion he is under, and should be made to respond in damages. It is no an- swer to say that the defrauded party may rescind the contract. That course is at his option. He may elect to affirm it, and have his action for such damages as he may prove, whether substantial or otherwise. . . . 2&8 NEW YORK LAW OF CONTRACTS [§212 the amount represented as its cost.'" It is also held, in case of a joint purchase of property, that where the party making the pur- chase misrepresents the actual purchase price and thus secures from the other more than his just share of the actual price, this constitutes a fraud unaffected by the fact that the property was worth the amount which the party making the purchase represented as the price.'* To Whom Representation Made § 212. General Rule. — If the false representation was not made to the plaintiff and he had no knowledge thereof at the time of the transaction in question, he cannot, of course, base a charge of fraud thereon, as he could not have been in any way influenced thereby." And as a general proposition, a false representation made to one person cannot give a right of action to another to whom it may be communicated and who acts in reliance on its truth.'^ Thus, to justify a seller in avoiding a sale on credit on account of the fraud of the buyer in misrepresenting his financial condition, the representation must have been made to the seller or made for the purpose of being communicated to him and with intent to influence his conduct.'* For example, it is said that if A, casually or from vanity, makes a false or exaggerated statement of his pecuniary means to B, or even if he does so with the intent If he proves no special damage, he N. S. 431, 4 Trans. App. 295; Hill v. should, at least, recover nominal Carley, (Sup. 1876) 8 Hua 636; damages for the breach of the im- PoUak v. Dodge Mfg. Co., (Sup. App. plied promise to act in good faith." T. 1912) 78 Misc. 350, 353, 138 N. Y. Northrop v. Hill, (1874) 57 N. Y. S. 429. See also Groh v. Flammer, 351, 354. (Sup. 1903) 89 App. Div. 28, 85 75. Harlow v. La Brum, (Sup. N. Y. S. 305; Thayer v. Schley, 1894) 82 Hun 292, 64 State Rep. 72, (Sup. 1910) 137 App. Div. 166, 121 31 N. Y. S. 487, affirmed 151 N. Y. N. Y. S. 1064. 278, 45 N. E. 859. 79. Van Kleeek v. Le Roy, (Sup. 76. Douglass v. Richards, (Sup. 1862) 37 Barb. 544, affirmed 4 Abb. 1906) 116 App. Div. 27, 101 N. Y. S. App. Dec. 479, 4 Abb. Pr. N. S. 431, 299. See also Tuomey v. Walsh, 4 Trans. App. 295; Hill v. Carley, (Sup. 1914) 160 App. Div. 795, 145 (Sup. 1876) 8 Hun 636. See also N. Y. S. 722. Bliss v. Siclcles, (Sup. G. T. 1892) 77. Darling v. Klock, (Sup. 1898) 50 State Rep. 139, 21 N. Y. S. 273, 33 App. Div. 270, 53 N. Y. S. 593, affirmed 142 N. Y. 647, 59 State Rep. affirmed 165 N. Y. 623 mem., 59 168, 36 N. E. 1064. N. E. 1121. In Van IQeeck v. Le Roy, (Sup. 78. Eaton, etc., Co. v. Avery (1880) 1862) 37 Barb. 544, where a charge 83 N. Y. 31, 34; Van Kleeek v. Le to the above effect was given by the Roy, (Sup. 1862) 37 Barb. 54, affirmed trial court and objected to by the 4 Abb. App. Dec. 479, 4 Abb. Pr. seller, Hogeboom, J., said: "I dis- § 213] FRAUD 29& to deceive and defraud B, and B eommunieates the statement to C, who acts upon it, A cannot be held as for a false representation to C. ^0 And where it appeared that a buyer in order to procure a sale on credit from a certain firm, to whose business the plaintiff succeeded, made fraudulent representations as to his financial condition to a salesman of such firm, and that a few months there- after the sale in question was referred to the same salesman, who at the time was in the employ of the plaintiffs, to determine whether credit should be given, and in reliance on the earlier representa- tions he sanctioned the credit, it was held that as the representa- tions were not made to the plaintiffs or to some one acting on their behalf at the time, a charge of fraud could not be based thereon so as to enable them to rescind the sale." § 213. Qualification of General Rule. — If a representation is made to one person with the intent that it be communicated to another, and it is so communicated to and relied on by the latter, cover no error in this charge. It was, in substance, that to justify a vendor in treating a sale of personal property as void, and retaking the property, upon the ground of false and fraudulent representations, such representations must be made to him or be made for the purpose of being communicated to him. In other words, false statements made to a stranger, without any intent to in- fluence the conduct of the plaintiff, cannot be made the pretext for avoid- ing a sale made by the plaintiff him- self. The plaintiff has no right to rely upon statements made to other parties. He cannot know all the cir- cumstances under which they were made, nor the object of making them. For while falsehood, in a moral point of view, ia never justifiable, nor wholly excusable, its design and object may be wholly misapplied and unintentionally enlarged, if made to cover a case, or a party, never origi- nally meant to be embraced within its operation. Nor is it a fair and legitimate inference that its subse- quent communication, to a third per- son (like the plaintiff) was a natu- ral and legitimate consequence of its original utterance, and should therefore have been foreseen by the defendant, and he consequently be lield responsible for it. This is not so. The plaintiff, at all events, had no just reason to believe that the representations were designed to in- fluence his conduct, and therefore had no right to make them the basis of his action. It is, I think, of the essence of a false and fraudulent rep- resentation that it was designed to influence the conduct of the plaintiff. The fraud must be one perpetrated upon him. He has no right to rely upon any other, as the foundation of a business transaction — of a sale of goods. It is, I think, a degree of negligence and rashness which should defeat his action, to pick up the loose and irresponsible declarations of a party, made for i». totally differ- ent purpose, and make them, without further inquiry, the basis of his own action. It would, in my opinion, be a dangerous rule, and one which has no just foundation in the law or sound reason." 80. Eaton, etc., Co. v. Avery, (1880) 83 N. Y. 31, 34. 81. Hill V. Carley, (Sup. 1876) 8 Hun 636. 300 NEW YORK LAW OF CONTRACTS [§ 21; he may base a charge of fraud thereon.*^ Thus if a representation is made to an agent and is communicated to and relied on by hit principal, the latter may base a charge of fraud thereon/^' anc' fraud may be based on representations made to a particular clasi of persons or to the public at large for the purpose of influencing any individual who may act thereon.** Consequently fraud may be based on false representations contained in a prospectus, report or statement, directed to the public, where the party complaining purchased or subscribed to stock or purchased the- bonds of a cor- poration on the faith of such representations.*^ Andrews, J., says in this connection: " If the plaintiff purchased his stock relying upon the truth of the prospectus, he has a right of action for deceit against the persons who, with knowledge of the fraud and with intent to deceive, put it in circulation. The representation was made to each person comprehended within the class of persons 82. Eaton, etc., Co. v. Avery, (1880) 83 N. Y. 31; Converse v. Sickles, (Sup. 1897) 16 App. Div. 49, 44 N. Y. S. 1080, affirmed 161 N. Y. 666 mem., 57 N. E. 1107; Ettlinger v. Weil, (Sup. 1904) 94 App. Div. 291, 87 N. Y. S. 1049, reversed on otker grounds 184 N. Y. 179, 77 N. E. 31; Newbery v. Garland, (Sup. 1860) 31 Barb. 121; Grossman v. Walters, (Sup. G. T. 1890) 33 State Rep. 921, 11 N. Y. S. 471; Kelly v. Gould, (Sup. G. T. 1892) 47 State Rep. 5, 19 N. Y. S. 349, affirmed 141 N. Y. 596, 60 State Rep. 332, 36 N. E. 320. See also Mayne v. Griswold, (Super. Ct. 1850) 5 Super. Ct. 463, 475, 9 Leg. Obs. 25. 83. Culliford v. Gadd, (Super. Ct. G. T. 1892) 60 Super. Ct. 343, 44 State Rep. 222, 17 N. Y. S. 457, af- firmed 139 N. Y. 618 mem., 35 N. E. 205. 84. Brackett v. Griswold, (1889) 112 N. Y. 454, 21 State Rep. 791, 20 N. E. 376; Hadcock v. Osmer, (Sup. 1896) 4 App. Div. 435, 38 N. Y. S. 618, affirmed 153 N. Y. 604, 47 N. E. 923; Dietz v. Yetter, (Sup. 1898) 34 App. Div. 453, 54 N. Y. S. 258 (rep- resentation on building and vans used in connection with the business that warehouse was fireproof ) ; Fenn v. Curtis, (Sup. 1881) 23 Hun 384; Keeler v. Seaman, (Sup. Sp. T. 1905) 47 Misc. 292, 95 N. Y. S. 920; Greene V. Mercantile Trust Co., (Sup. Sp. T. 1908) 60 Misc. 189, 111 N. Y. S. 802, affirmed 128 App. Div. 914 mem., 112 N. Y. S. 1131. 85. Morgan v. Skiddy, (1875) 62 N. Y. 319, affirming 36 Super. Ct. 152; Benedict v. Guardian Trust Co., (Sup. 1901) 58 App. Div. 302, 68 N. Y. S. 1082; Downey v. Finuoane, (Sup. 1911) 146 App. Div. 209, 130 N. Y. S. 988, affirmed 205 N. Y. 251, 98 N. E. 391; Reusens v. Gerard, (Sup. 1914) 160 App. Div. 625, 146 N. Y. S. 86, affirmed 221 N. Y. 665 mem., 117 N. E. 1065; Newbery v. Garland, (Sup. 1860) 31 Barb. 121; Greene v. Mercantile Trust Co., ( Sup. Sp. T. 1908) 60 Misc. 189, 111 N. Y. S. 802, affirmed 128 App. Div. 914 mem., 112 N. Y. S. 1131; Pollak v. Dodge Mfg. Co., (Sup. App. T. 1912) 78 Misc. 350, 353, 138 N. Y. S. 429; McGIynn v. Seymour, (Com. PI. 1888) 14 Daly 420, 14 State Rep. 707, 27 Wkly. Dig. 536; Morse v. Swits, (Sup. G. T. 1859) 19 How. Pr. 275. See also Ball v. Gerard, (Sup. 1914) 160 App. Div. 619, 146 N. Y. S. 81. § 214] FRAUD 301 who were designed to be influenced by the prospectus; and when a prospectus of this character has been issued no other relation or privity between the parties need be shown, except that created by the wrongful and fraudulent act of the defendants in issuing or circulating the prospectus, and the resulting injury to the plain- tiff. " ^^ To enable a person to base a charge of fraud on mis- representations in such a prospectus, it is essential, however, that the representations should be calculated and intended to influence the plaintiff or that he should be one of the class to whom such representations were addressed and that they should have been circulated among and intended to influence members of such class.^^ § 214. Statement of Financial Condition to Mercantile Agency — General Rule. — The rule that the false representation to con- stitute the basis of a charge of fraud need not be made directly to the complainant, is well exemplified in the case of a statement as to his financial condition made by a merchant to a mercantile credit agency. If such a statement is made with the intent that it should be communicated to and believed by persons interested in ascertaining the pecuniary responsibility of the merchant, and with the intent to procure credit, and the statement is com- municated to another merchant and relied on by him, and in con- sequence thereof he makes a sale on credit to the merchant making the statement, a charge of fraud may be based thereon entitling the seller to rescind the sale.*^ " The business of such an agency," 86. Morgan v. Skiddy, (1875) 63 the class calculated and intended to N. y. 319, 325. See also Brackett v. be influenced by the prospectus and Griswold, (1889) 112 N. Y. 454, 467, therefore could not base a charge of 21 State Rep. 791, 20 N. E. 376. fraud on the representations. 87. Pollak V. Dodge Mfg. Co., (Sup 88. Eaton, etc., Co. v. Avery, (1880) App. T. 1912) 78 Misc. 350, 138' 83 N. Y. 31, affirming 18 Hun 44; N. Y. S. 429. In this case it ap- Bradley v. Seaboard Nat. Bank, pe'ared that a prospectus was issued (1901) 167 N. Y. 427, 60 N. B. 771, by the defendant as a basis for mar- aflSrming as to this but reversing on keting its stock and that it entered other grounds 46 App. Div. 550, 62 into a contract with a broker for the N. Y. S. 51; Tindle v. Birkett, (1902) sale of such stock for it. The plain- 171 N. Y. 520, 64 N. E. 210; Hum- tiff was employed by the broker to phrey v. Smith, (Sup. 1896) 7 App. sell the stock on commission and ex- Div. 442, 39 N. Y. S. 1055; Converse pended time and money in negotiat- v. Sickles, (Sup. 1897) 16 App. Div. ing for sales which he was prevented 49, 44 N. Y. S. 1080, affirming 17 from consummating on account of Misc. 169, 40 N. Y. S. 971, and af- the discovery of alleged fraudulent fiTmed 161 N. Y. 666 mem., 57 N. E. representations in the prospectus. It 1107; Arnold v. Richardson, (Sup. was held that the complaint did not 1902) 74 App. Div. 581, 77 N. Y. S. show that the plaintiff belonged to 763; Pier v. Doheny, (Sup. 1904) 302 NEW YORK LAW OF CONTRACTS [§ 214 says Rapallo, J., in a leading case, "is to collect information as to the circumstances, standing, and pecuniary ability of merchants and dealers throughout the country, and keep accounts thereof, so that the subscribers to the agency when applied to by a customer to sell goods to him on credit, may by resorting to the agency or to the lists which it publishes ascertain the standing and responsibility of the customer to whom it is proposed to extend credit. A person furnishing information to such an agency in relation to his own circumstances, means and pecuniary responsi- bility, can have no other motive in so doing than to enable the agency to communicate such information to persons who may be interested in obtaining it, for their guidance in giving credit to the party; and if a merchant furnishes to such an agency a wilfully false statement of his circumstances or pecuniary ability, with intent to obtain a standiiig and credit to which he knows that he is not justly entitled, and thus to defraud whoever may resort to the agency, and in reliance upon the false information there lodged, extend a credit to him, there is no reason why his liability to any party defrauded by those means should not be the same as if he had made the false representation directly to the party injured. " *' It is also said by Patterson, J. : " Commercial agency reports relating to the financial standing and condition of those in business have become part of the ordinary business methods of the country. Reports of such agencies are in general use for the purpose of establishing credit. Where a dealer makes to such an agency, for the purpose of effecting a credit, a false or fraudulent representation respecting his property, and the reports become known to and are relied upon by persons giving credit on the faith thereof, the representations contained in the agency's state- ment have the same effect as if they were made directly by the person accredited to the person who acts upon the faith of them. ' ' ^^ 93 App. Div. 1, 86 N. Y. S. 971; State Rep. 921, 11 N. Y. S. 471; Bliss Mills V. Brill, (Sup. 1905) 106 App. v. Sickles, (Sup. G. T. 1892) 50 State Div. 389, 94 N. Y. S. 163; MiUiken Rep. 139, 21 N. Y. S. 273, affirmed V. Frisbie, (Sup. 1916) 175 App. 142 N. Y. 647, 59 State Rep. 168, 36 Div. 579, 162 N. Y. S. 561, affirming N. E. 1064. 89 Misc. 579, 153 N. Y. S. 751; Nau- 89. Eaton, etc., Co. v. Avery, (1880) gatuck Cutlery Co. v. Babcock, (Sup. 83 N. Y. 31, 34. 1890) 22 Hun 481; Claflin v. Flack, 90. Bradley v. Seaboard Nat. Bank, (Com. PI. G. T. 1891) 36 State Rep. (Sup. 1900) 46 App. Div. 550, 62 728, 13 N. Y. S. 269. See also Gross- N. Y. S. 51. man v. Walters, (Sup. G. T. 1890) 33 § 215] FRAUD 303 § 215. Particular Matter in Coimection with Report. — To bring a case within the general rule permitting a charge of fraud to be based on false reports to mercantile agencies, it is not necessary that the particulars of the report be stated by the agency to the party complaining of the alleged fraud. It is sufficient if the report is made for the purpose of receiving a favorable rating by the agency, which is thus secured, and the seller in giving the credit relied on the rating thus given by the agency." And the rule is not affected by the fact that the agency may take into consideration other matters before giving the rating, if the report itself justifies the rating given.^^ jj ^^^ ^^^^^ j^ ^ subscriber to the agency's service and relies on the buyer's report, it is not necessary that his information as to the report be received directly 91. Tindle v. Birkett, (1902) 171 N. Y. 520, 64 N. E. 210. In this case O'Brien, J., said : " The learned court below correctly described this phase of the case in these words which we can very well adopt : ' That the statements upon which the rating of the defendant's firm was based by the mercantile agency of R. G. Dun & Co. were grossly false, and that the plaintiffs relied i%pon such rating in giving the firm credit for the goods purchased upon the several occasions mentioned, are facts concerning which there is and can be no serious dispute, and had such statements been made directly to the plaintiffs under circumstances which would fairly warrant the assumption that they were so made by way of induc- ing credit, there would, of course, be no question as to the right of the plaintiffs to maintain an action of this character.' But the " learned court held that since these false and fraudulent statements were not made to the plaintiffs personally and di- rectly by the defendant, but to the agencies, and since the plaintiffs never saw the statements themselves, but only the result of them in the reference books, the action could not be maintained. That one merchant may defraud another under modern business methods just as effectually by a false and fraudulent statement to a commercial agency . as in any other way no one can doubt. That the defendant did actually deceive and defraud the plaintiffs by thus putting into circulation in the busi- ness world a false, fraudulent and fictitious rating purporting to ex- press his true commercial standing and financial ability is equally clear. Disregarding mere forms and meth- ods, it cannot be doubted that the defendant spoke false and deceitful words to the plaintiffs through the agency just as effectually as if they had met face to face and the state- ments had been made directly and personally, the buyer of goods may become liable to the seller in fraud, although they have never met or seen each other, and no personal communi- cation that is false or fraudulent has passed between them. If the former does just what this defendant did and procures a fraudulent rating, intending that it should be published to the business community and taken as true, that is a fraud upon the person who relies and acts upon it to his damage. But it is not neces- sary to argue this question as an original one since it has been de- liberately decided by this court." 92. Tindle v. Birkett, (1902) 171 N. Y. 520, 64 N. E. 210, reversing 57 App. Div. 450, 68 N, Y. S. 1017, 304, NEW YORK LAW OF CONTRACTS [§ 215 from the agency.'^ Also it is not necessary that the report to the agency should have been made contemporaneously with the giving of the credit in question.'* As a general rule, a report of this kind is intended to be and is regarded as continuing in its nature,'' and the party making it, says Landon, J., " cannot be heard to say that its mischievous force was operative longer than it expected it to be. " '^ And the mere fact that, after the report on which the seller relied, the agency's agent called on the buyer and requested another report, which was refused, does not necessarily prevent a charge of fraud being based on the report given." On the other 93. Converse v. Sickles, (Sup. Sp. T. 1896) 17 Misc. 169, 40 N. Y. 8. 971, aiHrmed 16 App. Div. 49, 44 N. Y. S. 1080, which is affirmed 161 N. Y. 666 mem., 57 N. E. 1107. In this case, Beach, J., said: " It makes no difference, in principle, if the in- formation be given a subscriber, who shall rely thereon, by communication other than from the agency direct. The liability for false statement is not thereby restricted. The plaintiff firm was a subscriber to the agency, entitled to knowledge of the facts contained in the statement, and they having been given them correctly, through sources other than the agency itself, as furnished to the agency, their legal rights arising from falsity and fraud are in no wise changed or impaired." 94. Bradley v. Seaboard Nat. Bank, (1901) 167 N. Y. 427, 60 N. E. 771, affirming as to this but reversing on other grounds 46 App. Div. 550, 62 N. Y. S. 51 (in which case a bank discounted a merchant's note on the faith of his report to a commercial agency and for two years thereafter continued to give credit on the faith of such report) ; Humphrey v. Smith, (Sup. 1896) 7 App. Div. 442, 39 N. Y. S. 1055; Naugatuck Cutlery Co. V. Babcock, (Sup. 1880) 22 Hun 481; Claflin v. Flack, (Com. PI. G. T. 1891) 36 State Rep. 728, 13 N. Y. S. 269; Goodwin v. Goldsmith, (Super. Ct. 1883) 49 Super. Ct. 101, affirmed 99 N. Y. 149, 1 N. E. 404. See also Bliss v. Sickles, (Sup. G. T, 1892) 50 State Rep. 139, 21 N. Y. S. 273. Compare MacuUar v. McKin- ley, (-1885) 99 N. Y. 35.3, 2 N. E. 9, affirming 49 Super. Ct. 5. 95. Humphrey v. Smith, (Sup. 1896) 7 App. Div. 442, 39 N. Y. S. 1055; Claflin v. Flack, (Com. PI. G. T. 1891), 36 State Rep. 728, 13 N. Y. S. 269. 96. Bradley v. Seaboard Nat. Bank, (1901) 167 N. Y. 427, 60 N. E. 771. 97. Claflin v. Flack, (Com. PI. G. T. 1891) 36 State Rep. 728, 13 N. Y. S. 269. In this case Pryor, J., said : " Before pfaintiffs acted on the misrepresentation the agency again called on the purchasers of the goods for another report of the con- dition of their business; but they declined to furnish it. But it does not appear that the agency so called at the instance or in the interest of plaintiffs, or that the fact of the refusal of another report was com- municated to plaintiffs. The fact, therefore, does not affect plaintiffs; and since the representation of their solvency which the purchasers lodged with the agency was, in its nature and purpose, a continuing one, a recall of it was necessary to relieve them of liability to persons who extended credit in reliance on the representation. Had the purchasers, instead of merely refusing another report, expressly withdrawn the one formerly made, a question different from that before us would have been presented," § 215] FRA.UD 305 hand, if the statement was true when made, the merchant is not necessarily bound, in case of a change in his financial condition, to report such fact to the agency, under the penalty of being charged with fraud in case credit is thereafter extended to him on the faith of his earlier statement.'* To entitle a seller to base a charge of fraud on the buyer's report to the agency he must have relied on the report.'' Still the fact that the credit is not given solely in reliance on the statement of the buyer, but also on matters reported by the agency to the seller on its own investigation, does not prevent fraud from being charged on the false reports of the buyer, if they were a material inducement to the giving of the credit, as a false representation to be made the basis of a charge of fraud need not be the sole inducing cause."^ Where corporate officers omit from the statement to the agency liabilities on notes made for the accommodation of a third person, the right of the seller to rescind is not defeated because such officers had been informed that the accommodation notes were not valid obligations of the corporation and omitted them upon the mistaken assumption 98. Du Pont De Nemours Powder Co. V. Schwenger, (Sup. App. T. 1915) 90 Misc. 678, 154. N. Y. S. 186. In this case Bijur, J., said : " Whatever view may bei entertained 'regarding the continuing liability for a reasonable time of a person who has made a statement false at the time it was made, I have been cited to no au- thority which places upon one who has made a truthful statement the affirmative duty of correcting it when his circumstances have changed. The exigencies of business and the oppor- tunity of the intending creditor to obtain an immediate statement at any time would seem to negative the correctness of any such rule. The only case which I have been able to find in which such a duty was said to exist places it upon the peculiar circumstances of the case, entirely different from those of the case at bar. Loewer v. Harris, 57 Fed. Rep. 368. The characterization of state- ments for credit as 'continuing' is in itself rather misleading. What seems to be meant in the cases which employ that phrase is that, if a 20 statement for credit be false when made, the creditor may, with reason, claim that he relied upon that state- ment while giving credit for a reasonable time thereafter. In other words, his claim that he relied for sometime thereafter upon the state- ment as true at the time it was made may reasonably be believed, even though he would know that in the natural course of business conditions could and would change in the mean- time. Nowhere is it intimated that he has the right to assume, at any time thereafter, that the conditions set forth in the statement are repre- sented by the person making them to continue unchanged thereafter. In- deed, as I have said, common sense would necessarily indicate that such an assumption was unfounded." 99. Canton v. Claflin, (Sup. G. T. 1890) 35 State Rep. 247, 12 N. Y. S.- 759. 1. Pier V. Doheny, (Sup. 1904) 93 App. Div. 1, 86 N. Y. S. 971. See also Tindle v. Birkett, (1902) 171 N. Y. 520, 64 N. E. 210. See supra, section 205. 306 NEW YORK LAW OF CONTRACTS [§ 215 that the information was correct.^ The intent of the buyer to deceive will be inferred as a matter of law from the fact that he knew that his report was untrue and was made for the purpose of obtaining credit, and therefore it is not necessary for the seller to give further proof of the buyer 's intent to deceive at the time of making his report to the agency.' Notwithstanding the falsity of the statement made by the merchant to the agency, if the report of the agency to one inquiring as to the merchant's credit is such that no prudent man would rely on the truth of the state- ment of the merchant also communicated to the inquirer, it seems that the inquirer, on account of his negligence, would be precluded from basing a charge of fraud on such false statement.* And it also seems that if it appears that the report was made at the solicitation of the agency and is in such form as to show on its face that it was not made with a view of obtaining future credit, it cannot be made the basis of a charge of fraud where the merchant did not seek credit on the basis of the report, and the seller was himself the active party in soliciting the sale and made no inquiries whatsoever of the merchant as to his financial condition." 2. Axnold V. Richardson, (Sup. 1902) 74 App. Div. 581, 77 N. Y. S. 763. 3. Mills V. Brill, (Sup. 1905) 105 App. Div. 389, 94 N. Y. S. 163. 4. Eaton, etc., Co. v. Avery, (1880) 83 N. Y. 31, 39. See also Macullar V. McKinley, (1885) 99 N. Y. 353, 2 N. E. 9. 5. Macullar v. McKinley, (1885) 99 N. Y. 353, 2 N. E. 9, affirming 49 Super. Ct. 5. Tlie facts of this case were as follows: In February, 1881, the defendant, who was doing a small businesis as a tailor, in re- sponse to an application from a re- porter of a commercial agency, made this statement : " Have a stock on hand of $2,500 and no liabilities, as I pay cash for all my purchases." In June another application was made .to him by the same agency but he refused to make any statements. In August thereafter, on being solicited by an agent of the plaintiffs to make a purchase of goods, the agent as an inducement offering " long time," he gave an order for some goods which was transmitted to the plaintiffs. The sale was consummated by them, they being led to fill the order by a, report from said agency which, after quoting said statement as made by the defendant, stated in substance that defendant had failed in busi- ness twice, the last time three or four years ago, and effected a com- promise at fifty cents ; that his wife's income was said to support the family and he was not doing much more than making a living for him- self; that he was not known to be asking credit, as because of his slow- ness in making payments those who had sold him declined doing so ex- cept for cash. The defendant's re- fusal to make a statement in June was entered on the books of the agency with the statement that he was regarded as of little responsi- bility. Other orders were given by the defendants under similar circum- stances in September and October, 1881, which were filled by the plain- tiffs. In November, 1881, the de- fendant made a general assignment § 216] FRAUD 307 By Whom Representation Made § 216. General Rule. — It is a general rule that one person is not responsible for the fraud of a third person unless he in some way participates in the fraud or unless he is responsible on some principle of the law of agency.^ And a charge of fraud cannot ordinarily be based on misrepresentations made by a third per- son without the sanction or knowledge of the party alleged to have been guilty of fraud and not acting as his agent.' Thus if a third person, without the knowledge of a merchant, makes a false report to a mercantile agency with respect to such merchant's financial standing, and in reliance thereon another person makes a sale on credit to the merchant, the false report cannot be made the purpose of avoiding the sale.* And in case of a sale of chattels by basis of a charge of fraud on the part of the buyer even for the the mortgagor, the mortgagee cannot, by reason merely of his position as a mortgagee, be held liable for the fraud of the mort- gagor.* So if A is induced by the fraud of B to enter into a contract with C, who acts in good faith and without any notice of the fraud, C cannot ordinarily be held liable for B's fraud, and may enforce the contract if he has performed on his part and its nonenforcement will operate to his injury. This is in pursuance of the general rule that where one of two innocent persons has to suffer for the wrongful act of another, that one by which it appeared that he owed Comb, (Sup. 1901) 58 App. Div. 419, nearly $2,000 for money borrowed in 68 N. Y. S. 996; Eothstein v. Isaac, 1880, but it did not appear that he (Sup. 1908) 124 App. Div. 133, 108 owed anything for merchandise or N. Y. S. 897; Allen-Kingston Motor stock except to the plaintiffs. In an Car Co. v. Consolidated Nat. Bank, action for obtaining the goods by (Sup. 1911) 145 App. Div. 294, 129 false pretenses, it was held that the N. Y. S. 1070; Morris v. Wells, (Sup. plaintiffs were properly nonsuited; G. T. 1889) 4 Silv. Sup. 34, 26 State that the evidence failed to show any Rep. 9, 7 N. Y. S. 61 ; Rose v. Mer- intent on the part of the defendant chants' Trust Co., (Sup. Sp. T. 1905) to deceive or mislead the plaintiffs, 96 N. Y. S. 946; Boehm v. Miller, or any fraud or false representations (0. PI. G. T. 1892) 45 State Rep. inducing them to make the sales. 281, 18 N. Y. S. 137; Holbrook v. 6. Voisin v. Providence Washing- Wilson, (Super. Ct. 1859) 17 Super, ton Ins. Co., (Sup. 1900) 51 App. Ct. 64. Div. 553, 65 N. Y. S. 333; Beers v. 8. Morris v. Wells, (Sup. G. T. McNaught, (Sup. 1916) 175 App. 1889) 4 Silv. Sup. 34, 26 State Rep. Div. 643, 162 N. Y. S. 514; Thayer 9, 7 N. Y. S. 61. Mercantile Co. v. Schoenfelder, (Sup. 9. Boehm v. Miller, (Com. PI. G. App. T. 1919) 177 N. Y. S. 98. T. 1892) 45 State Rep. 281, 18 N. Y. 7. Cohn v. Goldman, (1879) 76 N. S. 137. Y. 284; L. D. Garrett Co. v. Mc- 308 NEW YORK LAW OF CONTRACTS [§ 216 must suffer whose act made it possible for the injury to be inflicted.!" Thus, where a committee of certain stockholders by fraudulent representation induced the plaintiff to offer to pur- chase from the defendant a majority of the stock of the corpora- tion, it was held that he was not entitled to rescind his purchase of stock and recover the price paid the defendant therefor, where the defendant had no knowledge that the misrepresentation had been made and the committee was in no way authorized to act for him in the sale of his stock, the offer to him to purchase having come from the buyer." And where one partner, acting solely for himself and not as the agent of his copartner, induces a third person to purchase the interest of his copartner by false repre- sentations, as to the business of the firm, the copartner, who had no knowledge of the false representations, is not chargeable with the fraud of such other partner so as to render him liable in an action for damages.^^ Of course the mere fact that third persons join with the defendant in making misrepresentations in no way affects the liability of the defendant." 10. Page V. Krekey, (Sup. G. T. 1892) 43 State Kep. 468, 17 N. Y. S. 764, affirmed as to this but reversed on other grounds 137 N. Y. 307, 50 State Rep. 650, 33 N. E. 311. 11. L. D. Garrett Co. v. McComb, (Sup. 1901) 58 App. Div. 419, 68 N. Y. S. 996; L. D. Garrett Co. v. Apple- ton, (Sup. 1905) 101 App. Div. 507, 92 N. Y. S. 136, affirmed 184 N. Y. 557 mem., 76 N. E. 1099. See also L. D. Garrett Co. v. Clark, (Sup. 1905) 102 App. Div. 61-1 mem., 92 N. Y. S. 1132, reversing 42 Misc. 610, 87 N. Y. S. 579. In L. D. Garrett Co. v. McComb, (Sup. 1901) 68 App. Div. 419, 68 N. Y. S. 996, Hatch, J., said: " So far as is disclosed by the recordj the defendant acted for himself in accepting the offer which was made by the plaintiff, and the case is en- tirely barren of proof that the defend- ant, when he accepted such offer, had any knowledge of any prior negotia- tions with the executive committee, or other person, inducing the plain- tiff to make it. As there is no proof of agency between the committee and the defendant, the latter cannot be bound by any representations made by the committee to the plaintiff, whether fraudulent or otherwise. It is claimed, however, that, as the plaintiff was induced by the fraudu- lent representations of the committee to make the offer for the defendant's stock, the acceptance of such offer was a ratification of the acts and representation^ majde by the com- mittee, and that the defendant was bound by them. We have been re- ferred to no authority holding that a person, by accepting a voluntary offer of a party for property, can be bound by the fraudulent representa- tions of a third party respecting such property, not authorized by the seller, and of which he had no knowledge. On the contrary, the law is distinctly otherwise." 12. Taylor v. Thompson, (Sup. 1902) 74 App. Div. 320, 77 N. Y. S. 438, affirmed 176 N. Y. 168, 68 N. E. 240. 13. Erman v. Great Central Palace Co., (Sup. App. T. 1915) 151 N. Y. S. 481. § 217] FRAUD 309 § 217. Limitation of General Rule. — In some cases the view has been taken that a charge of fraud authorizing a rescission may be based on the fraud of a third person, not authorized or sanctioned by the other party, if the contract is wholly executory and if no injury, aside from the loss of the bargain, can result to the other party from the rescission of the contract, or if the transaction is in the form of a conveyance or transfer of property and the grantee or transferee does not occupy the position of a purchaser for value and without notice of the fraud. And in this connec- tion approbation has been given to the statement of Lord Bldon in the leading case of Huguenin v. Baseley, (1807) 14 Ves. Jr. 273, wherein he says : " I should regret that any doubt could be enter- tained whether it is not competent to a court of equity to take away from third persons the benefits which they have derived from the fraud, imposition, or undue influence of others. ' ' " And it is said that " even where a third person should not be punished for the fraud of another, he should not avail himself of it. ' ' ^^ Thus where a wife was induced by the fraud of her husband to convey her land to his existing creditors, it has been held that the con- veyance should be set aside though the representations of the hus- band were not made with the sanction of the creditors." And where a wife was induced by her husband's misrepresentations as to the land included in his conveyance to a trustee to secure existing creditors, who therefore would not be entitled to protec- tion as a bona fide purchaser for value, to join therein for the purpose of releasing her dower rights, relief has been granted her and the operation of the deed as affecting her dower rights restricted to the lands which her huts-band represented were included in the deed." It has also been held, where a wife was induced by the fraudulent representations of a third person to execute without consideration a release of a claim against her husband, that she was entitled to be relieved from its operation, though such third person may not have acted as the agent of her husband in making the representations.^* 14. See Sistare v. Heckscher, (Sup. 63 Hun 634 mem., 45 State Eep. 699, G. T. 1892) 63 Hun 634 mem., 45 18 N. Y. S. 475. State Rep. 699, 18 N. Y. S. 475. 17. Withaus v. Schaack, (Sup. Sp. 15. Du Flon V. Powers, (City Ct. T. 1881) 62 How. Pr. 167, judgment Sp T 1873) 14 Abb. Pr. N. S. 391, modi-fled 15 Wkly. Kg. 408. 396. 18. Bedell v. Bedell, (Sup. 1885) 16. Sistare V. Heckscher, (Sup. Sp. 37 Hun 419. In this case Dykman, J., T. 1891) 15 N. Y. S. 737, affirmed said: " It is not a question of agency, 310 NEW YORK LAW OF CONTRACTS [§ 218 § 218. Fraud of Principal as Affecting Liability of Surety or the Like. — It is a well settled general rule that a surety, guar- antor or the like cannot set up the fraud of the principal, to escape liability to the creditor on his contract of suretyship or guaranty, where the creditor was ignorant of the fraud and has parted with value on the faith of the contract." " While the law," says Vann, J., " requires the creditor to act in good faith toward the guarantor, it does not hold him responsible for any deception practiced by the principal upon the latter without the knowledge of the former, nor require him to make any disclosure or explanation the withholding of which would not amount to a fraud. "^^ Thus if a buyer, by fraudulent representations as to the contents of the instrument, induces an illiterate person to enter into a guaranty for the payment of the price, and the seller makes the sale in reliance on the guaranty and without notice of the fraud, the guarantor cannot escape liability because of the fraud of the buyer.^' A similar view is taken where a surety on a fidelity or indemnity bond is induced to become such by the fraudulent representations of his principal,^^ and where a party was induced to become guarantor of the payment of a bond by the fraudulent representations of the principal.^' As said by Davis, J., in this connection : " It is the law that the rights of a surety are strictissimi juris; ... the real question is which of two innocent parties shall suffer by a fraud perpetrated by another, . . . but it turns out when the guaranty was sought to but a question of fraud. If the in- 6 N. Y. S. 448; Rothschild v. Frank, strument in question was obtained (Sup. 1807) 14 App. Div. 399, 43 from the plaintiff by misrepresenta- N. Y. S. 951. tion and fraud it cannot be held 20. Powers v. Clark, (1891) 127 against her. It is quite immaterial N. Y. 417, 422, 40 State Rep. 196, who perpetrated the fraud, the de- 28 N. E. 402. fendant cannot enjoy its results and 21. Page v. Krekey, (Sup. G. T. retain its benefits by a claim that it 1892) 43 State Rep. 468, 17 N. Y. S. was unauthorized by him. He has 764, approved as to this but reversed accepted an instrument tainted with on other grounds 137 N. Y. 307, 50 fraud for which he has paid no con- State Rep. 650, 33 N. E. 311. sideration. He cannot retain the in- 22. Rothschild v. Prank, (Sup. strument for use against the plain- 1897) 14 App. Div. 399, 43 N. Y. S. tiff on the ground that the fraud was 951; Dunfee v. Dunfee, (Sup. 1911) unauthorized by him and committed 145 App. Div. 108, 129 N. Y. S. 142, without his knowledge or procure- affirmed 205 N. Y. 543 mem., 98 N. B. ment." 1102. 19. Powers v. Clarice, (1891) 127 23. McWilliams v. Mason, (1865) N. Y. 417, 40 State Rep. 196, 28 N. 31 N. Y. 294. E. 402, reversing 24 State Rep. 795, § 219] FRAUD 311 be enforced that the defendant was induced to make it by a false representation as to the consideration. . . . This is no defense, because in such actions the law imposes the loss upon the party who, by his misplaced confidence, has enabled another, on the faith of his obligation, to obtain money or property of a third person who has dealt in good faith, relying on such obligation. The doctrine of estoppel steps in to prevent the assertion of such a defense, because it is more consonant with public policy, as well as sound morals, that he who, by permitting himself to be deceived, has put it in the power of another to defraud an innocent third party, should himself suffer rather than the third party. " " So if the drawer of a bill of exchange induces the drawee to accept the same by fraud, the payee may hold the acceptor liable if he was ignorant of the fraud and has parted with value on the faith of the acceptance, and the same would be true where the bill is drawn to the order of the drawer and negotiated after acceptance to a bona fide holder,^^ but in such a ease he must show affirma- tively that he was a bona fide purchaser for value.^ If the prin- cipal by fraud induces another to become his surety he will be held liable to the surety for such .fraud." The injury to the surety in such a case is the fraudulent imposition on him of a liability, though contingent, and he may maintain an action there- for before the principal debt becomes due and is unpaid.^* And where he pays the principal debt before it becomes due, he may recover the amount so paid.^' § 219. Liability of Principal for Fraud of Agent. — A principal is held responsible for the misrepresentations of his agent through whom the contract was made, though he did not authorize the making of the representations, as a principal cannot claim the benefits of a bargain made by his agent and at the same time repudiate the instrumentalities by which it was consummated.^" a4. McWilliams v. Mason, (1865) 28. Davison v. Farr, (Sup. Sp. T. 31 N. Y. 294, 298. 1896) 18 Misc. 124, 41 ,N. Y. S. 170. 25. New York, etc., State Stock 29. Davison v. Farr, (Sup. Sp. T. Bank v. Gibson, (Super. Ct. 1856) 1896) 18 Misc. 124, 41 N. Y. S. 170. 12 Super. Ct. 574. 30. Bennett v. Judson, (1860) 21 26. New York, etc.. State Stock N. Y. 238; Griswold v. Haven, (1862) Bank v. Gibson, (Super. Ct. 1856) 25 N. Y. 595 ; Elwell v. Chamberlain, 12 Super. Ct. 574. (1864) 31 N. Y. 611, affirming 17 27. Bates v. Merrick, (Sup. 1874) Super. Ct. 320; Garner v. Mangam, 2 Hun 568, 5 Thomp. & C. 701; Davi- (1883) 93 N. Y. 642, affirming 47 son V. Farr, (Sup. Sp. T. 1896) 18 Super. Ct. 547 mem.; Krumm v. Misc. 124, 41 N. Y. S. 170. Beach, (1884) 96 N. Y. 398, affirming 312 NEW YORK LAW OF CONTRACTS [§ 219 " If an agent," says Davies, J., " defrauds the person with whom he is dealing, the principal, not having authorized or participated in the wrong, may, no doubt, rescind, when he discovers the fraud, on the terms of making complete restitution. But so long as he retains the benefits of the dealing, he cannot claim immunity on the ground that the fraud was committed by his agent and not by himself. ' ' ^ Under this rule a corporation may be liable for the fraud of its officers and agents,'^ and one partner 25 Hun 293; Mayer v. Dean, (1889) 115 N. Y. 556, 26 State Rep. 375, 22 N. E. 261 ; Fairchild' v. McMahon, (1893) 139 N. Y. 290, 54 State Rep. 495, 34 N. E. 779; Taylor v. Com- mercial Bank, (1903) 174 N. Y. 181, 66 N. E. 726; Cunningham v. Wathen, (Sup. 1897) 14 App. Div. 553, 43 N. Y. S. 886; Reynolds v. Leyden, (Sup. 1897) 24 App. Div. 395, 48 N. Y. S. 1078; Carr v. National Bank, etc., Co., (Sup. 1899) 43 App. Div. 10, 59 N. Y. S. 618, affirming 23 Misc. 368, 52 N. Y. S. 61; Powell V. F. C. Linde Co., (Sup. 1900) 49 App. Div. 286, 64 N. Y. S. 153; Steinbacli v. Prudential Ins. Co., (Sup. 1901) 62 App. Div. 133, 70 N. Y. S. 809, reversed on other grounds 172 N. Y. 471, 33 Civ. Pro. 218, 65 N. E. 281; Chisholm v. Eisenhuth, (Sup. 1902) 69 App. Div. 134, 74 N. Y. S. 496; Ettlinger v. Weil, (Sup. 1904) 94 App. Div. 291, 87 N. Y. S. 1049, reversed on other grounds 184 N. Y. 179, 77 N. E. 31 ; Churchill v. St. George Development Co., (Sup. 1916) 174 App. Div. 1, 160 N. Y. S. 357; Beers v. MeNaught, (Sup. 1916) 175 App. Div. 643, 162 N. Y. S. 514; United States Bank v. Davis, (Sup. 1842) 2 Hill 451; Jeffrey v. Bigelow, (Sup. 1835) 13 Wend. 518; Sandford V. Handy, (Sup. 1840) 23 Wend. 260; Devendorf v. Beardsley, (Sup. 1857) 23 Barb. 656; Sharp v. New York, (Sup. 1863) 40 Barb. 256, 25 How. Pr. 389; Durst v. Burton, (Sup. G. T. 1869) 2 Lans. 137, affirmed 47 N. Y. 167; Bedell v. Bedell, (Sup. 1885 ) 37 Hun 419 ; Universal Fashion Co. V. Skinner, (Sup. 1892) 64 Hun 293, 46 State Rep. 633, 19 N. Y. S. 62; Trankla v. McLean, (Sup. App. T. 1896) 18 Misc. 221, 75 State Rep. 796, 41 N. Y. S. 385; Crowe v. Malba Land Co., (Sup. Sp. T. 1912) 76 Misc. 676, 135 N. Y. S. 454; Bloomquist v. Farson, (Sup. Eq. T. 1915) 88 Misc. 615, 151 N. Y. S. 356, affirmed as to this but modified on other grounds 170 App. Div. 64, 156 N. Y. S. 47; Aron v. De Castro, (Sup. G. T. 1891) 36 State Rep. 716, 13 N. Y. S. 372, affirmed on other grounds 131 N. Y. 648, 30 N. E. 491, 4 Silv. App. 95; Taylor v. Guest, (Sup. G. T. 1873) 45 How. Pr. 276, reversed on other grounds 58 N. Y. 262, 276; Du Flon V. Powers, (City Ct. Sp. T. 1873) 14 Abb. Pr. N. S. 391. 31. Elwell V. Chamberlain, (1864) 31 N. Y. 611, 619. 32. Oragie v. Hadley, (1885) 99 N. Y. 131, 1 N. E. 537; Mack v. Latta, (1904) 178 N. Y. 525, 71 N. E. 97, affirming as to this 83 App. Div. 242, 82 N. Y. S. 130; Benedict v. Guardian Trust Co., (Sup. 1901) 58 App. Div. 302, 68 N. Y. S. 1082. See also Rohrschneider v. Knickerbocker L. Ins. Co., (1879) 76 N. Y. 216. In Benedict v. Guardian Trust Co., (Sup. 1901) 58 App. Div. 302, 68 N. Y. S. 1082, Patterson, J., said: " The defendant demurring to the complaint insists that an action for deceit will not lie against a corporation. That contention finds support in some ad- judicated cases in England and in other jurisdictions, but more recent views of courts and text writers favor a contrary rule and assimilate the liability of a corporation for false representations made by those having authority to bind it, to that of an § 219] FRAUD 313 for the misrepresentations of his copartner ; ^^ but one partner cannot be held liable for the misrepresentation of a copartner unless the transaction is with respect to the firm business, and therefore, where in a sale of his individual interest in the firm a partner is guilty of fraudulent representations, his copartner, in no way a party thereto, cannot be held liable for the fraud.^* The rule holding the principal liable applies though the alleged agent was not in the first instance acting under the authority of the principal, but the latter after the transaction was completed ratified and claimed the benefit of it.^^ And it seems that the liability of the principal for the fraudulent representations of his agent cannot be obviated by an express provision in the contract that any representations not embodied in the contract shall not be binding on the principal.^^ The rule as to the liability of a principal for the fraud of his agent has most frequently been announced in cases where the relief sought was by way of rescis- sion," but it is also held to apply where the action is one for dam- ages and the principal, after knowledge of his agent's fraud, took no steps to avoid or rescind the contract but retained the benefits thereof.'* Where a party to a transaction acts through an agent, individual against -whom a cause of ner, (Sup. 1892) 64 Hun 293, 46 action of the same character is al- State Rep. 633, 19 N. Y. S. 62. ieged. As stated by Mr. Cook, in his 37. Cramsey v. Sterling, (Sup. treatise on the Law of Corporations 1906) 111 App. Div. 568, 97 N. Y. S. (§ 15b): 'Although a corporation 1082, affirmed 188 N. Y. 602 mein., may not strictly be guilty of deceit, 81 N. E. 1162; Aron v. De Castro, yet it is held liable for damages re- (Sup. G. T. 1891) 36 State Rep. 716, suiting from the false and fraudulent 13 N. Y. S. 372, affirmed on other representations of its agents.'" grounds 131 N. Y. 648, 30 N. E. 491, 33. Griawold v. Haven, (1862) 25 43 State Rep. 660, 4 Silv. App. 95; N. Y. 595; Hubbell v. Meigs, (1872) Elwell v. Chamberlain, (Super. Ct. 50 N. Y. 480, 488, reversing on other 1859) 17 Super. Ct. 320, affirmed 31 grounds 4 Lans. 214; Bradner v. N. Y. 611. Strang, (1882) 8g N. Y. 299, affirm- 38. Bennett v. Judson, (1860) 21 ing 23 Hun 445; Taylor v. Thompson, N. Y. 238; Indianapolis, etc., R. Co. (Sup. 1902) 74 App. Div. 320, 324, v. Tyng, (1876) 63 N. Y. 653, affirm- 77 N. Y. S. 438; Chester v. Dicker- ing 2 Hun 311, 4 Thomp. & C. 524, 48 son, (Sup. 1868) 52 Barb. 349, af- How. Pr. 193; Krumm V. Beach, firmed 54 N. Y. 1; Levy v. Abram- (1884) 96 N. Y. 398; Craig v. Ward, sohn, (Sup. App. T. 1902) 39 Misc. (App. 1867) 3 Keyes 387, 1 Abb. 781, 81 N. Y. S. 344. App. Dec. 454, 3 Abb. Pr. N. S. 235, 34. Chamberlain v. Prior, (App. 2 Trans. App. 281, affirming 36 Barb. 1866) 2 Keyes 539, 1 Abb. App. Dec. 377; Oehlhof v. Solomon, (Sup. 1902) 338. 73 App. Div. 329, 76 N. Y. S. 716, 35. Bedell v. Bedell, (Sup. 1885) affirming 36 Misc. 871 mem., 74 N.- 37 Hun 419. Y. S. 1140; Sharp v. New York, 36. Universal Fashion Co. v. Skin- (Sup. 1863) 40 Barb. 256, 25 How. 314 NEW YORK LAW OF CONTRACTS [§ 219 the principal's knowledge of the falsity of a representation made by the agent may be made the basis of a charge of fraud, though the agent may have had no knowledge of its falsity.^^ As the fraud of the agent is imputed to the principal, it may be alleged in the pleading directly as the fraud of the principal instead of the fraud of the agent.^" A principal, however, is not responsible for unauthorized collateral frauds perpetrated by his agent. For example, it is said, that " if a principal authorizes his agent to make a sale, and the agent, wholly on his own responsibility, aids a buyer in embezzling the purchase money or in swindling some one out of it, the mere receipt and retention of the money by the principal in ignorance of such wrongful acts may not bind him to repay the proceeds of the theft. ' ' *^ And it has been held that a broker is not liable for the unauthorized fraud of his agent whereby a customer secured by such agent was enabled to embezzle funds which were used for speculation through the broker.*^ And in case of representations by a broker, who merely brought the parties together and who had no authority from the seller to make the sale, the liability of the seller for misrepresentations by the broker has been denied, though the seller paid the broker's commission according to a general custom that the owner of property selling it to a customer produced by a broker pays the commission.^' The liability of the principal for the fraud of his agent does not, of course, relieve the agent from personal liability.^* And it has been held, where the officers of a corporation by fraudu- lent representations induced the plaintiff to subscribe to the stock Pr. 389; Harlow v. Haines, (Sup. N. Y. S. 449, affirmed 136 App. Div. Sp. T. 1909) 63 Misc. 98, 116 N. Y. 938 mem., 121 N. Y. S. 1134. S. 449, affirmed 136 App. Div. 938 41. Deyo v. Hudson, (1919) 225 mem., 121 N. Y. S. 1134; Smith v. N. Y. 602, 614, 122 N. E. 635. Frank, (Super. Ct. 1864) 25 Super. 42. Deyo v. Hudson, (1919) 225 Ct. 626. N. Y. 602, 122 N. E. 635, reversing 39. Mayer v. Dean, (1889) 115 N. 174 App. Div. 746, 161 N. Y. S. 494, Y. 556, 22 N. E. 261; Van Campen which reversed 89 Misc. 525, 153 N. V. Burns, (Sup. 1900) 54 App. Div. Y. S. 653, denied 226 N. Y. 685, 123 86, 66 N. Y. S. 344. N. E. 851. 40. Bennett v. Judson, (1860) 21 43. Rothstein v. Isaac, (Sup. 1908) N. Y. 238; King v. Fitch, (App. 124 App. Div. 133, 108 N. Y. S. 896. 1864) 1 Keyes 432, 2 Abb. App. Dec. See also Remmers v. Berbling, (Sup. 508; Kranz v. Lewis, (Sup. 1906) Sp. T. 1910) 66 Misc. 291, 123 N. 115 App. Div. 106, 100 N. Y. S. 674; Y. S. 41. Trankla v. McLean, (Sup. App. T. 44. Garner v. Mangam, (1883) 93 1896) 18 Misc. 221, 75 State Rep. 796, N. Y. 642, affirming 47 Super. Ct. 41 N. Y. S. 385; Harlow v. Haines, 547 mem.; Churchill v. St. George (Sup. Sp. T, 1909) 63 Misc. 98, 116 Development Co., (Sup. 1916) 174 22«] FRAUD 315 of the corporation, that an action may be maintained against the corporation to rescind and recover the amount paid on the sub- scription, and that in such an action, to avoid a multiplicity of suits, the officers may be joined and a personal judgment ren- dered against them as well as the corporation for the amount so paid.^^ Ratification of Contract § 220. In General. — Fraud in the procurement of a contract does not render it void but voidable merely, and the party affected by the fraud may affirm the contract and thereby deprive himself of any relief by way of rescission.** And as a general rule, acts on his part, after a knowledge of the fraud, in affirmance and recognition of the validity of the contract will constitute such a ratification.*' And this is true whether rescission is asserted by way of a suit in equity or as a basis for relief at law.** ' ' The party seeking relief by way of rescission cannot," as said by Allen, J., ' ' with knowledge of the fraud which had been practiced upon him, take any benefit under the contract, or change the condition of App. Div. 1, 160 N. Y. S. 357; Smith, V. Bernhardt, (Com. PI. G. T. 1890) 33 State Rep. 928, 11 N". Y. S. 951. 45. Mack v. Latta, (1904) 178 N. Y. 525, 71 N. E. 97, reversing 83 App. Div. 242, 82 N. Y. S. 130. The court of appeals in this case disapproves dictum to the contrary in Bosley v. National Mach. Co., (1890) 123 N. Y. 550, 34 State Hep. 277, 25 N". E. 990. 46. Baird v. New York, (1884) 96 N. Y. 567, 598. 47. Cobb V. Hatfield, (1871) 46 N. Y. 533; Joslin v. Cowee, (1873) 52 N. Y. 90, reversing 60 Barb. 48; Hol- ler V. Tuska, (1881) 87 N. Y. 166; Droege v. Ahrens, etc., Mfg. Co., (1900) 163 N. Y. 466, 57 N. E. 747; Elliott V. Brady, (1908) 192 N. Y. 221, 85 N. E. 69, affirming 118 App. Div. 208, 103 N. Y. S. 156; Goodman V. Laborn, (Sup. 1896) 11 App. Div. 617, 42 N. Y. S. 166; Guarantee Sav., etc., Co. V. Moore, (Sup. 1898) 35 App. Div. 421, 54 N. Y. S. 787; Bur- ton v. Stewart, (Sup. 1829) 3 Wend. 236, 237; Bronson v. Wiman, (Sup. G. T. 1851) 10 Barb. 406, 1 Seld. Notes 85, affirmed 8 N. Y. 182; Myers v. King, (Sup. 1888) 48 Hun 106, 15 State Rep. 482; Railway Adver- tising Co. V. Standard Rock Candy Co., (Sup. App. T. 1898) 24 Misc. 722, 53 N. Y. S. 265; Brady v. Ed- ward's, (Sup. Sp. T. 1901) 35 Misc. 435, 71 N. Y. S. 972; Roberts v. Murray, (County Ct. 1903) 40 Misc. 339, 81 N. Y. S. 1023, affirmed 89 App. Div. 616 mem., 85 N. Y. S. 1145; Jamestown v. Arter, (County Ct. 1907) 55 Misc. 629, 106 N. Y. S. 1027; William A. Thomas Co. v. Hoist, (Sup. App. T. 1910) 120 N. Y. S. 747; Van Buskirk v. Cudlipp, (Super. Ct. G. T. 1887) 6 State Rep. 814; Gouverneur v. Elmendorf, (Chan. Ot. 1821) 5 Johns. Ch. 79; Wibnot V. Richardson, (Super. Ct. 1857) 13 Super. Ct. 328; Ahrens v. Kent, (Sup. G. T. 1886) 24 Wldy. Dig. 147. 48. Davis v. Gifford, (Sup. 1918) 182 App. Div. 99, 169 N. Y. S. 492; Myers v. King, (Sup. 1888) 48 Hun 106, 110, 15 State Rep. 482, 316 NEW YORK LAW OF CONTRACTS [§ 221 the property, the subject matter of the contract, and then repudi- ate the contract. The taking of a benefit is an election to ratify it, and concludes him. He cannot be allowed to deal with the subject matter of the contract, and afterward disaffirm it. The election is with the party defrauded to affirm or disaffirm the con- tract ; but he cannot do both. ' ' " § 221. Particular Acts as Ratification. — If one party, after the discovery of the fraud of the other party, permits the latter to perform the contract and receives the benefit of such performance, his right to rescind is lost.'" And as a general rule, where a party, after knowledge of the fraud, takes legal steps to enforce the con- tract, this is a conclusive election not to rescind." Delay, after knowledge of the fraud, in asserting the right to rescind, may both in law and equity constitute a waiver of the right of rescission.^^ " It is the duty," says Ruger, Ch. J., " of a party who has been induced to enter into the making of an executory contract for the purchase of personal property, through fraud, if he desires to avail himself of that objection, to act upon the first opportunity and rescind it by repudiating its obligations and restoring what- ever has been received under it immediately upon discovering the alleged fraud. If he delays acting, and retains the property delivered beyond a reasonable time to act, or accepts performance after such discovery, he is held to have ratified the contract and waived his objections thereto. Such a contract is not void but is simply voidable at the option of the party defrauded, and requires affirmative action on his part to relieve himself from its 49. Cobb V. Hatfield, (1871) 46 N. Co., (1907) 189 N. Y. 75, 81 N. E. Y. 533, 537. 565; Trott v. Scbmitt, (Sup. 1907) 50. Smith Bros. Publishers V. Mous- 119 App. Div. 474, 104 N. Y. S. 98; sette, (Sup. App. T. 1912) 75 Misc. Davis v. Giflford, (Sup. 1918) 182 121, 132 N. Y. S. 770. App. Div. 99, 169 N. Y. S. 492; 51. Conrow v. Little, (1889) 115 Smith v. Salomon,' (Sup. 1918) 184 N. Y. 387, 26 State Rep. 527, 22 N. E. App. Div. 544, 172 N. Y. S. 515; 346; Terry v. Hunger, (1890) 121 Myers v. King, (Sup. 1888) 48 Hun N. Y. 161, 30 State Rep. 746, 24 106, 15 State Rep. 482; Remmers v. N. E. 272 (recovering judgment for Berbling, (Sup. Sp. T. 1910) 66 Misc. price of goods sold); Droege v. Ah- 291, 123 N. Y. S. 41; Sarnatides v. rens, etc., Mfg. Co., (1900) 163 N. Y. Williams, (Sup. App. T. 1920) 184 466, 57 N. E. 747, reversing 34 App. N. Y. S. 612, on prior appeal 180 Div. 631 mem. 54 N. Y. S. 1099 (fil- N. Y. S. 741; Rosenbaum v. Gunter, ing claim per price of goods sold (Com. PI. 1854) 3 E. D. Smith 203; with buyer's assignee for the benefit Austin v. Lyon, (Sup. G. T. 18S1) of creditors). 13 Wldy. Dig. 460. 52. Tanenbaum v. Federal Match § 221] FRAUD 317 obligations. " ^ It is also the general rule that when a party has discovered what he deems a fraud, before he has entered on the performance of a contract wholly executory, as in case of a contract for services to be rendered, he must then decide whether he will stop short or go on with the contract. He cannot affirm the con- tract in so far as it authorizes the work to be done and disaffirm it in so far as it fixes the compensation.^* And a purchaser of personal property, delivered in pursuance of an executory con- tract, which he alleges was procured by fraud, waives the fraud by an acceptance of the property sold after a knowledge of the fraud, so as to preclude himself by such acceptance from repudiat- ing the contract in an action to recover the price.^° In case of a credit sale procured by the fraud of the buyer, the fact that after an action by the seller to recover the possession of the goods, instituted against a third person not entitled to protection as a bona fide purchaser, he also institutes an action for damages against the buyer with regard to part of the goods which had passed beyond his reach, has been held not such an affirmance of the sale as to prevent the continued maintenance of the first action; the seller has the right, after he has disaffirmed the sale and reclaimed such of the goods as are within his reach, to maintain an action for the fraud as regards the goods not recovered.^* The same view has been taken where the seller, after the institution of a replevin action against the buyer's assignee for the benefit of creditors, sued the buyer on an implied contract to pay the reasonable value of the goods not recovered ; " and also where, after the institution of an action of replevin against a third person to recover a part of the goods, the seller instituted bankruptcy proceedings against the buyer."* In case of a transfer of land in consideration of a transfer of a saloon business, the grantor does not lose his right of rescission for a fraudulent representation as to the amount of business done in the saloon, where immediately after knowledge of the falsity of the representation he demands a reconveyance of 53. Baird v. New York, (1884) 96 56. Hersey v. Benedict, (Sup. 1878) N. Y. 567, 598. 15 Hun 282. 54. Saratoga, etc., E. Co. v. Row, 67. Sohoeneman v. Chamberlain, (Sup. 1840) 24 Wend. 74. (Sup. 1900) 55 App. Div. 351, 67 N. 55. Baird v. New York, (1884) 96 Y. S. 128. But see Wile v. Brown- N. Y. 567, reversing IS Wkly. Dig. 39. stein, (Sup. 1885) 35 Hun 68. See also Cobb v. Hatfield, (1871) 46 58. Powers v. Benedict, (1882) 88 N. Y. 533, 536. N. Y. 605. 318 NEW YORK LAW OF CONTKACTS [§ 222 the land and offers to retransfer the business, and after a refusal of his demand brings an action for relief, by continuing, during the pending of his action, to conduct the saloon business and by- renewing the liquor license for such purpose, as, after the refusal of his demand for a rescission, he assumed to be merely a trustee of the property pending the litigation, and as such it was his right, if not duty, to handle the business in a manner to preserve, in so far as possible, its full value.^» Where there has been a misrepre- sentation by the lessor as to the condition or construction of the building, the right of rescission is not lost by the lessee 's continued occupation thereof while the lessor is attempting to remedy the cause of complaint.^" Where the plaintiff is induced by the defendant's fraud to contract to pay money to a third person, innocent of the fraud, the fact that he makes payment to such third person after knowledge of the fraud is not such a ratification of the contract between himself and the defendant as to preclude him from rescinding and recovering the amount paid to such third person.*^ § 222. Knowledge of Fraud as Affecting Ratification. — Knowl- edge of the fraud is ordinarily an essential element of a claim of ratification.'^ And where a purchase has been brought about by 59. Keefuss v. Weilmunster, (Sup. the defendants, which would include 1903) 89 App. Div. 306, 85 N. Y. S. an accounting, there was no time 913. In this case Woodward, J., in wliich all of the rights of the de- said : " She was not obliged, as a f endants were not secure ; they were condition of invoking the aid of a placed, so far as it lay in the power court of equity, to step out into the of the plaintiff to do so, in the same streets, abandoning the property and position that they were in when the taking the chances of proving her fraud was discovered, and they cer- case; she had done her full duty in tainly may not be heard to complain the premises when she offered to re- because she kept the property in con- turn the property to the defendants dition to continue the business, in before bringing the action, and then, spite of the fact that the defendants upon a refusal by the defendants to refused to do her justice when their recouvey, continuing to hold and care attention was called to the fraud for the property until it should be which had been practiced." disposed of according to the facts 60. Meyers v. Rosenback, (City Ct. wliich should be found upon trial. G. T. 1893) 5 Misc. 337, 55 State Rep. Her possession, during the pendency 498, 25 N. Y. S. 521. of the action, was the involuntary ,61. Rose v. Merchants' Trust Co., possession of property which she had (Sup. Sp. T. 1905) 96 N. Y. S. 946. been fraudulently induced to take 62, King v. Fitch, (App. 1864) 1 and which she had offered to return ; Keyes 432, 2 Abb. App. Dec. 508 ; and as she asked for a reconveyance Hathorne v. Hodges, (1864) 28 N. Y. only upon her own retransfer of the 486; Baker v. Spencer, (1872) 47 property which she had received from N. Y. 562; Baker v. Lever, (1876) § 223] FRAUD 319 means of fraud on the part of the vendor, mere want of diligence in discovering the fraud does not deprive the purchaser of the right to rescind. He owes the fraudulent seller no duty of active vigilance, and if he acts promptly after actual discovery of the fraud he has a perfect right to rescind.''^ " He is not required," says Bradley, J., "to suspect and seek for it [fraud], nor is suspicion to take the place of knowledge. ' ' ^ And where the charge of fraud against a buyer is that the purchase was made without any intent to pay, the mere fact that the seller, with knowledge that the buyer has absconded, delays until the purchase money notes fall due under the expectation that they will be paid, does not necessarily show a ratification of the sale.^° Where a purchaser was induced to enter into the contract to purchase by the false representation of the vendor, the subsequent execution and acceptance of a deed without knowledge of the fraud constitute no defense to an action for the fraud.^^ § 223. AfBrmance as Discharge of Claim for Damages. — In case of an executed contract of sale induced by the fraud of the seller, the buyer may affirm the contract and still maintain his action for the damages resulting from the fraud.*' And the view has been taken that if the contract is executory and the party induced to enter into it by fraud affirms it, after knowledge of the fraud, by performance on his part or acceptance of performance by the other party, he does not thereby necessarily waive his right to recover or recoup damages for the fraud.''* This, however, does 67 N. y. 304, 309; White v. Loudon, (Sup. 1860) 31 Barb. 121; Ely v. (Sup. 1895) 90 Hun 218, 70 State Mumford, (Sup. 1866) 47 Barb. 629. Rep. 913, 36 N. Y. S. 1135; Schneider See supra, section 145. V. Quosbarth, (Com. PI. G. T. 1884) 68. Whitney v. Allaire, (1848) 1 19 Wkly. Dig. 527. N. Y. 305, 4 How. Pr. 447, aflBrming 63. Baker v. Lever, (1876) 67 N. 4 Denio 554; Allaire v. Whitney, Y. 304, 309, 310, affirming 5 Hun 114; (Sup. 1841) 1 Hill 484. White V. Loudon, (Sup. 1895) 90 Hun In Whitney v. Allaire, (1848) 1 218, 70 State Rep. 913, 36 N. Y. S. N. Y. 305, 311, 4 How. Pr. 447, 1135. which involved a case of a lease, the 64. Myers v. King, (Sup. 1888) 48 term to commence in futuro, which Hun 106, 15 State Rep. 482. however, should not it would seem 65. Hathorne v. Hodges, (1864) 28 be regarded as strictly an executory ]Sr. Y. 486. contract, Gardiner, J., said : " In 66. Blumenfeld v. Stine, (Sup. Sp. the second place, it was insisted that T. 1904) 42 Misc. 411, 87 N. Y. S. if there was an agreement, it was 81, affirmed 96 App. Div. 160, 89 N. executory when the fraud was dis- Y. s. 85. covered; and in such a ease, what- 67. Ketcham v. Troxell, (1872) ever might be the rule as to con- 49 N. Y. 677; Newbery v. Barland, tracts wholly or partially executed, 320 NEW YORK LAW OF CONTRACTS [§ 223 not prevent the defrauded party from compromising with respect to the fraud and thereby defeating any right on his part to main- tain an action therefor,''' or to resort to a body execution f but the latter effect cannot be given to an agreement merely for the future satisfaction of the indebtedness fraudulently contracted, even though a present payment may be made on the indebtedness.'^ Where the contract is executory the party induced by fraud to enter into it may, after knowledge of the fraud, by requiring per- formance on the part of the other party and performance on his own part, waive his right of action for damages if the circumstances show that it was his intention to do so.'^ And it is the general rule that if a contract for the sale of property is wholly executory, and after the discovery of a fraud on the part of the seller the the defendant, if he affirmed the con- tract, waived all right to damage for the fraud. . . If the agreement was executory, it would not, it is believed, change the right of the parties. It is conceded that if the contract had been partly executed, even in the most trifling particular, the defend- ant would have the right to rescind and bring his action for the deceit, or affirm the contract and have his remedy by way of recoupment when sued for the rent. Why should he not have the same remedies when the contract is executory. In neither case, according to the ass'umption of the plaintiff, could there? be a con- tract until ratified with a knowledge of the fraud. And if an adoption under such circumstances, of the agreement, is an abandonment by the person defrauded, of his claim to damages for the deceit in the one case, it must be in both. In neither will repudiation of the contract alone, as I have attempted to show, relieve the party defrauded from his responsibility, and restore him to his rights as they existed prior to the agreement. No such distinction is recognized by the authorities. It is true that if a party affirms a con- tract with knowledge of the fraud, he affirms it wholly, and this whether it is executory or partially executed. But in neither case does he affirm it as a contract made in good faith. He consents to be bound Iby the pro- visions of the agreement, but does not thereby release or waive his claim for damages arising from a fraud collateral to the agreement." 69. Adams v. Sage, (1863) 28 N. Y. 103. See also Browning v. New York Leasing Co., (Sup. App. T. 1908) 110 N. Y. S. 928. '70. Nelson v. Blanchfield', (Sup. 1869) 54 Barb. 630. See also Me- Donough V. Dillingham, (Sup. 1887) 43 Hun 493, 498, 7 State Rep. 137. 71. McDonoughi v. Dillingham., (Sup. 188-7) 43 Hun 493, 7 State Rep. 137. 72. People v. Stephens, (1878) 71 N. Y. 527. See also Pryor v. Foster, (1891) 130 N. Y. 171, 41 State Rep. 320, 29 N. E. 123, explaining People v. Stephens, supra. In People v. Stephens, supra, it ap- peared that a bidder for state work, by fraudulent combination with other bidders, secured the letting of his contract at an unreasonable compen- sation. After knowledge of this fact the state, through legislative enact- ments, required him to perform the contract and paid the agreed compen- sation. It was held that this showed an intent to waive any claim for damages and precluded the state from maintaining an action- therefor. § 224] I'RAUB S21 buyer accepts delivery and pays the agreed price, he thereby waives all rights or objections which he could have asserted or taken on account of the fraud.'^ Proof of Fraud § 224. In General. — In discussing the several elements of fraud and particular representations as the basis of a charge of fraud, particular matters of evidence in direct connection therewith have been heretofore considered. Fraud, it is said, is sometimes apparent from the intrinsic nature of the contract.''* The relation existing between the parties is to be considered, and for this purpose proof of other transactions between them may be admitted in evidence.'" And the nature of the transaction may be such as to admit of or even require a wide investigation into the surrounding and ante- cedent circumstances.'^ While a voluntary gift or conveyance will not necessarily be set aside because made to a donee standing in a relation of trust and confidence to the donor, yet a transaction of this nature is viewed by courts of equity with suspicion and scrutinized with extreme vigilance. To sustain such a transaction it is not enough that no fraud appears afSrmatively, but the pre- sumption is against the propriety of the transaction, and the burden rests on the party claiming under it to show that it was fair, well understood by the donor and freely entered into by him, and this must appear by evidence in addition to that derived from the execution of the instrument conferring the gift." To prove the falsity of a representation as to the prior profits of a business, evidence as to the receipts and profits while the business was being conducted by the buyer is not admissible.'* Thus it has been held, where a charge of fraud is made against a lessor of a moving picture theatre for misrepresentations as to the profits made by a 73. Vernol v. Vernol, (1875) 63 tion as to the assets, etc., of the.cor- N. Y. 45; People V. Stephens, (1878) poration). 71 N. Y. 527, 557. 77. Weller v. Weller, (Sup. 1887) 74. Hall V. Perkins, (1829) 3 44 Hun 172, 7 State Rep. 768, af- Wend. 626, 631. firmed 112 N. Y. 655 mem., 2 Silv. 75. James v. Work, (1893) 70 App. 134, 19 N. E. 433; Case v. Case, Hun 296, 54 State Rep. 166, 24 N. (Sup. 1888) 49 Hun 83, 17 State y_ s, 149. Rep. 313, 1 N. Y. S. 714. As to 76. Towusend v. Felthousen, (1898) undue influence see supra, section 156 N". Y. 618, 51 N. E. 279, affirm- 121. ing 90 Hun 89, 70 State Rep. 124, 78. Van Alen v. Trubenback, (Sup. 35 N. Y. S. 538 (fraud in sale of App. T. 1916) 159 N. Y. S. 153. stock consisting of misrepresenta- 21 322 NEW YORK LAW OF CONTRACTS [§ 225 prior lessee, that the fact that the plaintiff conducted the theatre at a loss is not admissible to show the falsity of the representa- tions.'' Declarations by the seller that the business had been con- ducted at a loss are admissible and may be sufficient to prove the falsity of his representation that the business had been conducted at a profit.^" Where it is sought to base a charge of fraud on a buyer's alleged statement of his financial condition, evidence to show why a demand for the statement was made may be admissible as corroborative evidence of the testimony that the statement was in fact made.^^ Thus where the charge is based on representations made to the salesman of the seller, through whom the sale was made, and it appears that there had been a long course of dealings between the parties without any statement having been required by the seller, evidence that the seller had instructed the salesman not to sell to the buyer because the seller had reason to suspect that the buyer was no longer in good financial condition has been held admissible.^^ To corroborate the testimony of a witness that a certain statement as to financial condition was in fact made, evidence that the witness at the time made a memorandum of the alleged statement should, it has been held, be considered.*' § 225. Effect of Parol Evidence Rule. — Though the contract is in writing, evidence of oral representations is admissible to prove fraud ; such evidence in no way violates the general rule excluding oral evidence to vary the terms of written contracts,** and the fact that the contract was acknowledged before a notary does not alter 79. Rosenwasser v. Amusement N. Y. 244; Adams v. Gillig, (1910) Enterprises, (Sup. App. T. 1914) 88 199 N. Y. 314, 92 N. E. 670, affirming Misc. 57, 150 N. Y. S. 561. Aa re- 131 App. Div. 494, 115 N. Y. S. 999; gards representations as to the past Sandford v. Handy, (Sup. 1840) 23 profits of a business as a basis for Wend. 260 ; Sharp v. New York, (Sup. a charge of fraud, see supra, section 1863) 40 Barb. 256, 25 How. Pr. 389; 194. Meyers v. Roseuback, (City Ct. G. T. 80. Butler v. Alter, (Sup. App. T. 1893) 5 Misc. 337, 55 State Rep. 498, 1913) 139 N. Y. S. 882. 25 N. Y. S. 521; Construction Re- 81. Scheftel v. Hatch, (Sup. G. T. porter Co. v. Crowninshield, (Sup. 1893) 70 Hun 597, 53 State Rep. 655, App. T. 1896) 16 Misc. 381, 38 N. 25 N. Y. S. 240. Y. S. 72; Brown v. Morrill, (Sup. 82. Scheftel v. Hatch, (Sup. G. T. App. T. 1907) 55 Misc. 224, 105 N. 1893) 70 Hun 597, 53 State Rep. 655, Y. S. 191; Marcus Brown Constr. 25 N. Y. S. 240. Co. v. Schlivek, (Sup. App. T. 1918) 83. Scheftel v. Hatch, (Sup. G. T. 170 N. Y. S. 430; Smith v. Harris, 1893) 70 Hun 597, 53 State Rep. (Sup. G. T. 1887) 7 State Rep. 479. 655, 25 N. Y. S. 240. But see Kreshover v. Berger, (Sup. 84. Thomas v. Beebe, (1862) 25 App. T. 1909) 62 Misc. 613, 116 N. § 225] FRAUD 323 the rule.*^ This is also true, it has been held, though the instru- ment expressly states that it contains the whole contract,*'^ or that no verbal agreements affecting the validity of the contract are to be recognized," or even recites that it is to be understood that the party alleged to have been guilty of fraudulent representation has not made any representation for the purpose of inducing the other party to enter into the contract.** Thus where proof of oral representations made at the time of executing a lease is offered, not for the purpose of showing that the lease was intended to pass something which by its terms was not passed, but to show what would have passed under the terms used if the representation Y. S. 20, aflarmed as to this but reversed on other grounds 135 App. Div. 27, 119 N. Y. S. 737. 85. Tannenbaum v. Schaffer, (Sup. App. T. 1910) 122 N. Y. S. 180. 86. Universal Fashion Co. v. Skin- ner, (Sup. 1892) 64 Hutt 293, 46 State Rep. 633, 19 N. Y. S. 62. 87. Scarsdale Pub. Co. v. Carter, (Sup. App. T. 1909) 63 Misc. 271, 116 N. Y. S. 731. 88. Bridger v. Goldsmith, (1894) 143 N. Y. 42.4, 62 State Rep. 435, 38 N. B. 45S, affirming 3 Misc. 535. 52 State Rep. 409, 23 N. Y. S. 9. In this case O'Brien, J., said ( 143 N. Y. 427-428 ) : " The question now is ■wheth.er it can be given the effect claimed for it by the learned coun- sel for the defendant, to preclude the plaintiff from alleging fraud in the sale and pursuing in the courts the remedies which the law gives in such cases. It cannot operate by way of estoppel for the obvious reason that the statements were false to the de- fendant's knowledge. He may, in- deed, have relied upon its force and efficacy to protect him from the con- sequences of his own fraud, but he certainly could not have relied upon the truth of any statement in it. A mere device of the guilty party to a contract intended to shield himself from the results of his own, fraud, practiced upon the other party, can- not well be elevated to the dignity and importance of an equitable estop- pel. If the clause has any effect whatever, it must be as a promise or agreement on the part of the plaintiff, that however grossly he may have been deceived and de- frauded by the defendant, he would never allege it against the transac- tion or complain of it, but would forever after hold his peace. It is difficult to conceive that such a clause could ever be suggested by a party to a contract, unless there was in his own mind at least a lingering doubt as to the honesty and integrity of his conduct. I assume that there is no authority that we are required to follow in support of the proposition that a party who has perpetrated a fraud upon his neighbor may, never- theless, contract with him in the very instrument by means of which it was perpetrated, for immunity against its consequences, close his mouth from complaining of it and bind him never to seek redress. Pub- lic policy and morality are both ignored if such an agreement can be given effect in a court of justice. The maxim that fraud vitiates every transaction would no longer be the rule but the exception. It could be applied then only in such cases as the guilty party neglected to pro- tect himself from his fraud by means of such a stipulation. Such a prin- ciple would in a short time break down every barrier which the law has erected against fraudulent dealing." 324 NEW YORK LAW OF CONTRACTS [§ 225 had been true, it is not subject to the objection that a written instrument cannot be varied by oral evidence.^' And the same is true as to oral representation as to the construction and condition of the premises.^" The fact that the contract is reduced to writing, without reference to any oral representations, is a consideration in favor of the contention that no representations were in fact made.^^ And where the contract itself contains express stipulations in relation to the subject matter of the alleged false representa- tions, or expressly provides that all the terms or representations made prior to the time of the contract are embraced therein, this is strong evidence that no representations not embraced in the contract were in fact made or relied on ; ^^ and where a contract for the sale of land provided that the land was to be subject to a state of facts shown on a certain survey, it was held that this indicated an intent to rely on the survey as to boundaries and all possible encroachments, and is inconsistent with a claim by the purchaser that he relied on representations by the vendor that the buildings did not encroach on the adjoining premises.^^ Prior to the Insurance Law false representations made in an application for life insurance could have been made a basis for a charge of fraud on the part of the insured, whether referred to or incor- porated in the policy or not. This law, however (Insurance Law, § 58; 27 McKinney's Cons. Laws, p. 79), provides that " every policy of insurance issued or delivered within the state on or after the first day of January, nineteen hundred and seven, by any life insurance corporation doing business within the state shall contain the entire contract between the parties and nothing shall be incor- porated therein by reference to any constitution, by-laws, rules, application or other writings unless the same are indorsed upon or attached to the policy when issued ; and all statements purporting to be made by the insured shall in the absence of fraud be deemed representations and not warranties. Any waiver of the provisions of this section shall be void." The construction given to this provision is that unless representations in the application for the 89. Sharp v. New York, (Sup. 92. Elk Realty Co. v. Boyce, (Sup. 1863) 40 Barb. 256, 25 How. Pr. 389. App. T. 1912) 76 Misc. 560, 135 N. 90. Meyers v. Rosenback, (City Ct. Y. S. 576. G. T. 1893) 5 Misc. 337, 55 State 93. Kresbover v. Berger, (Sup. Rep. 498, 25 N. Y. S. 521. 1909) 135 App. Div. 27, 119 N. Y. S. 91. Hottenroth v. Mickey, (Sup. 737, aflarming as to this but revers- 1917) 178 App. Div. 742, 165 N. Y. ing on other grounds 62 Misc. 27, 116 S. 845. N. Y. S. 20. § 226] FRAUD 325 policy are incorporated or referred to in the policy they cannot be made a basis of a charge of fraud for the purpose of avoiding the policy.'* § 226. Proof of Other Transactions; General Rule.— The quo animo of the transaction in question being the fact to be arrived at, it is competent to show that the party charged with the fraud in question was engaged in similar frauds at or about the same time.'" And where it is sought to charge a principal with the 94. Archer y. Equitable L. Assur. Soc, (1916) 218 N. Y. 18, 112 N. E. 433, affirming 169 App. Div. 43, 154 N. Y. S. 519; Becker v. Colonial L. Ins. Co., (Sup. 1912) 153 App. Div. 382, 138 N. Y. S. 491, affirming 75 Misc. 213, 133 N. Y. S. 481; Mees v. Pittsburgh L, etc., Co., (Sup. 1915) 169 App. Div. 86, 154 N. Y. S. 660; Aaronson v. New York L. Ins. Co., (Sup. App. T. 1913) 81 Misc. 228, 142 N. Y. S. 568; Murphy v. Colonial L. Ins. Co., (Sup. App. T. 1914) 83 Misc. 475, 145 N. Y. S. 196, modified on other grounds and affirmed 163 App. Div. 875, 147 N. Y. S. 565; Cohen v. Metropolitan L. Ins. Co., (Sup. App. T. 1914) 8a Misc. 406, 147 N. Y. S. 434. In Archer v. Equitable L. Assur. Soc, (1916) 218 N. Y. 18, 25, 112 N. E. 433, Collins, J., said: "The section is remedial. It modifies rules of the common, law. The law is, that in determining whether or not a stat- ute abrogates or modifies a rule of the common law, the construction of the statute must be strict; when, however, a remedial statute does re- place in whole or in part common- law rules, it must be given an: appli- cation, liberal and, within its lan- guage, commensurate with its purpose. In the requirements that the policy should contain the entire contract and that ' all statements purporting to be made by the insured shall in the absence of fraud be deemed repre- sentations and not warranties,' the legislature enacted, through impli- cation, that all statements made by the assured shall be purported by, or made to appear upon, the face of the policy. The section enacts : ( a ) The policy, that is, the document, shall contain the entire contract; (b) noth- ing shall be incorporated in the con- tract by reference to another writing or document not indorsed upon or attached to the policy when issued; (e) all the statements made by the insured, as warranties or represen- tations, are those which appear upon the face of the policy; (d) all state- ments, which in form are warranties, shall in the absence of fraud be deemed representations and not war- ranties; and (e) any waiver of the provisions of this section shall be void. Whether or not fraud not re- lating to warranties or representa- tions as defined by the law relating to life insurance, and, therefore, not affected by the section, may enter into and make void the contract, we do not consider." 95. Hall V. Naylor, (1859) 18 N. Y. 588, affirming as to this and re- versing on other grounds 13 Super. Ct. 71; Miller v. Barber, (Sup. 1876) 66 N. C. 558, 568 ; Darling v. Klock, (Sup. 1898) 33 App. Div. 270, 274, 53 K. Y. S. 593; Chisholm v. Eisen- huth, (Sup. 1902) 69 App. Div. 134; 74 N. Y. S. 496; Ettlinger v. Weil, (Sup. 1904) 94 App. Div. 291, 87 N. Y. S. 1049, reversed on other grounds 184 N. Y. 179, 77 N. E. 31; Allison V. Matthieu, (Sup. 1808) 3 Johns. 235; Gary v. Hotaling, (Sup. 1841) 1 Hill 311; Slingerland V. Ben- nett, (Sup. 1875) 6 Thomp. & C. 446, 4 Hun 277 ; Hersey v. Benedict, (Sup. 1878) 15 Hun 282; Naugatuek Cut- lery Co. V. Babcock, (Sup. 1880) 22 Hun 481; Bruen v. Bruen, (Chan. Ct, 326 NEW YORK LAW OF CONTRACTS r§ 226 fraud of his agent, proof of other frauds of such agent while! acting for his principal may be admitted for this purpose.'' It is of no cons^uence, it has been held, whether the similar fraud was successful or not, as the same principle on which the evidence of contemporaneous fraud is admitted, as bearing on the intent of the party in committing the fraud principally in question, would lead to the admission of an attempt to commit a similar fraud, at about the same time, by similar means, whether successful or not.'' Most cases, however, refuse to extend the rule to other attempts to defraud which were unsuccessful.'* As said by Dwight, P. J., in this connection : ' ' The rule which admits evidence of one fraud to prove another is at best so exceptional in its character that, although well established, it will not be extended beyond the limits already assigned to it. " '' In application of the general rule, it is well established that for the purpose of avoiding a sale on credit on the ground of fraudulent representations by the buyer as to his financial condition or because the purchase was made with no intent to pay for the goods, evidence of similar fraudulent purchases at or about the time of the purchase in question is admissible.^ 1845) 4 Edw. Ch. 640; Frencli v. White, (Super. Ct. 1856) 12 Super. Ct. 254; Lalor v. Fisher, (Super. Ct. 1864) 25 Super. Ct. 669; Ryle v. Brown, (Super. Ct. 18S4) 50 Super. Ct. 174, affirmed 101 N. Y. 684 mem.; Sim- mons V. Fay, (Com. PI. 1850) 1 E. D. Smith 107; Meyer v. Goedel, (Sup. G. T. 1865) 31 How. Pr. 456; Fay v. Lynch, (Sup. G. T. 1883) 17 Wldy. Dig. 348, affirmed 101 N. Y. 643 mem.; Paterson Second Nat. Bank v. Dix, (App. 1885) 23 Wkly. Dig. 367. See also Amsden v. Manchester, (Sup. 1862) 40 Barb. 158. 96. Chisholm v. Eisenhuth, (Sup. 1902) 69 App. Div. 134, 74 N. Y. S. 496. 97. Hersey v. Benedict, (Sup. 1878) 15 Hun 282. 98. Darling v. Klock, (Sup. 1898) 33 App. Div. 270, 53 N. Y. S. 593, affirmed 165 N. Y. 623 mem., 59 N. E. 1121; Wheeler, etc., Mfg. Co. v. Keeler, (Sup. 1892) 65 Hun 508, 511, 48 State Rep. 184, 20 N. Y. S. 388. See also Hall v. Naylor, (1859) 18 N. Y. 588; Bach v. Tuch, (Sup. G. T. 1890) 32 State Rep. 941, 942, 10 N. Y. S. 884. 99. Wheeler, etc., Mfg. Co. v. Keeler, (Sup. 1892) 65 Hun 508, 511, 48 State Rep. 184, 20 N. Y. S. 388. 1. Hall V. Naylor, (Sup. 1859) 18 N. Y. 588, affirming as to this but reversing on other grounds 13 Super. Ct. 71; Hennequin v. Naylor, (1861) 24 N. Y. 139; Hathorne v. Hodges, (1864) 28 N. Y. 486; Van Kleek v. Leroy, (App. 1867) 4 Abb. App. Dec. 479, 4 Abb. Pr. N. S. 431, 4 Trans. App. 295; Converse v. Sickles, (Sup. 1897) 16 App. Div. 49, 44 N. Y. S. 1080, affirmed 161 N. Y. 666 mem., 57 N. E. 1107; Cary v. Hotailing, (Sup. 1841) 1 Hill 311; Thurman v. Mosher, (Sup. 1874) 1 Hun 344, 3 Thomp. & C. 583; Hersey v. Benedict, (Sup. 1878) 15 Hun 282; Naugatuck Cutlery Co. v. Baboock, (Sup. 1880) 22 Hun 481; Davenport Glucose Mfg. Co. V. Taussig, (Sup. 1884) 31 Hun 563, 5 Civ. Pro. 69; Sommer v. Op- penheim, (Sup. App. T. 1897) 19 §§ 227, 228] FRAUD 327 § 227. Qualification of General Rule as to Proof of Other Trans- actions. — To render proof of other transactions admissible they must be so connected in point of time and so similar in their other relations, that the same motive may reasonably be imputed to them all.^ And where the fraud charged against an insolvent buyer was an intent not to pay for the goods, evidence of a false statement of his financial condition made to a bank shortly previous to the purchase, for the purpose of securing future credits, was held properly excluded where no extension of credit was in fact procured or applied for on the strength of such statement.^ Proof of the other transactions is to be considered merely as evidence of the intent of the party charged with the fraud in question and not as independent proof of fraud unconnected with representations made in the transaction in question.* The fraud in other trans- actions must be proved as other facts are, and therefore hearsay evidence is not admissible for such purpose,^ and the evidence of such other alleged fraud must be sufficient to show that a fraud was in fact committed or attempted.' § 228. Questions of Law and Fact. — Fraud is ordinarily a question of fact for the jury or the court, sitting as a trier of fact, to determine.'' And it is said that " questions of fraud, above all Misc. 605, 44 N. Y. S. 396, aflBrming Knickerbocker Ice Co., (Com. PI. 18 Misc. 736 mem., 41 N. Y. S. 1132; G. T. 1891) 36 State Rep. 730, 12 Bliss V. Sickles, (Sup. G. T. 1892) N. Y. S. 928; Whitmore v. Patter- 50 State Rep. 139, 21 N. Y. S. 273, son, (App. 1883) 16 Wkly. Dig. 544. aflBrmed 142 N. Y. 647, 59 State Rep. See also Bach v. Tuch, (Sup. G. T. 168, 36 N. E. 1064; Goodwin v. 1890) 32 State Rep. 941, 10 N. Y. S. Goldsmith, (Super. Ct. 1883) 49 884, affirmed on other grounds 126 Super. Ct. 101, affirmed 99 N. Y. 149, N. Y. 53, 36 State Rep. 363, 26 N. E. 1 N E. 404. 1019; Whitmore v. Patterson, (Com. a.' Hall v.Naylor, (1859) 18 N. Y. PI. G. T. 1879) 8 Wkly. Dig. 452. 588 reversing 13 Super. Ct. 71; Hub- 5. Stewart v. Potter, (Com. PI. G. bell V. Meigs, (Sup. G. T. 1870) 4 T. 1869) 37 How. Pr. 68. Lans. 214, 224, reversed on other 6. Meyer v. Cullen, (1873) 54 N. Y. grounds 50 N. Y. 480. See also 392. Smolowitz V. Orbach, (Sup. App. T. 7. Salisbury v. Howe, (1881) 87 1913) 141 N. Y. S. 527. N. Y. 128, 13 Wkly. Dig. 448; Town- 3. Wheeler, etc., Mfg. Co. v. Keeler send v. Felthousen, (1898) 156 N. Y. (Sup 1892) 65 Hun 508, 48 State 618, 51 N. E. 279, affirming 90 Hun Rep. 184, 20 N. Y. S. 388. 89, 70 State Rep. 124, 35 N. Y. S. 4 Van Kleeck v. Le Roy, (Sup. 538; Gray v. Richmond Bicycle Co., 1862) 37 Barb. 544, affirmed 4 Abb. (1901) 167 N. Y. 348, 60 N. E. 663, App. Dec. 479, 4 Abb. Pr. N. S. 431, reversing 40 App. Div. 506, 58 N. Y. 4 Trans App. 295; Thurman v. S. 182; Darling v. Klock, (Sup. 1898) Mosher, (Sup. 1874) 1 Hun 344 3 33 App. Div. 270, 53 N. Y. S. 593; Thomp & C. 583; Winchell v, Grocki© v, Hirsfield, (Sup. 1900) 50 328 NEW YORK LAW OF CONTRACTS [§ 228 others," if evidence has been given tending to prove the same, ' ' ate for the jury. ' ' * Still it is a question of law whether the evidence tends in any respect to make out fraud, and if fraud is found as a conclusion of fact, where there is no evidence tending to such conclusion, it is the duty of the court to set the finding aside,' and if there is no evidence legitimately tending to prove the alleged fraud, the issue is properly taken from the jury.^" As said by Johnson, J. : " Fraud is a question of fact for a jury where there is any evidence fairly tending to establish it. But whether the evidence tends to establish fraud, or not, is always a question of law for the court. ' ' ^^ But the court is not justified in taking the issue from the jury merely because if a verdict should be rendered finding fraud it would have been acting within its dis- cretionary power in setting it aside as against the weight of the evidence.^^ It is sufficient to require its submission to the jury App. Div. 87, 63 N. Y. S. 365; Hill; V. Chaomberlain, (Sup. 1901) 64 App.'i Div. 609, 71 N. Y. S. 639, affirmed 170 N. Y. 595 mem., 63 N. E. 1117; Roessle v. Lancaster, (Sup. 1909) 130 App. Div. 1, 114 N. Y. S. 387; Culver V. Avery, (Sup. 1831) 7 Wend. 380; Taylor v. Tillotson, (Ct. Err. 1836) 16 Wend. 494; Weidner V. Phillips, (Sup. G. T. 1886) 39 Hun 1, reversed on other grounds 114 N. Y. 458, 23 State Rep. 762, 21 N. E. 1011; Dunlop V. Wilken, (Sup. 1895) 87 Hun 618 mem., 67 State Rep. 451, 33 N. Y. S. 807; Hemen- way V. Keeler, (Sup. 1895) 88 Hun 405, 68 St. Rep. 819, 34 N. Y. S. 808; Gage V. Peetsch, (City Ct. G. T. 1896) 16 Misc. 291, 74 State Rep. 577, 38 N. Y. S. 124; Hines v. John Hancock Mut. L. Ins. Co., (City Ct. G. T. 1900) 31 Misc. 809 mem., 63 N. Y. S. 973; Kobro v. Schlomowitz, (Sup. App. T. 1904) 88 N. Y. S. 156; Schumaker v. Mather, (Sup. G. T. 1891) 38 State Rep. 542, 14 N. Y. S. 411, affirmed 133 N. Y. 590, 44 State Rep. 754, 30 N. E. 755, 4 Silv. App. 224; Ahernethy v. Franklin, (Sup. G. T. 1877) 4 Wkly. Dig. 328. 8. Gray v. Richmond Bicycle Co., (1901) 167 N. Y. 348, 359, 60 N. E. 663; Foote v. Leary, (Sup. 1905) 103 App. Div. 547, 93 N. Y. S. 169. --■ 9. Gage v. Parker, (Sup. 1857) 25 Barb. 141; Erwin v. Voorhees, (Sup. 1857) 26 Barb. 127; Elk Realty Co. V. Boyce, (Sup. App. T. 1912) 76 Misc. 560, 135 N. Y. S. 576. 10. Babcock v. Libbey, (1880) 82 N. Y. 144, affirming 17 Hun 131, which affirmed 53 How. Pr. 255; Macullar v. McKinley, (1885) 99 N. Y. 353, 2 N. E. 9; Robinson v. Vaughn, (Sup. 1900) 49 App. Div. 170, 63 N. Y. S. 197; Bloomingdale V. Southern Nat. Bank, (Sup. 1901) 63 App. Div. 72, 71 N. Y. S. 306; Grosjeanv. Galloway, (Sup. 1903) 82 App. Div. 380, 81 N. Y. S. 871; Less- ler V. De Loynes, (Sup. 1912) 150 App. Div. 868, 135 N. Y. S. 948, affirmed on rehearing 153 App. Div. 903, 138 N. Y. S. 503; Erwin v. Voorhees, (Sup. 1857) 26 Barb. 127, 130; Prentiss Tool, etc., Co. v. Schirmer, (Sup. G. T. 1892) 45 State Rep. 20, 17 N. Y. S. 662, affirmed 136 N. Y. 305, 49 State Rep. 399, 32 N. E. 849; Cook v. Berrott, (Sup. G. T. 1892) 50 State Rep. 163, 21 N. Y. S. 358; Nelson v. Luling, (Su- per. Ct. G. T. 1873) 36 Super. Ct. 544, 46 How. Pr. 355. 11. Erwin v. Voorhees, (Sup. 1857) 26 Barb. 127, 130. 12. Foote V. Leary, (Sup. 1905) 103 App. Div. 547, 93 N. Y. S. 169. § 229] FRAUD 329 " if there is a foundation in the evidence for a conclusion either way that would not shock the sense of a reasonable man. " " It has been held, where the relief sought is by way of rescission and the plaintiff testifies directly as to the making of the false repre- sentations by the defendant, and the latter when examined as a witness does not deny that he made them, simply replying to the question whether he had done so or not, that he had not to his knowledge done so and that he was not sure whether he had made them or not, that it is proper to direct a verdict for the plaintiff, as a finding for the defendant on the issue whether the representa- tions were made or not would have been clearly against the evidence. In such a case it is the testimony of the plaintiff, corroborated by the fact that the defendant was examined as a witness in his own behalf and that he refuses to contradict the plaintiff, which justifies the court in assuming that the testimony which the defendant refuses to contradict is true.^* § 229. Quantum of Proof. — Fraud must be proved affirma- tively, and the burden of doing so is upon the party alleging it.^^ See also Ochs v. Woods, (1917) 221 N. Y. 335, 117 N. E. 305, affirming IfiO App. Div. 740, 146 N. Y. S. 4, which, reversed' the judgment of the trial court and dismissed the com- plaint instead of directing a new trial; Grockie v. Hirsiield, (Sup. 1900) 50 App. Div. 87, 63 N. Y. S. 365; Hines v. John Hancock Mut. L. Ins. Co., (City Ct. Q. T. 1900) 31 Misc. 809 mem., 63 N. Y. S. 973. 13. Gray v Richmond Bicycle Co., (1901) 167 N. Y. 348, 359, 60 N. E. 663, reversing 40 App. Div. 506, 58 N. Y. S. 182. 14. Lamhert v. Elmendorf, (Sup. 1908) 124 App. Div. 758, 109 N. Y. S. 574. 15. Nichols v. Pinner, (1858) 18 N. Y. 295, 300; Wakeman v. Dalley, (1872) 51 N. Y. 27; Morris v. Tal- cott, (1884) 96 N. Y. 100, 107; Mc- Intyre v. Buell, (1892) 132 N. Y. 192, 43 State Rep. 715, 30 N. E. 396; Kley V. Healy, (1896) 149 N. Y. 346, 44 N. E. 150; Powell v. F. C. Linde Co., (Sup. 1901) 58 App. Div. 261, 68 N. Y. S. 1070, affirmed 171 N. Y. 675 mem., 64 N. E. 1125; Stewart v. Dunn, (Sup. 1902) 77 App. Div. 631, 79 N. Y. S. 123; Prahar v. Tousey, (Sup. 1904) 93 App. Div. 507, 87 N. Y. S. 845; Carbonating Appara- tus Co. V. Geary, (Sup. 1907) 122 App. Div. 410, 106 N. Y. S. 768; Wilhelm v. Wood, (Sup. 1912) 151 App. Div. 42, 135 N. Y. S. 930; Hew- lett V. Saratoga Carlsbad Spring Co., (Sup. 1895) 84 Hun 248, 65 State Rep. 843, 32 N. Y. S. 697; Mason v. Wheeler, ( Super. Ct. Eq. T. 1893) 2 Misc. 523, 24 N. Y. S. 879; Parfitt V. Kings County Gas, etc., Co., (Sup. Sp. T. 1895) 12 Misc. 278, 67 State Rep. 814, 33 N. Y. S. 1111; Brehm v. Gushal, (Sup. Sp. T. 1900) 31 Misc. 112, 64 N. Y. S. 927; Bel- lettiere v. Lawlor, (Sup. App. T. 1905) 47 Misc. 161, 93 N. Y. S. 471; Jamestown v. Arter, (Sup. Sp. T. 1907) 55 Misc. 629, 106 N. Y. S. 1027; Creamer v. Peshkin, (Sup. App. T. 1913) 81 Misc. 167, 142 N. Y. S. 333; Dicken v. Cohen, (Sup. App. T. 1903) 84 N. Y. S. 189; Can- dia V. Peseia, (Sup. App. T. 1909) 120 N". Y. S. 32; St. Dunstan Soc. v. Mendelson, (Sup. App. T. 1909) 120 330 NEW YOEK LAW OF CONTRACTS [§ 229 This principle is expressed in the maxim, odiosa et inhonesta non sunt in lege praesumenda." Where the evidence is as consistent with innocence as with wrongdoing, that construction must be put upon it which will exonerate the party implicated from a dishonest intent." "A party," says Ruger, Ch. J., " relying upon the establishment of a cause of action, or a right to a remedy against another, based upon the alleged commission of a fraud by such person, must show affirmatively facts and circumstances necessarily tending to establish a probability of guilt, in order to maintain his claim. When the evidence is capable of an inter- pretation which makes it equally as consistent with the innocence of the accused party as with that of his guilt, the meaning must be ascribed to it which accords with his innocence rather than that which imputes to him a criminal intent. ' ' '* Appellate courts in reviewing the sufficiency of the evidence to prove the charge of fraud have made various statements as to the degree of proof required. It has been said that the evidence to prove fraud should be clear,^' or direct and strong,^** to authorize the repudia- tion of a contract on that ground. It has also been said that con- veyances of real estate can be invalidated only by evidence ' ' clear and convincing beyon d reasonable controversy. " ^' It is not neces- sary, however, as a general rule to prove the fraud beyond a reason- able doubt as in criminal eases.^ ' ' Nothing more is required, ' ' it is said, " than that the evidence shall be sufficient to satisfy the N. Y. S. 49 ; Tannenbaum v. Schaffer, N. Y. 295, 300 ; Baird v. New York, (Sup. App. T. 1910) 122 N. Y. S. (1884) 96 N. Y. 567, reversing 18 180; Nelson v. Luling, (Super. Ct. Wkly. Dig. 39; Hatch v. Spooner, 1873) 36 Super. Ct. 544, 46 How. Pr. (Sup. G. T. 1891) 37 State Rep. 151, 355, affirmed 62 N. Y. 645; Brown v. 13 N. Y. S. 642. Ashbough, (Sup. Sp. T. 1870) 40 21. Taylor v. Taylor, (Sup. G. T. How. Pr. 226; Jaffray v. Cunning- 1890) 35 State Rep. 622,' 625, 13 ham, (City Ct. 1884) N. Y. Daily N. Y. S. 55, affirmed 129 N. Y. 623 Reg. April 17, 1884. mem., 29 N. E. 1029. See also La 16. Nichols V. Pinner, (1858) IS Tourette v. La Tourette, (Sup. 1900) N. Y. 295, 300. 54 App. Div. 137, 66 N. Y. S. 430, 17. Aspell V. Campbell, (Sup. 1901) appeal dismissed 167 N. Y. 613, 60 64 App. Div. 393, 72 N. Y. S. 76. N. E. 1115. See also Mackellar v. Thompson, 22. Sommer v. Oppenheim, (Sup. (Sup. 1907) 119 App. Div. 36, 103 App. T. 1897) 19 Misc. 605, 44 N. Y. N. Y. S. 853. S. 396, affirming 18 Misc. 736 mem., 18. Morris v. Talcott, (1884) 96 41 N. Y. S. 1132; Bienenstok v. Am- N. Y. 100, 107. midown, (Super. Ct. Tr. T. 1894) 31 19. W. N. Hallock Co. v. Haig, Abb. N. Cas. 400, 59 State Rep. 441, (Sup. App. T. 1916) 156 N. Y. S. 29 N. Y. S. 593, affirming 11 Misc. 353. 76, 32 N. Y. S. 1138 mem. 20. Nichols V. Pinner, (1858) 18 § 230] FEAUD 331 conscience of a common man, although the evidence does not amount to absolute certainty. " ^^ No " presumption of inno- cence " as known to the criminal arises in favor of the party charged with fraud. This presumption has no proper place in the trial of civil actions.^* Fraud may be proved by circumstantial evidence.^^ " The motive," says James, J., " with which an act is done may be, and often is, ascertained and determined by inferences drawn from the proof of facts and circumstances con- nected with the transaction and the parties to it. . . . 'A deduction of fraud may be made not only from deceptive assertions and false representations, but from facts, incidents and circumstances; such even as may be trivial in themselves, but in a given case often decisive of a fraudulent design.' In cases where there is no overt act of fraud, it is often very difficult to prove a dishonest purpose. In all such cases, instead of proving false representa- tions or other fraudulent practices, resort is had to various inci- dents and circumstances which are calculated to exhibit the hidden purposes of the actor 's mind. " ^* If the finding of the jury or the trial court sitting as a trier of fact upholding the charge of fraud is clearly against the weight of the evidence, an appellate court should not hesitate to set it aside." Pleading Fraud Generally § 230. In General. — Ordinarily fraud as a defense to the enforcement of a contract must be pleaded ; ^* but where the action is brought on an oral contract, and the defendant sets up as a 25. Bienenstok v. Armnidown, App. Div. 793, 152 N. Y. S. 385 ; Gal- ( Super. Ct. Tr. T. 1894) 31 Abb. N. inger v. Tannenbaum, (Sup. 1915) Gas. 400, 59 State Rep. 471, 29 N. Y. 168 App. Div. 888, 152 N. Y. S. 586; S. 593. Hottenroth v. Mickey, (Sup. 1917) 24. New York County Nat Bank v. 178 App. Div. 742, 165 N. Y. S. 845; Herrman, (Sup. 1916) 173 App. Div. Rosenkranz v. Eagle Sav., etc., Co., 814, 160 N. Y. S. 422. See also Kurz (Sup. 1917) 180 App. Div. 388, 167 V. Doerr, (1904) 180 N. Y. 88, 91, N. Y. S. 781; Conlon v. Marsh, (Sup. 72 N. E. 926. 1920) 190 App. Div. 396, 180 N. Y. 25. Clark v. Baird, (1853) 9 N. Y. S. 204; Hatch v. Spooner, (Sup. G. T. 183, 1?6, 1 Seld. Notes 187. 1891) 37 State Rep. 151, 13 N. Y. S. 26. Hennequin-v. Naylor, (1861)24 642. See also Mackellar v. Thomp- N. Y. 139, 141. son, (Sup. 1907) 119 App. Div. 36, 27. Apgar v. Connell, (Sup. 1912) 103 N. Y. S. 853. 150 App. Div. 424, 134 N. Y. S. 1093; 28. Midler v. Lese, (Sup. App. T. Gilsey v. Lancaster, (Sup. 1914) 164 1904) 45 Misc. 637, 91 N. Y. S. 148; App. Div. 663, 150 N. Y. S. 178; Cohen v. Miller, (Sup. App. T. 1904) Mecum v. Mooyer, (Suu. 1915) 166 46 Misc. 106, 91 N. Y. S. 345; Ault- 332 NEW YORK LAW OF CONTRACTS [§ 230 defense thereto a subsequent written contract relating to the same subject matter, the allegation of the answer will, though no reply- is served, be deemed denied, and the plaintiff is entitled to prove fraud in avoidance of the written agreement.^' The same view has been taken where an award was pleaded in defense to an action on an insurance policy, and the insured has been permitted to attack the award without pleading the fraud.'" So where a release is pleaded as a defense it may be attacked for fraud with- out fraud being pleaded.'^ The facts constituting the fraud, whether pleaded as a defense or as ground for affirmative relief, must be alleged; that is to say, the complaint must set forth the issuable or ultimate facts on which the claim of fraud is predi- cated.'^ " The burden," says Smith, J., " of charging as well as proving fraud is on the party alleging it; and while it is not necessary or proper that he should spread out in his pleading the evidence on which he relies, he must aver, fully and explicitly, the facts constituting the alleged fraud; mere conclusions will not man v. Hacker, (Sup. G. T. 1891) 38 State Rep. 724, 14 N. Y. S. 744; Stafford Pavement Co. v. Monheimer, (Super. 1876) 41 Super. Ct. 184. 29. Nesbit v. Jencks, (Sup. 1903) 81 App. Div. 140, 80 N. Y. S. 1085. 30. Sullivan v. Traders' Ins. Co., (1901) 169 N. Y. 213, 62 N. E. 146, reversing 45 App. Div. 631 mem., 61 N. Y. S. 1149. But see Townsend v. Greenwich Ins. Co., (Sup. Tr. T. 1902) 39i Misc. 87, 78 N. Y. S 890, affirmed on other grounds 86 App. Div. 323, 33 N. Y. S. 909, which ia affirmed 178 N. Y. 634 mem., 71 N. E. 1140. 31. Jackson v. Brown, (Sup. 1894) 76 Hun 41, 59 State Rep. 632, 27 N. Y. S. 583. See also Fleming v. Brooklyn Heights R. Co., (Sup. 1904) 95 App. Div. 110, 88 N. Y. S. 732. 32. Cohn V. Goldman, (1879) 76 N. Y. 284, reversing 43 Super. Ct. 436; Wood v. Amory, (1887) 105 N. Y. 278, 7 State Rep. 372, 11 N. E. 636, 26 Wkly. Dig. 298; Knowles v. New York, (1903) 176 N. Y. 430, 68 N. E. 860, affirming 74 App. Div. 632 mem., 77 N. Y. S. 1130, which af- firmed 37 Misc. 195, 75 N. Y. S. 189; New York, etc., Transp. Co. v. Tyro- ler, (Sup. 1898) 25 App. Div. 161, 48 N. Y. S. 1095; Woolsey v. Sunder- land, (Sup. 1900) 47 App. Div. 86, 62 N. Y. S. 104; Booth v. Dodge, (Sup. 1901) 60 App. Div. 23, 69 N. Y. S. 673; Eccardt v. Eisenhauer, (Sup. 1902) 74 App. Div. 35, 77 N. Y. S. 18; Beadleston v. Furrer, (Sup. 1905) 102 App. Div. 544, 92 N. Y. S. 879; Kranz v. Lewis, (Sup. 1906) 115 App. Div. 106, 100 N. Y. S. 674, 37 Civ. Pro. 368; McCormack v. McCormack, (Sup 1908) 127 App. Div. 406, 111 N. Y. S. 563; Hull v. Hull, (Sup. 1916) 172 App. Div. 287, 158 N. Y. S. 743; Meisel v. Central Trust Co., (Sup. 1917) 179 App. Div. 795, 167 N. Y. S. 143, affirmed 223 N. Y. 589> mem., 119 N. E. 1069; Steiner v. American Alcohol Co., (Sup. 1918) 181 App. Div. 309, 168 N. Y. S. 739; Butler v. Veile, (Sup. 1864) 44 Barb. 166; Reed v. Clark Cove Guano Co., (Sup. 1888) 47 Hun 410, 14 SUte Rep. 560; Forker v. Brown, (Com. PI. G. T. 1894) 10 Misc. 161, 62 State Rep. 480, 30 N. Y. S. 827; MacGinniss v. Amalgamated Copper Co., (Sup. Sp. T. 1904) 45 Misc. 106, 91 N. Y. S. 591 ; Smith v. Irvin, (Sup. Sp. T. 1904) 45 Misc. § 230] FRAUD 333 avail. ' ' '^ There is no hardship in this rule, because the party complaining of the fraud must be aware of the means by which it was perpetrated.^* A general allegation, therefore, that the executory contract sought to be enforced was procured by means of fraudulent representations and other fraudulent and unlawful practices, is insufficient, as it is nothing more than an empty con- clusion of law ; ^ and in a suit to set aside a deed a general allega- tion that the grantee procured the deed by ' ' false and fraudulent representations and practices ' ' is insufficient.^* All the false repre- sentations intended to be relied on to prove the fraud should be alleged. The same reason exists for requiring all the facts to be pleaded on which fraud is predicated as for requiring any.^' And where a specific allegation of certain false representations is fol- lowed by a general allegation of " other false and fraudulent representations," no proof of any but those specifically alleged should be admitted, for if by adding to the specific facts the formula " other false and fraudulent representations," the scope of admissible evidence could be enlarged, the general rule requir- ing the facts to be pleaded would be of no effect.** The plaintiff is not required, however, to set out every statement of equivalent words.'^ And the evidence to be relied on for proof of the fraud need not be stated, it being sufficient if the nature of the charge is apparent.*" If the objection that the pleading alleges conclusions of law merely and not issuable facts is not taken until the trial by way of objection to evidence, a liberal rule of construction for 262, 92 N. Y. S. 170, affirmed 102 37. Thurman v. Masher, (Sup. App. Div. 614, 92 N. Y. S. 1146; 1874) 1 Hun 344, 3 Thomp. & C. Standard Fashion Co. v. Weinstock, 583; Reed v. Clark Cove Guano Co., (Sup. App. T. 1908) 111 N. Y. S. (Sup. 1888) 47 Hun 410, 14 State 513; King v. Murphy, (County Ct. Rep. 560. 1914) 151 N. Y. S. 476; Albany Sav. -38. Reed v. Clark Cove Guano Co., Bank v. Kingsbury-Leahy Co., (Sup. (Sup. 1888) 47 Hun 410, 14 State Sp. T. 1919) 178 N. Y. S. 195; Wells Rep. 560. V. Jewett, (Sup. Sp. T. 1855) 11 39. Updike v. Abel, (Sup. 1871) How. Pr. 242. 60 Barb. 15. 33. Butler v Veile, (Sup. 1864) 44 40. Cantner v. Auerbach, (Sup. Barb. 166, 167. App. T. 1897) 20 Misc. 281, 45 N. Y. 34. Reed v. Clark Cove Guano Co., S. 8'46, affirming 20 Misc. 6, 44 N. Y. (Sup. 1888) 47 Hun 410, 14 State S. 601; Smith v. Irvin, (Sup. Sp. T. Rep. 560. 1904) 45 Misc. 262, 92 N. Y. S. 170, 35. Ellis V. Keeler, (Sup. 1908) affirmed 102 App. Div. 614 mem., 92 126 App. Div. 343, 110 N. Y. S. 542. N. Y. S. 1146. 36. Butler v. Veile, (Sup. 1864) 44 Barb. 166. 334 NEW YORK LAW OF CONTRACTS I§ 231 the purpose of upholding the pleading should be adopted." It has been established from an early date, where a recovery of dam- ages is sought agaiast a seller for his fraudulent representations as to the subject matter of the sale, that the particulars of the con- tract of sale need not be set out.*^ § 231. Variance. — The proof of fraud must conform to the allegations.^' If, however, the representation proved is the same in effect as that alleged, though not identical in language, and no prejudice could have resulted from the variance, it may be dis- regarded ; *^ and where various false representations are alleged all need not be proved.^^ Where the action is for fraud, it cannot be maintained, without amendment, on the ground of mutual mistake ; *^ or on contract," as where the action is in tort for false representations by a seller and recovery without amendment is sought on a breach of warranty,^* but the fact that the complain- 41. Eppley v. Kennedy, (1910) 198 N. y. 348, 91 N. E. 797, reversing 131 App. Div. 1, 115 N. Y. S. 360. 42. Corwin v. Davison, (Sup. 1828) 9 Cow. 22; Barney v. Dewey, (Sup. 1816) 13 Johns. 224. 43. Kirwin v. Malone, (Sup. 1899) 45 App. Div. 93, 61 N. Y. S. 844; Absalon v. Sickinger, (Sup. 1905) 102 App. Div. 383, 92 N. Y. S. 601; Reilly v. Haseltine (Nos. 1, 2), (Sup. 1908) 127 App. Div. 64, 111 N. Y. S. 457 ; Willoughby v. Fredonia Nat. Bank, (Sup. 1893) 68 Hun 275, 52 State Rep. 387, 23 N. Y. S. 46; Kley V. Healy, (Com. PI. G. T. 1894) 9 Misc. 93, 59 State Rep. 692, 29 N. Y. S. 3, afiBrmed 149 N. Y. 346, 44 N. E. 150; Gray v. Palmer, (Super. Ct. 1864) 25 Super. Ct. 500, affirmed 41 N. Y. 620 mem. 44. Goosler v. Lissburger, (Sup. G. T. 1884) 19 Wkly. Dig. 291. 45. Yates V. Alden, (Sup. 1863) 41 Barb. 172; Culliford v. Gadd, (Super. Ct. G. T. 1892) 60 Super. Ct. 343, 44 State Rep. 222, 17 N. Y. S. 457, af- firmed 139 N. Y. 618 mem., 35 N. E. 205. 46. Dudley v. Scranton, (1874) 57 N. Y. 424; McMichael v. Kilmer, (1879) 76 N. Y. 36, distinguishing Kemp v. Knickerbocker Ice Co., (1877) 69 N. Y, 45. It may become a difficult question to discriminate between a case which is the result of innocent misrepresen- tation and upon which fraud may be predicated, even though moral turpi- tude be not present, and a case where by reason of a mistaken understand- ing of the premises both parties are misled and both act under a mutual misapprehension. Under such cir- cumstances the pleading is not the subject of attack which avers both the fraud and the mistake. Against such a pleading the party may be protected by requiring the pleader to elect upon the trial of the case upon which ground he proposes to stand. L. D. Garret Co. v. Astor, (1902) 67 App. Div. 595, 73 N. Y. S. 966. 47. De Graw v. Elmore, (1872) 50 N. Y. 1; Vandervort v. Mink, (Sup. 1906) 113 App. Div. 601, 98 N. Y. S. 772; Barbrick v. Carrero, (Sup. 1918) 184 App. Div. 160, 171 N. Y. S. 447; Hagenaers v. Caballero, (Sup. 1919) 188 App. Div. 643, 177 N. Y. S. 313; Lustenberger v. Lustenberger, (Sup. App. T. 1912) im N. Y. S. 428. 48. Ross v. Mather, (1872) 51 N. Y. 108, reversing 47 Barb. 582; Vandervort V. Mink, (Sup. 1906) 113 App. Div. 601, 98 N. Y. S. 772; Edick V. Crim, (Sup. 1851) 10 Barb. 445; Cowan V. Ganung, (County Ct. 1908) § 231] FRAUD 335 ant alleges that the warranty was ' ' fraudulently ' ' made does not necessarily show that the action is founded in tort as for fraud rather than on the warranty, so as 'to preclude a recovery as for breach of warranty ; *' and where the complaint is in tort for money alleged to have been obtained by fraud no recovery can be had on contract as for a loan.^" If the action is based on fraud a recov- ery cannot be had even on the ground of undue influence, which is sometimes referred to as a species of f raud.^^ 58 Misc. 141, 110 N. Y. S. 470. See 50. Lusteniberger v. Lustenberger, also Springstead V. Lawson, (Sup. G. (Sup. App. T. 1912) 133 N. Y. S. T. 1862) 14 Abb. Pr. 328, 23 How. 428. Pr. 302. 51. Absalon v. Sickinger, (Sup. 49. Conaughty v. Nichols, (1870) 1905) 102 App. Div. 383, 92 N. Y. S. 42 N. Y. 83; Bosworth v. Higgins, 601. See supra, section 121 et seq., (Sup. G. T. 1889) 4 Silv. Sup. 203, as to undue influence generally. 26 State Rep. 474, affirming 54 Hun 635 mem., 7 N. Y. S. 210. CHAPTEE IX CONSIDEEATION Summary of Section Headings Introductory (§§ 232-234), Necessity for Consideration (§§ 235-253) Source of Consideration (§§ 254-258) Sufficiency of Consideration Generally (§§ 259-261) Particular Subjects as Consideration (§§ 262-284) Settlement of Disputed Claims (§§ 285-289) Pre-existing Debt or Obligation as Consideration (§§ 290-295) Rescission of Contract (§§ 296-297) Forbearance to Exercise or Relinquishment of Right (§§ 298- 306) Marriage (§§ 807-309) Mutual Promises and Mutuality of Obligation (§§ 310-324) Performance of Legal Duty or Obligation (§§ 325-336) Meritorious Consideration; Natural Love and Affection m 337-338) Moral Obligation and Past Consideration (§§ 339-350) Adequacy of Consideration (§§ 351-353) Failure of Consideration (§§ 354^359) Pleading and Proof of Consideration Generally (§§ 360-371) Sealed Contracts (§§ 372-379) Subscriptions (§§ 380-383) Introductory § 232. Definition 233. Executed Transactions Generally 234. Bargain and Sale Deed Necessity for Consideration 235. Simple Contracts Generally 236. Estoppel to Deny Consideration 237. Particular Transactions Generally 238. Contracts between Landlord and Tenant after Execution of Lease 239. Contracts of Guaranty, Suretyship, etc.. Generally 240. — Illustrations of General Rules 241. Pi-ornise to Pay from or Order on Particular Fund 242. Commercial Paper [336] CONSIDERATION 337 § 243. Contract for Forbearance 244. Contract to Make Will 245. Promise to Answer for Debt of Another 246. Release 247. Stipulation between Attorneys 248. Ratification of Acts of Agent 249. Voluntary Mandate ; Effect of Commencing Performance 250. "Waiver Generally 251. — Application of General Rule as to "Waiver 252. Statutory "Undertakings Generally 253. — Undertakings Not Conforming to Statutory Requirements Source of Consideration 254. Consideration Moving from Promisee to Third Person 255. Consideration Moving from Third Person ; General Rule 256. — Limitation of General Rule 257. Composition with Creditors 258. Promise by Legatee or Distributee to Decedent Sufficiency of Consideration Generally 259. In General 260. Detriment to Promisee from Breach of Promise 261. Applications of General Rule Particular Subjects as Consideration 262. Contracting with Third Person 263. Giving Credit 264. Assignment of Chose in Action or Contractual Rights 265. Defective or Invalid Claims to Land and Possessory Rights 266. Good "Will 267. License to Use Patent and Sale of Patent Rights, and the Like 268. Support Furnished Third Person 269. Loans and Sales of Money 270. Original Purchase, Acceptance or Employment as Consid- eration for Collateral Promise 271. Continuance of Business or Business Relation 272. Introduction of Customers 273. Disclosure of Information 274. Care or Improvement of One's Own Property 275. Change of Residence, Name, etc. 276. Surrender of Custody of Child 277. Location of Public Buildings, Manufactories and the Like 278. Payment or Acceptance of Payment before Maturity of Debt 22 338 NEW YORK LAW OF CONTRACTS § 279. Giving Note or Other Obligation for Existing Debt 280. Confession of Judgment 281. Taking Oath or the Like as to Claim; Procuring Order by Third Person 282. Surrender of Security 283. Giving Security 284. Exercise of Discretionary Power by Court; Indemnity Bond Settl&ment of Disputed Claims 285. General Rule 286. Application of Rule Generally 287. Good Faith of Claimant 288. Palpably Unfounded, Untenable or Illegal Claim 289. Compromise of Claim on Which Action Is Pending Pre-existing Debt or Obligation as Consideration 290. In General 291. Promise to Pay Pre-existing Debt to Third Person 292. Promise of Third Person to Answer for Pre-existing Debt 293. — New Consideration for Promise of Third Person 294. Mortgages and Conveyances 295. Pre-existing Debt as Basis for Protection as Purchaser for Value Rescission of Contract 296. General Rule 297. Limitation of Rule Forbearance to Exercise or Relinquishment of Right 298. General Rule 299. Refraining from Bidding at Auction Sale 300. Forbearance to Contest Will 301. Forbearance to Enforce Claim Generally 302. Refraining from Suing on Unenforceable Claim; Compro- mise 303. Promise by Third Person to Answer for Debt Generally 304. Oral Agreement and Implication of Promise to Forbear 305. Necessity for Binding Agreement to Forbear 306. Failure to Specify Time of Forbearance 307. In General 308. Effect of Existing Engagement to Marry 309. Promise after Marriage CONSIDERATION 339 Mutual Promises and Mutuality of OUigation § 310. Mutual Promises Generally 311. — Application of Rule Generally 312. Mutual Promises of Marriage 313. Exchange of Pecuniary Obligations 314. Implication of Mutual Promise; General Rule 315. — Application of Rule Generally 316. Mutuality of Obligation ; General Rule 317. — Additional Consideration, Avoiding Necessity for Mutu- ality of Obligation 318. Unenforceable, Voidable or Void Promise as Consideration 319. Conditional Obligation; Option to Withdraw 320. Stock Subscriptions Prior to Incorporation 321. Performance of Conditions of Offer; General Rule 322. — Application of Rule 323. — Effect of Subsequent Promise or Offer to Perform 324. Part Performance under Contract "Wanting Mutuality Performance of Legal Duty or Obligation 325. In General 326. Application of Rule Generally 327. Promotion of Domestic Peace 328. Performance by Carrier of Legal Duty 329. Restoration of Property to Owner 330. Continued Performance of Building Contracts 331. Part Payment of Debt Generally 332. — Recovery of Interest after Payment of Principal 333. — - Part Payment in Connection with Additional Consid- eration 334. Promise to Pay Interest, etc., as Consideration for Extend- ing Time of Payment 335. Payment of Costs 336. Performance of Contractual Duty to Third Person Meritorious Consideration; Natural Love and Affection 337. General Rule 338. Application of General Rule Moral Obligation and Past Consideration 339. Moral Obligation Generally 340. Application of Rule as to Moral Obligation 341. Past Consideration Generally 342. Past Services 343. Goods Sold and Services Rendered Persons under Dis- ability 340 NEW YORK LAW OF CONTRACTS § 344. Released or Discharged Claim Generally 345. — Claim Discharged by Composition with Creditors 346. — Debt Barred by Statute of Limitations or Discharge in Insolvency or Bankruptcy 347. — Sufficiency of Promise to Pay Barred Debt 348. — Pleading ; Declaring on Discharged Debt 349. — Promise Made to Creditor ; Assignment of Original Note . 350. Payment of Debt of Promisor Adequacy of Consideration 351. In General 352. Services 353. Inadequacy as Viewed in Equity and as Evidence of Fraud Failure of Consideration 354. Total Failure of Consideration Generally 355. Partial Failure of Consideration 356. Application of Rules Generally 357. Purchase Money for Land Conveyed or Chattels Sold 358. Pleading Defense of Total or Partial Failure 359. Against Whom Defense Available Pleading and Proof of Consideration Generally 360. In General 361. Instruments Importing a Consideration Generally 362. Recital of Consideration Generally 363. — Recital of Consideration in Sealed Contract 364. Commercial Paper Generally 365. — Necessity that Paper Be Negotiable 366. — Indorsement of Commercial Paper; Acceptance of Bill 367. Rebutting Importation of Consideration Generally 368. — Effect of Introduction of Evidence by Plaintiff to Show Consideration 369. Burden of Proof to Rebut Presumption; General State- ment 370. —Meaning of Phrase " Burden of Proof " 371. Necessity to Plead Want of Consideration Sealed Contracts 372. Effect of Seal at Common Law 373. Statutory Modification of Common Law Rule Generally 374. General Effect of Modification 375. Effect as to Antecedent Contracts 376. Mortgage 377. Release § 232] CONSIDERATION 341 § 378. Seal Still Presumptive Evidence of Consideration 379. Pleading Want of Consideration Subscriptions 380. In General 381. Acts of Beneficiary Constituting Consideration Generally 382. Application of Rule 383. Mutual Promises of Subscribers as Consideration Introductory § 232. Definition. — The difficulty of framing a complete and accurate definition of what constitutes a consideration to support a contract is recognized. Various definitions have been given, how- ever, by the courts and law writers, leaving out of contemplation the source or the person from or to whom it moves.^ In this aspect a consideration has been defined as " a thing of some benefit or legal possibility of benefit to the promisor, or a thing of some prejudice or legal possibility of prejudice to the promisee ; " ^ " any- thing that may be detrimental to the promisee or beneficial to the promisor in legal estimation. ' ' ^ Again, it is said by Morschauser, J. : "A consideration has been well defined as consisting of ' any act of the plaintifi; from which the defendant or a stranger derives a benefit or advantage, or any labor, detriment, or inconvenience sustained by the plaintiff, however small the detriment or incon- venience may be, if such act is performed or inconvenience suffered by the plaintiff with the consent, express or implied, of the defend- ant. ' " * A consideration may consist of ' ' some right, interest, profit or benefit accruing to one party, or some forbearance, detri- ment, loss or responsibility given, suffered or undertaken by the other. ' ' ^ On the other hand, to create a legal consideration which will support a promise, it is said that there must be "at least 1. See Hamer v. Sidway, (1891) 3. Freeman v. Freeman, (1870) 43 124 N. Y. 538, 547, 36 State Rep. N. Y. 34, 39, per Grover, J. 888, 27 N. E. 256, for various defini- 4. Griffin v. Griffin, (Sup. Sp. T. tions of consideration given by law 1912) 77 Misc. 468, 472, 137 N. Y. writers which are referred- to by the S. 3. court. 5. St. Mark's Church v. Teed, As'to the parties to or the source (1890) 120 K. Y. 583, 586, 31 State of the consideration see infra, section Rep. 908, 24 N. 'E. 1014. See also 254 et seq. Union Bank v. Sullivan, (1915) 214 2. Ridgway v. Grace, (Com. PI. N. Y. 332, 339, 108 N. E. 558 (quot- G. T. 1893) 2 Misc. 293, 294, 50 ing the above statement with ap- State Rep. 326, 21 N. Y. S. 934, per proval). Pryor, J. 342 NEW YORK LAW OF CONTRACTS [§ 233 some benefit conferred upon the one party, or some injury or incon- venience sustained by the other. ' ' * The question of consideration arises, in the application of general principles of law, in many connections not appropriate to a treatise on the law of contracts. For instance, under the law merchant and general principles of equity special protection is often given persons who occupy the position of bona fide pur- chasers for value. Again, transfers and conveyances of property, though valid between the parties, may be attacked as voluntary and for such reason in fraud of the creditors of the donor or grantor, and this also brings up the question of what constitutes a valuable consideration. Yet again, courts of equity may be called for relief under circumstances which require that the rights to be enforced be based on a meritorious or valuable consideration. § 233. Executed Transactions Generally. — The necessity for a consideration is applied only to an executory agreement and not to an executed one ;'' and if a promise, though in the first instance not supported by a consideration, is performed by the promisor, it is binding on him, and his rights are in no way affected by the fact that the performance of the promise could not have been enforced.' For illustration: A may give B his promissory note without consideration. As long as it remains in the hands of B, A may interpose the defense that it was given without considera- tion. But as soon as A executes his promise to B by paying the note, his promise becomes executed and he cannot recover back the money so paid.' And it has been held that though an agree- ment by a lessor to a reduction of the rent reserved must be based on a consideration to be enforceable in so far as it is executory, yet where the agreement is carried out and the reduced amount is received in full satisfaction for the rent as it accrues, and receipts in full are given, this is binding on the lessor and he cannot recover the additional rent for the period so covered." G. Hamlin v. Wheeloek, (Sup. ing 156 A,pp. Div. 644, 141 N Y S 1886) 42 Hun 530, 4 State Rep. 475, 1065. 25 Wkly. Dig. 285. 8. Oregon Pac. R. Co. v. Forrest, 7. Oregon Pac. R. Co. v. Forrest, (1891) 128 N. Y. 83, 90, 38 State (1891) 128 N. Y. 83, 38 State Rep. Rep. 837, 28 N. E. 137; Lamport v. 837, 28 N. E. 137; Collier v. Miller, Beeman, (Sup. 1861) 34 Barb. 239. (1893) 137 N. Y. 332, 339, 50 State 9. McKenzie v. Harrison, (1890) Rep. 784, 33 N. E. 374; Hammer- 120 N. Y. 260, 264, 30 State Rep. stein V. Equitable Trust Co., (1913) 934, 24 N. E. 458. 209 N. Y. 429, 103 N. E. 706, affirm- 10. MeKenzie v. Harrison, (App. § 234] CONSIDERATION 343 A gift is not an executory contract, and to be effectual between the parties need not be supported by any consideration whatso- ever, and this is true as to a transfer or assignment of a chose in action as a gift.^^ A grant of a leasehold estate without any reservation of rent or other consideration in fact has been held valid, though an executory agreement to grant such a lease would not be enforceable unless supported by a consideration.^^ Natural love and affection, though insufficient to support an executory con- tract, is at common law sufficient to sustain a conveyance by way of a covenant to stand seized." An indebtedness owing by a donee to the donor may be the subject of a gift and may be forgiven by way of a gift without consideration or release under seal.^* It has also been established from an early date that an executed conveyance in trust is enforceable at the suit of the beneficiary, whether he is a volunteer or not.^^ To prevent a gift or conveyance from being fraudulent as to the existing creditors of a donor or grantor, who was at the time insolvent, there must, of course, be a valuable consideration, though the consideration if of value as distinguished from a good consideration need not be an adequate one. This rule has been established from an early date.^* And to enable one to claim protection against secret equities, etc., as a bona fide purchaser for value, a valuable as distinguished from a good consideration is required." § 234. Bajrgain and Sale Deed. — Under the technical rules of the common law a deed of bargain and sale required a consid- 1890) 120 N. y. 260, 30 State Rep. Beacon Lith. Co., (Com. PI. G. T. 934, 24 N. E. 458. 1895) 13 Misc. 122, 68 State Rep. 11. Doucet V. Massachuaetts Bond- 108, 34 N. Y. S. 124. See also ing, etc., Ins. Co., (Sup. 1917) 180 Hayne v. Sealy, (Sup. 1902) 71 App. Div. 599, 167 N. Y. S. 892. App. Div. 418, 75 N. Y. S. 907; 12. Drew v. Buck, (Sup. 1877) 12 Knit Goods Exch. v. Kresoff, (Sup. Hun 267. App. T. 1918) 102 Misc. 156, 168 13. See infra, section 337, as to N. Y. S. 634. natural love and affection as a con- 15. Bunn v. Winthrop, (Chan. Ct. sideration generally. 1815) 1 Johns. Oh. 329, 337. 14. Gray v. Barton, (1873) 55 N. 16. Seward v. Jackson, (Ct. Err. y. 68; Ferry v. Stephens, (1876) 66 1826) 8 Cow. 406, reversing 5 Oow. N. Y. 321, affirming 5 Hun 109; 67. Larkin v. Hardenbrook, (1882) 90 17. See infra, section 295, as to N. Y. 333; McKenzie v. Harrison, whether a pre-existing debt is a (1890) 120 N. Y. 260, 265, 30 State sufficient consideration to afford a Rep. 934, 24 N. E. 458; Zindler v. person protection as a purchaser for Levitt, (Sup. 1909) 132 App. Div. value. 397, 116 N. Y. S. 726; Romaine v. 344 NEW YORK LAW OF CONTRACTS [§ 234 eration of some pecuniary value; otherwise it was inoperative.^^ A consideration, however, of the slightest possible value is deemed sufficient,^^ such as the nominal consideration of one dollar.^" It may also consist of the executory promise of the grantee,^^ such as an agreement by him to support the grantor,^^ or to pay a 18. Corwin v. Corwin, (1852) 6 N. Y. 342, afiSrming as to this but reversing on otlier grounds 9 Barb. 219; Wood v. Chapin, (1856) 13 N. Y. 509; Turner v. Howard, (Sup. 1896) 10 App. Div. 555, 42 N. Y. S. 335; Jackson v. Florence, (Sup. 1819) 16 Jolms. 47; Jackson v. Sebring, (Ct. Err. 1819) 16 Johns. 515; Jackson v. Cadwell, (Sup. 1824) 1 Cow. 622; Jackson v. Delancey, (Sup. 1825) 4 Cow. 427; Jackson v. Pike, (Sup. 1828) 9 Cow. 69; Rogers v. Eagle F. Ins. Co., (Ct. Err. 1832) 9 Wend. 611; Schott V. Burton, (Sup. 1852) 13 Barb. 173; Spalding v. Hallenbeck, (Sup. 1859) 30 Barb. 292; Willis v. Albertson, (Sup. Sp. T. 1888) 20 Abb. N. Caa. 263. In Wood V. Chapin, (1856) 13 N. Y. 509, 517, Denio, C. J., says: "If the deed had any operation, it was by way of bargain and sale, under the statute of uses. No livery of seizin is pretended to have been given, and there was no such rela- tionship between the parties as is necessary to support a covenant to stand seized. A bargain and sale, before the statute of uses, rested on the goodness of the consideration, and hence it was that a considera- tion became the great point upon which deeds of conveyance turned, which were invented after the stat- ute in order to raise and convey Uses. ... It is perfectly well settled in this state that, to constitute a good conveyance by way of bargain and sale, there must be a valuable consideration expressed in the deed "r proved independently of it. If one is expressed, no proof of its actual payment need be given, arfd it cannot be controverted by evi- dence, and it is sufficient, though the amount be merely nominal. ... It is no doubt true that the insertion of a consideration has become a mere ceremonial observance. It is, how- ever, a form required by law, where there is no evidence of an actual con- sideration, and we have no more right to dispense with it than with any other legal requirement. I am of opinion, therefore, that the deed was void for the want of a con- sideration. It was executed before the enactment of the Revised Stat- utes, and we are not therefore called upon to consider the effect of the provision which the legislature has made respecting grants of freehold estates. 1 R. S. 738, §§ 136, 137." In Russ V. Maxwell, (Sup. 1904) 94 App. Div.. 107, 87 N. Y. S. 1077, it is said that a deed by a father to his child does not require any pecuniary consideration to support it, but the case does not show the character of the deed nor whether it recited a consideration or not. See also Booth V. Fordham, (Sup. 1912) 73 App. Div. 109, 76 N. Y. S. 664. 19. Turner v. Howard, (Sup. 1896) 10 App. Div. -555, 42 N. Y. S. 335; Jackson v. Pike, (Sup. 1828) 9 Cow. 69 ; Rogers v. Eagle F. Ins. Co., (Ct. Err. 1832) 9 Wend. 611, 617. 20. Meakings v. Cromwell, (Super. Ct. 1849) 4 Super. Ct. 512, 8 N. Y. Leg. Obs. 140, affirmed 5 N. Y. 136, 10 N. Y. Leg. Obs. 201. 21. Jackson v. Pike, (Sup. 1828) 9 Cow. 69; Rogers v. Eagle F. Ins. Co., (Ct. Err. 1832) 9 Wend. 611; Spalding v. Hallenbeck, (Sup. 1859) 30 Barb. 292, affirmed 35 N. Y. 204, 206. 2a. Spalding v. Hallenbeck, (Suo. 1859) 30 Barb. 292, affirmed 35 N. Y. 204, 206; Edwards v Header, (Sup. a. T. 1890) 33 State Rep. § 234] CONSIDERATION 345 certain amount as rent for the premises for a limited time." Where the deed contains promises on the part of the grantee it is not necessary that it be signed by him; his acceptance thereof ren- ders stipulations on his part binding on him.^^ But a deed on condition merely that the grantee pay money or do some other act, without an agreement by the grantee so to pay or to do the act, has been held inoperative as a deed of bargain and sale.^° It is also held that a pre-existing debt is a sufficient consideration.^* Where a merely nominal consideration is inserted in the deed for the purpose of supporting it, proof of the nonpayment of the consideration will not destroy the deed,^' and at an early date the same effect was given to a recital of " value received " as the consideration.^^ In other words, the recital of a consideration is conclusive as to the fact that there was a sufficient considera- tion.^ The fact that land in the hands of the grantee will be subject to taxation by the grantor, a municipality, does not con- stitute a valuable consideration for the conveyance, so as to take it out of the constitutional provision prohibiting voluntary con- veyances by municipalities of any of their property for private use;'" and it is further held where the grantee was a charitable corporation, that the fact that in discharging the duties assumed 126, 11 N. Y. S. 285. See also Rose- Heckscher, (Sup. Sp. T. 1891) 15 vear v. Sullivan, (Sup. 1900) 47 N. Y. S. 737. Aipp. Div. 421, 423, 62 N. Y. S. 447. 27. Van Amburgh v. Kramer, 23. Rogers v. Eagle F. Ins. Co., (Sup. 1878) 16 Hun 205; Meriam (Ct. Err. 1832) 9 Wend. 611. v. Harsen, (Chan. Ct. 1847) 2 Barb. 24. Rogers v. Eagle F. Ins. Co., Ch. 232, 4 How. Pr. 446, affirmed 4 (Ct. Err. 1832) 9 Wend. 611; Edw. Ch. 70. Spalding v. Hallenbeck, (Sup. 1859) 28. Jackson v. Alexander, (Sup. 30 Barb. 292, affirmed 35 N. Y. 204, 1803) 3 Johns. 484. 206. 29. Grout v. Townsend, (Ct. Err. 25. Jackson v. Florence, (Sup. 1845) 2 Denio 336; Van Amburgh v. 1819) 16 Johns. 47; Jackson v. Kramer, (Sup. 1878) 16 Hun 205. Delancey, (Sup. 1825) 4 Cow. 427. 30. Mt. Sinai Hospital v. Hyman, In the early case of Jackson v. (Sup. 1904) 92 App. Div. 270, 87 Florence, (Sup. 1819) 16 Johns. 47, N. Y. S. 276. "It is manifest," says which involved a deed conditioned Hatch, J., "that such fact cannot be on the support of the grantor by the deemed a consideration in any sense. grantee, there was no agreement by If it could be construed as a valu- the grantee to furnish the support, able consideration, it would support and the deed was accordingly held a grant from the city by way of inoperative for want of a considera- gift to a private individual, for in ^JQjj his hands it would immediately be- 26. Campbell v. Morgan, (Sup. come the subject of taxation. Every 1893) 68 Hun 490, 52 State Rep. conveyance could be supported under 648 22 N. Y. S. 1001; Sistare v. such consideration." 346 NEW YORK LAW OF CONTRACTS [§ 235 by it under its charter it also discharged a public obligation which it would have been proper for the municipality to assume, such as the care of the indigent poor and sick, does not create any legal obligation against the municipality which would constitute a valuable consideration for the conveyance." Necessity for Consideration § 235. Simple Contracts Generally. — In the very early English decisions there was some confusion as to the necessity for a con- sideration to render a simple executory contract or promise enforceable. At quite an early date, however, consideration was established as an essential element in all simple executory con- tracts. That such is the rule in this state is well settled where the question arises as between the parties to the agreement.'^ And this necessity for a consideration cannot be waived.^' This rule is fully recognized in courts of equity as well as at law,'* and for this reason an executory agreement to create a trust will not be enforced by a court of equity unless it is supported by a con- sideration.'^ It is immaterial that the contract is in writing. 31. Mt. Sinai Hospital v. Hyman, (Sup. 1904) «2 App. Div. 270, 87 N. Y. S. 276. As to the general con- struction of this provision of the constitution., see 2 McKinney's Cons. Laws, p. 496 et seq. 32. Campbe'll v. Cypress Hills Cemetery, (1869) 41 N. Y. 24; Young V. Hills, (1876) 67 N. Y. 162, 168; Fargis v. Walton, (1887) 107 N. Y. 398, 12 State Rep. 60, 14 N. E. 303; Presbyterian 'Church v. Cooper, (lSf89) 112 N. Y. 517, 520, 21 State Rep. 503, 20 N. E. 352; Trecht v. Howard, (1907) 187 N. Y. 136, 79 N. E. 847; Parsons v. Teller, (1907) 188 N Y. 318, 80 N. E. 930; Moore v. Simpson, (Sup. 1907) 122 App. Div. 843, 107 N. Y. S. 803; Phetteplaee v. Steere, (Sup. 1807) 2 Johns. 442; Powell v. Brown, (Sup. 1808) 3 Johns. 100; Burnet V. Biaco, (Sup. 1809) 4 Johns. 235; Doolin V. Ward, (Sup. 1810^ 6 Johns. 194; Taylor v. Bates, (Sup. 1826) 5 Cow. 376; Dygert v. Gro-^. (Sup. G. T. 1850) 9 Barb, 506; Wil- son V. Baptist Educational See., (Sup. G. T. 1851) 10 Barb. 308; Cady V. Jennings, (Sup. 1879) 17 Hun 213; Bogardus v. Young, (Sup. 1802) 64 Hun 398, 46 State Rep. 780, 19 N. Y. S. 885; Leibinger, etc.. Brewing Co. v. Ernst, (Sup. 1895) 89 Hun 156, 69 State Rep. 443, 35 N. Y. S. 47; Block v. Smith (Sup. App. T. 1917) 167 N. Y. S. 231; Wood V. O'Brien, (Sup. G. T. 18921 45 State Rep. 28, 63 Hun 628 mem., 17 N. Y. S. 746. 33. Gerber v. Kalmar, (Sup. App. T. 1918) 104 Misc. 85, 171 N. Y. S. 92. 34. Whitaker v. Whitaker, (1873) 52 N. Y. 368; Central Trust Co. v. Gaffney, (Sup. 1913) 157 App. Div. 501, 502, 142 N. Y. S. 902, affirmed 215 N. Y. 740, 109 N. E. 1069; Min- turn V. Seymour, (Chan. Ct. 1820) 4 Johns. Ch. 497, 499; Acker v. Phoenix, (Chan. Ot. 1834) 4 Paige 305. 35. Central Trust Co. v. Gaffney, (Sup. 1913) 157 App. Div. 501, 142 § 236] CONSIDERATION 347 There is the same necessity for a consideration to support a written contract as to support an oral one.^* "It is fundamental that unless a consideration can be shown to support the promise of the defendant, his engagement is not enforceable in law, no matter how strongly in conscience he may be obligated."" "A mere voluntary promise, without a consid- eration, is a nudum pactum and cannot be enforced. ' ' '* And, says Andrews, J. : "It is, of course, unquestionable that no action can be maintained to enforce a gratuitous promise, however worthy the object intended to be promoted. The performance of such a promise rests wholly on the will of the person making it. He can refuse to perform, and his legal right to do so cannot be disputed, although his refusal may disappoint reasonable expectations or may not be justified in the forum of cpnscience. ' ' ^^ § 236. Estoppel to Deny Consideration. — Under special circum- stances a party to a contract may be estopped to deny that his promise was based on a sufficient consideration.*" Thus where a N. Y. S. 902, affirmed 215 N. Y. 740, 109 N. E. 1069. 36. Burnet v. Bisco, (Sap. 1809) 4 Johns.. 235; People v. Howell, (Sup. 1809) 4 Johns. 296; Schoon- maker v. Eoosa, (Sup. 1820) 17 Johns. 301; Webber v. Blunt, (Sup. 183S) 19 Wend. 188; Wilson v. Baptist Educational Soc, (Sup. G. T. 1851) 10 Barb. 308, 311; Barden V. Sworts, (Sup. Ct. Sp. T. 1921)) 112 Misc. 384, 183 N. Y. S. 184. 37. Mendel v. Piekrell, (Sup. App. T. 1902) 37 Misc. 813, 814 mem., 76 N. Y. S. 937, per Greenbaum, J. 38. Young V. Hills, (1876) 67 N. Y. 162, 168, per Allen, J. 39. Presbyterian Church v. Cooper, (188«) 112 N. Y. 517, 520, 21 State Rep. 503, 20 N. E. 352. It has been said that the rule re- quiring a consideration for a written promise to pay money is peculiar to the common law and is not recog- nized under other systems of juris- prudence. Thus in Fitch v. Red- ding, (Super. Ct. 1850) 6 Super. Ct. 130, 136, Duer, J., says: "We can- not think that a defense which is rested upon the single ground of the absence of a valuable consideration. deserves much favor in a court of justice. Where the promise is de- liberate, and is reduced to writing, the rule of law which permits the defense (although the fact is other- wise stated by many of our text writers) is almost peculiar to our own jurisprudence, and is condemned by the general sense of legislators and jurists, as well as of merohants. Still, as the rule undoubtedly exists, it must be obeyed, and the defense, when clearly established, be ad- mitted to prevail; but it is not in- consistent to say, that, considering the nature of the defense, the party who relies upon it should be held to the strictest proof, and every doubt that he suffers to remain be decided against him. In the present case, however, these observations are not necesisary to justify our decision, since our objections to the defense apply not merely to "the sufHcieney of its proof, but to the reality of its existence." 40. Best V Thiel, (1879) 79 N. Y. 15; Williams v. Whittell, (Sup. 1902) 69 App. Div. 340, 74 N. Y. S. 820; Schenck v. O'Neill, (Sup. 1880) 23 Hun 209; Johannessen v. Monroe, 348 NEW YORK LAW OF CONTRACTS [§ 237 stockholder in order to secure the continuance of business by a bank executed notes to it to make good its capital, it has been held that he would be estopped to assert such a defense upon the subsequent insolvency of the bank. " Even were the note with- out consideration," says Pryor, J., "I should hold the defendant estopped to allege the defense. He knew all the circumstances of the transaction, for he was an actor in it; he knew why the note was exacted and for what purpose he gave it, iiarmely, to enable the bank, by means of the note, to continue business, and so appear to the public as a solvent concern. Thus representing the bank to be solvent, he invited the public to repose confidence in it; and now, upon recourse to the note to redeem its pledge of the solvency of the bank, the defendant proposes to escape liability and defraud the creditors, of the bank by pleading the invalidity and worthlessness of the very security by which he authorized the bank to beguile the public into trusting it. If ever a case of estoppel was presented this surely is one. ' ' *^ § 237. Particular Transactions Generally. — The rule that an executory contract must be supported by a consideration runs through the whole law of contracts. A license oral or written to do some act on land, which is not supported by a consideration, may be revoked at any time by the licensor before it has been acted on by the licensee, and if so revoked the subsequent acts of the licensee, though purporting to be under the license, may con- stitute a trespass.*^ Where a claim is placed in the hands of an attorney for collection and the right given him to retain from the proceeds an indebtedness owing him, and subsequently the claim is assigned by the creditor, the assignee takes subject to the attorney's right of retainer, as an assignee of a chose in action takes subject to all liens and equities which exist against the assignor; and the promise of the attorney to pay over to the assignee the entire proceeds of the claim without any retainer, unless supported by a consideration, has been held unenforce- (Sup. 1895) 84 Hun 594, 66 State State Rep. 337, 32 N. Y. S. 1083. Rep. 142, 32 N. Y. S. 863; Sickles v. See infra, section 271, as to whether Herold, (Com. PI. Tr. T. 1895) 11 the engaging in or continuance of a Misc. 583, 6© State Rep. 337, 32 N. business is a sufficient consideration Y. S. 1083; Waterman v. WatermaJi, for a promise to the party so doing. (Sup. App. T. 1903) 42 Misc. 195, 42. Fargis v. Walton, (1887) 107 85 N. Y. S. 377, 14 Annot. Cas, 276. N. Y. 398, 12 State Rep. 60, 14 N. B. 41. Sickles v. Herold, (Com. PI. 303. Tr. T. 1895) 11 Mi«c. 583, 587, 66 § 237] CONSIDERATION 349 able." An agreement by a creditor to postpone the collection of an existing indebtedness must, like any other contract, be sup- ported by a consideration to be enforceable," and the same has been held true as to an agreement by a creditor, after the maturity of the debt, to change the place of payment.''^ So where the obli- gation on a debtor is to pay an annuity at the end of each year, his promise to pay in semi-annual, quarterly or monthly instal- ments must itself be supported by a consideration.*^ The mere voluntary promise of a director to his corporation is no more bind- ing than the voluntary promise of a third person. There must be in such a case a consideration or an estoppel." Where the agent of a seller in the negotiations for a sale acts solely as the agent of the seller and renders no services to the buyer, the latter 's promise to pay him a certain sum in case he makes the purchase is unenforceable for want of a consideration.** Also a considera- tion is necessary to support a promise by an architect, made after the building was erected, to pay to the owner of the building her expenditures in defending an action against her to restrain the erection of the building as in violation of building restrictions, if there was no liability on the part of the architect on account of the original location of the building.*' Likewise a promise by a debtor to pay the debt or a part thereof to a third person must be supported by a consideration.'^* After a contract with the keeper of a rooming house has been ^entered into, any new contract by the keeper to assume an additional obligation with respect to the safekeeping of the roomer's effects must be supported by a new 43. Taylor v. Bates, (Sup. 1826) 46. Steele v. Syracuse University, 5 Cow. 376. (Sup. 1916) 174 App. Div. 41, 160 44. See infra, section 243. N. Y. S. 39. 45! Asendorf v. Meyer, (Com. PI. 47. New York Automobile Co. v. 1879) 8 Daly 278. Franklin, (Sup. Sp. T. 1905) 19 In Dittenfass v. Horsley, (Sup. Misc. 9, 97 N. Y. S. 781. 1917) 177 App. Div. 143, 147, 163 48. Myers v. Dean, (1892) 132 N. N. y. S. 626, where an option to Y. 65, 43 State Rep. 391, 30 N. E. purchase land required the tender on 259; David v. Rick, (Sup. 1901) 57 the exercise of the option to be App. Div. 623 mem., 67 N. Y. S. made personally to the party giving 1052. the option, it was held that a sup- 49. Bodine v. Andrews, (Sup. plemental agreement permitting the 190O) 47 App. Div. 495, 62 N. Y. S. party to whom the option was given 385, rehearing denied 49 App. Div. to make the tender at another place 637, 63 N, Y. S. 1105. must be supported by a new con- 50. See infra, section 291. sideration. 350 NEW YORK LAW OF CONTRACTS [§ 237 consideration;" and this has been held true as to a warranty of the repairs to an automobile, given after the contract for the repairs had been entered into.^^ A chose in action may be assigned as a gift without any consideration to support it, but an agree- ment to pay a certain amount from a particular fund when received is not an assignment of the fund or any part thereof, and as an executory contract on the part of the promisor must be supported by a consideration.^^ And where an order is drawn on a third person, to impose any liability on the drawer to the payee there must be a consideration.^* It has also been held, in case of an assignment of a chose in action as security for the debt of another, that, to render the assignment effectual as between the parties and while the debt assigned is unpaid, the assignment must be supported by a consideration.^" If a party to a contract has forfeited all his rights or interest thereunder by a failure to perform a required act within the specified time, an agreement by the other party to extend the time for performance and reinstate the former's rights must, it has been held, be supported by a new consideration.^' And where a person has been paid a certain compensation for services to be rendered by him, his subsequent agreement to repay the amount, if such services do not have the 51. Mahr v. Vaughan, (Sup. 1S12) moneys advanced to keep alive the 151 App. Div. 288, 136 N. Y. S. 125. interest of the beneficiary in such 52. Mercury Motor Co. v. Mc- fund. An ■ assignment was, however, Kenna, (Sup. App. T. 1912) 78 Misc. made to secure moneys advanced to 364, 138 N. Y. S. 421. the member including moneys ad- 53. Addison v. Enoch, (Sup. 1900) vaneed to pay the dues of the mem- 48 App. Div. Ill, 62 N. Y. S. 613', ber to the Exchange necessary to affirmed 168 N. Y. 658 mem., 61 keep alive the right to participate N. E. 1127. in the fund. After the death of the 54. Alger v. Scott, (1873) 54 N. member, the beneficiary executed an- Y. 14. other assignment in ratification of 55. Holmes v. Seaman, (Sup. the first Ibut without any other con- 1907) 117 App. Div. 381, 102 N. Y. sideration. It was held that the S. 616, affirmed 191 N. Y. 512, mem., second assignment was ineffectual as 84 N. E. 1114*. In this case it ap- between the beneficiary and the as- peared that under the statute au- signee to entitle the latter to pay- fchorizing the New York Produce ment, from the amount coming to Exchange to create a fund for pay- the beneficiary, of the moneys ad- ments to the families of deceased vaneed or loaned the member not members, and under the by-laws for the purpose of keeping alive the adopted by the Exchange, neither a interest of the beneficiary in the member nor hi"* family had any m- fund. terest in the fund or amount to be 56. Bronner v. Hirsch, (Sup. App. paid on his death which could be T. 1903) 84 N. Y. S. 139. assigned except as security for § 238] CONSIDERATION 351 anticipated result, must be supported by a new consideration to be enforceable."'' § 238. Contracts between Landlord and Tenant after Execution of Lease. — A promise by a lessor after the execution of the lease to repair or improve the premises or do other acts which he is under no obligation to do must be supported by a new considera- tion;^* and this is true as regards a promise made to an assignee of the leasehold estate, after the assignment and not as an induce- ment to the assignee to purchase such estate.^^ Consequently an agreement by the lessor, in so far as it is executory, to reduce the rent reserved, must be supported by a new consideration;*" and if there is no obligation whatsoever on the part of the lessor for injuries to the lessee's goods, due to the defective condition of the premises, his promise to allow a reduction from the future rents on account of such damages must be supported by some new con- sideration.*^ A promise by a lessee made after the execution of the lease by which he assumes additional burdens must also be supported by a new consideration, such as a promise on his part to pay additional rent,*^ or to pay the whole or any part of the 57. Mendel v. Pickrell, (Sup. App. 141, affirming 7 Hun 157; Zindler v. T. 1902) 37 Misc. 813 mem., 76 N. Levitt, (Sup. 1909) 132 App. Div. Y. s. 937. 397, 116 N. Y. S. 726; Seymour v. 58. Hall V. Beaton, (Sup. 1898) 26 Hughes, (Sup. App. T. 1907) 55 App. Div. 105, 49 N. Y. S. 811; Misc. 248, 105 N. Y. S. 249; Kaye v. Eisert v. Adelson, (Sup. 1910) 136 Hoage, (Sup. App. T. 1909) 63 Misc. App. Div. 741, 121 N. Y. S. 446; 332, 117 N. Y. S. 122; Kaven v. Leeming v. Ihiryea, (Sup. App. T. Chrystie, (Sup. App. T. 1903) 84 1906) 49 Misc. 240, 97 N. Y. S. 35.5; N. Y. S. 470; Goldstein v. Bloom, Schiff V. Pottlitzer, (Sup. App. T. (Sup. App. T. 1912) 134 N. Y. S. 1906) 51 Misc. 611, 101 N. Y. S. 1066; McMaster v. Kohner, (Super. 249; Distributers' Realty Co. v. Ct. 1878) 44 Super. Ct. 253. Levinsohn, (Sup. App. T. 1914) 145 Of course, if there is a new con- N. Y. S. 67; Walker v. Gillrert, sideration for the lessor's agreement (Super. Ct. 1864) 25 Super. Ct. 214; to reduce the rent it is binding, and Doupe V. Genin, (Super. Ct. 1869) the lessee's renewal of the lease of 31 Super. Ct. 25, 37 How. Pr. 5, other premises, an act which he was affirmed 45 N. Y. 119; Speckels v. not bound to do, may constitute a Sax, (Com. PI. 1851) 1 E. D. Smith sufficient consideration for the re- 253 i Post V. Vetter, (Com. PI. 1853) duotion of the rent agreed to be paid 2 e! D. Smith 248; Flynn v. Hatton, for the premises in question. Horgan (Com PI 1872) 4 Daly 552, 43 How. v. Krumwiede, (Sup. 1881) 25 Hun Pr. 333, 353. 116> 12 Wkly. Dig. 549. 59 Everson v. HeflFernan, (Sup. CI. Walker v. Gilbert, (Super. Ct. 1901) 59 App. Div. 533, 69 N. Y. S. 1864) 25 Super. Ct. 214. 2g8 62. Tryon v. Mooney, (Sup. 1812) 60. Coe V. Hobby, (1878) 72 N. Y. 9 Johns. 358. 352 NEW YORK LAW OF CONTRACTS [§ 238 taxes assessed on the premises.^' It is entirely competent for the lessor and lessee during a tenancy created by writing, or even by deed, to. enter- into an independent parol agreement in relation to the repair or improvement of the premises or other matters con- nected therewith, and if there is a new and sufficient consideration to support this new agreement it is binding and enforceable." And if the lessee would have been justified in vacating the premises and putting an end to the lease, his refraining from exercising this right may be a sufficient consideration for a promise by the lessor to repair or do some other act/° The fact that the lessee remains in possession in reliance on the lessor's promise to repair does not constitute a consideration for the lessor's promise to repair or pay for repairs which the lessee had agreed to make.*^ It would, however, as regards repairs which the lessee was under no express or implied obligation to make, be otherwise, according to the view taken in some cases, if he continues to occupy in person in pur- suance of a promise by him to do so, made at the time of the lessor's promise to repair; this is a sufficient consideration, as a lessee is under no obligation or duty to occupy the premises, and this might result in a possible injury to him as well as a possible benefit to the lessor, even though the lessee would not by vacating the premises be in any way relieved from his liability for the rent." If thei^e was in the first instance no obligation on the part of either the lessor or the lessee to make the repairs or improvements in question, a promise by the lessor to pay the cost or a part of the cost of the repairs which the lessee agrees to 63. Freifeld v. Groh, (Sup. 1906) possession for Ave years. It was 116 App. Div. 409, 101 N. Y. S. 863. held that the promise was not sup- 64. Post V. Vetter, (Com. PI. ported by a sufficient consideration, 1853) 2 E. T>. Smith 248. though the tenant apparently con- 65. Rauth v. Davenport, (Sup. tinued to occupy the premises for 1891) 60 Hun 70, 37 State Rep. 664, the five years, Lehman, J., saying: 14 N. Y. S. 69; Dunn v. Robins, "Obviously the fact that the tenant (Sup. G. T. 1892) 48 State Rep. 45, remained in possession for five years, 20 N. Y. S. 341. when this was an obligation of the 66. Speckels v. Sax, (Com. PI. lease, is no consideration for the 1851) 1 E. D. Smith 253. landlord's alleged promise." In, Loth V. Harris, (Sup. App. T. 67. Rauth v. Davenport, (Sup. 1912) 76 Misc. 505, 135 N. Y. S. 1891) 60 Hun 70, 37 State Rep. 664, 553, it appeared that a lessee under 14 N. Y. S. 69; Neglia v. Lielouka, a ten years' lease agreed to make (Sup. App. T. 1900) 32 Mise. 707, certain improvements. Thereafter 65 N. Y. S. 500. See also Bronner the landlord agreed to contribute to v. Walter, (Sup. 1897) 15 App. Div. their cost if the tenant remained in 296, 78 State Rep. 583, 44 N. Y. S. § 239] CONSIDERATION 353 make is supported by a sufficient consideration.'^* It would be otherwise if the repairs were such as the tenant was under an express or implied obligation to make, and the same would be true as to a promise by the lessee to pay the lessor the cost of repairs which the lessor was under a contract obligation to make. In such cases the promisee would only be doing what was his duty, and this furnishes no consideration for a promise to him.'^' And where contemplated alterations in the premises were wholly for the tenant's benefit, as where a partition is to be erected to enable the tenant to sublet a part of a loft, it has been held that though there was no obligation under the lease on the tenant's part to erect the partition, its erection constitutes no consideration for the lessor's agreement to forego the payment of a part of the rent.™ The burden is on the lessee to prove the agreement of the lessor to pay for repairs made by the former.''' § 239. Contracts of Guaranty, Suretyship, etc., Generally. — If a contract of guaranty or suretyship is entered into after the principal contract it must be supported by a new and suifieient consideration.''^ And where a person has become surety or the like for another, without any express promise on the part of the latter to give him security against loss, a promise by a third per- 583, 2 Am. Neg. Hep. 438. But see lessor, it cannot he supported on Hall V. Beston, (Sup. 1898) 26 App. principle, as the tenant in erecting Div. 105, 49 N. Y. S. 811; Kaye v. the partition would be doing some- Hoage, (Sup. App. T. 1909) 63 Misc. thing he was not required to do, and 332 117 N. Y. S. 122. it would be immaterial that it con- 68. Haight v. Cohen, (Sup. 1908) f erred no benefit on the lessor as it 123 App. Div. 707, 108 N. Y. S. 502; might operate to the detriment of Benson v. Bolles, (Ct. Err. 1831) 8 the tenant (see infra, section 259). Wend. 175; Matelsohn v. Reich, On the other hand, if the holding of (Sup. App., T. 1906) 50 Misc. 585, the court is that the tenant did not 99 N. Y. S. 327 ; McCulloch v. Dob- promise to make the alteration, Ijut son, (Sup. G T. 1891) 39 State Rep. merely acted on the lessor's offer, 908, 15 N. Y. S. 602; Oettinger v. there would also seem to be a good Levy, (Com. PI. 1855) 4 E. D. Smith consideration, as the performance of 288. the condition of an offer avoids the 69. As to the effect of the perform- original want of mutuality a,nd ance of one's duty as a consideration, creates the necessary consideration see infra, section 325 et seq. (see infra, section 321). 70. Goldstein v. Bloom, (Sup. App. 71. Ely v. Fahy, (Sup. 1894) 79 T. 1912) 134 N. Y. S. 1066. If the Hun 65, 61 State Rep. 145, 29 N. Y. court in this case intends to hold S. 667. that the making of the partition 72. Farnsworth v. Clark, (Sup. cannot operate as a consideration be- 1865) 44 Barb. 601. cause it was of no benefit to the 354 NEW YORK LAW OF CONTEACTS [§ 239 son to indemnify him must be supported by a new consideration." On the other hand, if the contract of suretyship is entered into at the time of and as a part of the principal contract, the con- sideration which supports the promise of the principal will also support the contract of the guarantor or surety.'* " Where a contract of guaranty," says Andrews, J., "is entered into con- currently with the principal obligation, a consideration which sup- ports the principal contract supports the subsidiary one also. We understand this to be the settled doctrine."'^ The same is true where the contract of guaranty or suretyship is entered into in performance of the principal's prior contract to give security; in such a case the benefit secured to the principal by the performance of his prior contract is sufScient to sustain the contract of the surety.'^ And it is said in this latter class of cases that while the 73. Farnsworth v. Clark, (Sup. 1865) 44 Barb. 601. 74. Churck v. Brown, (1860) 21 N. Y. 315; Petrie v. Barckley, (1872) 47 JSr. Y. 653 mem.; Wood v. Tunni- clifF, (1878) 74 N. Y. 38; Erie County Sav. Bank v. Coit, (1887) 104 N. Y. 532, 5 State Eep. 790, 11 N. E. 54; Beakes v. De Cunha, (1891) 126 N. Y. 293, 37 State Rep. 14, 27 N. E. 251, affirming 35 State Rep. 564, 12 N. Y. S. 351; Caliill Iron Works v. Pemberton, (Sup. 1900) 48 App. Div. 468, 469, 62 N. Y. S. 944, affirmed 168 N. Y. 649 mem., 31 N. E. 1128; Central Bank V. Kimball, (Sup. 1902) 73 App. Div. 100, 76 N. Y. S. 227; De Eesake v. Duss, (Sup. 1904) 99 App. Div. 353, 91 N. Y. S. 221; Bailey v. Freeman, (Sup. 1814) 11 Johns. 221; Marsh, v. Chamberlain, (Sup. 1870) 2 Lans. 287; BrewBter V. Short, (Sup. G. T. 1892) 63 Hun 630 mem., 43 State Eep. 768, 17 N. Y. S. 799; Tome v. Gerlach, (Sup. G. T. 1892) 64 Hun 635, 46 State Eep. 485, 18 N. Y. S. 932; Etz v. Place, (Sup. 1894) 81 Hun 203, 62 State Rep. 707, 30 N. Y. S. 765; Voullaire v. Wise, (Sup. App. T. 1897) 19 Misc. 659, 44 N. Y. S. 510; Colston V. Pemberton, (Sup. App. T. 1897) 21 Misc. 619, 47 N. Y. 8. 1110, affirming 20 Misc. 410, 45 N. Y. S. 1034; Lasette v. Parke, (City Ct. G. T. 1902) 38 Misc. 804, 78 N. Y. S. 1123. See also Roussel v. Mathews, (Sup. 1901) 62 App. Div. 1, 70 N. Y. S. 886, affirmed 171 N. Y. 634, 63 N. E. 1122; Harp v. Osgood, (Sup. 1842) 2 Hill 216; Spalding v. Car- gill, (Super. Ct. 1886) 53 Super. Ct. 453, 1 State Rep. 787. 75. Erie County Sav. Bank v. Coit, (1887) 104 N. Y. 53:2, 537, 5 State Rep. 790, 11 N. E. 54. 76. MeNaught v. McClaughry, (1870) 42 N. Y. 22; Harrington v. Brown, (1879) 77 N. Y. 72; Smith V. Molleson, (1896) 148 N. Y. 241, 42 K E. 669; Cady v. Allen, (Sup. 1856) 22 Barb. 388, affirmed 18 N". Y. 573; Farnsworth v. Clark, (Sup. 1865) 44 Barb. 601, 604; New York Fourth Nat. Bank v. Spinney, (Sup. 1888) 47 Hun 293, 14 State Rep. 216, affirmed 120 N. Y. 560, 31 State Eep. 846, 24 N. E. 816; Oppenheim V. Waterbury, (Sup. 1895) 86 Hun 122, 67 State Rep. 18, 33 N. Y. S. 183, affirmed 155 N. Y. 684 mem., 50 N. E. 1120; Voullaire v. Wise, (Sup. App. T. 1897) 19 Misc. 659, 662,^44 N. Y. S. 510. See also Pennsylvania Coal Co. V. Blake, (1881) 85 N. Y. 226; Fulton Grain, etc., Co. v. Anglin, (Sup. 1899) 44 App. Div. 488, 60 N. Y. S. 957. In Cady v. Allen, (Sup. 1856) 22 § 239] CONSIDERATION 355 creditor may run the risk of the failure of his debtor to perform his obligation by obtaining the contract of guaranty or surety, still when secured it relates to the original agreement between the parties, and becomes a part and parcel of the original transaction, and this makes the consideration which moved to the principal debtor or obligor sufficient to support the contract of the surety." As a general rule, whatever would be sufficient as a considera- tion, in case of any other kind of a contract, is sufficient in the case of a contract of guaranty or suretyship.'* It need not be beneficial to the surety; a benefit to his principal or detriment to the creditor is held sufficient;'' and the benefit received by the principal and agent, resulting from his giving a fidelity bond after his appointment as agent had been made, presumably his continu- ance as agent, has been held sufficient to support the contract of his sureties.*" Any security given by a principal to his surety, even after the contract of suretyship has been assumed, to indemnify the surety against loss, would be supported by the implied obligation of the principal so to indemnify his surety,*^ but if there is no change whatever in the surety's position, an agreement by the principal debtor to compensate him for con- Barb. 388, afBrmed 18 N. Y. 573, it contract and after the contractor has appeared that a vendor had agreed entered upon its actual performance, orally to give security for the dia- 77. Oppenheim v. Waterbury, ( Sup. charge of a judgment lien on the 1895) 86 Hun 122, 67 State Rep. 18, land^ The ^ar^lty deed when 33/- Y. S- 183, affirmed 155 N. Y. ^ , i ■ J 1, „„^„„ 684 mem., 50 N. E. 1120. executed contained no such agree- t,,-,,- -m, in la , , . c U.I. 1 78. Williams v. Marshall, (Sup. ment, but in pursuance of the oral ^^^^^ ^ ^^^^ ^^4 agreement the security was given ^^ Pennsylvania ' Coal Co. v. with sureties. It was held that the gj^^^^ ^jgg^j gg j^ y 226; John contract of the 'sureties was sup- Hancock Mut. L. Ins. Co. v. Lowen- ported by the consideration of the ^,grg_ (g^p q t. 1886) 4 State Rep. principal agreement. 699, reversed on other grounds 120 In Smith v. MoUeson, (1896) 148 n. Y. 44, 30 State Rep. 268, 23 N. N. Y. 241, 42 N. E. 669, it is held E. 978. that when a buOding contract is 80. John: Hancock Mut. L. Ins. Co. entered into, on the faith of the con- v. Lowenberg, (Sup. G. T. 1886) 4 tractor's promise to furnish a bond State Rep. 699, reversed on other as guaranty for its performance, it grounds 120 N. Y. 44, 30 State Rep. becomes complete and binding on the 268, 23 N. E. 978. See also New other party thereto only upon de- York Fourth Nat. Bank v. Spinney, livery of the bond; and the mutual (Sup. 1888) 47 Hun 293, 14 State obligations imposed upon the parties Rep. 216, affirmed 120 N. Y. 560, 31 furnish a consideration for the bond. State Rep. 846, 24 N. E. 816. even if it is not given until after 81. Farnsworth v. Clark, (Sup. the execution and delivery of the 1865) 44 Barb. 601, 604. 356 NEW YORK LAW OF CONTRACTS [§ 240 timiing his liability as surety, theretofore incurred, is wanting in consideration.*^ § 240. Illustrations of General Rules. — Illustrative of the general rules announced in the preceding section, where a con- tract of guaranty is indorsed on a bond given for a present con- sideration, before delivery, the consideration which supports the promise of the principal obligor will also support the contract of guaranty.*^ And in ease of a submission to arbitration the con- temporaneous contract of a surety for the performance of the award is supported by the consideration of submission.*^ In case of a guaranty of the payment of the price of goods to be sold or money loaned, the subsequent sale and delivery of the goods to the buyer,*^ or the loan of the money to the borrower,** is a suffi- cient consideration for the guaranty. So where the promise of the principal is under seal this is presumptive evidence of a suffi- cient consideration for his promise, and this consideration will support the contemporaneous promise of the surety." Where a guaranty is indorsed on a bond or other chose in action at the time of its sale by the guarantor, and as a part thereof, the pur- chase is a sufficient consideration for the guaranty;** it would be otherwise, however, where there was a precedent contract for. the sale of the chose in action, which did not require that the seller should guarantee payment, and without any further consideration than the mere carrying out of the contract the guaranty was given.*' The letting of premises to a lessee is a sufficient considera- tion for a third person's guaranty of the payment of the rent.'" 82. Ceas v. Bramley, (Sup. 1879) T. 1893) 2 Misc. 38, 51 State Rep. 18 Hun 187. 55, 21 N. Y. S. 1029; J. P. Duffy 83. Erie County Sav. Bank v. Co. v. Todebush, (Sup. App. T. 1912) Coit, (1887) 104 N. Y. 532, 5 State 139 N. Y. S. 112, reversed on other Rep. 790, 11 N. E. 54; Marsh v. grounds 157 App. Div. 688, 142 N. Chamberlain, (Sup. G. T. 1870) 2 Y. S. 790, which is affirmed 216 N. Lans. 287. Y. 297, 110 N. E. 625. 84. Wood V. Tunnieliff, (1878) 74 86. Colston v. Pemberton, (Sup. N. Y. 38. App. T. 1897) 21 Misc. 619, 47 N. 85. Church v. Brown, (1860) 21 Y. S. 1110, affirming 20 Misc. 410, N. Y. 315; Beakes v. Da Cunha, 45 N. Y. S. 1034. (1891) 126 N. Y. 293, 37 State Rep. 87. Petrie v. Barokley, (1872) 47 14, 27 N. E. 251, affirming 35 State N. Y. 653 mem. Rep. 564, 12 N. Y. S. 351; Griffen v. 88. Arnot v. Erie R. Co., (1876) Edelman, (Sup. 1911) 146 App. Div. 67 N. Y. 315, affirming 5 Hun 608. 744, 131 N. Y. S. 450; Williams v. 89. Vanderbilt v. Schreyer, (1883) Marshall, (Sup. 1864) 42 Barb. 524; 91 N. Y. 392, 12 Abb. N. Cas. 390. Hurd V. Newbrook, (Super. Ct. G. 90. Voullaire v. Wise, (Sup. App. § 240] CONSIDERATION 357 It is likewise held that if a security bond is given in lieu of and in consideration of the surrender and cancellation of an existing security, this will support the contract of the sureties;" and in such a case it is held immaterial whether the sureties knew or did not know that the surrender of the old bond was in the contempla- tion of the parties.^^ If a building contract is let on the condition that the contractor furnish security for the performance of the contract, this will support a security bond given in pursuance of such condition.'^ The same view has been taken where a fidelity bond given by a bank employee recited that the employee " had been appointed " to a certain position, as it was to be inferred from the language of the instrument and the evidence in the case that the execution and delivery of the bond was required to render the appointment complete and effectual.'^ For a valuable con- sideration A executed and delivered to the plaintiff his promissory note, which specified no time of pajonent, and at the same time agreed with the plaintiff that he would procure B to sign the note as his surety, if at any time the plaintiff should deem him- self insecure or should desire further security. The plaintiff, some months afterward, returned the note to A, with the request that he should procure B to sign it. A did thereupon procure B to sign the same as his surety, and afterward redelivered the note to the plaintiff, no new consideration having then passed between the parties. It was held that there was a sufficient consideration for B's indorsement.'" It is also laid down as a general rule that in every form of suretyship on promissory notes made before delivery, whether by undersigning, indorsing or guaranteeing, the T. 1897) 19 Misc. 659, 78 State Hep. A similar view is taken in Har- 510, 44 N. Y. S. 510. rington v. Brown, (1879) 77 N. Y. 91. Erie County Sav. Bank v. Coit, 72. In this ease it appeared that M. (1887) 104 N. Y. 532, 5 State Rep. procured a loan of money from H. 790 11 N. E. 54. on a promise that B. would sign a 92. Erie County Sav. Bank v. Coit, note with him for the amount of (1887) 104 N. Y. 532, 537, 5 State Wie loan. M. 'delivered his lown Eep. 790, 11 N. E. 54. note, stating that B. would sign it; 93. Smith v. Molleson, ( Sup. 1893 ) this B. did some two years thereafter. 74 Hun 606, 57 State Rep. 250, 26 In an action on the note it was held N. Y. S. 653. that B. was liable; that her signa- 94. New York Fourth Nat. Bank ture would he considered as having V. Spinney, (Sup. 1888) 47 Hun 293, been placed to the note at its date, 14 State Rep. 216, affirmed 120 N. Y. and this although B. did not know 560, 31 State Rep. 846, 24 N. E. 816. of the arrangement; that it was suffi- 95. McNaught v. McClaughry, cient if she signed at the request (1870) 42 N. y. 22. of M-> '^^° ^^^ given the assurance. 358 NEW YORK LAW OF CONTRACTS [§§ 241, 242 existence of a sufficient consideration between the maker and the payee establishes a sufficient consideration against the surety;'* and it is further held that it is immaterial whether the surety knew of the consideration passing between the maker and the payee.^^ If a note is discounted for an accommodation indorser, it is immaterial as affects his liability what he does with the money received by him.'^ § 241. Promise to Pay from or Order on Particular Firnd. — A promise to pay a certain sum out of a particular fund when secured by the promisor does not constitute an equitable assign- ment of the fund or any part thereof,'' and to be enforceable as an executory contract to pay the amount when the fund is received, must be supported by a consideration to the same extent as any other contract.^ So as between the drawer of an order on a third person and the payee, to impose any liability on the drawer, the order must have been given for a consideration.^ And though, in case of a bill of exchange, there is a presumption as between the drawer and the payee that it was given for a consideration,' this presumption is rebuttable, and the drawer may, as against the payee or any holder not entitled to protection as a bona fide holder for value, defend by showing a want of a consideration.* § 242. Commercial Paper. — As between the parties, commer- cial paper, though negotiable in form, to be enforceable must be based on a sufficient consideration.^ Consequently a note given 96. McNaught v. MoClaugliry, 68 N. Y. S. 393, aiBrmed 35 Misc. (1870) 42 N. Y. 22; Erie County 789, 7-2 N. Y. S. 1132. Sav. Bank v. Coit, (1887) 104 N. Y. 99. Ad'dison v. Enoch, (Sup. 1900) 532, 5 State Rep. 790, 11 N. E. 54; 48 App. Div. Ill, 62 N. Y. S. 613, Utica City Nat. Bank v. Tallman, affirmed 168 N. Y. 658 mem., 61 N. (Sup. 1901) 63 App. Div. 480, 71 E. 1127. N. Y. S. 861, affirmed 172 N. Y. 642 1. Addison v. Enoch, (Sup. 1900) mem., 65 N. E. 1123; Milius v. 48 App. Div. Ill, 62 N. Y. S. 613, Kauflfmann, (Sup. 1905) 104 App. affirmed 168 N. Y. 658 mem., 61 N. Div. 442, 93 N. Y. S. 669; Brewster E. 1127. V. Short, (Sup. G. T. 1892) 63 Hun 2. Ailger v. Scott, (1873) 54 N. Y. 630 mem., 43 .State Rep. 768, 17 N. 14. Y. S. 799 ; Waterman v. Waterman, 3. See infra, section 364, as to the (Sup. App. T. 1903) 42 Misc. 195, importation of a consideration in 85 N. Y. S. 377, 14 N. Y. Annot. case of commercial paper. Cas. 276. 4. As to the necessity for a, con- 97. Brewster v. Short, (Sup. G. T. sideration to support commercial 1892) 63 Hun 630 mem., 43 State paper, see next following section. Rep. 768, 17 N. Y. S. 799. 5. Garfield Nat. Bank v. Colwell, 98. Twelfth Ward Bank v. Rogers, (1890) 57 Hun 169, 32 iState Rep. (City Ct. G. T. 1901) 33 Misc. 733, 929, 10 N. Y. S. 864; Strong v. Shef- § 242] CONSIDERATION 359 to the payee merely for his accommodation and to enable him to raise money thereon is wanting in consideration and, as between the parties, is unenforceable/ So the drawer of a draft, check, or order, given merely for the accommodation of the payee or as a gift, cannot be held liable thereon by the payee.' As between an indorser and his immediate indorsee there must be a considera- tion for the indorsement to render the indorser liable.* If the maker of a note is in no way liable thereon, a note given in renewal is unenforceable for want of consideration.^ Though a promissory note imports a consideration,^" the consideration is examinable as between the original parties to that paper, and hence it may always be shown, as between such parties, that there was no original consideration.*^ A transferee takes subject to the defense of want of consideration unless he is entitled to protection as a bona fide purchaser for value and in due course,^^ and it has been settled from quite an early date that the donor's own note or draft, unaccepted by the drawee, is not the subject of a gift and as such enforceable against the maker or his estate.** If, how- ever, there is a present gift of moneys, the fact that the moneys field, (1895) 144 N. Y. 392, 394, 63 State Rep. 701, 39 N. E. 330; Hlg- gins V. Ridgway, (1897) 153 N. Y. 130, 47 N. E. 32, affirming 90' Hun 398, 70 'State Rep. 659, 35 N. Y. S. 944; Simmons v. Thompson, (Sup. 1898) '29 App. Div. 559, 51 N. Y. S. 1018; Persons v. Hawltins, (Sup. 1899) 41 App. Div. 171, 58 N. Y. S. 831; Schoonmaker v. Roosa, (Sup. 1820) 17 Johns. 301; Bank of Troy V. Topping, (Sup. 1835) 13 Wend. 557; Dowe v. Schutt, (Stip. 1846) 2 Denio 621; Matter of Wiles, (Surr. Ct. 1917) 101 Misc. 701, 168 N. Y. S. 940.; Sickles v. Gillies, ('Super. Ct. 1872) 35 Super. Ct. 14. 6. Eylers v. Coen, (Sup. 1891) 60 Hun 396, 39 State Rep. 789, 15 N. Y. S. 584. 7. Alger v. Scott, (1873) 54 N. Y. 14; Elting v. Brinkerhoflf, (Super. Ct. 1829) 2 Super. Ct. 459. 8. Homestead Bank v. Wood, (Com. PI. G. T. 1892) 1 Misc. 145, 48 State Rep. 775, 20 N. Y. S, 640. See also Western Nat. Bank v. Wood, (Com. PI. G. T. 1892) 1 Misc. 314, 48 'State Rep. 777, 20 N- Y. S. 642. 9. Turner v. Sheridan, (City Ct. G. T. 1900) 32 Misc. 233, 65 N. Y. S. 791. In this case it appeared that a married woman gave her note as security for a debt of her husband. Under the laws of New Jersey by which the validity of the note was governed, she was incapable of bind- ing herself by such a promise. After the death of her husband she gave a renewal note. It was held that the latter was unenforceable for want of consideration. 10. See infra, section 364. 11. Pearson v. Pearson, (Sup. 1810) 7 Johns. '26; Slade v. Halsted, (Sup. 1827) 7 Cow. 322; Murphy v. Keyes, (Super. Ct. 1875) 39 Super. Ot. 18. 12. Murphy v. Keyes, (Super. Ct. 1875) 39 Super. Ct. 18. 13. Harris v. Clark, (1849) 3 N. Y. 93; Holmes v. Roper, (1'894) 141 N. Y. 64, 56 State Rep. 596, 36 N. E. 180; Deyo v. Thompson, (Sup. 1900) 53 App! Div. 9, 65 N. Y. S. 459; 360 NEW YORK LAW OF CONTRACTS [§ 242 are immediately returned to the donor as a loan and his note given therefor would not prevent such note from being a valid obliga- tion. This principle has been applied where a member of a firm drew the firm's check against an individual account owing to him by the firm and gave the cheek to the trustee of a voluntary trust, by whom the check was cashed and the moneys immediately returned by him as trustee to the firm, and the firm's note, given as evidence of the loan, was held an enforceable obligation of the firm and the trust sustained as against the representatives of the donor.^* In case of accommodation indorsers, where their liability is separate and successive, an agreement between an earlier and a later indorser to assume joint liability must be supported by a consideration to be enforceable.^^ It has been held from an early date that where notes for an equal amount are made and exchanged, the one is a sufficient consideration for the other ;^^ and in such a case, in an action on one of the notes, the fact that the note given by the plaintiff was not paid at maturity is not, it seems, available in defense as a failure of consideration.^'' In case of an acceptance of a bill of exchange by the drawee, no new con- sideration moving to him is essential to render him liable.^' Pearson v. Pearson, (Sup. 1810) 7 18. Heuertematte v. Morris, (1885) Johns. 26. 101 N. Y. 63, 4 N. E. 1; National A' contrary view was taken in the Park Bank v. Saitta, (Sup. 1908) early ease of Wright v. Wright, 127 App. Div. 624, 111 N. Y. S. 927, (Sup. 1823) 1 Cow. 598. affirmed 196 N. Y. 548, 89 N. E. 1106. X4. Brown v. Spohr, (App. 1904) "If a party," says Ruger, Ch. -T., 180. N. Y. 201, 73 N. E. 14, affirming " becomes a bona fide holder for 87 App. Div. 522, 84 N. Y. S. 995. value of a bill before its acceptance, 15. Dowe V. Sehutt, (Sup. 1846) 2 it is not essential to his- right to en- Denio 621; Bygert v. Gros, (Sup. G. force it against a subsequent ac- T. 1850) 9 Barb. 506. ceptor, that an additional coneidera- 16. Dowe V. Sehutt, (Sup. 1846) 2 tion- Should proceed from him to the Denio 621; Wooster v. Jenkins, drawee. The bill itself implies a (Stip. 1846) 3 Denio 187; Cohn v. representation by the drawer that Husson, (Super. Ct. 1889) 57 Super. the drawee is already in receipt of Ct. 238, 6 N. Y. S. 897, affirmed 119 funds to pay, and his contract is N. Y. 609, 28 State Rep. 852, 23 N. that the drawee shall accept and pay E. 573, 2 Silv. App. 484. iSee infra, according to the terms of the draft, section 313, as to the exchange of ... The drawee can of course upon pecuniary obligations generally. presentment refuse to accept a bill, 17. Rice V. Grange, (1892) 131 N. and in that event the only recourse Y. 149, 42 State Rep. 747, 30 N. E. of *he holder is against the prior 46, affirming 39 State Rep. 163, 14 parties thereto; but in case the N. Y. S. 911. See infra, section 354 drawee does accept a bill, he becomes et seq., as to the failure of considera- primarily liable for its payment, tion generally. ... The delivery of a bill or check § 243] CONSIDERATION 361 § 243. Contract for Forbearance. — An agreement by a creditor to extend the time for the payment of a debt, admittedly due and owing, must be supported by a consideration," though the agree- ment is made after the institution of an action to recover the debt.2» Consequently where an agent for the sale of land has produced a purchaser, and thus earned and become entitled to the payment of his commission, his agreement to postpone payment until the conveyance is made, or the like, must be supported by a consideration ;2i and where an account is stated and the amount by one personi to another for value implies a representation on tlie part of the drawer that the drawee is in funds for its payment, and the sub- sequent acceptance of such check or bill constitutes an admission of the truth of the representation, which the drawee is not allowed to retract. . . . By such acceptance the drawee admits the truth of the representa- tion, and having obtained a suspen- sion of the holder's remedies against the drawer, and an extension of credit by his admission, is not after- ward at liberty to controvert the fact as against a bona fide holder for value of the bill. The payment to the drawer of the purchase-price furnishes a good consideration for the acceptance which he then under- takes shall be made, and its subse- quent performance by the drawee is only the fillfilment of the contract which the drawer represents he is authorized by the drawee to -make." Heuertematte v. Morris, (ISSff) 101 N. Y. 63, 70, 4 N. E. 1. 19. Vilas V. Jones, (1848) 1 N. Y. 274, How. App. Cas. 759; Parmelee V. Thompson, (1871) 45 N. Y. 58; Toplitz V. Bauer, (1900) 161 N. Y. 325, 331, 55 N. E. 1059; National Citizens' Bank V. Toplitz, (1904) 178 N. Y. 464, 71 N. E. 1; Moser v. Walker, (Sup. 1897) 23 App. Div. 91, 48 N. Y. S. 341; Mutual L. Ins. Co. V. Aldrich, (Sup. 1899) 44 App. Div. 620, 60 N. Y. S. 195; Twelfth Ward Bank v. Samuels, (Sup. 1902) 71 App, Div. 168, 75 N. Y. S. 561, affirmed 176 N. Y. 593 mem., 68 N. E. 1125; Carr v. Morris, (Sup. 1920) 191 App. Div. 671, 181 N. V. S. 813; Miller v. Holbrook, (Sup. 1828) 1 Wend. 317; Reynolds v. Ward, (Sup. 1830) 5 Wend. 501; Patchin v. Pierce, (Sup. 1834) 12 Wend. 61; Taylor v. Rennie, (Sup. G. T. 1861) 35 Barb. 272, 22 How. Pr. 101; Farrington v. Bullard, (Sup. 1863) 40 Barb. 512; O'Hara V. Robinson, (Sup. 1892) 63 Hun 569, 45 State Rep. 460, 18 N. Y. S. 541; Babcock v. Kuntzsoh, (Sup. 1895) 85 Hun 615, 66 State Rep. 47, 32 N. Y. S. 663; McComb v. Von Ellert, ('Com. PI. G. T. 1894) 7 Misc. 59, 57 State Rep. 501, 27 N. Y. S. 372; Moskowitz v. Hornberger, (City Ct. ; 18. Minturn v. Seymour, (Chan. 22. In re O'Hara, (1884) 95 N Y. Ct. 1820) 4 Johns. Ch. 497, 499. 403, 14 Abb. N. Cas. 71. § 258] CONS'IDERATION 381 The same result is reached where the legatee under an existing wUl induces the testator not to change his will by a promise to hold the bequest to himself in whole or in part for the benefit of a third person,^ also where an heir or distributee induces a decedent to refrain from making a will by his promise to hold his distributive share for the benefit of another.^ And where the trustee of a fund, to which he would succeed in case of intestacy, prevents the making of a will in favor of a third person by a promise to hold the fund for the benefit of such third person, it has been held that the latter may recover its value as money had and received to his use.^° In cases where a decedent is induced to refrain from mak- ing or changing his will the promisor mrst in fact receive property from the decedent. A promise, where the promisor owns the property and the promisee does not, can create no obligation, as it is the wrong done to the decedent by preventing him from doing what he would otherwise do with his own property, which makes this kind of a promise binding ; "^ and the same is true where an executor, to induce a testator not to make by way of a codicil a pro- vision for a third person, promised to pay to such third person a certain sum out of the estate, in so far as his personal liability is concerned, or to make the payment personally where he received no property under the will.^ ' ' In all the eases bearing upon this subject," says Learned, P. J., " the promise which has been enforced has been made by a person who, by descent or devise or bequest, has received from the decedent, property out of which the proposed devise or legacy would have come; which proposed devise or legacy was prevented by the promise of the person thus held liable." ^ It is also necessary, where the promise is oral and no attempt is made to enforce it until after the death of the prom- isor, that it be established by clear and convincing proof.^' If the 23. Walter Farrington Tiling Co. 26. Oippen v. Crippen, (Sup. V. Hazen, (Sup. 1915) 165 App. Wv. 1889) 53 Hun 232, 25 State Eep. 85, 748, 151 N. Y. S. 523. 6 N. Y. S. 378, 2 Silv. Sup. 301. 2'! Williams v. Fitch, (1859) 18 27. Seaver v. Ransom, (1918) 224 N. Y. 546; Norton v. Mallory, N. Y. 233, 120 N. E. 639; Bull v. (1875) 63 N. Y. 434; Smith v. Bull, (Sup. 1883) 31 Hun 69. Perine, (1890) 121 N. Y. 376, 31 28. Bull v. Bull, (Sup. 1883) 31 State Eep. 294, 24 N. E. 804, affirm- Hun 69, 71. ing 17 State Eep. 226, 1 N. Y. S. 496. 29. White v. Devendorf, (Sup. See also Hutchings v. Miner, (1871) 1908) 127 App. Div. 791, 111 N. Y. 46 N. Y. 456. S. 815. 25. Williams v. Fitch, (1859) 18 N. Y. 546. 382 NEW YORK LAW OF CONTIlA)CTS r§ 259 promise of the beneficiary is to hold for a charitable purpose which is too indefinite to be enforced or which is prohibited by law, a resulting trust will be enforced for the benefit of the next of kin.'" Sufficiency of Consideration Generally § 259. In General. — As a general rule, anything recognized by law as valuable passing to the promisor is considered as sufficient to support the promise.^^ And it has been held that forbearance by the banking department, at the request of a stockholder and depositor of an insolvent bank, to close the bank is a sufficient con- sideration for the stockholder's promise to make good the capital of the bank.^^ The benefit to one party which can avail as a con- sideration must be a benefit to which the party is not entitled except as a consideration of his undertaking.^^ It is not essential to constitute a consideration that a benefit accrue to the promisor ; injury or detriment to the promisee'* or to a third person from 30. In re O'Hara, (1884) 95 N. Y. 403, 14 Abb. N. Cas. 71. 31. As to the adequacy of the con- sideration generally, see infra, sec- tion 351 et iseq. In Gutchess v. Daniels, (1872) 49 N. Y. 605, reversing 58 Barb. 401, it appeared that a. debtor in embar- rassed circumstances was indebted to a creditor in a large amount. They then entered into an agreement, by which the creditor, on being secured against loss, was to advance funds to the debtor to purchase wheat, which was to be shipped to the creditor and sold by him on the usual commission, one-half of the net profits was to be applied to the pay- ment of the old debt and the other half paid over to the debtor, the creditor expressly agreeing not to set off any part of the old debt against the half of the profits to be paid to the debtor. It was held that the commissions to be received "By the creditor and interest on the ad- vance were a sufficient consideration, raside from the additional security he got upon the services and labor of the debtor and his future earn- ings, for the creditor's agreement to forego his right of set-off. The court also points out as an element going to the consideration the risk the debtor incurred in the business ven- ture. 32. Sickles v. Herold, (Com. PI. Tr. T. 1896) 11 Misc. 583i, 66 State Kep. 337, 32 N". Y. S. 1083. 33. Converse v. Kellogg, (Sup. 1850) 7 Barb. 590, 598; Walker v. Gilbert, (Super. Ct. 1864) 25 Super. Ct. 214, 222. 34. Sands v. Crooke, (1871) 46 N. Y. 564; Bohn v. Goldstein, (1873) 53 N. Y. 634; White v. Baxter, (1877) 71 N. Y. 254, affirming 41 Super. Ct. 358; St. Mark's Church v. Teed, (1890) 120 N. Y. 583, 31 State Eep. 908, 24 N. E. 1014, affirming 44 Hun 349, 8 State Rep. 841 ; National Gum, etc., Co. v. Braendly, (Sup. 1898) 27 App. Div. 219, 51 N. Y. S. 93; Levy v. Huwer, (Sup. 1903) 80 App. Div. 499, 81 N. Y. S. 191, affirmed 176 N. Y. 612 mem., 68 N. E. 1119; Fitch v. Eraser, (Sup. 1903) 84 App. Div. 119, 82 N. Y. S. 138; Richfield Springs First Nat. Bank v. Keller, (Sup. 1908) 127 App Div. 435, 111 N. Y. S. 729; Miller v. Drake, (Sup. 1803) 1 Caines 45; Smedes v. Utica Bank, (Sup. 1823) 20 Johns. 372, 380; § 259] CONSIDEEATION 383 whom the consideration moves ^° is itself sufficient. The injury or detriment to the promisee must, however, be an injury to his rights as distinguished from a wrongful claim.^' As a general rule the doing of something the promisee is not legally bound to do," or Miller v. Watson, (Sup. 1827) 7 Cow. 39; Jeroms v. Jeroms, (Sup. 1853) 18 Barb. 24; Christopher v. Van Liew, (Sup. 1869) 57 Barb. 17; Williams v. Wieting, (Sup. 1874) 3 Thomp. & C. 439; Sickles v. Harold, (Com. PI. Tr. T. 1895) 11 Misc. 583, 66 State Rep. 337, 32 N. Y. S. 1083; McKay v. Buffalo Bill's Wild West Co., (Sup. App. T. 1896) 17 Misc. 396, 39 N. Y. S. 1041; Dempsey v. Horner, (Sup. App. T. 1896) 17 Misc. 616, 75 State Rep. 71, 40 N. Y. S, 668; Kley vs Higgins, (Sup. Sp. T. 1900) 3'3 Misc. 367, 68 N. Y. S. 453, reversed on other grounds 59 App. Div. 581, 69 N. Y. S. 826; Stone V. Demarest, (Sup. App. T. 1916) 95 Misc. 543, 159 N. Y. S. 800; King v. Briarwood Land Co., (Sup. Sp. T. 1911) 131 N. Y. S. 946; Barton v. Harrington, (Sup. G. T. 1876) 2 Wkly. Dig. 582. 35. St. Mark's Church v. Teed, (1890) 120 N. Y. 583, 31 State Rep. 908, 24 N. E. 1014, affirming 44 Hun 349, 8 State Rep. 841. As to whether the consideration must move from the promisee see supra, section 255. 36. Converse v. Kellogg, (Sup. 1850) 7 Barb. 590, 598; Walker v. Gilbert, (Super. Ct. 1864) 25 Super. Ct. 214, 222. 37. Pesant v. Pickersgill, ( 1874) 56 N. Y. 650; WyckofF v. De Graaf, (1885) 98 N. Y. 134, 138; Street v. Gait, (Sup. 1910) 136 App. Div. 724, 121 N. Y. S. 514, affirmed 202 N. Y. 575 mem., 96 N. E. 1132; Wilkinson v. Chamber of Commerce, (Sup. Tr. T. 1911) 73 Misc. 141, 130 N. Y. S. 676. In Pesant v. Pickersgill, (1874) 56 K Y. 660, it appeared that the ac- ceptance of a foreign bill of exchange was refused by the drawee. Thereby the drawer having been charged by notice, etc., became liable for the face of the bill and the statutory damages. The parties then agreed that the bill should be again sent back for acceptance. The drawer agreed that the bill would be ac- cepted as of the day of the prior presentation and paid at maturity, and gave his check for a certain amount, as security, the holder agree- ing that he would forego his claim for damages on account of the prior refusal to accept. It was held that, as what was done and agreed to by the drawer was something different from that imposed by the law as a duty upon the return of the bill pro- tested, it was sufficient to sustain the whole agreement including the waiver of the claim for damages. In Korn v. Weir, (Sup. App. T. 1904) 88 N. Y. S. 976, it appeared that a lot owner, on whose lot an excavation was being made, in order to oom^ply with the statutory re- quirement that he protect the wall on an adjoining lot if the consent of the adjoining lot owner to enter his premises for the purpose of doing so can be obtained, applied to the adjoining lot owner for permission to enter on the latter lot for the pur- pose of protecting his wall. The ad- joining lot owner as a condition to granting his consent to such entry required the other party to agree to protect the water pipes, etc., of the former from freezing. The party to whom the consent or license to enter was thus given did so protect the wall but failed to protect the pipes, etc., from freezang. The view was taken, though it was not necessary for the decision of the case, that as the license to enter on the lot to protect the wall was given entirely for the benefit of the licensor, it was not a sufficient consideration for the 384 NEW YORK LAW OF CONTRAiCTS [§ 260 the abstaining from doing something he has the legal right to do,'* may constitute a sufficient consideration for a promise made to him, even though his act or refraining from acting may in a material sense have been a benefit or pleasure to himself.^' Though a riparian owner on navigable waters may have the right to con- struct a wharf reasonably necessary to enable him to reach naviga- ble waters, an express grant by the state of its title to the lands under water is a sufficient consideration for the riparian owner's agreement that the public shall have the right to use the wharf erected by him.^" In a case involving the validity of an agreement by which an employee of a railroad company agreed that the com- pany should not be liable for any injuries which the employee might receive during the employment, it appeare'd that the employee, at the time of executing the instrument, was and had been for some time in the company's employ. ,His employment was a general one and for no particular time. After signing the agreement he continued in the same employment, without any agreement for or tender of a different employment, and his sign- ing of the agreement was not made a condition of the continued employment. It was held that the agreement was a mere gratuity on the part of the employee to relieve the company from a respon- sibility then existing in favor of the employee and therefore was not binding on him for want of a sufficient consideration." § 260. Detriment to Promisee from Breach of Promise. — The detriment to the promisee which will suffice as a consideration for a contract must be a detriment stipulated for in the contract as distinguished from a breach of the contract.^^ ' ' Manifestly, ' ' says promise of the other party to protect 40. Thousand Island Steamboat the water pipes. Co. v. Visger, (Sup. 1903) 86 App. 38. Homer v. Sidway, (1891) 124 D'iv. 126, 83 N. Y. S. 325, affirmed N. Y. 538, 36 State Rep. 888, 27 N. 179 N. Y. 206, 71 N. E. 764. E. 256; Street v. Gait, (Sup. 1910) 41. Purdy v. Rome, etc., R. Co., 136 App. Div. 724, 121 N. \. S. 514, (1891) 125 N. Y. 209, 34 State Rep. affirmed 202 N. Y. 575 mem., 96 N. 737, 26 N. E. 255, affirming 52 Hun E. 1132; Werner v. Werner, (Sup. 267, 23 State Rep. 469, 5 N. Y. S. 1915) 169 App. Dlv. 9, 154 N. Y. S. 217. 570. See infra, section 298 et seq., 42. Ridgway v. Grace, (Com. PI. as to the effect of refraining to exer- (5. t. 1893) 2 Misc. 293, 50 State cise a legal right. Rep. 326, 21 N. Y. S. 934; Dahl v. 39. Homer v. Sidway, (1891) 124 Scandinavian Trust Co., (Sup. Sp. N. Y. 538, 36 State Rep. 888, 27 N. T. 1919) 108 Misc. 135, 177 N. Y. S. B. 256. But see Goldstein v. Bloom, 489; Rafolovitz v. American To- (Sup. App. T. 1912) 134 N. Y. S. bacco Co., (Sup. Sp. T. 1893) 29 1066. Abb. N. Cas. 406, 23 N. Y. S. 274. § 260] CONSlbERATIOlf 386 Prior, J., " the violation of a gratuitous promise may result in the ruin of the promisee relying on it, e. g., to take up the note of a friend ; and yet, though great the disappointment and disastrous the consequence to the promisee, he can assert no right of action for the breach of such an engagement. ' ' *^ And as said by Giegerieh, J.: " Otherwise any contract void in its inception for want of consideration would be made valid by a subsequent act of the promisee in reliance on the gratuitous promise. " " A loss which will result to the promisee, if the promise is not performed by the promisor, is not the quid pro quo for the promisor's promise, but is a loss from his failure to perform a promise not binding on him, and cannot furnish the necessary consideration for the prom- ise.^^ Thus if an agent having funds of his principal in his hands promises a creditor of the principal to pay his claim, the promise is wanting in consideration, and the fact that the promisee neglects to take steps to enforce his claim, though it results in a detriment to him in case the agent refuses to perform his promise, will not constitute a consideration for -the promise. If in accepting the promise the creditor did not engage to abstain from any effort or to forego any means to collect the debt, he incurs no detriment on entering into the agreement, and whatever loss he may suffer results solely from the breach of the agreement." So the fact that the promisee has incurred expenses or made expenditures on the faith of the promise being performed, but not contemplated or stipulated for by the parties, which will result in a loss to him if the promise is not performed, cannot have a retroactive effect and furnish a consideration for the promise.^' This is true where a manufacturer without consideration promises to sell goods to a merchant, and the latter in reliance on such promise, but without any obligation to do so, incurs expenses in preparing for the resale of the goods.*' So where a lessor, without consideration, promised to pay for the damages which the lessee's goods had sustained, the But see Mechanics' Nat. Bank v. kacco Co., (Sup. Sp. T. 1893) 29 Jones, (Sup. 1902) 76 App. Div. 534, Abb. N. Cas. 406, 23 N. Y. S. 274. 78 N. Y. S. 80O, affirmed 175 N. Y. C6. Ridg^vay v. Grace, (Com. PI. 518 mem., 67 N. E. 1085. G. T. 1893) 2 Misc. 293, 50 State 43. Eidgway v. Grace, (Com. PI. Rep. 326, 21 N. Y. S. 934. G. T. 1893) 2 Misc. 293, 295, 50 47. Eafolovitz v. American To- State Rep. 326, 21 N. Y. S. 934. bacco Co., (Sup. Sp. T. 1893) 29 44. Dalil V. Scandinavian Trust Abb. N. Cas. 406, 23 N. Y. S. 274. Co., (Sup. Sp. T. 1919) 108 Misc. 48. Rafolovitz v. American To- 135, 177 N. Y. S. 489, 491. bacco Co., (Sup. Sp. T. 1893) 29 45. Rafolovitz v. American To- Abb. N. Cas. 406, 23 N. Y. S. 274. 25 386 jSTEW YORK LAW OF CONTRACTS [§ 261 amount of such, damages to be ascertained by a sale of the goods at auction and a comparison of the price received thereat and the invoice price, the fact that the lessee may have suifered a detri- ment in selling the goods at auction is not such a detriment as will support the original promise of the lessor." Where a factor or the like has a lien- on property of his principal in his possession, his promise to a third person to deliver the property to the latter and waive the lien, to be enforceable as an executory contract, must be supported by a consideration, and the fact that such third person, without any notice to the factor or knowledge on his part of the intention to do so, accepts the drafts of the owner of the property does not furnish a sufficient consideration though he acted in doing so in reliance on the factor's promise.^" The prin- ciple has also been applied where a creditor of a firm, without consideration, promised to release one member of the firm and look to the other for payment, and it was held that the fact that the member to be released may suffer a loss if the promise is not ful- filled, because in reliance thereon he consummated a dissolution of the firm, does not supply the necessary element of a consideration.^^ § 261. Applications of General Rule. — Where a promisor re- quests a specific service, which may consist of an act of omission as well as of commission, and promises indemnity, reimbursement, or compensation, it is immaterial whether the service rendered be beneficial to the employer or not; the inconvenience or injury or detriment to the promisee from the performance of the act, the making of the expenditures, or the omission to act, is itself a legal consideration.^^ Where land owned by joint tenants is sold and 49. Walker v. Gilbert, (Super. Ct. necessary connection between the 1864) 25 Super. Ct. 214, 222. In sale by auction, to ascertain the ex- this connection Monell, J., said: "It tent of the injury, and the promise is not pretended that there was any to pay. One is quite independent of benefit resulting, or that could re- the other; and it seems to me clear suit, to the plaintiif; nor was there that a supposed or conjectured in- any injury or detriment to any legal jui-y or loss to the defendants, in right of the defenda,nts. If they disposing of their property in the sustained any inj,ury, it was in manner suggested by the plaintiff, sending their goods to auction, cannot be resorted to as furnishing which, it may be said, was attended a consideration for the promise." by some outlay to the defendants. 50. Hollins v. Hubbard, (1901) But that was a mere mode of aseer- 165 N. Y. 534, 59 N. E. 317, affirming taining the amount of damages; and 38 App. Div. 629, 56 N. Y. S. 711. it does not appear (which I think it 51. Amend v. Becker, (Sup. App. should, to be at all available) that T. 1902) 37 Misc. 496, 75 N. Y. S. the defendants were to any extent 1095. damnified thereby. There is no 52. Bohm v. Goldstein, (1873) 53 § 261] CONSIDERATION 387 separate purchase money mortgages taken back for the amount of the unpaid purchase money due each owner, the consent of one owner to the making of the sale is a sufficient consideration for the agreement of the other that the former's mortgage shall have precedence.^' Where a saloon keeper was given a new bar by a brewing company in consideration of his continuing to trade with the company and of discontinuing to trade with another company, who had also promised him a bar to obtain his business, it was held that this was not a mere gift but a transaction based on a considera- tion.^ Though the drawee of a draft has not accepted it, his promise to pay in consideration of the delivery of the instrument to him is supported by a sufficient consideration, namely, both an injury or detriment to the promisee and a benefit to himself .^^ As the liability of an indorser of a note is conditional on his being duly charged as such by protest, etc., his agreement to pay the note absolutely, at or before maturity, is an agreement to do some- thing he is not legally bound to do and may constitute a sufficient consideration for a promise to him ; ^ it would be otherwise, how- ever, as to his agreement to pay a note on which he had already become charged as an indorser, as this is no more than he is legally bound to do." Where neighboring lot owners are fearful that if a third person shall purchase another lot it will be put to a use injurious to their lots, an agreement by one to pay the other a certain sum in consideration that the latter purchase the lot, is supported by a sufficient consideration, namely, that of benefit to the promisor and possible injury or loss to the promisee.^' Where connecting railroads enter into an agreement for the purpose of securing a uniform gauge of the connecting roads and thus facili- tate the interchange of traffic, the anticipated benefit which may accrue thereby is a sufficient consideration for the promise of one N. Y. 634; White v. Baxter, (1877) 56. Lamoreux v. Gould, (1852) 7 71 N. Y. 254, affirming 41 Super. Ct. N. Y. 349; Sanders v. Gillespie, 358. (1874) 59 N. Y. 250, affirming 64 53. Collier v. Miller, (1893) 137 Barb. 628; Wyckoff v. De Graaf, N. Y. 332, 50 State Eep. 784, 33 N. (1885) 98 N. Y. 134, reversing 11 E. 374, affirming 62 Hun 99', 42 State Daly 322. Rep. 66, 16 N. Y. S. 633. 57. Lamoreux v. Gould, (1852) 7 54. Loewer's Gambrinus Brewing N. Y. 349. Co. V. Friedman, (Sup. App. T. 1897) As to the effect of the performance 21 Misc. 32, 46 N. Y. S. 867. of a legal duty generally, see infra, 55. Forward v. Harris, (Sup. section 325 et seq. 1857) 30 Barb. 338 ; Canda V. Zeller, 58. Reynolds v. Guilbert, (Sup. (City Ot. G. T. 1888) 21 State Rep. 1878) 13 Hun 301. 164, 3 N. Y. S. 128. 388 NEW YORK LAW OF CONTEiAiOTS E§ 261 made as a part of the arrangement." The surrender on the part of a tenant or his agreement to surrender his leasehold estate is a sufficient consideration for a promise to pay therefor or do some other act.*" According to the general rule the increase of an animal belongs to the person who by hiring for a time becomes the temporary proprietor, and his promise to return the increase is a sufficient consideration for the agreement of the owner to hire or let the animal for a stated time.^^ In case of a promise to convey land or an interest therein, the agreement, whether in writing or not, to be enforceable must be supported by a consideration, and it is not sufficient to support such a promise that the promisee will suffer a loss if the promise is not performed; but if the parties contemplate or provide for the making by the promisee of a valua- ble improvement on the land and in reliance on the promise the improvement is made, this is held a valuable consideration and sufficient in equity to move a court to decree the specific perform- ance of the promise and thus prevent the perpetration of a fraud on the promisee.^^ Where an assignee of a lease, under no personal covenant to pay the rent reserved in the lease, reassigns it, he ceases to be liable for the accruing rents, and it has been held that his assignee's promise to pay the rent to him is unenforceable for want of consideration and likewise the agreement of a third person who guarantees such payment, and that as the promise is unenforceable by the original assignee no right to enforce it will pass to the lessor by an assignment of the contract.*^ "Where a 59. Connecticut Mul. L. Ins. Co. v. lessor on the contract assigned to Cleveland, etc., R. Co., (Sup. 1863) liim may have been proper, the wrong 41 Barb. 9, 26 How. Pr. 225. reason is, we think, given therefor. 60. Lewis v. Donohue, (1899) 27 If the promise had been to pay a Misc. 514, 58 N". Y. S. 319; Bogert v. price for the assignment of the lease Dean, (Com. PI. 1863) 1 Daly 259. the transfer of the leasehold estate 61. Putnam v. Wyley, (Sup. 1811) would have been a sufficient con- 8 Johns. 432. sideration therefor, and it, in so far 62. Lobdell v. Lobdell, (1867) 36 as consideration is concerned, would N. Y. 327, 4 Abb. Pr. N. S. 56, 3S equally support the promise to pay How. Pr. ■ 347, 2 Trans. App. 363, the rent to accrue, but as the pur- affirming as to this but reversing on pose of the agreement was merely to other grounds 32 How. Pr. 1; Free- secure the payment of the accruing man V. Freeman, (1870) 43 N. Y. 34, rents and as the assignee has no affirming 51 Barb. 306; Patterson v. right to them, and as between him- Copeland, (Sup. G. T. 1876) 52 How. self and his assignee would have Pr. 460; Van Arsdale v. Perry, (Sup. been required to pay the same over G. T. 1885) 21 Wkly. Dig. 116. to the lessor, he is not damaged by 63. Stoppani v. Richard, (Com. PI. the breach of the contract, and could 1857) 1 Hilt. 509. While the re- not recover substantial! damages, fusal to permit a recovery by the and therefore no greater right could § 261] CONSIDERATION 389 landowner is unwilling to sell at a certain price unless he is relieved from any liability for commissions to a real estate agent, the purchaser's agreement' to pay a certain sum to such agent in order to obtain the property at the lower price is supported by a sufficient consideration;" and, a fortiori, the discharge of any claim the real estate agent may have against a landowner for com- missions is itself a sufficient consideration for the promise of the buyer to pay him for so doing,^^ ^nd it is immaterial in such a case whether as a matter of law and fact the landowner would be liable to the agent for commissions, the agent having consented to with- draw any claim for commissions in consideration of the promise of the buyer to pay him for so doing.** So the agent's refraining from taking steps or attempting to sell the property, and thus earn a commission from the landowner, and permitting an intend- ing purchaser to deal directly with the landowner, is a sufficient consideration for a promise by such purchaser to compensate him for so doing." Where persons have entered into a joint venture for the purchase and sale of certain property, the personal assump- tion by one of the parties of all the obligations incurred in the purchase, and his subsequent discharge of such obligations and consequent release of the other party from liability thereon, con- stitute a sufficient consideration for the latter 's release of any claim to profits which might arise from a subsequent sale of the property.** The grant by a municipality, under legislative sanc- tion, of a street franchise may constitute a sufficient consideration for undertakings by the grantee.*^ Thus the grant by a munici- pasB to the lessor by the assignment him, the promise of the agent to re- ef the contract. frain cannot constitute a considera- 64. Deitch v. Feder, (Sup. App. T. tion for the promise of the purchaser 1904) 86 N. y. S. 802. See also Cole to pay him for so doing. Gaiitzka v. V. Mendenhall, (Sup. 1907) 117 App. Fields, (Sup. App. T. 1912) 137 N. Div. 786, 102 N. Y. S. 1030. Y. S. 828. 65. Cole V. Mendenhaai, (Sup. 68. Smith v. Kissel, (Sup. 1904) 1907) 117 App. Div. 786, 102 N. Y. 92 App. Div. 235, 87 N. Y. S. 176, S. 1030. affirmed 181 N. Y. 536 mem., 73 N; 66. Cole V. Mendenhall, (Sup. E. 1133. 1907) 117 App. Div. 786, 102 N. Y. 69. Eochester Telephone Co. V; S. 1030. Ross, (1909) 195 N. Y. 429, 88 N. E. 67. Siegel v. Rosenzweig, (Sup. 793, affirming 125 App. Div. 76, 109 1908) 129 App. Div. 547, 114 N. Y. N. Y. S. 381; Phoenix v. Gannor, S. 179. (1909) 195 N. Y. 471, 88 N. E. 1066, If, however, the agent had there- reversing 123 App. Div. 93, 108 N. tofore terminated his employment by Y. S. 255, decided on the ground the landowner, and was in no posi- that the grant of a street railway tion to earn any commission from franchise to an individual was void 390 NEW YORK LAW OF CONTEACTS [§261 pality to a telephone company of the right to use the streets, etc., is a sufficient consideration for a contract by the company fixing the maximum rates for service.'" Where a person is liable as a surety for the due performance of a construction contract, the advantage accruing to him from the avoidance of a threatened discontinuance of the work is a sufficient consideration for his promise to pay for services rendered and to be rendered by the promisee towards the completion of the contract.'^ Where a wife is justified in leaving her husband and the circumstances are such as would authorize a decree in her favor for a separate mainte- nance and he would be liable for necessaries furnished, his being relieved from this liability is itself a sufficient consideration for his agreement to pay a reasonable sum for her separate support.'^ Where the plaintiff, an attorney employed by the defendant to collect an award for land taken by a city under condemnation proceedings, received a check for the amount under an agreement by him to see that the defendant paid rent for the land for the time she remained in possession after the title vested in the city, the receipt of the check by the defendant was held a sufficient con- sideration for her promise to the plaintiff to repay him the amount he should pay to the city irrespective of whether the defendant was liable to the city or not on her prior promise to the city to pay such rent.'^ The appointment of a person as the executive agent for the sale of a manufacturer's product within a certain locality may constitute a sufficient consideration for the agent's agreement to take and sell a certain amount of the manufacturer's product;'^ it is otherwise, however, it would seem, if no obliga- tion is imposed on the manufacturer to fill orders submitted by the agent, as the appointment as sales agent is purely illusory.'^ and therefore not a consideration for 408, aflSrmed 141 App. Div. 921 mem., the grantee's undertakings, and 126 N". Y. S. 1147. which on this ground reversed 55 72. Calkins v. Long, (Sup. 1855) Misc. 606, 106 N. Y. S. 927. 22 Barb. 97. 70. Rochester Telephone Co. v. 73. Barrett v. Parent, (Sup. 1902) Ross, (1909) 195 N. Y. 429, 88 N. B. 68 App. Div. 165, 74 N. Y. S. 8. 793, affirming 125 App. Div. 76, 109 74. Meade v. Poppenberg, (Sup. N. Y. S. 381. See also Murray v. 1915) 167 App. Div. 411, 153 N. Y. New York Tdlephone Co., (Sup. Sp. S. 162. T. 1913) 81 Misc. 636, 143 N. Y. S. 75. Goodyear v. H. J. Koehler 534, reversed on other grounds 170 Sporting Goods Co., (Sup. 1913) 159 App. Div. 17, 156 N. Y. S. 151. App. Div. 116, 143 N. Y. S. 1046, 71. Taylor v. Guinan, (Sup. Tr. T. affirmed 220 N. Y. 749 mem. 116 N. 1910) 67 Misc. 262, 124 N. Y. S. E. 1047. S 262] CONSIDERATION" 391 Particular Subjects as Consideration § 262. Contracting with Third Person. — As the owner of prop- erty in selling it does something he is not legally bound to do, his sale of it to a third person, irrespective of whether the price paid by such person is an adequate one or not, has been held a sufficient consideration for the promise of another to pay the seller a certain amount for doing so.'* The assignment by a lessee of his leasehold estate may constitute a consideration for a promise by the lessor to release the former from further liability linder the lease ; " and such an assignment to one who assumed the performance of the lessee's covenants has been held a sufficient consideration for the agreement of the lessor to waive a claim against the lessee for damages for a prior breach of a covenant on his part to build on the land within a certain time.'* Where a real estate agent has produced a customer willing and able to purchase on the terms stipulated, he thereby earns his commission, and a subsequent agreement by him not to claim his commission until the happening of some contingency, or to return commissions paid, must be sup- ported by a consideration to be binding on him.'' And if the agreement by the agent restricting his right to the compensation is not made until after the landowner has become bound by his contract to sell, the entering into the latter contract affords no consideration for the former.^" But where a landowner employs an agent to find a purchaser for his land there is no obligation on his part to sell in case the agent finds a purchaser, though his refusal to do so will not affect the agent's right to the agreed coA- pensation, and it would seem, therefore, that the act of the owner in entering into a contract of sale with the purchaser may con- stitute a consideration for a new undertaking on the part of the agent with regard to his compensation; by entering into the con- tract, the owner does something he was under no legal obligation to do and which may in legal contemplation be a possible detriment to him and a possible benefit to the agent, and also the purchaser through the act of the owner acquires a possible benefit which he 76 Wilkinson v. Chamber of Com- affirmed 175 N. Y. 520 mem., 67 N. merce, (Sup. Tr. T. 1911) 73 Misc. E. 1083. 141 130 N. Y. S. 676. '''S. See supra, section 243. 77 Di Caprio v. Yanaro, (Sup. 80. Rohlcoh.1 v. Susaman, (Sup. App.'T. 1911) 73 Misc. 385, 130 N. App. T. 1908) 61 M-sc. 246, 113 N". Y g. 164 Y. 8. 586. See also Swee v. Neu- '78 Jones r. Daly, (Sup. 1902) 73 mann, (City Ct. Tr. T. 1910) 67 App.' Div. 220, 76 N. Y. S. 725, Misc. 605, 123 N. Y. iS. 776. 392 NEW YORK LAW OF CONTEiACTS [§ 262 would not have been entitled to.*^ It has been held in a number of cases, however, where the agent, after producing a customer and thereby earning his commission, agreed, in consideration of the landowner's " executing a contract " for the sale of the land, to postpone the payment of his commission until the conveyance was made, that his promise was without consideration.*^ "A recital," says Gerard, J., " in such agreement that it is in con- sideration of the execution of the contract of sale does not establish a valid consideration, as the procuring of the contract of sale was the consideration for the broker's commissions."*^ And it has 81. In Benedict v. Pincus, (Sup. 1909) 13^ App. Div. 555, 119 N. Y. S. 266, it appeared that an agent employed to procure a tenant, at the time the agreement to lease was about to be signed by the lessor and in response to a statement by the latter that his commission was not to be paid unless the lease was con- summated, said, " That is satis- factory to me." It was held that there was no binding contract on the agent's part restricting his right to compensation. In this case, how- ever, the lessor was not considered as having entered into the agreement with the lessee in consideration of the agreement by the agent, and very possibly a different view, in con- formity with the holding of the trial court, would have been taken if this had iieen the fact. There is a strong implication to this effect in the fol- lowing statement of Houghton, J.: " The plaintiff had earned his com- missions when he procured Smith, who was ready and willing and able to take the lease on the defendants' terms. Although 'he acquiesced in the remark of the defendants h'e was not fcound to forego his commissions if Smith never paid the $9,000 or executed the lease. There is no pre- tense that the defendants stated to the plaintiff that they would not ac- cept Smith or execiite the agreement •unless the plaintiff wou'ld make the payment of -his commissions con- ditional upon payment hj Smith. Plaintiff's acquiescence in the sug- gestion, if he did acquiesce, which he denies, was not a binding contract because it was without consideration. Ajs the proof stood at the close of the case the jjlaintiff was entitled to a direction of verdict. The learned trial judge submitted the case to the jury on the theory that the defend- ants' acceptance of the tenant was conditional upon the plaintiff's re- ceiving no commissions unless the lease was actually made and the tenant paid the stipulated amount. The facts as disclosed by the record show no such agreement." 82. MwComb v. Von EUert, (Com. PI. G. T. 1894) 7 Misc. 59, 57 State Rep. 5011, 27 N. Y. 8. 372; Moskowitz V. Hornberger, (City Ct. G. T. 1896) 15 Misc. 645, 74 State Rep. 5&7, 38 N. Y. S. 114; Hough v. Baldwin, (Sup. App. T. 1906) 50 Misc. 546, 99 N. Y. S. 545; Hann v. Brettler, (Sup. App. T. 1907) 107 N Y. S. 78; Taubenblatt v. Galewski, (Sup. App. T. 1908) 108 N. Y. S. 588. See also Swee V. Neumann, (Citv Ct. Tr. T. 1910) 67 Misc. 605, 123 N. Y. S. 776; Marx v. Kovdcs, (Sup. App. T. 1915)' 165 N. Y. S. 463; Genatt v. Rubinson, (Sup. App. T. 1917) 165 N. Y. S. 464. 83. Tauiienblatt v. ■Galewski, (S\ip. App. T. 1908) 108 N. Y. S. 588. TJhe fallacy in this statement and reasoning is that the consideration for the agent's commission is not the " procuring " of a contract to pur- chase, but rather the procuring of a purchaser ready and able to maJ^e the § 262] CONSIDERATION 395 been said that this is true though the owner expressly refused to sign the contract of sale or exchange unless the agent would enter into the contract restricting his right to compensation.'* If the first contract is oral, and the subsequent contract fixing the amount and time of paying the commission is in writing, it has been held that the latter controls as the conclusive embodiment of the terms of the contract.** The purchase of property by a person may constitute a sufficient consideration for a promise by a third person to pay to the buyer a certain amount for doing so, and for this reason the purchase of treasury stock from a corporation wiU constitute a consideration for a personal guaranty by directors of the corporation that its future dividends will equal a certain amount.** On principle, the same would be true as to a promise to remunerate a person in con- sideration of his agreeing to enter the employ of a third person." So the purchase by the plaintiff of property from a third person purchase, (leaving the vendor free to sell or not as' he may prefer. 84. Hough V. Baldwin, (Sup. App. T. 1906) 50 Misc. 546, 99 N. Y. S. 545. 85. In Colvin v. Post Mortg., etc., Co., (Sup. 1916) 173 App. Div. 85, 159 N. Y. S. 361, it appeared that the plaintiff under an oral agreement was to receive a, certain commission for procuring a purchaser of the defendant's land. Having found a purchaser, who was to buy on an in- stalment contract, a written contract was entered into between the plain- tiff and the defendant prior to the signing of the contract with the pur- chaser, which stated the amount of the commisision and expressly pro- vided that it should be paid pro rata only from the instalments as paid, and that if the purchaser did not complete his contract nothing further should be paid. It was held that tte written contract controlled and that the plaintiff could only re- cover under the terms of such con- tract, iln this case Scott, J., said: " The plaintiff has evolved an in- genious theory -by -rohich he seeks to avoid the application of the rule that where parties have deliberately en- tered upon a written agreement, all prior negotiations and agreement upon the subject matter thereof will be deemed to be merged therein. His argument is that by reason of his employment to find a purchaser and his success in so doing an obligation arose on the part of the defendant to pay his commissions, and that the subsequent viTitten agreement speci- fying how and when the commissions should be paid was without con- sideration and void. If this conten- tion should be .permitted to prevail, there would be am end of the salu- tary rule now so strongly entrenched in our law. That rule is based upon the soundest principles of public policy and is not to be overturned at this late 'day. There is a conclusive presumption in such a case that the written document expresses the con- summated agreeinent between the parties, and neither will be heard to assert that it differs from a prior oral ageement covering the same subject." sis. Crook V. Sicott, (Sup. 1901) 65 App. Div. 139, 72 N. Y. S-. 516, affirmed 174 N. Y. 520, 66 N. E. 1106. 87. Petze v. Leary, (Sup., 1907) 117 App. Div. «29, 102 N. Y. S. 960. 394 NEW YORIC LAW OF CONTRACTS [§ 263 is a sufficient consideration for a warranty by the defendant of its character or condition, though the latter may have no financial interest in the sale.*' § 263. Giving Credit. — The giving of credit for goods sold or services rendered or the like is unquestionably a sufficient con- sideration for a promise by a third person to answer for the indebtedness thus created.*' And the rendition of services or the sale of goods on credit to a person may be a sufficient consideration for a promise by another to pay not only for the services rendered or goods thereafter furnished but also an existing debt of the buyer or person to whom the services are rendered.^" Also as is shown later the giving of further credit by a forbearance to enforce an existing debt may constitute a sufficient consideration for a promise 88. Williams v. Wieting, (Sup. 1874) 3 Thomp. & C. 439. 89. See supra, section 239. 90. Schloss V. Troman, (Sup. 1913) 154 App. Div. 645, 139 N. Y. S. 616, affirmed 214 N. Y. 641 mem., 108 N. E. 1107. In Pfeiffer v. Adler, (1867) 37 N. Y. 164, 4 Trans. App. 95, it is said that " a verbal promise to sell goods to a responsible party, for their full value, and on the usual terms, forme no consideration for an independent engagement to pay the antecedent debt of a third person; there is nothing in the facts found by the referee to withdraw the agreement from the operation of the statute of frauds." This does not mean that an agreement to sell on credit for full value to a person financially responsible is not a sufficient con- Siideration for a promise to pay an antecedent debt of a third person; and if the promise had been in writing it would have been enforce- able. The court in this case cites as authority for its position Mallory v. Gillett, (1860) 21 N. Y. 412, which approves Chancellor Kent's early classiification of independent and col- lateral promises. It was therefore the intention of the court to hold merely that the new consideration was not sufficient to make the promise an independent as distin- guished from a collateral one. It has been cited in later cases as bearing on the question a,s to what new con- sideration is sufficient to prevent a promise to answer for the debt of an- other from being within the statute. Bee for instance Duflfy v. Wunsch, (1870) 42 N. Y. 243, 8 Abb. Pr. N. S. 113, where it is held that the verbal promise of A to pay the debt of B if C will discontinue a suit for its recovery, and a discontinuance of the suit in consideration of that promise are within the operation of the statute of frauds; and also Belk- nap V. Bender, (1878) 75 N. Y. 446, 449, where it is held that the agree- ment of the plaintiff to work for the defendant at what appeared full wages was not a sufficient considera- tion to take the verbal promise of the defendant to pay to the plaintiff an indebtedness owing by a third person out of the operation of the statute of frauds. In Winne v. Mehrbach, (Sup. 1909) 130 App. Div. 329, 114 N. Y. S. 618, the broad view is taken on the authority of the Pfeiffer case and the Belknap case, that the agreement of a seller to sell ice on credit at a reasonable price, while a sufficient consideration for a promise hj a third person to answer for the price of the ice thereafter furnished, is not a consideration for a promise to answer for the price of ice thereto- fore delivered. § 264] CONSIDERATION 395 by a third person to answer for the debt." So the making of a loan to be secured by a mortgage on the borrower's land is a suffi- cient consideration for the agreement of a third person holding a prior mortgage to give precedence to the mortgage to be given the lender.'^ § 264. Assignment of Chose in Action or Contractual Rights. — The assignment of a chose in action or contract right may undoubt- edly constitute a consideration for a promise by the assignee. Where one party gave his check and received from the payee in return the check of a third person, it has been held that there was a sufficient consideration for the check given by the former, though the third person's check was not paid.'' So the relinquishment by one joint creditor to the other of his interest in the indebtedness may constitute a sufficient consideration.'* If, however, an assign- ment is void, it cannot constitute a consideration for a promise on the part of the assignee, as it can confer no benefit on the assignee nor operate to the injury of the assignor.'" So the sale of an abso- lutely void chose in action will not constitute any consideration for a promise. If void no legal obligation is created by it, and it is, in the view of the law, as if it did not exist.'° And this is held true notwithstanding the fact that the void chose in action is salable in market for even the full value that would attach to it if valid." For example, the Act of July 10, 1851, to provide for the completion of the Erie Canal enlargement and the Genesee Valley 91. See infra, section 303. Barb. 63, 66, affirmed id. 188; Sweeit 92. Kam v. Benjamin, (Sup. 1896) v. Spence, ('Sup. 1860) 35 Barb. 44. 10 App. Div. 419, 42 N. \. S. 99, 97. Sherman v. Barnard, (Sup. affirmed 158 N. Y. 725 mem., 53 N. 1855) 19 Barb. 291. "If the law," E. 1126. In this case the court says Strong, J., in this case, " does leaves undecided the question whether not recognize it as having some bind- there would have been a sufficient ing force, and will not enforce it, a consideration if the loan had already note given upon the sale of it will been made at the time of €he agree- be invalid for want of consideration, ment for the preference. As to this It has no intrinsic, no legal value, see infra, section 294. and therefore in law no value. 93. Shannon v. Horley, (Sup. Tr. Although salable in market, if the T. 1900) 32 Misc. 623, 66 N. Y. S. sale is on credit no legal debt is 47j_ thereby created; payment may be 94. Leiman v. Eosenzweig, (Sup. resiisted for want of consideration; App. T. 1907) 103 N. Y. S. 83. and if the sale is for cash, if the 95. Converse v. Kellogg, (Sup. money paid cannot be recovered back 1850) 7 Barb. 590. it i^ "ot because a consideration was 96. Sherman v. Barnard, (Sup. received for it, but upon the prin- 1855) 19 Barb. 291. See also Ehle ciple which precludes the recovery of V Judson., (Sup. 1840) 24 Wend. 97; money voluntarily paid, with a full Rodman v. Munson, (Sup. 1852) 13 knowledge of all the facts." 396 NEW YORK LAW OF CONTRACTS t§ 265 and Black River Canals was declared unconstitutional and void, and also all contracts entered into by the state under such act; and it was held that a sale and assignment by a contractor of his rights under such a contract did not constitute a consideration for the transferee's promise to pay a sum of money therefor, and that the mere fact that the purchaser or transferee agreed to take the risk as to the validity of the act and of the contract did not affect the case and bring it within the rule applied to the settlement or sale of doubtful claims.^* So, on the theory that a usurious note given for money loaned is void, it has been held that a note given by a third person on the purchase of the usurious note from the lender is without consideration.'* The mere fact that bankruptcy proceedings are pending against a judgment debtor does not pre- vent the assignment of the judgment from constituting a valuable consideration for the promise of the assignee to pay theref or.^ § 265. Defective or Invalid Claims to Land and Possessory Rights. — In the absence of fraud on the part of the vendor or any showing that the parties acted under a misapprehension as to the title, the transfer of or agreement to transfer a claim to land or an interest therein, though such claim is invalid or unenforce- able and in fact confers no benefit on the purchaser, is recognized as a sufficient consideration for a promise to pay the agreed price.^ And from an early date the possession of land has been considered a proper subject of sale and will constitute a sufficient considera- tion for the purchaser's promise to pay.' This was held true in an early case as regards the claim of one who held under a cer- tificate of purchase from the state but whose interest had been sold for nonpayment of taxes and the land conveyed to the state. In this case the court said that the purchaser might well have been willing to pay the agreed price for the original certificate of pur- chase from the state in the hope that the state would relinquish its title under the tax sale, on payment of the arrearages and interest; favors of this kind having been granted by the state to the owners of land sold for taxes.^ And where a wife, whose hus- band had deserted her, was in possession of land belonging to him 98. Sherman v. Barnard, (Sup. Wend. 626; Jacobs v. Sire, (Sup. 1855) 19 Barb. 291. 1909) 133 App. Div. 617, 118 N. Y. 99. Sweet v. Spence, (Sup. 1860) S. 274. 3.5 Barb. 44. 3. Parker v. Crane, (Sup. 1831) 6 1. Bell V. Leggeft, (Super. Ct. W«nd. 647; Hart v. Young, (Sup. 1849) 4 .Super. Ct. 450,, reversed on 1.869) 1 Lans. 417. other grounds 7 N. Y. 176. 4. Fay v. Richards, (Sup. 1839) 2. Fay v. Richards, (Sup. 1839) 21 21 Wend. 626. § 265] CONSIDERATION 397 and on which he had given a mortgage, it was held that as her possession could be cut off and obtained by the mortgagee only by a foreclosure of the mortgage, her surrender of possession to him was a sufficient consideration for his promise to pay therefor." The transfer of the naked legal title to a person having the full beneficial interest cannot, it seems, constitute a consideration for a promise to pay money to the holder of the legal title.* Thus where land had been sold on execution against a judgment debtor and his whole beneficial interest in the land divested, though the legal title still remained in him, which the purchaser could have required the sheriff to divest by his deed, such legal title cannot constitute a consideration for a promise to the execution debtor by a third person, to whom the purchaser at the execution sale conveys after the latter acquires the title by a sheriff's deed.'' It has also been held that as a person does not obtain any interest by his application to the dock department of the city of New York for a lease of one of its piers, though consideration is given by the department in making leases to prior applications, the assignment or transfer of any supposed interest an applicant may have acquired by his application is not a sufficient consideration for a promise to pay therefor.* A covenant of warranty is an agree- ment to pay on eviction, and a voluntary surrender of possession to one claiming under an adverse title is not necessarily an eviction, but if the grantee surrenders possession at the request of the grantor and on his promise to return the consideration paid with interest, this is a sufficient consideration for the new promise and assumpsit may therefore be maintained thereon.* The fact that land was conveyed without any consideration does not prevent its reconveyance to the grantor from being a sufficient consideration for his promise to pay.^" It is generally recognized that a contract by the owner of property to purchase it from another person and pay an agreed price therefor is unenforceable for want of con- sideration, and the mere recital of a nominal consideration for the 5. Hart v. Young, (Sup. 1869) 1 8. Coverly v. Terminal Warehouse Lans. 417. Co-. ('®up. 1902) 70 App. Div. 82, 75 6. Van Alstine v. Wimple, (Sup. N. Y. S. 145. 1825) 5 Cow. 162. See also Risley v. 9. Miller v. Watson, (Saip. 1827) Smith, (Super. Ct. O. T. 1875) 39 7 Cow. 39, on later appeal 4 Wend. Super. Ct. 137, 151. 267. 7. Van Alstine v. Wimple, (Sup. 10. Mapes v. Snyder, (1875) 59 N. 1825) 5 Oow. 162. Y. 450, affirming 2 Thomp. & C 318. 398 NEW YORK LAW OF CONTRACTS [§ 266 owner's promise to pay is not sufficient." Thus where buildings erected by a lessee had become a part of the realty without any right whatsoever on the part of the lessee to remove them or to demand compensation therefor, and under the mistaken belief that the lessee was entitled either to a renewal of the lease or to be paid the value of the buildings the lessor, just prior to the expiration of the lease, in consideration of one dollar and the extension of the time to exercise his option to pay for the buildings or renew the lease, agreed to pay a certain price for the buildings if he did not renew, it was held that his promise to pay was unenforceable for want of consideration.^ It has also been held that where goods were stolen from the owner a*third person can get no title to them irrespective of how he gets their possession, and a promise of the owner to buy the goods and pay such third person therefor is unenforceable for want of consideration.^' § 266. Good Will. — The good will of a business does not include a title to the patronage of any one; it consists in the probability that the customers at a particular place will continue to resort to the same place. It is nevertheless recognized as the proper subject of a sale and a sufficient consideration for the promise of the buyer to pay therefor.^* To be the subject of a sale and a consideration for the buyer's promise to pay, the good will need not be connected with a plant or accompanied by a sale of tangible property. Thus where a sale of the business of soliciting freight for vessels was held a good consideration for the buyer's promise to pay, Barrett, J., said: " The defendants also contend that the contract was without consideration because no material ' plant ' was involved in the transaction. But the good will of a business may be sold independently. A physician may sell the good will of his practice without selling his office furniture or his surgical instruments. So a lawyer may sell the good will of his clientage without selling his library. The same rule applies to the good will of a mercantile business ; in fact, to • good will generally. ' ' ^^ And where the plaintiff had enjoyed for many years the exclusive benefits from 11. Precht V. Howard, (1907) 187 (1874) 61 N. Y. 226, 230; Brett v. N. Y. 136, 79 N. E. 847, affirming 110 Eb^l, (Sup. 1898) 29 App. Div. 256, App. Div. 680, 97 N. Y. S. 462. 51 N. Y. S. 573; Johnson v. Pried- 12. Precht v. Howard, (1907) 187 'hoflf, (Com. PI. G. T. 1894) 7 Misc. N. Y. 136, 79 N. E. 847, affirming 484, 58 State Rep. 56, 27 N. Y. g. 110 App. Div. 680, 97 N. Y. S. 462. 982. 13. Marcus v. Mayer, (Sup. App. 15. Brett v. Ebel, (Sup. 1898) 29 T. 1914) 147 N. Y. S. 973. App. Div. 256, 51 N. T: S. 573. 14. Glen, etc., Mfg. Co. v. Hall, § 267] CONSIDE.RATION 399 doing the carting for a business establishment with a reasonable expectation of its continuance, a contract between himself and a third person, whereby the latter was to share with him in the carting for the firm and the benefits therefrom, was considered in the nature of a sale of a good will, and a sufficient consideration for the third person's promise to pay." The seller who sells the good will of a business guarantees nothing as to the continued patronage of prior customers, for in the nature of things he can give no assurance that the patronage of the place will continue. It is a sale of the mere chance that a preference which has usually been extended will continue. He sells what he has, and if the buyer, when he attempts to continue the business, discovers that there is no trade or custom connected with it, he is without remedy, unless he can show some fraudulent representation or suppression of fact on the part of the seller." § 267. License to Use Patent ajid Sale of Patent Eights and the Like. — It is the generally recognized rule in case of a license to manufacture, use or vend a device, for which an apparently valid patent has been issued to the licensor, that the licensee, where he has acted on the license, Avill not be permitted, in an action to recover the agreed royalties, to set up in defense the invalidity of the patent.^^ As said by Finch, J. : " Where the patent is appar- ently valid and in force, the party using it, receiving the benefit of its supposed validity, is liable for royalties agreed to be paid and cannot set up as a defense the actual invalidity of the patent. The reasons for the rule are that the party has got what he bar- gained for; that he cannot be allowed at the same time to affirm and disaffirm the patent ; and that he cannot in this way force the patentee into a defense of his right and compel him to try it in a collateral action. While the manufacturer goes on under such an 16. Searing v. Tye, (Com. PI. Baylis v. Bullock Electric Mfg. Co., 1855) 4 E. D. Smith 197, 198. (Sup. Sip. T. 1900) 32 Misc. 218, 66 17. Johnson v. Prledhoff, (Com. N. Y. 8. 253, reversed on other PI. G. T. 1894) 7 Misc. 484, 58 State grounds 59 App. Div. 576, 69 N. Y. Ecp. 56, 27 N. y. S. 982, reversing 3 S. 693; Buffalo Rubber Mfg. Co. v. Misc 631 52 -State Rep. 942, 23 N. Batavia Eoibber Co., (Sup. Eq. T. Y s' (jgg, 1915) 90 Misc. 418, 153 N. Y. S. IS.Mar'ston v. Swett, (1876) 66 779; Hyatt v. Ingalls, (Super. Ot. N. Y. 206, reversing 4 Hun 153, 6 1883) 49 Super. Ct. 375; Smith v. Thomp & C 534; Montgomery v. Standard Laundry Machinery Co., Waterbury, (Super. Ct. G. T. 1893) (Com. PI. 1882) 11 Dally 154. But 2 Misc. 145, 50 State Rep. 521, 21 see Saxton v. Dodge, (Siip. 1870) 57 N. Y. S. 631, affirmed 142 N. Y. 652, Barb. 84. 60 State Rep. 869, 37 N. E. 569; 400 NEW YORK LAW OF CONTRACTS [§ 267 apparently valid patent it is presumed to be under and in acfeord- ance with the agreement to pay royalties.-^^ If the patent has not been adjudged invalid, and the licensee desires to relieve himself from the terms of his contract, he assumes the burden of establish- ing that such circumstances exist that it would be inequitable to hold him to the contract and that such circumstances were not within the contemplation of the parties, either in fact or law, when the contract was entered into.^" Where the patent has been declared invalid and the licensee does not wish to continue to operate under it, he may, after due and proper notice to the licensor, proceed in hostility to the license, and may then set up its invalidity in defense to any further liability for the agreed royalties?^ In case of a sale of a patent right or an interest therein as distinguished from a license to use a patented device in consideration of royalties, it is the general rule that the invalidity of the patent constitutes a total failure of consideration, and may be set up as a defense to an action for the agreed price, where the purchaser does not take on himself the risk of the validity of the patent.^^ This is especially true where a decree has been found against the buyer, rendered by a court of competent jurisdiction, adjudging the patent sold to be an infringement, thereby depriving him of any beneficial use thereof and subjecting him to liability to account to the owners of the infringed patent for damages for all sales by him of the infringing machine.^^ And it is held that very clear evidence is requisite to permit a contract for the sale of letters patent to be construed, not as calling for a valid patent, but as contemplating a transfer of the letters patent merely, irrespective of whether they are valid or not, with an assumption by the buyer of the risk of their validity.^ The view also seems to have been taken that if the patent is entirely worthless it will not constitute a sufficient consideration for a promise to pay there- 19. Marston v. Sweet, (1880) 82 N. Y. 587, 45 N. E. 1127, affirming N. Y. 526, 533. 8 Misc. 27, 5a State Rep. 305, 28 aO. Baylis v. Bullocli Mfg. Co., N. Y. S. 74; Cross v. Huntly, (Sup. (Sup. Sp. T. 1900) 32 Misc. 218, 66 1835) 13 Wend. 385, 386; Head v. N. Y. S. 253, reversed on other Stevens, (Sup. 1838) 19 Wend. 411. grounds 59 App. Div. 576, 69 N. Y. See also Saxton v. Dodge, (Sup. S. 693. 1870) 57 Barb. 84; McDougall v. 21. Marston v. Sweet, (1880) 82 Fogg, (Super. Ct. 1858) 15 Super. N. Y. 526. See also Buffalo Rubber Ct. 387. Mfg. Co. V. Batavia Rubber Co., (Sup. 23. Herzog v. Heyman, (1897) 151 Eq. T. 1915), 90 Misc. 418, 153 N. N. Y. 587, 45 N. E. 1127. Y. S. 779. 24. Herzog v. Heyman, (1897) 151 22. Herzog v. Heyman, (1897) 151 N. Y. 587, 45 N. E. 1127. § 267] CONSIDEKATION 401 for.^ According to the better view, however, it is no defense to an action for the agreed price, that the patent is not commercially profitable. And where at the time of the sale the patent is for a useful and valuable improvement the buyer takes the risk of any new discovery which may destroy its value, and such a subsequent invention does not destroy the consideration for his promise to pay.^* While letters patent are essential to create a monopoly and secure the exclusive rights to the invention, it does not follow that the inventor has not a property right in his invention, prior to the issuance of letters patent, which may be the subject of sale or the basis of an agreement for its use." And our courts have sustained a promise to pay for the right to use an invention, prior to the issue of letters patent, as made on a sufficient consideration.^* It has been held', however, where the contract is for the sale of all the rights of the seller in an unpatented invention, the seller agreeing to do whatever is necessary to secure the patent, that if the supposed invention is not patentable there is a failure of con- ' • i sideration for the promise of the buyer to pay the agreed price.^* And it has been held, where it appeared that at the time the con- tract was entered into the plaintiff knew that his application for a patent had been rejected and declared abandoned, that the agreement to pay royalties for its use was without consideration.^" If a person has no interest whatsoever in letters patent issued to him, having already transferred all his rights therein, his transfer of or agreement to transfer the letters patent cannot constitute a 25. McDoTigall v. Fogg, (Super. Ct. vention, prior to the issuance of let- 1858) 15 Super. Ct. 378. ters patent," says Bischoff, J., "is of 26. Harmon v. Bird, (Sup. 1839) value, in legal contemplation, suf- 22 Wend. 113. ficient to afford consideration! for a 27. M'Clurg V. Kingsland, (1843) contract to pay him the reasonable 1 How. 202, 11 U. S. (L. ed.) 102; value of its use by another, although, Philadelphia, etc., R. Co. v. Trimble, in the absence of the agreement, the (1870) 10 Wall. 367, 19 U. S. (L. inventor would be in no position to ed.) 948; Dalzell v. Dueber Watch demand compjensation for the same Case Mfg. Co., (1893) 149 U. S. 315, uae, unless he were the holder of a 13 S Ct 886, 37 U. S. (L. ed.) 749. patent giving him the exclusive legal 28 Jones v. Reynolds, (1890) 120 right." Bernard v. Huebel, (Sup. N. Y. 213, 30 State Rep. 881, 24 N. Sp. T. 1901) 33 Misc. 611, 68 N. Y. E. 279; Nilsson v. De Haven, (Sup. S. 878. 1900) 47 App. Div. 537, 62 N. Y. S. 29. Westervelt v. Fuller Mfg. Co., 506, affirmed 168 N. Y. 65.6 mem., 61 (€om. PI. 1885) 13 Daly 352. N E 1131 See also Tabor v. Hoff- 30. Buffalo Rubber Mfg. ' Co. v. man (1889) 118 N. Y. 30, 27 State Batavia Rubber Co., (Sup. Eq. T. Rep.' 756, 23 N. E. 12. 1915) 90 Misc. 418, 153 N. Y. S. 779. "An inventor's interest in his in- 28 402 NEW YORK LAW OF CONTRACTS [§ 268 consideration, as he has nothing to transfer." In case of a con- tract to pay royalties for a license to produce a play, the licensee cannot, while producing the play under the license, question the right of the licensor to the agreed royalties.'^ § 268. Support Furnished Third Person. — The furnishing of support to a third person for whose support the promisee is not legally liable is a sufficient consideration for a promise to pay therefor, though the promisor was not under any legal obligation to furnish such support. Thus, the furnishing of support to the promisor's adult child may be a sufficient consideration for his promise to pay the person furnishing such support irrespective of whether there was any obligation resting on the parent to support the child.'' A promise by a child to pay for support to be fur- nished its indigent parent, irrespective of any obligation on its part to furnish such support, is likewise binding.'* And where an obligation is imposed by statute on children to support their indi- gent parents, enforceable by proceedings criminal in their nature (Code Crim. Proc. § 914), a promise by a son to contribute a cer- tain amount towards the support of an indigent parent to be furnished by another son is enforceable by the latter, as the lia- bility thus imposed by the statute may be met by the children in such a manner as they may mutually agree on.'* It is also held that there is not such an obligation on a wife to support her hus- band out of her earnings, as will prevent her support of him from furnishing a consideration for a promise by a third person to pay her therefor.'^ Though there is no legal obligation on a father to support his illegitimate child, if services and support are furnished at his request and on his promise to pay therefor the promise may be enforced.''' And this is held true where the promise is made to the child's mother and the support or services rendered by the mother are beyond what she, as a mother, is bound to do for the 31. Cowles V. Rochester Folding 3'5. Canfield v. Canfield, (Sup. Sp. Box Co., (1904) 179 N. Y. 87,* 71 T. 1909) 118 N. Y. S. 530. N. E. 468, affirming 81 App. Div. 414, 36. Matter of Steglich, (Sup. 1904) 80 N. Y. S. 811. 91 App. Div. 75, 86 N. Y. S. 257. 3«. OutcauH v. Bonheur, (Sup. 37. Hook v. Pratt, (1879) 78 N Y 1907) 120 App. Div. 168, 104 N. Y. S. ?!^' affirming 14 Hun 396; Todd v. 1Q99 ^'^ ' Weber, (1884) 98 N. Y. 181, affirm- oo n/r i.i. r cii T 1. ,c l«n.^ i"? ^"^ Wkly. Dig. 72. See also Con- 33. Matter of Stegheh, (Sup. 1904) „^jj ^ O'Connor, (1889) 117 N. Y 91 App. Div. 75, 86 N. Y. S. 257. gi^ 26 State Rep. 840, 22 N. E. 753, 34. Turner V. Hadden, (Sup. 1871) 18 Civ. Pro. 8; Daniels v. Hallen- 62 Barb. 480. beck, (Sup. 1838) 19 Wend. 408. § 269] CONSIDEiRATION 403 child.'^ The view has been taken that a promise by a third person to pay a mother, whose husband is living, a certain sum during her life for the support of her child during its minority, is unenforce- able for want of a consideration, and that though such a promise would be enforceable if made by the putative father of an illegiti- mate child to the unmarried mother of such child, still if the mother was living with her husband so as to raise the presumption that the child is legitimate, such presumption is conclusive as to the paternity of the child, and it cannot be shown that the promisor was in fact the father of the child for the purpose of bringing the case within the rule as to a promise by the putative father of an illegitimate child made to the mother.^' An agreement by a father-in-law to pay a sum periodically to a mother for the support of herself and her children, she agreeing to support her- self and them and to educate them and not to seek to compel her husband to contribute to her support or that of her children, has been held enforceable as based on a sufficient consideration/'* § 269. Loans and Sales of Money. — At common law interest was not recoverable on money loaned, and the right thereto is, it seems, under our system of jurisprudence a creature of statute. And as regards the question as to when money will constitute a 38. Todd V. Weber, (1884) 95 N. 39. Flint v. Pierce, (Sup. Sp. T. Y. 181, affirming 17 Wkly. Dig. 72; 1912) 136 N. Y. S. 1056. Eosseau v. Rouss, (Sup. 1904) 91 The relation of the promisee to the App. Div. 230, 86 N. Y. S. 497, re- peraon to be supported, on principle, versed on other grounds 180 N. Y. can have no controlling effect as re- 116, 72 N. E. 916. See also Hook v. gards the consideration for the prom- Pratt, (1879) 78 N. Y. 371, affirm- ise to pay for support furnished, ing 14 Hun 396; Flint v. Pierce, provided the support is not merely (Sup. Sp. T. 1912) 136 K. Y. S. what the promisee is under a legal 1056. obligation to furnish. And it would Where the agreement is oral, and seem to be incorrect to lay down the after the death of the promisor it is broad rule that a promise to pay a sought to enforce it against his es- parent for support furnished her tate, the evidence to establish it child is without consideration, as the should ordinarily be clear and con- support may be much more than that vincing, though the promise is to which the law requires a parent to pay to the child, yet, as the con- furnish its child, and the enforce- sideration therefor moves from the ability of a, contract if there is a mother, she has been held, on account consideration is not affected by its of interest ( Code Civ. Proc. § 829 ) , inadequacy. As to the inadequacy of incompetent to testify as to the the consideration, see infra, section agreement made by her with the 351 et seq. father. Rosseau v. Rouss, (1904) 40. Recknagel v. Steinway, (Sup. 180 N. Y. 116, 72 N. E. 916, revers- Sp. T. 1901) 33 Misc. 633, 68 N. Y. ing on the latter ground 91 App. Div. S. 957, modified on other grounds 58 230, 86 N. Y. S. 497. App. Div. 352, 69 N. Y. S. 132. 404 NEW YORK LAW OF OONTEACTS [§ 270 consideration for a promise to pay money in return, it has been said that " there was a distinction between a valuable considera- tion, other than money, and a money consideration. That while in the former case the slightest consideration would support a promise to pay the largest amount, to the full extent of the promise, in the latter the consideration will support a promise only to the extent of money forming the consideration. That the law leaves the measure of the value of a valuable consideration, other than money, for a promise to pay money, to the parties to the contract; but money, being the standard value, is not subject to be changed by contract, and will support a promise to pay money only to the amount of the consideration."" And an agreement for the pay- ment of compound interest on interest to accrue is not enforceable, though an agreement to pay interest on interest accrued and unpaid may be enforced. ' ' "While all the cases agree, ' ' says Allen, J., " that when the interest has once accrued the parties may law- fully agree to turn such interest into principal, so as to carry interest in futuro, and the forbearance will constitute a considera- tion, there is no case that has come under my observation that holds that a like promise to operate retrospectively is valid, unsup- ported by any consideration other than the moral consideration (if one exists) resulting from the fact that the interest is in arrear and unpaid. " *^ At the time the currency known as legal tender notes and gold coin had different relative values, a contract for the sale of gold coin for a greater amount of such notes was held based on a sufficient consideration, thus treating gold coin as any other commodity or article of commerce.*^ In case of a loan the borrower cannot defend on the ground that the money loaned did not belong to the lender. Thus the fact that the money loaned was the proceeds of stolen property is not available to the borrower as a defense." § 270. Original Purchase, Acceptance or Employment as Con- sideration for Collateral Promise. — Contracts for the sale of both real and personal property frequently contain a provision con- ferring on the buyer or vendee the right to return or reeonvey the 41. Sawyer v. McLouth, ( Sup. Gold Exchange Bank, ( 1876) 67 N. Y. 1866) 46 Barb. 350. 138, 146; Bigelow v. Benedict, (1877) 42. Young V. Hills, (1876) 67 N. 70 N. Y. 202, affirming 9 Hun 429. Y. 162, 170. 4<'. Warren v. Haight, (1875) 65 43. Cooke v. Davis, (1873) 53 N. N. Y. 171. See also Porter v. Knapp, Y. 318; Peabody v. Speyers, (1874) (1875) 65 N. Y. 564 mem., reversing 56 N. Y. 230; Fowler v. New York 6 Lans. 125. § 271] CONSIDERATION 405 property and receive back the price paid. If this privilege is given at the time of and as a part of the contract of sale, the making of the purchase and payment of the purchase money will furnish the consideration necessary for the promise of the vendor or seller to receive back the property and repay the price paid.*^ Also where the goods tendered under an executory contract of sale are not of the quality required by the contract the buyer may refuse to accept them, and where there is a bona fide dispute between the parties as to whether the goods tendered are of the stipulated quality, the acceptance of the goods by the buyer may consti- tute a sufficient consideration for the seller's promise to take back the goods or indemnify the buyer for any loss he may incur on account of the defective quality of the goods." And in such a case the buyer's acceptance of the goods when tendered may con- stitute a sufficient consideration for a warranty then made which will survive the acceptance.*' So the purchase of land is a con- sideration for the contemporaneous agreement of the vendor to secure the extension of the time of payment of an existing mortgage subject to which the purchase was made.** On the other hand, after the original contract has been entered into and become bind- ing on the parties any additional or collateral promise by the seller must be supported by a new consideration,*^ such as a sub- sequent agreement giving the purchaser the right to return the goods purchased and receive back the price paid.^"* After a valid contract of employment has been entered into a new agreement giving the employer the right to terminate the contract must be supported by a new consideration."' § 271. Continuance of Business or Business Relation. — The con- tinuance of business by ah insolvent corporation such as a bank may in the view of the law be a detriment to it or a benefit to its stockholders, and therefore a sufficient consideration for the promise of an officer or stockholder to contribute to or make good 45. Eno V. Woodworth, (1850) 4 132 App. Div. 20, 116 N. Y. S. 350. N. Y. 249, Code Rep. N. S. 262; Van 48. Hoch v. Brantmar, (Sup. 1905) Name v. Queens Land, etc., Co., (Sup. 109 App. Div. 209, 95 N. Y. S. 647. 1909) 130 App. Div. 857, 115 N. Y. 49. Norton v. Abbott, (Sup. App. S. 905. T. 1908) 113 N. Y. S. 669. 46. James v. Libby, (Sup. 1905) 50. Ginsburg v. Erlich, (Sup. App. 103 App. Div. 256, 92 N. Y. S. 1047, T. 1910) 125 N. Y. S. 469. affirming as to this but reversing on 51. Fanger v. Caspary, (Sup. 1903) question of construction 44 Misc. 210, 87 App. Div. 417, 14 N. Y. Annot. 88 N. Y. S. 812. Cas. 64, 84 N. Y. S. 410. 47. Luckesv. Meserole, (Sup. 1909) 406 NEW YORK. LAW OF CONTRACTS [§271 its capital.^^ And to sustain such a promise it is not essential that the capital of the bank shall in fact have been impaired; it is sufficient if there is a reasonable doubt of the matter and the promise is made to make good its original capital.^^ Where the argument advanced against this view was that the corporation, a bank, desired to continue business, and hence continuing its business was of no detriment to it, Pryor, J., said that this " is confounding motive with consideration ; and non constat but the continuance of business was detrimental to the bank in accumulat- ing upon it a still heavier burden of indebtedness. ' ' ^* Where a business adventure or the like is terminable by one of the parties at will, his forbearance to exercise this right is a sufficient con- sideration for a promise by the other party to allow him an advantage not given by the original contract under which the adventure was undertaken, or to relieve him of obligations imposed by the original contraet.^^ Thus where the defendant agreed to appoint the plaintiff his agent for the sale of certain goods on commission and to supply a certain amount of goods for sale, retaining the right to terminate the contract after a specified notice, his refraining from exercising this right is a sufficient con- sideration for a modification of the contract relieving the defendant from his original obligation with respect to the furnishing of goods for sale.'°^ This has also been held true where a partner refrained from exercising his right to terminate the partnership agreement," and where the customer of a broker refrained from 53. Hurd v. Kelly, (1879) 78 N. Y. T. 1895) 11 Misc. 583, 5SS, m State 588, affirming 17 Hun 327 note; Rep. 337, 32 N. Y. S. 1083. Union Bank v. Sullivan, (1915) 55. Emerv v. Wilson, (1879) 79 214 N. Y. 332, 108 N. E. 558, modify- N. Y. 78; Rogers v. Wiley, (1892) ing 161 App. Div. 884 mem., 145 131 N. Y. 527, 43 State Rep. 918, N. Y. S. 1148; Dykman v. Keeney, 30 N. E. 582; Napier v. Spiebnann, (iSup. 1896) 10 App. Div. 610, 612, (Sup. igos) 127 App. Div. 711, 111 42 N. Y. S. 488, 16 App. Div. 131, 45 N. Y. S. 1009, affirming 64 Misc. 96, N. Y. S. 137, affirmed 160 N. Y. 677, 103 N. Y. S. 982; Browning v. Fox, 54 N. E. 1090; Hurd v. Green, (Sup. (Sup. 1918) 183 App. Div. 778, 171 1879) 17 Hun 327; Sickles v. Herold, N. Y. S. 648. (Com. PI. Tr. T. 18:95) 11 Misc. 583, 56. Napier v. Spielmann, (Sup. 66 State Rep. 337, 32 N. Y. S. 1083. 1908) 127 App. Div. 711, 111 N. Y. S. 53. Dykman v. Keeney, (Sup. 1896) lOOO, affirming 54 Misc. 96, 103 N. Y. 10 App. Div. 610, 612, 42 N. Y. S. S. 982. 488, 16 App. Div. 131, 45 N. Y. S. 57. Emery v. Wilson, (1879) 79 137, affirmed 160 N. Y. 677, 54 N. E. N. Y. 78; Melville v. Kjuse, (1903) lO&O- 174 N. Y. 306, 66 N. E. 965, affirming 54. 'Sickles V. Herold, (Com. PI. Tr. 69 App. Div. 211, 74 N. Y. S. 826. i 272] CONSIDERATION 407 exercising his right to close a speculative transaction.^' Also where a lessee would have been justified in vacating the premises and putting an end to the lease, his refraining from doing so may be a sufficient consideration for a promise by the lessor to do an act not imposed on him by the terms of the lease.^' If the circum- stances are such that a surety on a fidelity bond is entitled to terminate his liability for any future default of the employee, his refraining from doing so is a sufficient consideration for a modifica- tion of the surety's liability as stated in the original contract for a future default.^" § 272. Introduction of Customers. — The act of a promisee in introducing customers to the promisor is a service beneficial to the promisor which the law will permit to operate as a legal con- sideration for the latter 's promise to pay a commission on sales made by him to such customers or other business done with them.'^ But a further promise to pay commissions on business done with other persons, whom the customers introduced by the promisee should introduce, is not supported by a consideration. As regards these no act of service whatever is performed by the promisee in their introduction to the promisor, or by which they are induced to deal with the promisor in the course of his business. As to such persons the promisee performs no act, subjects himself to no injury or inconvenience, nor himself confers any benefit on the promisor. Whatever is done in obtaining them as customers is done by other persons not acting for or in behalf of the promisee or at his instance.^^ In connection with the introduction of customers it is also the rule that public policy forbids a person to introduce one as a seeming act of friendship to him and at the same time secretly agree with the merchant to whom he is introduced for a commission on such sales as may be made to the person so introduced.*^ • 58. Rogers v. Wiley, (1892) 131 61. Hamlin v. Wheelock, (Sup. N. Y. 527, 43 State Rep. 918, 30 18®6) 42; Hun 530, 4 State Rep. 475, N E. "582. See also Post v. Thomas, 25 Wkly. Dig. 28S, appeal dismissed (Sup. 1912) 153 App. Div. 865, 87-1, 117 N. Y. 656, 22 N. B. 1133. 'See 130 N Y S. 6, reversed on other also Ayres v. Quigley Furniture Co., erounds 212 N. Y. 264, 106 N. E. 69. (Super. Ct. 1891) 59 Super. Ct. 4, 35 59. Ireland v. Hyde, (Sup. App. T. State Rep. 460, 12 N Y. S. 559. 1901) 34MiBC. 546, 69N. Y. S. 889; 62. Hamlin v. Wheelock, (Sup. Dunn r Robins, ('sup. G. T. 1892) 1886) 42 Hun 530, 4 State Rep. 475, 48 State Rep. 45, 20 N. Y. S. 341. 25 Wkly. Dig. 285, appeal dismissed eO Emer/ v.'Baltz, (1884) 94 117 N^Y. 656, 22 K E. 1133. N. Y. 409, reversing 22 Hun 434. 63. See infra, section 494. 408 NEW YORK LAW OF CONTRACTS [§§ 273, 274 § 273. Disclosure of Information.^ There is no doubt but that information communicated by a professional man, such as advice given by a lawyer or a physician, is a legal consideration for a promise to pay therefor. The imparting of information, however, is not limited to such eases," and it is held that where a person has reliable information from which the probable future market value of stock may be judged, the imparting of such information may constitute a sufficient consideration for the promise of the party to whom the information is imparted to pay therefor or do some other act.''^ It has also been held that where a real estate broker has information that certain property is for sale, his impart- ing such information to another broker whereby the latter was enabled to go to the owner, to whom he was personally unknown, and effect a sale, was a sufficient consideration for the promise of the party to whom the information was disclosed, to share the commission which he might earn on any sale of the property.'* The disclosure of a secret process and formulas for manufacture or the like thereunder may undoubtedly" furnish a consideration for a promise to pay therefor," but where it appeared that the formulas had already been sold by the seller and disclosed to another, a note given for the price has been held unenforceable for want of consideration.'* § 274. Care or Improvement of One's Own Property. — Though one may have a legal right to neglect or abandon his property, it has been said that a promise by the defendant to compensate the plaintiff for taking care of his own property, without any reason appearing for such contract, would seem to be without considera- tion." And the view appears to have been taken that an agree- ment to pay a part of the repairs to be made on the property of the promisee, in which the promisor has no interest, would be 64. McLaughlin v. Barnard, (Com. Y. Munite. Ct. 1:9 li6) 97 Misc. 598, PI. 1854) 2 E. D. Smith 378; White 161 N. Y. S. 834. V. Drew, (Sup. 1878) 56 How. Pr. 68. McLaughlin v. Barnard, (Com. 53. See also Winch v. Farmers' PI. 1864) 2 E. D. Smith 372. Loan, etc., Co., (Com. PI. G. T. 1895) 67. Francis v. Campbell, (Sup. 11 Misc. 390, 65 State Rep. 426, 32 1902) 68 App. Div. 287, 74 N. Y. S. N. Y. S. 244. 246. 65. Parsons v. Robinson, (Super. 68. Sweeting v. Iroquois China Co., Ct. 1891) 59 Super. Ct. 546, 39 State (Sup. 1909) 129' App. Div. 777, 113 Rep. 376, 15 N. Y.. S. 138, affirmed N. Y. S. 945. 133 N. Y. 537 mem., 30 N. E. 1148; 69. Mace v. Sage, (Sup. G. T. White V. Drew, (Sup. 1878, 56 How. 1879) 8 Wkly. Dig. 509. Pr. 53. See also Weiss v. Josias, (N. § 275] CONSIDERATION 409 without consideration.'"' The expenditure of money in the making of repairs or improvements on one's own property may, however, result in a possible detriment to the owner, and on principle would constitute a sufficient consideration for the promise of another to pay or contribute to the cost thereof. Thus where a bailee of a wagon for hire, which was damaged while in his possession but without any negligence on his part and therefore without any liability for such injury, directed the bailor to have the wagon re- paired and promised to pay the cost thereof, it was held that his promise was binding on him and he was held liable for the cost of the repairs.'^ And it is well recognized in case of subscriptions to a charitable organization that the making of improvements by the corporation on its property, such as the erection of buildings or the like, may be a sufficient consideration for the subscription.'^ So the making of repairs or improvements by a lessee, which he is not required to make under the terms of the lease and which will inure largely to his own benefit, may be a sufficient considera- tion for a promise by the lessor to compensate him therefor by way of a reduction of the rent or the like.'' If after the execution of a lease and prior to the commencement of the term, the lessor's own misuse of the premises has necessitated repairs, there is, it seems, such an obligation on him to make the repairs thus rendered necessary as will support his promise to pay for them if made by the tenant, though in the lease the tenant covenants to make all necessary repairs.'* § 275. Change of Residence, Name, etc. — A change of residence may operate as a possible detriment to the person so changing, and will therefore constitute a sufficient consideration for a promise made to him, in consideration thereof, to pay him a certain sum 70. Schroeder v. Fredericks, (Sup. is based and the court expressly App. T. 1899) 25 Misc. 740, 55 N. Y. states that the right to recover does S. 494. It does not clearly appear in not depend on the relation of bailor this case, however, whether at the and bailee. time of the promise the repairs had 72. See infra, section 381. been made or were to be made. 73. Haight v. Cohen, (Sup. 1908) 71. Riley v. Lowry, (Sup. G. T. 123 App. Div. 707, 108 N. Y. S. 502; 1892) 63 Hun 632 mem., 44 State Natelsohn v. Reich, (Sup. App. T. Rep. 233, 18 N. Y. S. 299. 1906) 50 Misc. 585, 99 N. Y. S. 327. If the promise of the bailee had But see Kaye v. Hoage, (Sup. App. been in compromise of a claim by T. 1909) 63 Misc. 332, 117 N. Y. S. the bailor that he was liable for the 122. iniury, this would have rendered his 74. Bailey v. Krupp, (Sup. App. promise binding. This, however, is T. 1908) 59 Misc. 459, 110 N. Y. S. not the ground on which the decision 994. 410 NEW YORK LAW OF CONTRACTS [§ 276 or do some other act for his benefit.''" Naming a child after, or changing a person's name at the request of, another may also, it seems, be a sufficient consideration for a promise by the latter,^' and this is also true, it would seem, as to the naming of a business building according to the directions of the promisor." § 276. Surrender of Custody of Child. — It seems that the sur- render, by a relative, of the custody of an orphan, for whom no guardian has been appointed, is not a sufficient consideration for a promise by the person to whom the orphan is surrendered to support it during its infancy, as by such a surrender the promisor does not become entitled to the services or earnings of the child and there is consequently no reciprocity or other consideration." On the other hand, promises made to a parent for the benefit of his or her infant child, in consideration of the surrender of the custody and care of the child to the promisor, have uniformly been upheld as based on a sufficient consideration.'' " When a mother," says Adams, P. J., " compelled by the inexorable require- ments of her impoverished condition to part with her child, sur- rendered all control over that - child, she furnished the largest possible measure of consideration for the promise which that sur- render induced, a consideration the adequacy of which assuredly cannot be questioned when it is fully understood what that surren- der involved. ' ' *" Thus on the trial of an action for specific per- formance, the court found on sufficient proof that a written agree- ment had been made by a childless person with the plaintiff's mother, for his benefit, to the effect that the former would main- 75. Adams V. Honness, (Sup. 1872) 102; Gates v. Gates, (Sup. 1898) 34 62 Barb. 326. App. Div. 608, 54 N. Y. S. 454; 76. See Babcock v. Chase, (Sup. Brantingham v. Huff, (Sup. 1899) 1895) 92 Hun 264, 3 N. Y. Annot. 43 App. Div. 414, 60 N. Y. S. 157; Cas. 25, 72 State Rep. 401, 36 N. Y. Healy v. Healy, (Sup. 1900) 55 App. S. 879. Div. 315, 8 N. Y. Annot. Cas. 325, 77. Wright v. Smith, (Sup. 1897) 66 N. Y. S. 927, affirming 31 Misc. 13 App. Div. 536, 43 N. Y. S. 728. 636, 66 N. Y. S. 82, and affirmed 166 78. Hayden v. Hayden, (Sup. 1896) N. Y. 624 mem., 60 N. E. 1112; Ham- 8 App. Div. 547, 75 State Rep. 259, lin v. Stevens, (Sup. 1901) 59 App. 40 N. Y. S. 865. Div. 522, 69 N. Y. S. 2,55, reversing 79. Winne v. Winne, (1901) 166 on other grounds 32 Misc. 434, 66 N. Y. 263, 59 N. E. 832, affirming 48 N. Y. S. 548; Godine v. Kidd, (Sup. App. Div. 638 mem., 63 N. Y. S. 1892) 64 Hun 585, 46 State Rep. 813, 1118; Middleworth v. Ordway, (1908) 19 N. Y. S. 335, 29 Abb. N. Cas. 36. 191 N. Y. 404, 84 N. E. 291, affirming 80. Healy v. Healy, (Sup. 1900) 55 117 App. Div. 913 mem., 102 N. Y. S. App. Div. 315, 319, 8 N. Y. Annot. 1143, which affirmed 49 Misc. 74, 98 Cas. 325, 66 N. Y. S. 927. N. Y. S. 10, 18 N. Y. Annot. Cas. S§ 277, 278] OON-SIDERATION 411 tain the plaintiff, who at the time was an infant, as her own child, and at her death give him all her property, and make him her sole heir, if his mother would surrender to her his custody and control and would have nothing more to do with him; that the mother thereafter ceased to have any control over him; that he lived with such person until his majority, was given and accepted her name, performed the duties of a faithful son, and the relations usually existing between parent and child existed between them and continued until her death, and that she died intestate. It was held that a decision that the contract was valid, was based on a sufficient consideration, had been fully performed by the plaintiff and his mother, was binding on the heirs and next of kin of the decedent, and that the plaintiff was entitled to a specific perform- ance thereof, was proper.*^ § 277. Location of Public Buildings, Manufactories, and the Like. — The location and erection of public buildings, manufac- turing plants and the like in a particular locality may constitute a sufficient consideration for the promise of a person to pay money or do some other act.*^ And where persons subscribe to a fund to be paid to the promisee to induce him to locate his manufacturing plant in a certain locality, its location in pursuance of the express or implied request of the subscribers is a sufficient consideration to support their subscriptions.*^ § 278. Payment or Acceptance of Payment before Maturity of Debt. — There is no obligation on a debtor to pay his debt before maturity, and if he does so this may constitute a sufficient con- sideration for a promise by the debtor or a third person.*^ Thus where a purchaser of land subject to an outstanding mortgage had given his own mortgage for a part of the purchase price, which was held by a bank as collateral security, and paid to the bank the amount of the mortgage before maturity on the promise of the bank to secure a release of the land from the earlier mortgage, 81. Winne v. Winne, (1901) 166 section 380 et seq. as to subscrip- N Y 263, 59 N. E. 832, affirming 48 tions generally. App Div 638 mem., 63 N. Y. S. 1118. 84. McCraith v. National Mohawk 82 Marsh v. Chamberlain, (Sup. Valley Bank, (1887) 104 N. Y. 414, G T 1870) 2 Lans. 287. 5 State Rep. 728, 10 N. E. 862; Gold- 83 Horton v. Erie Preserving Co., smith v. Schroeder, (Sup. 1904) 93 (Sup 1904) 90 App. Div. 255, 85 App. Div. 206, 87 N. Y. S. 55«; New- N Y. S 503, affirmed 1»1 N. Y. sam v. Finch, (Sup. 1857) 25 Barb. 535 mem., 73 N. E. 1125. See infra, 175, 412 NEW YORK LAW OF CONTRACTS [§ 278 this was held a sufficient consideration for the bank's promise.^ And where a buyer, prior to the time he was required to do so by the original contract of purchase, gave his note for the price of the goods, this was held a sufficient consideration for a modifi- cation of the contract as to the time for delivery.** So the pay- ment of rent in advance of the time when it will become due is a sufficient consideration to support an agreement by the landlord for a termination of the lease.*^ Likewise the part payment of a debt before it is due is a sufficient consideration for the promise of the creditor to extend the time for the payment of the balance,** and such a payment is generally recognized as a sufficient con- sideration for a discharge of the debtor from liability for the residue.*' But where a part of a debt is paid before due and as evidence of such payment the creditor, instead of a receipt, gives a note payable on demand, the note so given has been held unenforceable for want of consideration.'" In case of an overdue mortgage, though the agreement of the mortgagor to pay interest for the period of extension would not be a sufficient consideration for the promise of the mortgagee to extend payment,'^ it would be otherwise if a part of the interest to accrue is paid in advance.'^ A promise by a debtor to pay his debt before it becomes due must itself be supported by a consideration.'* But if the debt is one bearing interest the agreement of the creditor to accept prepay- ment wiU itself be a sufficient consideration for the debtor's promise to prepay, as the creditor agrees to do something he is not legally bound to do ; and the creditor 's promise to accept pay- ment is held a sufficient consideration for the promise of the debtor to pay more than the face value of the debt and accrued interest, and an action may be maintained on the promise of the debtor and »5. McCraith v. National Mohawk 88. Newsam v. Fmch, (Sup. 1857) Valley Bank, (1887) 104 N. Y. 414, 25 Barb. 175. 5 State Rep. 728, 10 N. E. 862, 25 89. See infra, section 331, as to Wkly. Dig. 572, on a prior appeal to the general effect of a part payment Supreme Court, 18 Wkly. Dig. 80, of a liquidated demand as a consider- the same conclusion was reached. ation for a discharge of the residue. 86. Kallis v. Lissberger, (Sup. 90. Slade v. Halsted, (Sup. 1827) App. T. 1902) 39 Misc. 773 mem., 8^ 7 Cow. 322. N. Y. e. 332. 91. See infra, section 334. 87. Cox V. Davis, (Sup. 1896) 8 92. Babcock v. Clark, (Sup. 1881) App. Div. 491, 75 State Rep. 136, 40 23 Hun 391. N. Y. S. 761. See also Goldsmith v. 93. Feldman v. Rockf ord Co., (Sup. Schroeder, (Sup. 1904) 93 App. Div. Eq. T. 1910) 70 Misc. 66 126 N Y. 206, 87 N. y. S. 558. S. 646 § 279] CONSIDERATION 413 the agreed amount recovered.'^ " The authorities are clear," says Morgan, J., in this connection, " that a creditor may accept a less sum than what is stipulated for in the contract, and discharge it, when the debt is payable at a future day; and it seems to be equally clear that the debtor may oblige himself to pay more than is stipulated for in the contract, to induce his creditor to discharge an obligation not yet due."'^ § 279. Giving: Note or Other Obligation for Existing Debt.— It has been said that a new promise to pay is no defense to an action by the creditor on the original obligation unless there is a new consideration for the agreement to accept the new promise as payment;'^ but it is also said that the giving by a debtor of a new and superior security is a sufficient consideration for the creditor's agreement to accept it in payment or discharge of the existing debt.*' The giving of a new interest-bearing note for accrued interest is a sufficient consideration for the agreement of the creditor to accept it in payment of the accrued interest, as thereby the creditor becomes entitled to receive interest on the accrued interest which otherwise would not have borne interest.^* The broad rule has also frequently been laid down that if a debtor's note is accepted in payment of an existing debt it will so operate, and the remedy of the debtor will be restricted to the enforcement of the note.'' And in case of an indebtedness for which two or more persons are liable it seems to be generally recognized that if the individual note of one of the debtors* is accepted as a payment of the indebtedness, this will be sufficient to discharge the codebtors from liability.^ It is said that ' ' the doctrine of nudum pactum 94. Scott V. Frink, (Sup. 1868) 53 Deifendorf, (Sup. Sp. T. 1848) 5 Barb. 533, (1873) 54 N. Y. 635. Barb. 398. 95. Scott V. Frink, (Sup. 1868) 53 i. Howe v. Buffalo, etc., R. Co., Barb. 533, 540. (18167) 37 N. Y. 2\.9'7, 4 Trans. App. 96. Rice v. Dewey, (Sup. 1862) 54 249, affirming 38 Barb. 124; Brink v. Barb. 455, 456, 472. Stratton, (Sup. 1906) 112 App. Div. 97. Rice v. Dewey, (Sup. 1862) 54 299, 98 N. Y. S. 421, affirmed 188 Barb. 455, 456, 472; Caryl v. Wil- jj y. 620 mem., 81 N. E. 1160; liams, (Sup. 1873) 7 Lans. 416. ^^^^j^. ^ ^ (^ 1815) 12 nt^^'fT.R '''''' ' ^^' Jol^"«- ^Oi^; Waydell v. Luer, (Ct. Uarb. 455, 4!>b. Err. (1846) 3 Denio 410; Livingston 99. Parsons v. Gaylord, (Sup. ^ , ,-~ ,c io,^«,i « t>„,i, om 1808) 3 Johns. 463; Rice v. Dewey, v. Ru'dcLff, (St^. I&^) 6 Barb 201; (Sup, 1862) 54 Barb. 455; Groff v. Bias v. Wanmaker, (Super. Ct. 1848) Friedline, (City Ct. G. T. 1896) 16 3 Super. Ct. 46a. But see Cole v. Misc. 505, 38 N. Y. S. 1122; Guin- Sackett, (Sup. 18i41) 1 Hill 516; nip V. Close, (Sup. G. T. 1884) 19 Waydell v. Luer, (Sup. 1843) 5 Hill Wkly. Dig. 226. But see Elwood v. 448; Amend v. Becker, (Sup. App. T. 414 NEW YORK I,AW OF CONTRACTS [§ 279 does not apply to such a case ; for a man may, if such be his will, discharge his debtor without any consideration. ' ' ^ Though there is no obligation on the part of a debtor to give his note for the amount of a pre-existing overdue indebtedness, the giving of his non-negotiable note for the amount of an undisputed claim then due is said to be doing even less than the debtor is under a legal obligation to do, and is not sufficient consideration for a promise to renew the note when due.* And ordinarily the giving of a debtor's non-negotiable note will not be a sufficient consideration for the agreement of the creditor to extend the time for the payment of the debt until the maturity of the note.* It has also been held that the giving of a note for the amount of an admitted claim on which a suit was pending is not sufficient con- sideration for an agreement to postpone the payment of the claim or to discontinue the action.^ Where an indorser of a note has been duly charged by protest, etc., it has been held that his signing, 1902) 37 Misc. 496, 75 N. Y. S. 1095, set out later in notes to this section. In Amend v. Becker, (Sup. App. T. 1902) 37 Misc. 496, 75 N. Y. S. 1095, however, it is held that if a partner- ship indebtedness is evidenced by its note which is indorsed by the in- dividual partners, the individual lia- bility of each party already exists, and the giving of a note by one of the partners is not a, consideration for the creditor's agreement to re- lease the other partner or partners. This is opposed, however, to the pre- ceding statement as to the effect of receiving the note of one debtor in payment of a debt owing from several. 2. Brink v. Stratton, (Sup. 1906) 112 App. Div. 299, 301, 98 N. Y. S. 421, quoting statement of Chief Jus- tice Marshall in Sheehy v. Mande- ville, (1810) 6 Cranch 253, 264, 3 U. S. (L. ed.) 215, 219. See supra, section 233, as to the discharge of debtor by way of a gift to the debtor. If the giving of the individual note of one of several codebtors can be con- sidered more advantageous to the creditor than the original claim against the codebtors, this may fur- nish a consideration for the agree- ment to discharge the other debtors (see infra, this section, as to the in- dividual note of a member of a part- nership). Also if the giving of the individual note by one of the debtors can be considered a legal detriment to him, this may constitute a con- sideration for the discharge. If, how- ever, this is not recognized, it is difficult to see where the consider- ation for the discharge of the other debtors exists, treating the transac- tion as a contract, for as is shown elsewhere a release of an existing in- debtedness unless under seal must be supported by a consideration (see supra, section 246), and the subject of payment, if it can be considered as properly a contract, must be subject to a different rule as regards con- sideration from other contracts. 3. Arend v. Smith, (1897) 151 N. Y. 502, 45 N. E. 872, affirming 81 Hun 615 mem., 30 N. Y. S. 1129. 4. Shipman v. Kelley, (Sup. 1896) 9 App. Div. 316, 322, 75 State Rep. 743, 41 N. Y. S. 328; Hilderbrandt v. Fallot, (Sup. App. T. 1905) 46 Misc. 615, 92 N. Y. S. 804, 16 N. Y. Annot. Cas. 138. 5. Weil v. Bonner, (Sup. Sp. T. 1878) 5 Wkly. Dig. 493. § 279] CONSIDEiRATION 415 as indorser, a renewal note is not a consideration for the creditor 's promise not to hold him liable on such indorsement, as neither the maker of the old note nor the indorser did more than, if as much as, his legal duty, that is, pay the old note.* The giving of the debtor's negotiable note for an overdue indebtedness may, however, it seems, constitute a consideration.' This it is said may operate possibly as a benefit to the creditor and a detriment to the debtor, as the debtor may use the note in the market as commercial paper, and the negotiation of the paper may operate to the prejudice of the debtor, as he may become liable thereon to the bona fide holder according to its terms.* As a claim against a partner individually may be more valuable than a claim against the partnership, the giving of his individual note by one member of a firm is held a sufficient consideration for the promise of the creditor to release the other member or members,^ or a promise to receive the individual note of a member for the part of the debt in discharge of the firm debt." 6. Far Rockaway Bank v. Smitli, (Sup. 1901) 63 Apip. Div. 432, 71 N. Y. S. 518. 7. McNulty V. Hurd, (1881) 86 N. Y. 547, affirming 18 Hun 1 ; Ship- man V. Kelley, (Sup. 1896) 9 App. Div. 316, 75 State Rep. 743, 41 N. Y. S. 328, affirming 16 Misc. 673, 74 State Rep. 225, 38 N. Y. S. 597. See also Hubbard v. Gurney, (1876) 64 N. Y. 457, 458, 466; Fellows v. Pren- tiss, (Ct. Err. 1846) 3 Denio 512. •8. Shipman v. Kelley, (Sup. 1896) 9 App. Div. 316, 75 State Rep. 743, 41 N. Y. S. 328. 9. La Farge v. Herter, (Sup. 1850) 11 Barb. 159, 171; Amend v. Becker, (Sup. App. T. 1902) 37 Misc. 496, 75 N. Y. S. 1095. In the early case of Waydell v. Luer, (Ct. Err. 1846) 3 Denio 410, in whicli it was held that the giving of a promissory note for a copartnership debt by one of several partners after the dissolution of the copartnership, under an agreement by the creditor to accept it in payment of the debt, extinguishes the liability of the other partners, Lott, Senator, argues with great force that an individual note of one partner may be preferable to and a better security than a demand against the firm, and proceeds to say : " It is evident, therefore, that it may frequently occur that a claim against a firm may in fact be worth less than if held against one of its members, not merely on account of the means of enforcing payment, but as to the availability of the fund out of which it is to be made; and al- though the learned judge, in deliver- ing his opinion below, says he ' is unable to see how the name of one is better alone than when joined with another's in point of solvency,' yet it is clear from the principles above referred to that it may be more avail- able as a security. When therefore a creditor agrees to release a joint indebtedness by the acceptance of a note or any other obligation of one of his debtors in payment, he re- ceives a consideration which may be more valuable to himself than the original claim. Whether it is in fact so is wholly immaterial. The slight- est consideration is sufficient to sup- port the most onerous obligation." 10. Ludington v. Bell, (1879) 77 N. Y. 138, reversing 43 Super. Ct. 557. As to the effect of the part pay- 410 NEW YORK LAW OF CONTRACTS [§§ 280, 281 § 280. Confession of Judgment. — Under ordinary circum- stances, it would seem that the confession by a debtor of a judgment for an undisputed claim which he was under a legal obligation to pay will not constitute a sufficient consideration for a promise by the creditor ;" but where a debtor, after the time within which he could redeem from an execution sale of his land, confessed a judgment to another creditor, and thereby placed the latter in a .position to redeem from the sale, this was held a sufficient con- sideration for the promise of the latter creditor, on the exercise of his right of redemption, to hold the land in trust for the debtor and reconvey to him.^^ And if a judgment is confessed as a compromise of a disputed claim, the compromise may be a suffi- cient consideration for a promise by the judgment creditor.^^ So an agreement on the part of a creditor to collect money ratably from the several parties to a note, on their giving a judgment bond for the amount, has been held supported by a sufficient con- sideration and enforceable in equity.^^ § 281. Taking Oath or the Like as to Claim; Procuring Order by Third Person. — i It has frequently been held that a promise to pay money in consideration that the promisee swear to the correct- ness of his claim, and he does so swear, is valid and binding.^" Dient of a debt as a consideration for made in pursuance of such agreement the discharge of the entire demand, might be received as evidence of the see infra, section 331. amount of his demand. In this case 11. Wood V. Mulock, (Super. Ct. Nelson, Ch. J., said: "The affidavit 1882) 48 Super. Ct. 70. vi^as properly received in connection 12. Wood V. Rabe, (1884) 96 N. Y. vpith the defendant's agreement, as 414, reversing 48 Super. Ct. 70. evidence of his own view of the jus- 13. See infra, section 285 et seq. as tice of the plaintiff's claim. Taking to compromise and- settlement of the whole together, it amounted to an disputes. admission that the plaintiff was en- 14. Briggs V. Law, (Chan. Ct. titled to recover the value of the 1819) 4 Johns. Ch. 22. goods sworn to. Indeed, if the plain- 15. Brooks v. Ball, (Sup. 1820) 18 tiff had discontinued this suit and Johns. 337. commenced an action of assumpsit In Hurd v. Pendrigh, (Sup. 1842) predicated upon this promise, the 2 Hill 502, in an action on the case affidavit would have afforded a valid for the value of goods lost by a com- and binding consideration, according mon carrier, it appeared that after to the case of Brooks v. Ball (18 the commencement of the suit the John. Rep. 337) ; and if this be so, defendant agreed that if the plaintiff surely it was properly received in would swear to a bill of the articles evidence to show the extent of the let he would pay for them. It was defendant's conceded liability — a held that the agreement was an ad- matter directly involved in the action mission of the defendant's liability, as laid." and that an affidavit of the plaintiff § 282] CONSIBEEATION 417 And in such a case it cannot be shown in defense that the promisee swore falsely or that nothing was owing him.^^ In this connection, Spencer, Ch. J., after referring to a number of early English cases, said : ' ' These cases, which stand uncontradicted, abundantly show that such a promise as the present is good in point of law; and that the making the proof or affidavit, whether by a third person or by the party himself, is a sufficient consideration for the promise. It is not making a man a judge in his own cause, but it is referring a disputed fact to the conscience of the party. It is begging the question to suppose that it will lead to perjury. If the promise is binding, because the making the proof or affidavit is a considera- tion for it, the defendant must necessarily be precluded from gainsaying the fact. He voluntarily waives all other proof; and to allow him to draw in question the verity or correctness of the proof or affidavit, would be allowing him to alter the conditions of his engagement, and virtually to rescind his promise. ' ' " Also where, on a claim being disputed, the claimant offered to "be satisfied " if the other party would swear that nothing was due, and the latter so swore, it was held that the affidavit was a bar to an action on the claim, irrespective of its truth,^* and that it was not necessary that the affidavit should be given up to the claimant or creditor, its presentation to the latter and opportunity to inspect it being sufficient." Where a person accepted an order drawn on him for the payment of money, and the drawer of the order raised objections to the order being paid, and the acceptor promised to pay the order absolutely if the payee would induce the drawer to withdraw his objections to its payment, it was held, irrespective of whether the drawee was liable or not on his prior acceptance, that the procuring by the payee of the withdrawal by the drawer of his objection was a consideration for the later promise to pay.^" § 282. Surrender of Security. — The surrender of security is unquestionably a sufficient consideration for a promise by either the original debtor ^i or a third person ; ^^ and where a judgment 16 Brooks V. Ball, (Sup. 1820) 18 G. T. 1891) 39 State Rep. 109, 15 Johns. 337. N. Y. S. 300. 17 Brooks v. Ball, (Sup. 1820) 18 21. Creveling v. Saladino, (Sup. Johns. 337, 340. 1904) 97 App. Div. 202, 89 N. Y. S. 18 Rourke v. Duffy, (Com. PI. G. 834; Lathrop v. Woodward, (Com. T 1862) 15 Abb. Pr. 340. PI- G. T. 1893) 50 State Rep. 343, 2] 19. Rourke v. Duffy, (Com. PI. G. N. Y. S. 804. T 1862) 15 Abb. Pr. 340. 22. Erie County Sav. Bank v. Coit. 20. Nesbit V. Bendheim, (Com. PI. (1887) 104 N. Y. 532, 537,' 5 Sta;te 27 418 NEW YORK LAW OF CONTRACTS [§ 282 debtor has been taken on a body execution, his release is a sufficient consideration for a promise by a third person to pay the debt,^ and in such a case the fact that the judgment debtor may himself have secured his release on the ground of a personal privilege from arrest has been held immaterial.^ So the discharge of a mechanic's lien^' or the refraining from exercising the right to file one^^ may be a sufficient consideration for the promise of a third person to pay the claim secured or to be secured by the lien. Where the consideration for the promise of a third person to answer for the debt of another is the surrender of a pledge the fact that the property in the pledge may not have been in the pledgor is not sufficient to show a want of consideration, as the possession of the pledge gave the pledgor a quasi title to it and left his right to hold it one which might have been contested with success.^'^ Where a debtor whose claim is barred by the statute of limitations surrenders security which he holds for the debt, this itself is a sufficient consideration for the debtor's promise to pay the barred debt.^' The view seems to have been taken that the release of a surety is not a sufficient consideration for a promise by such surety unless it also appears that the principal debtor was insolvent, as in the absence of the principal debtor's insolvency no benefit results to the surety nor injury to the creditor;^ but this cannot be supported on principle, as there is undoubtedly both a possibility of loss to the creditor as well as a possibility of Rep. 790, 11 N. E. 54; Barney v. 195. See also Schloss v. Troman, Forbes, (1890) 118 N. Y. 580, 29 (Supp. 1913) 154 App. Div. 645, 139 State Rep. 980, 23 N. E. 890; Smith N. Y. S. 616, affirmed 214 N. Y. 641 V. Weed, (Sup. 1838) 20 Wend. 184 mem., 108 N. E. 1107. ■ (release of attachment lien) ; Haden 27. Barney v. Forbes, (Sup. 1887) V. Buddensick, (Sup. 1875) 67 Barb. 44 Hun 446, 9 State Rep, 98, af- 188, 4 Hun 649; Quantmeyer v. J. H. firmed 118 N. Y. 580, 29 State Rep. Mohlmau Co., (Sup. App. T. 1«99) 980, 23 N. E. 890. ' 29 Misc. 746 mem., 60 N. Y. S. 220; as. Lathrop v. Woodward, (Com. Budd V. Thurber, (Com. PI. 1881) PI. G. T. 1893) 50 State Rep. 343, 21 61 How. Pr. 206. N. Y. S. 804. 23. Hinman v. Moulton, (Sup. 29. Myers v. Morse, (Sup." 1818) 1817) 14 Johns. 466; Savage v. Sully, 15 Johns. 425, In this case a dec- (Sup. App. T. 1911) 74 Misc. 98, 131 laration in assumpsit stated a prom- N. Y. S. 619. ise from the plaintiffs to the defend- 24. Savage v. Sully, (Sup. App. T. ant riot to require the payment of a 1911) 74 Misc. 98, 131 N. Y. S. 619. certain note, indprsed by the defend- 25. Haden v. Buddensick, (Sup. ant to the plaintiflfs, in consideration 1875) 67 Barb. 188, 4 Hun 649. whereof the defendant promised the 2G. Schnaufer v. Ahr, (Sup. App. plaintiffs to' indemnify them for T. 1907) 53 Misc. 299,. 103 N. Y. S. one-third of all loss which they § 283] CONSIDERATION 419 benefit to the surety, even though the principal may have been solvent at the time the contract was made, and .the sufficiency of the consideration is to be judged as of this time. The discharge of a mortgage is a sufficient consideration whether the mortgage was a recognized indebtedness and lien on the property or a dis- puted claim constituting an outstanding cloud on the title to such property.^" § 283. Giving Security. — The acquisition of additional security by a creditor may constitute a consideration for a promise or agree- ment on his part.'^ Thus the giving of additional security is a sufficient consideration for a promise by the creditor to extend the time for the payment of the debt,^^ and this includes the giving of the undertaking of a third person to answer for or become a surety for the debt,'' as where the note of a partnership is given as security for the individual debt of a partner.'* So the giving of a new obligation secured by a mortgage on the debtor's land is a sufficient consideration for the promise of the creditor to accept it in payment and discharge of the existing indebtedness.'* Though the cases have not been in accord, it now seems to be settled in our state that the giving of security, such as a mortgage on the debtor's real or personal property, for a part of the indebtedness is a sufficient consideration for the discharge of the balance of the indebtedness, irrespective of whether the creditor could, by legal might sustain in consequence of their 55 App. Div. 395, 66 N. Y. S. 917, indorsement of certain notes for a aflSrmed 170 N. Y. 584 mem., 63 N. third person; that the plaintiffs had E. 1115; Burbank v. Beach; (Sup. never required payment of the note, 1853) 15 Barb. 326, 332; Audas v. and that they had sustained a loss to Nelson, (Sup. 1872) 64 Barb. 362. a certain amount. It was held that See also Tammien v. Clause, (Sup. the declaration was bad in not stat- 1873) 67 Barb. 430, 432. ing that the third person was in- 33. Greene v. Bates, (1878) 74 solvent, otherwise there was no con- N. Y. 333, 337; Brown v. Mason, sideration for the defendant's prom- (Sup. 1900) 55 App. Div. 395, 66 ise, either of benefit to himself or of N. Y. S. 917, affirmed 170 N. Y. 584 loss to the plaintiffs. mem., 63 N. E. 1115; Barber v. 30. Sarasohn v. Kamaiky, (1908) Sworts, (Sup. Sp. T. 1920) 112 Misk;. 193 N. Y. 203, 86 N. E. 20, reversing 384, 183 N. Y. S. 18'4; Schmidt v. on other grounds 120 App. Div. 110, Cowperthwait, (Com. PI. G. T. 1884) 105 N. Y. S. 53. See also Kine v. 12 Daly 381, 1 City Ct. 39, 66 How. Farrell, (Sup. 1902) 71 App. Div. Pr. 477. 219 75 N Y S 542 34. Brown v. Mason, (Sup. 1900) 31. Jones v. Daly, "(Sup. 1902) 73 55 App. Div. 396, 66 N. Y. S. 917, App. Div. 220, 76 N. Y. S. 725, af- affirmed 170 N. Y. 584 mem., 63 N. E. firmed 175 N. Y. 520 mem., 67 N. E. 1115. J083 35. Caryl v. Williams, (Sup. Sp. 32! Brown v. Mason, (Sup. 19O0) T. 1873) 7 Lans. 416. 420 NEW YOEK LAW OF CONTRACTS [§ 283 process, have subjected the property to the satisfaction of his claim;'* and thi^ is especially true where the debtor's wife joins in the mortgage and thereby releases her dower rights." A fortiori the giving of security by a third person or his becoming surety for the debt is a sufficient consideration for the promise of the creditor to accept less than the full amount in discharge of the debt.'* On the other hand it has been held that the giving of the debtor's note indorsed by a third person " in part payment " of the debt can have no greater effect than a part payment in money, and therefore is not a sufficient consideration for the creditor's promise to forbear as to the unpaid balance.'' And the broad rule has been laid down that the giving of a new obligation with addi- tional security for a part of an overdue debt cannot avail as a consideration for an agreement to extend the time of payment of the residue.^" The giving by a debtor of security such as a mort- gage on his land would not, it seems, be a sufficient consideration for a promise by a third person to pay money to the debtor or do any other act for his benefit." 56. Jaffray v. Davis, (1891) 124 N. Y. 164, 35 State Rep. 106, 26 N. E. 351, 4 Silv. App. 315, reversing 48 Hun 500, 16 State Rep. 32, 1 N. Y. S. 814. See also Eooleston v. Ogden, (Sup. 1861) 34 Barb. 444. But see Platts V. Walrath, (Sup. 1843) Hill & D. Supp. 50. 37. Keeler v. Salisbury, (1865) 33 N. Y. 648. In Baker v. Alger, (1872) 51 N. Y. 625 mem., however, it appeared that a judgment debtor gave a mortgage on his land, in ■which his wife joined, for a part of the judgment, under an agreement that it should be in satis- faction of the mortgage, and there- after paid the mortgage. It was riot claimed and did not appear that the wife signed in pursuance of any agreement that the judgment should be canceled in consideration of her release of her dower rights. It was held that her release could not be deemed a consideration for the judg- ment creditor's promise, and that without it the mortgage formed no consideration and that the agreement was therefore unenforceable for want of consideration. 38. Boyd V. Hitchcock, (Sup. 1822) 20 Johns. 76; Kuhn v. Brown, (Sup. 1874) 1 Hun 244, 4 Thomp. & 0.29; Douglass V. White, (Chan. Ct. 18ft6) 3 Barb. Ch. 621. 39. Gibson v. Renne, (Sup. 1838) 19 Wend. 3i89. In this case the way in which the question arose was as follows: Sureties on a bond claimed that they were discharged from lia- bility because an extension of the time of payment was made without their consent, and offered evidence that the note was given " in part payment" of the debt, and it was held that the evidence was properly excluded, as the contract for for- bearance was not binding on the creditor for want of consideration. As to the effect of part payment as a consideration for a promise of for- bearance, see infra, section 331. 40. Parmelee v. Thompson, (1871) 45 N. Y. 58, citing Gibson v. Renne, (Sup. 1838) 19 Wend. 389. 41. Ferguson v. Morris, (Sup. G. T. 1874) 1 Hun 619, 4 Thomp. & 0. 689. § 284] CONSIDERATION 421 § 284. Exercise of Discretionary Power by Court; Indemnity Bond.— It is a universal rule in the procedure of all courts, that where, in the exercise of their discretion, they may grant or with- hold a favor asked for, they may impose any reasonable terms or conditions on which the favor is to be had. What a party cannot demand of a court as a matter of right, he must usually take on such terms, proper and judicial in their nature, adapted to the ends of justice, as the court sees fit to impose.^^ " The adminis- tration of justice," says Earl, J., "would be greatly impeded, and the courts greatly embarrassed and crippled, if they did not possess the power to impose terms in such cases. This power does not depend upon the common law, nor upon chancery law, nor upon statutory law. It is an inherent power of courts incident to the exercise of discretion, and really a part of the discretionary power. ' ' *^ This includes the right to require a bond to be given to indemnify the person against whom the relief is granted, in case it should turn out tha-t the applicant had no ground for the relief, and the bond when so given is supported by a sufficient consideration, namely, the receipt by one of the benefit of the relief and the detriment to the other party from its being granted." Thus it was held under the early bankruptcy act that a court of bankruptcy, as a condition to the issuance of a warrant for the seizure of the alleged bankrupt's property or as a condition for the nonrecall of such a warrant, may exact a bond to indemnify the alleged bankrupt, in case the bankruptcy proceedings were improperly instituted, and the bond when so given is supported by a sufficient consideration.*' So where a party is proceeded against for contempt of court for refusal to turn over his property to a receiver appointed in aid of an action against him, a bond given to secure the payment of whatever judgment may be recovered in such action, as a condition imposed by the court for denying the attachment for contempt, is supported by a sufficient con- sideration." On. the other hand, the validity and force of the instrument depend upon its efficacy in performing the office or 42. Decker v. Judson, (1857) 16 45. Sonneborn v. Libbey, (1886) N. Y. 439, 445; Sonneborn v. Libbey, 102 N. Y. 539, 7 N. E. 813, reversing (1886) 102 N. Y. 539, 7 N. E. 813. 12 Daly 509. 43. Sonneborn v. Libbey, (1886) 46. Eder v. Gilderaleeve, (Sup. 102 N. Y. 539, 549, 7 N. E. 813. 1895) 85 Hun 411, 66 State Kep. 44. Sonndborn v. Libbey, (1886) 408, 32 N. Y. S. 1056, aflSrmed 155 102 N. Y. 539, 7 N. E. 813, reversing N. Y. 672 mem., 49 N. E. 1096. 12 Daly 509. See also Decker v. Jud- son, (1857) 16 N. Y. 4(39, 445. 422 NEW YORK LAW OF CONTRACTS [§ 285 accomplishing the end or result contemplated by the parties at the time it was given. An instrument, though properly executed and filed, which for any valid reason is disregarded or fails to secure the stay or accomplish the object for which it was given, is virtually without consideration and cannot be enforced." Settlement of Disputed Claims § 285. General Rule. — It is well settled that the compromise of a bona fide controversy or a disputed or doubtful claim will furnish a sufficient consideration for a promise or an agreement by way of exoneration or discharge,*' and will constitute sufficient 47. Wing V. Rogers, (189i3) 138 N. Y. 361, 366, 52 State Rep. 888, 34 N. E. 194, aflBrming as to this but reversing on other grounds 62 Hun 383, 42 State Rep. 331, 17 N. Y. S. 153. 48. Crans v. Hunter, (1863) 28 N. Y. 389; Norton v. Pattee, (1877) 68 N. Y. 144; White v. Hoyt, (1878) 73 N. Y. 505, affirming 7 Daly 232; Feeter v. Weber, (1879) 78 N. Y. 334, affirming 44 Super. Ct. 255; Beckwith V. Brackett, (1884) 97 N. Y. 52; Dunham V. Griswold, (1885) 100 N. Y. 224, 3 N. E. 76; Wahl v. Bar- num, (1889) 116 N. Y. 87, 26 State Rep. 457, 22 N. E. 280; Zoebisch v. Von Minden, (1890) 120 N. Y. 406, 31 State Rep. 499, 24 N. E. 795, re- versing 47 Hun 213, 13 State Rep. 349; Andrews v. Brewster, (1891) 124 N. Y. 433, 36 State Rep. 412, 26 N. E. 1024; Cox v. Stokes, (1898) 156 N. Y. 491, 51 N. E. 316, revers- ing 78 Hun 331, 60 State Rep. 706, 29 N. Y. S. 141 ; Sears v. Ancient Order, etc., (1900) 163 N. Y. 379, 57 N. E. 618, reversing 24 App. Div. 410, 48 N. Y. S. 559; Continental Securities Co. V. New York Cent., etc., R. Co., (1916) 217 N. Y. 119, 126, 111 N. E. 484, affirming 168 App. Div. 345, 153 N. Y. S. 879; Dovale v. Ackerman, (Sup. 1896) 2 App. Div. 404, 73 State Rep. 7, 37 N. Y. S. 959, affirming 11 Misc. 245, 66 State Rep. 513, 33 N. Y. S. 13; Hazleton v. Webster, (Sup. 1897) 20 App. Div. 177, 187, 46 N. Y. S. 922, affirmed 161 N. Y. 628 mem., 55 N. E. 1096; Forgotston V. Cragin, (Sup. 1901) 62 App. Div. 243, 70 N. Y. S. 979; Bar- rett V. Parent, (Sup. 1902) 68 App. Div. 165, 74 N. Y. 8. 8; Kine v. Farrell, (Sup. 1902) 71 App. Div. 219, 75 N. Y. S. 542; Bell v. New York, (Sup. 1902) 77 App. Div. 437, 79 N. Y. S. 347; Jackson v. Volken- ing, (Sup. 1903) 81 App. Div. 36, 80 N. Y. S. 1102, affirmed 178 N. Y. 562 mem., 70 N. E. 1101; Wilber v. Scatcherd, (Sup. 1907) 122 App. Div. 240, 106 N. Y. S. 897; Minehan v. Hill, (Sup. 1911)) 144 App. Div. 854, 129 N. Y. S. 873; Sundstrom v. State, (Sup. 1913) 159 App. Div. 241, 144 N. Y. S. 390, affirmed as to this but reversed on other grounds 213 N. Y. 68, 106 N. E. 924; Gray- don V. Stone, (Sup. 1846) 1 Edm. Sel. Cas. 221; Hall v. Brown, (Sup. 1818) 15 Johns. 194; Seaman v. Sea- man, (Sup. 1834) 12i Wend. 381; Russell V. Cook, (Sup. 1842) 3 Hill 504; Stewart v. Ahrenfeldt, (Sup. 1847) 4 Denio 189; Morton v. Ostrom, (Sup. G. T. 1860) 33 Barb. 256; Palmer v. North, (Sup. G. T. 1861) 35 Barb. 282, 293; Farmers' Bank v. Blair, (Sup. G. T. 1865) 44 Barb. 641; Scott v. Warner, (Sup. 1870) 2 Lans. 49; Sherwood v. Fischer, (Sup. 1875) 3 Hun 605; Hall V. Richardson, (Sup. 1880) 22 Hun 444, 447; Hendricks v. Issacs, (Sup. 1887) 46 Hun 239, 11 State Rep. 527; Work v. Beach, (Sup. 1889) 53 Hun 7, 24 State Rep. 256, 6 § 285] CONSIDEKATION 42a consideration for the agreement of the creditor to postpone the time for the payment of the amount agreed upon as a com- promise ;" and where the promise of the debtor is to pay when able or the like, the creditor can only enforce the promise as made.^" The compromise is also a sufficient consideration for the promise of a third person to answer for the agreed amount,^^ or to pay for the relinquishment and discharge of the claim in whole or in part.^^ Thus where, in case of a sale on credit, there is a controversy between the buyer and seller as to whether the buyer was guilty of fraud which would give the seller the right to rescind the sale and retake the property, the compromise of such controversy is a sufficient consideration for the promise of a third person to answer N. Y. S. 27; Barnes v. Ryan, (Sup. 1892) 66 Hun 170, 49 State Rep. 152, 21 N. Y. S. 127; O'Connor v. Philip- sen, (Sup. 1893) 74 Hun 68, 56 State Rep. 176, affirmed 26 N. Y. S. 359, 152 N. Y. 624 mem., 46 N". E. 1149; Morzieres v. Vanni, (Sup. App. T. 18&6) 17 Misc. 572, 40 N. Y. S. 1145; Martin v. Guindon, (Sup. App. T. 1897) 22 Misc. 141, 48 N. Y. S. 694; Post V. Blankenstein, (Sup. App. T. 1900) 30 Misc. 79'6 mem., 63 N. Y. S. 218; Innes v. Ryan, (Sup. App. T. 1902) 37 Misc. 806, 76 N. Y. S. 92,1; Cowen V. Rouss, (Sup. Sp. T. 1903) 40 Misc. 105, 81 N. Y. S. 276, affirmed 84 App. Div. 641 mem., 82 N. Y. S. 1098; Warshawsky v. Grand Theatre Co., (Sup. App. T. 1905) 47 Misc. 615, 94 N. Y. S. 522; Lockwood v. Title Ins. Co., (Sup. Sp. T. 1911) 73 Misc. 296, 130 N. Y. S. 824; Bowden v. Owen, (Sup. Tr. T. 1918) 103 Misc. 56, 171 N. Y. S. 778; Rosco Trading Co. V. Pringle, (Sup. App. T. 1920) 111 Misc. 605, 182 N. Y. S. 290; Nahoun v. Slocum, etc.. Trading Co., (Sup. App. T. 1920) 111 Misc. 627, 182 N. Y. S. 318; American Struc- tural Steel Co. V. Rush, (Sup. App; T. 1906) 100 N. Y. S 1019; East End Amusement Co. v. Atmospheric Screen Co., (Sup. App. T. 1918) 171 N. Y. S. 283; Carney v. Downey, (Sup. G. T. 1886) 2 State Rep. 707; Oregon Pac. R. Co. v. De Forest, (Sun. G. T. 1890) 32 State Rep. 178, UK. Y. S. 8, affirmed 128 N. Y. 83, 38 State Rep. 837, 28 N. E. 137; United States Nat. Bank v. Home- stead Bank, (City Ct. G. T. 1891) 40 State Rep. 870, 16 N. Y. S. 959, affirmed 46 State Rep. 173, 18 N. Y. S. 758; Brooklyn Bank v. Waring, (Chan. Ct. 1844) 2 Sandf. Ch. 1; Fitch V. Bedding, (Super. Ct. 1850) 6 Super. Ct. 130; Gray v. Bowen, (Super. Ct. 1862) 23 Super. Ct. 67; Parrowe v. Walker, (Super. Ct. 1881) 48 Super. Ct. 6; McVean v. Ohley, (Sup. G. T. 1882) 14 Wkly. Dig. 418. 49. Work V. Beach, (Sup. 1889) 53 Hun 7, 24 State Rep. 256, 6 N. Y. S. 27; Blackwell v. Bainbridge, (City Ct. G. T. 1892) 47 State Rep. 130, 19 N. Y. S. 681, reversed on other grounds 49 State Rep. 707, 20 N. Y. S. 950, 4 Misc. 499. 50. Work V. Beach, (Sup. 1889) 53 Hun 7, 24 State Rep. 256, 6 N. Y. S. 27. 51. Jaffray v. Brown, (1878) 74 N. Y. 393; West v. Banigan, (Sup. 1900) 51 App. Div. 328, 64 N. Y. S. 884, affirmed 172 N. Y. 622 mem., 65 N. E. 1123; Struthers v. Smith, (Sup. 1895) 85 Hun 261, 66 State Rep. 299, 32 N. Y. S. 905; Housa- tonic Nat. Bank v. Foster, (Sup. 1895) 85 Hun 376, 66 State Rep. 435, 32 N. Y. S. 1031 ; Carney v. Downey, (Sup. G. T. 1886) 2 State Rep. 707. 53. Wenz v. Meyersohn, (Sup. 1901) 59 App. Div. 130, 68 N. Y. S. 1091; Cole v. Mendenhall, (Sup. 424 NEW YORK LAW OF CONTRACTS [§ 285 for the purchase price.'^ The settlement of a disputed claim, is also a sufficient consideration for a conveyance of land."* Where a disputed claim is settled for less than may in fact have been owing this does not bring it within the general rule that a part payment of an undisputed and liquidated debt is not a sufficient consideration for a discharge of the balance.^^ If a compromise is made for the benefit of several persons, it is not essential to a recovery thereon that each of such parties should have contributed to the consideration.^^ If the settlement is induced through fraud, this, as in other cases, may entitle the party defrauded to appro- priate relief ; " and where the settlement was between a creditor and one liable as surety, the failure of the creditor to disclose the fact that the debt had been reduced by payments has been considered such a fraud.^' In order that a settlement of a claim may constitute a consideration for a promise by the party against whom the claim was made, the settlement must be binding on the promisee, otherwise there is a want of mutuality."' Thus, where it was sought to enforce a contract not to revoke a provision in a will in favor of the plaintiff, and the consideration for the promise was the promisee's agreement to accept such provision in the will, not as a present discharge of her claim against the promisor but merely if the will was not revoked, it was held that as this was in the nature of an executory accord merely and in no way bound the promise, not to enforce her claim, there was no consideration for the promise to her.*" The consent of a party to accept a sum 1907) 117 App. Div. 786, 102 N. Y. 1918) 103 Misc. 56, 171 N. Y. S. 778. S. 1030; Eeichman v. Pretzfelder, 57. As to fraud generally, see (Sup. App. T. 1915) 151 N. Y. S. supra, section 141 et seq. 898. 58. Stewart v. Ahrenfeldt, (Sup. 53. Jaffray v. Brown, (1878) 74 1847) 4 Denio 189. N. Y. 393. 59. As to the necessity for mutu- 54. Anthony v. Day, (App. 18S2) ality in case of a bilateral contract, 15 Wkly. Dig. 296. see infra, section 316i et seq. 515. Wahl V. Barnum, (1889) 116 60. Colt v. O'Connor, (Sup. Sp. T. N. Y. 87, 96, 26 State Rep. 457, 22 1908) 59 Misc. 83, 10(9 N. Y. "S. 689. N. E. 280; Jackson v. Volkening, In this case if the promise could (Sup. 1903) 81 App. Div. 36, 80 N. be construed aa one not to change the Y. S. 1102, affirmed 178 N. Y. 562 will on condition that the promisee mem., 70 N. B. 1101; O'Conor v. did not seek to enforce her claim Philipsen, (Sup. 1893) 74 Hun 68, against the promisor, and she acted 56 State Rep. 176, 26 N. Y. S. 359, on this offer and took no steps be- affirmed 152 N. Y. 624 mem., 46 N. fore the promisor's death to enforce E. 1149. See infra, section 331, as her claim, and the offer was not with- to part payment of an undisputed drawn by the promisor by notice to and liquidated demand. the promisee, the promise would thfen 56. Bowden v. Owen, (Sup. Tr. T. have been binding on the promisor. § 286] CONSiDEiRATION 425 tendered in settlement of a disputed claim may be implied, and as a general rule, where one party sends to another his check with the distinct statement that it is in full settlement of a disputed account and with directions to return the check if the creditor is unwilling to accept it as a full settlement, the latter 's collection of the check will constitute a sufficient consent to the proposed compromise.*^ § 286. Application of Rule Generally. — If there is a controversy between the parties, well based according to their belief and under- standing, it may be the subject matter of a compromise or settle- ment.^^ Thus where there was a dispute between the insurer and the beneficiary in a policy on the life of another as to whether the latter was dead or not, a compromise under which the insurer is to pay a certain amount at all events, and a further sum in case he could not show by a certain time that the insured was alive, the settlement has been upheld and the insurer held liable for the amount agreed to be paid at all events, though it was shown that the insured was alive.^^ So where a plaintiff has attached property ostensibly that of the defendant in the attach- ment proceedings, the promise of a third person, claiming the propferty as his own, in consideration of the release of the attach- ment and delivery of the property to him, to answer for any judg- ment which might be recovered against such defendant, is sup- ported by a sufficient consideration, though the claimant may in fact have been the owner of the property.** Likewise where there is a bona fide claim that one who had retired from a firm was still liable for a loan to the firm, the settlement of such claim and pro- vision for its payment in instalments is a sufficient consideration for an agreement by such person to pay the instalments.*^ Parties may agree on the amount to be paid to one by the other in liquida- tion of an unliquidated or uncertain claim-, and the promise to pay This aspect of the case was not, how- reversing 24 App. Div. 410, 48 N. Y. ever, considered by the court. S. 559: 61. Nassoiy v. Tomlinson, (1896) 64. Blair v. Flack, (Sup. G. T. 148 N. Y. 326, 42 N. E. 715; Jack- 1893) 67 Hun 648^ mem., 50 State son V. Volkening, (Sup. 1903) 81 Eep. 479, 21 N. Y. S. 754, affirmed App. Div. 36, 80 N. Y. S. 1102, af- 141 N. Y. 53, 5& State Rep. 571, 35 firmed 178 N. Y. 562 mem., 70 N. E. N. E. 941. 1101. 65. Dovale v. Ackerman, (Sup. 62. Farmers' Bank v. Blair, (Sup. 1896) 2 App. Div. 404, 73 State Eep. G. T. 1865) 44 Barb. 641. 7, 37 N. Y. S. 959, affirming 11 Misc. «3. Sears v. Ancient Order, etc., 245, 66 State Rep. 513, 33 N. Y. S. 13. (1900) 163 N. Y. 374, 57 N. E. 618, 426 NEW YORK LAW OF (30NTIIACTS [§ 287 the sum agreed on is supported by a good consideration.** Where a person has become liable in tort to the owner of property for its wrongful use, the waiver of the tort is a sufficient consideration for the wrongdoer's promise to pay for the use." So if there is a bona fide dispute as to whether a note or the like was unenforce- able on account of usury, this may be the subject of a compromise, and where there is a compromise and the maker discharged on his payment of a part of the amount, it is binding on the other party.** Settlements entered into for the purpose of preserving faniily harmony are favored by the courts and are generally upheld ; '' and an agreement between heirs and distributees to disregard their ancestor's will and divide the property equally has been upheld.'" An agreement for the management of the estate without partition for a limited period has also been sustained.'^ But an agreement between the children and widow of a decedent to abide by the decedent's unsigned draft of a will has been held unen- forceable for want of consideration.'^ The question as to the enforcement of agreements between husband and wife in settlement of domestic disputes is discussed later.'' § 287. Good Faith of Claimant. — Where the settlement of a disputed claim is relied on as the consideration for a promise, if there was a bona fide dispute it matters not on which side the ulti- mate right may have been. The court will not look behind the compromise,'* even though the claim, if made in good faith, was 66. Spier v. Hyde, (Sup. 1903) 78 1889) 5 Silv. Sup. Ct. 83, 28 State App. Div. 151, 79 N. Y. S. 699; Rep. 239, 8 N. Y. S. 160. Hawxhurst v. Ritch, (Sup. G. T. 71. Brown v. Coddington, (Sup. 1889) 2 Silv. Sup. Ct. 499, 24 State 1893) 72 Hun 147, 5S State Rep. 515, Rep. 729, 6 N. Y. S. 134; United 25 N. Y. S. 649. States Nat. Bank V. Homestead Bank, 72. Elderkin v. Rowell, (Sup. G. (Com. PI. G. T. 1892) 46 State Rep. T. 1871) 42 How. Pr. 330. Compare 173, 18 N. Y. S. 758, affirming 40 Williams v. Whittell, (Sup. 1902) State Rep. 870, 16 N. Y. S. 959; 69 App. Div. 340, 74 N. Y. S. 820, Tucker v. Ely, (Sup. G. T. 1884) 20 wherein the party seeking to be re- Wkly. Dig. 66. lieved from the agreement was held 67. Beadle v. Whitlock, (Sup. Q. to be estopped to deny a, want of T. 1869) 64 Barb. 287. consideration for the agreement. '68. Farmers' Bank v. Blair, (Sup. 73. See infra, section 327. ^ G. T. 1865) 44 Barb. 641. 74. Feeter v. Weber, (1879) 78 69. Ham v. Van Orden, (1881) 84 N. Y. 334; Dunham- v. Griswold, N. Y. 257, affirming 23 Hun 148 (1886) 100 N. Y. 224, 3 N. E. 76; mem.; Kemp v. Kemp, (Sup. Sp. T. Zoebisch v. Von Minden, (1890) 120 1901) 36 Misc. 79, 72 N. Y. S. 617; N. Y. 406, 31 State Rep. 499, 24 N. Galvin v. O'Neill, (Sup. Sp. T. 1919) E. 795; Sears v. Ancient Order, etc., 108 Misc. 297, 177 N. Y. S. 543. (1900) 163 N. Y. 374, 57 N. E. 618; 70. Bunn v. Bartlett, (Sup. G. T. Post v. Thomas, (1914) 212 N. Y. § 288] CONSIDERATION 427 unfounded in law and unenforceable.'' " In the absence of fraud or duress," says FoUett, C. J., "a settlement of a disputed claim preferred in good faith by a promisee against a promisor is a legal consideration for a promise, and the fact that the promisor had a legal defense to the claim settled is no defense to an action on the new promise."™ Also, as said by Allen, J.: " It is not necessary, to uphold a promise based upon the surrender or composition and compromise of a claim, that it was a valid claim, one that could be enforced at law. A promise made upon a settlement of disputes, and to prevent litigation, is made upon a good consideration. The settlement of a doubtful claim will uphold a promise to pay a stipulated sum or do any other lawful act. ' ' " § 288. Palpably Unfounded, Untenable or Illegal Claim.— The assumption of a supposed liability, which has no foundation in law or fact, is not a sufficient consideration to support a promise, and one who, through a mistake of law, acknowledges himself under an obligation which the law does not impose is not bound by such promise.'* And an unfounded and palpably untenable claim cannot, it seems, be the subject of an enforceable settlement or compromise.'^ Thus in quite an early case where it was sought to enforce, as a compromise, a wholly untenable claim against a town, Selden, J., said : "It has been repeatedly said by courts that the compromise of a ' doubtful claim ' will support a promise to pay. It is not very easy to determine what sort of claim is intended by this expression. It is clear it need not be a valid claim either in 264, 585, 106 N. E. 69, reversing 153 854, 129 N. Y. S. 873; Cowen v. App. Div. 865, 139 N. Y. S. 6; Dovale Rouss, (Sup. Sp. T. 1903) 40 Misc. V. Ackerman, (Sup. 1896) 2 App. 105, 81 N. Y. S. 276, affirmed 84 App. Div. 404, 73 State Rep. 7, 37 N. Y. Div. 641, 82 N. Y. S. 1098; Lock- S. 959, affirming 11 Misc. 245, 66 wood v. Title Ins. Co., (Sup. Sp. T. State Rep. 513, 33 N. Y. S. 13; Kine 1911) 73 Misc. 296, 130 N. Y. S. V. Farrell, (Sup. 1902) 71 App. Div. 824. 219, 75 N. Y. S. 542; Jackson v. 7€. Wahl v. Barnum, (1889) 116 Volkening, (Sup. 1903) 81 App. Div. N. Y. 87, 95, 26 State Rep. 457, 22 36, 80 N. Y. S. 1102, affirmed 178 N. E. 280. N. Y. 562 mem., 70 N. E. 1101; Sea- 77. White v. Hoyt, (1878) 73 N. man v. Seaman, (Sup. 1834) 12 Y. 505, 514. Wend. 381; Russell v. Cook, (Sup. 78. Walker v. Gilbert, (Super. Ct. 1842) 3 Hill 504; Palmer v. North, 1864) 25 Super. Ct. 214, 219. (Sup. G. T. 1861) 35 Barb. 282, 293; 79. Springstead v. Nees, (Sup. Barnes v. Ryan, (Sup. 1892) 66 Hun 1908) 125 App. Div. 230, 109 N. Y. 170, 49 State Rep. 152, 21 N. Y. S. S. 148; Morey v. Newfane, (Sup. Sp. 127. T. 1850) 8 Barb. 645; Dolcher v. 75. Dunham v. Griswold, (1885) Fry, (Sup. G. T. 1862) 37 Barb. 100 N. Y. 224, 3 N. E. 76; Minehan 152; Farmers' Bank, etc., v. Blair, v. Hill, (Sup. 1911) 144 App. Div. (Sup. G. T. 1865) 44 Barb. 641, 652; 428 KEW YORK LAW OF CONTEACTS [§ 288 law or equity. ... In a case where no proceedings have been instituted, the mere assertion of a claim having no plausible ground for its support could hardly prevent a promise to pay from being regarded as a nudum pactum. But how much or what foundation a claim must have to elevate it from a baseless to a doubtful claim, which will support a promise, it is difficult to say." And after quoting a statement of Judge Cowen as to the compromise of " doubtful " claims, the learned judge continues: " This lan- guage seems to imply that the word ' doubtful,' as used in this connectipn, has some meaning — that the claim must have some probable faundation — must be really doubtful. This being so, if the ease instead of being doubtful is clear in the judgment of the court, and free from doubt against the claim, it follows that the compromise would not be sustained. ' ' *" And a promise by a third person to pay a wholly unfounded claim against a corpora- tion, made without any knowledge or present means of knowing that the claim was unfounded and to prevent a threatened attach- ment against the corporation, has been held unenforceable.^^ So where there was no claim that a "bank employee was liable for a Iqss to the bank, though he may have been the cause of such loss, a note given by him to make good to the bank a part of the loss has been held unenforceable.^^ It is also held that where a verbal con- tract of employment is unenforceable by reason of the statute of frauds, it cannot be made the foundation of a promise on the part of the employer to pay a sum of money by way of liquidating any Bansinger v. Guenthner, (Sup. G. T. Hun 548, 67 State Rep. 529, 33 N. 1870) 66 Barb. 186; Eysaman v. Nel- Y. S. 784, where it appeared that a son, (Sup. Eq. T. 1913) 79 Miac. 304, contract by a municipality for the 340, 140 N. Y. S. 183, 10 Mills 294, sale of its bonds was void for a fail- afBrmed- 165 App. Div. 950 mem., 150 ure to comply with the statute au- N. Y. S. 1085; Baillargeon v. Du- thorizing their sale, it was held that moulin, (Sup. Tr. T. 1913) 148 N. a promise by the municipal officers Y. S. 443, affirmed 165 App. Div. to pay a certain sum to the pur- 730, 151 N. Y. S. 112; Guggenheim chaser in compromise of the claim V. Guggenheim, (Sup. Sp. T. 1917) of the purchaser under such contract, i68 N. Y. S. 209; Caruana v. Pru- was unenforceable for want of au- dential Spice Co., (Sup. App. T. thority on the part of the officers to 1919) 178 N. T. S. 401. See also bind the municipality by the con- Elderkin v. Rowell, (Sup. G. T. 1871) tract of compromise. 42 How. Pr. 330; Farnham v. Con- 81. Newman v. Curiel, (Sup. 1894) nors, (Sup. G. T. 1884) 20 Wkly. 75 Hun 31, 58 State Rep. 174, 26 N. Dig. 502. Y. S. 977. 80. Morey v. Newfane, (Sup. Sp. SH. Broadway Trust Co. v. Fry, T. 1850) 8 Barb. 645, 654. (Sup. App. T. 1903) 40 Misc. 680, 83 In Ft. Edward v. Fish, (1898) 156 N. Y. S. 103. N. Y. 363, 50 N. E. 973, affirming 86 § 289] CONSIDEEATION 429 supposed liability on his part under the contract.*' A fortiori there is nothing to compromise where there is no claim of legal liability, but merely a quasi moral claim or a claim on the prom- isor's bounty.** So a promise made merely to quiet complaints by the promisee, who had no claim whatsoever against the promisor, has been held unenforceable ; ^ thus where, without any fraud, a grantor conveyed land for what proved a less consideration than he afterwards thought he should have received therefor, a note given by the grantee to quiet his complaints was held unsupported by a sufficient consideration, as there was no color of liability whatsoever on his part to give any additional consideration.** The basis for the rule applied in case of a palpably unfounded claim seems to be the want of good faith in making the claim. If, however, the claim is made in good faith, knowledge of the law will not be presumed on the part of the promisee for the purpose of charging him with bad faith.*' An asserted claim arising out of an illegal transaction is not the subject of a compromise and settlement which, if executory, can be enforced.** Thus where an action was brought on a check given for money lost at gambling, and in consideration of the dismissal of the action another check payable at a future day was given, it was held that the latter check could not be enforced on the theory of a compromise of a disputed claim.*' § 289. Compromise of Claim on Which Action is Pending. — If the amount of the claim for which an action is pending is dis- puted by the defendant, this may be the subject of a compromise 83. Gundlich v. Hensler, (Sup. and thereupon the defendant's tes- 1886) 23 Wkly. Dig. 145. See also tatrix gave the note in suit payable Silvernail v. Cole, (Sup. G. T. 1852) after her death. It was held that 12 Barb 685. ^^^ °°*^ ^^^ without consideration. 84 Dunckel v. Failing, (Sup. 85. Geer v. Archer, (Sup. G. T. 1889) 1 Silv. Sup. Ct. 543, 24 State 1848) 2 Barb. 420. Rep. 374, 5 N. Y. S. 504. In this 86. Geer v. A-rcher, (Sup. G. T. case it appeared that one D. obtained 1848) 2 Barb. 420. a policy of insurance on his life, pay- 87. Lockwood v. Title Ins. Co., able to his mother, the defendant's (Sup. Sp. T. 1911) 73 Misc. 296, 130 testatrix, to whom he was indebted. N. Y. S. 824. He died and she received the insur- 88. Moore v. Blanck, (City Ct. Tr. ance money. D. had no property and T. 1911) 71 Misc. 257, 129 N. Y. S. owed the plaintiff a certain sum. 1105. As to the enforcement of con- The plaintiff's father, who acted for tracts based on prior illegal trans- his daughter, applied to the defend- actions see infra section 641 et seq. ant's testatrix, telling her it was 89. Moore v Blanck City Ct^Tr. hard that the plaintiff should lose T. 1911) 71 Misc. 257, 129 N. Y. S. the whole amount due her from D., 1105. 430 NEW YORK LAW OF CONTRACTS [§ 289 and settlement, and the compromise will furnish a good considera- tion for the agreement of the plaintiff to dismiss or discontinue the action for breach of which he may be liable in an action for damages.'" Also the discontinuance of legal proceedings against a person will constitute, as a general rule, a sufficient consideration for a promise either by the person against whom such proceedings are brought or by a third person.'^ And where an action is brought on a note of doubtful validity and is discontinued on the giving of a new note which is virtually a renewal of the old note, the settle- ment of the action is a sufficient consideration for the new note.'^ If a wife has a good ground for a divorce, a settlement between the parties and a discontinuance of her action will furnish a suffi- cient consideration for a promise by her husband.^' If the settle- ment of a claim on which an action is pending is the consideration for a promise, it is not essential to the enforcement of the promise that a formal discontinuance of the action be entered, where the contract of settlement does not expressly impose this duty on the promisee and no demand for its discontinuance or the promisee's assent thereto is made ; ^* and where the consideration for a note was the release of a defendant from civil arrest and the discontinu- ance of the action against him, and in compliance with the agree- ment the written consent of the plaintiff to the discontinuance of the action was filed and the defendant released, it was held imma- 90. Rosenthal v. Rudnick, (Sup. Co., (Sup. Eq. T. 1917) 166 N. Y. S. 1901) 65 App. Div. 519, 72 N. Y. S. 29, the dismissal of proceedings by a .804, 76 App. Div. 624, 78 N. Y. S. municipality before the public serv- 415. ice commission to fix the price and 91. Feeter v. Weber, (1879) 78 quality of gas furnished its inhab- N. Y. 334, affirming 44 Super. Ct. itants, was held a sufficient conaider- 255; Wadsworth v. Livingston ation for an agreement by the gas County, (Sup. 1910) 139 App. Div. company as to the price to be 832, 124 N. Y. S. 334, reversing 115 charge* in the future. N. Y. S. 8; Haden v. Buddensick, 92. Magee v. Badger, (l»£k6) 34 (Sup. 1.875) 67 Barb. 188, 4 Hun e4&; N. Y. 247, 250, per Campbell, J. Eder v. Gildersleeve, (Sup. 1895) 85 93. Adams v. Adams, (1883) 91 Hun 411, 66 State Rep. 408, 32 N. N. Y. 381, affirming 24 Hun 401. Y. S. 1056; Wesselman v. Stuart, 94. West v. Banigan, (Sup. 1900) (Sup. App. T. 1900) 30 Miss. 808, 51 App. Div. 328, 64 N. Y. S. 884, 61 N. Y. S. 1110; Wackenhut v. affirmed 172 N. Y. 622, 65 N. E. 1123. Empire Gas, etc, Co., (Sup. Eq. T. In Gildersleeve v. Pelham, etc., E. 1917) 166 N. Y. S. 29; Van Campen Co., (Com. PI. 1882) 11 Daly 257, V. Ford, (Sup. G. T. 1889) 3 Silv. 16 Wkly. Dig. 128, wherein it was Sup. Ct. 375, 25 State Rep. 464, 6 held the duty of the promisee for- N. Y. S. 139, affirmed 125 N. Y. 735 mally to discontinue the action and mem., 26 N. E. 758. relieve the promisor of the necessity In Wachenhut v. Empire Gas, etc., of making any motion or establish- § 290] CONSIDERATION .431 terial that no formal order of dismissal was entered.^^ Where an action was instituted by the plaintiff's attorney without her con- sent and was dismissed at her instance for the sole reason that she did not want it continued, she cannot claim that such dismissal was the consideration for a promise by the defendant in such action.^^ Pre-existing Debt or Obligation as Consideration § 290. In General. — As between the debtor and creditor a pre- existing debt is a sufficient consideration for the note or other obligation of the debtor,'' and, a fortiori, this is true where security for the pre-existing debt is surrendered.'^ Thus if a note is based on a sufficient consideration no additional consideration is neces- sary to support a renewal note,'' and it is immaterial that the old note was non-negotiable and the new note negotiable.^ A pre- existing debt is held a sufficient consideration for a promise by the debtor to pay when able, or the like, so as to enable the creditor to sue on such promise instead of on the original debt, an action on which might be barred by the statute of limitations.^ ing any defense to the suit pending, it appeared, as stated by the court, that the agreement was that the promisee should " cause its discon- tinuance, not putting the defendant to the trouble of any motion in ref- erence thereto." 95. Van Campen v. Ford, (Sup. G. T. 1889) 3 Silv. Sup. Ct. 375, 25 State Rep. 464, 6 N. Y. S. 139, af- firmed 125 N. Y. 735 mem., 26 N. E. 758. 96. Colt V. O'Conner, (Sup. Sp. T. 1908) 59 Misc. 83, 109 N. Y. S. 689. 97. Whitehall First Nat. Bank v. Tisdale, (1881) 84 N. Y. 655; Rome Sav. Bank v. Krug, (1886) 102 N. Y. 331, 1 State Rep. 694, 6 N. E. 682, affirming 32 Hun 270; Barrett v. Weber, (.1890) 125 N. Y. 18, 34 State Rep. 358, 25 N. E. 1068, affirming 1 Silv. Sup. Ct. 173, 23 State Rep. 3, 6 N. Y. S. 434; Petrie v. Miller, (Sup. 1901) 57 App. Div. 17, 67 N. Y. S. 1042, 9 N. Y. Annot. Cas. 201, affirmed 173 N. Y. 596 mem., 65 N. E. 1121; Farmers', etc.. Bank y. Hawn, (Sup. 1903) 79 App. Div. 640, 79 N. Y. S. 524; Warner y. Booge, (Sup. 1818) 15 Johns. 233; Howell V. Wright, (Sup. 188j6) 41 Hun 167, 4 State Rep. 148, affirmed 122 N. Y. 667, 34 State Rep. 212, 3 Silv. Sup. Ct. 142; Bigelow Co. v. Automatic Gas Producer Co., (City Ct. Tr. T. 1907) 56 Misc. 389, 107 N. Y. S. 894. 98. Bacon v. Hey wood, (Super. Ct. G. T. 1895) 11 Misc. 7, 63 State Rep. 439, 31 N. Y. S. 840. 99. Hayes v. Mestaniz, (Sup. 1896) 2 App. Div. 135, 73 State Rep. 425, 37 N. Y. S. 748; Low v. Learned, (Com- PI. G. T. 1895) 13 Misc. 150, 68 State Rep. 23, 34 N. Y S. 68; Lockner v. Holland, (County Ct. 1903) 81 N. Y. S. 730. 1. Petrie v. Miller, (Sup. 1901) 57 App. Div. 17, 67 N. Y. S. 1042. 9 N. Y. Annot. Cas. 201, affirmed 173 N. Y. 596 mem., 65 N. E. 1121. 2. Tebo V. Robinson, (1885) 100 N. Y. 27, 2 N. E. 383, 8 Civ. Pro. 141, affirming as to this but re- versing on other grounds 29 Hun 243. 432 NEW YORK LAW OF CONTRACTS [§ 291 As between the parties, a pre-existing debt is unquestionably a sufficient consideration for the sale of a chattel or an interest therein/ or for the assignment of a chose in action.* A liability in tort is a sufficient consideration for a promise by the tortfeasor to secure satisfaction to the person injured.^ Though at common law an action of assumpsit could not be maintained on a specialty or covenant under seal, yet where there has been a new contract to pay the debt, supported by a new consideration, assumpsit would lie in many cases on the new contract.* After the creditor has assigned his claim, such as a bond and mortgage, a note given to him for interest on the assigned claim, without the knowledge or consent of the assignee, is without consideration.' If a debtor's obligation to pay is contingent merely, his subsequent unconditional promise to pay must be supported by a new consideration, other than the existing conditional obligation, to be enforceable.^ In case of the death of a member of a partnership, a firm debt is a charge against his estate and furnishes a sufficient consideration for the undertaking of the residuary legatee, as a co-obligor with the other members of the firm, to pay the debt, and he is not to be regarded, as between himself and the others, as a surety merely.' § 291. Promise to Pay Pre-existing- Debt to Third Person.— A pre-existing debt is not itself a sufficient consideration for a promise by the debtor to pay any part thereof to a third person. There must be a release of the debtor by the creditor or some other consideration, and if this is not so the promise can amount, at the most, to a mere permission on the part of the creditor, valid until revoked, under which the debtor could discharge his debt in whole or pro tanto by the payment to such third person." The 3. Steele v. Taft, (Sup. G. T. 1880) 6. Miller v. Watson, (Sup. 1827) 22 Hun 453, 11 Wkly. Dig. 30; Pul- 7 Cow. 39. ler V. Claflin, (Sup. 1889) 5.1 Hun 7. Gillett v. Campbell, (Sup. 1845) 609, 22 State Rep. 13, 4 N. Y. S. 92; 1 Denio 520. Dodge V. Clyde, (Super Ct. 1868) 30 8. Walters v. Borgia Marble Work^, Super. Ct. 410. (Sup. App. T. 1910) 125 N. Y. S. 4. Coles V. Appleby, (1881) 87 N. 548. Y. 114, affirming 22 Hun 72; Blair V. 9. Fitch v. Fraser, (Sup. 1905) Hagemeyer, (Sup. 1898) 26 App. 84 App. Div. 119, 82 N. Y. S. 138, Div. 219, 49. N. Y. S. 965; Mackey on second appeal 109 App. Div. 440, V. Mackey, (Sup. G. T. 1864) 43 96 N. Y. S. S5. Barb. 58. 10. Kelly v. Roberts, (1869) 40 5. Brooklyn First Nat. Bank v. N. Y. 432; Connelly v. Connelly, Jenkins, (Sup. Tr. T. 1911 )' 73 Misc. (Sup. 1898) 32 App. Div. 392 52 277, 130 N. Y. S. 947, affirmed 151 N. Y. S. 1070; Ford v. Adams (Sup App. Div. 893 mem., 135 N. Y. S. G. T. 1848) 2 Barb. 349; Blunt v. m^- Boyd, (Sup. G. T. 1848) 3 Barb. 209, § 292] CONSIDERATION 433 mere consent of the creditor to such payment" or the mere fact that the promisor is given credit on his account with his creditor is not a sufficient consideration for his promise,^ nor is the fact that credit is given the creditor by the third person on an account between such third person and the creditor." Thus where it appeared that one C. was indebted to the plaintiff, and at the same time the defendant was indebted to C. to an equal or larger amount, and with the assent of C. the defendant promised to pay to the plaintiff the amount of C. 's indebtedness to him, without, however, the defendant 's being discharged in any way from his indebtedness to C. or any other consideration, it was held that his promise to pay the plaintiff was nudum pactum." If, however, there is a new consideration for the promise, it is binding and may be enforced by the party for whose benefit it is made, and it is not necessary that the consideration move from such third person.^" From an early date it has been held that if a debt is assigned, a promise by the debtor to pay the debt to the assignee is enforceable, though the claim may not have been such as to enable the assignee, in the absence of statute, to sue in his own name for its enforcement.''* In such a case it is said that the debtor is under an equitable and moral obligation to pay the debt to the assignee, and this is a suffi- cient consideration for his promise to do so." If, however, the assignment to the promisee is invalid by reason of a prior assign- ment to a third person, the promise is unenforceable for want of consideration.^* § 292. Promise of Third Person to Answer for Pre-existing Debt. — 'There must be a new or additional consideration for the promise of a third person to answer for the pre-existing debt of 1 Code Rep. 7, 6 N. Y. Leg. Obs. 3G1 : 13. FairchiM v. Feltman, (Sup. Fay V. Jones, (Sup. G. T. 1854) 18 1884) 32 Hun 398. Barb. 340; Fairchild v. Feltman, 13. Blunt v. Body, (Sup. G. T. (Sup. 1884) 32 Hun 398; Bogardus 1848) 3 Barb. 209, 1 Code Rep. 7, 6 V. Young, (Sup. 1892) 64 Hun 398, N. Y. Leg. Obs. 361. 46 State Rep. 780, 19 N. Y. S. 885; 14. Fairchild v. Feltman, (Sup. Ryan v. Pistone, (Sup. 1895) 89 Hun 1884) 32 Hun 398. 78, 69 State Rep. 259, 35 N. Y. 8. 81; 15. Berry v. Mayhew, (Com. PI. Jandon v. Randall, (Super. Ct. G. 1861) 1 Daly 54; Judson v. Gray, T. 1881) 13 Wkly. Dig. 37. The (App. Sp. T. 1859) 17 How. Pr. 289. general right of a third person to 16. Compton v. Jones, (Sup. 1825) enforce a contract made for his bene- 4 Cow. 13. See also Muir v. Schenck, fit is discussed later. (Sup. 1842) 3 Hill 228, 233. 11. Fairchild v. Feltman, (Sup. 17. Ford v. Adams, (Sup. G. T. 1884) 32 Hun 398; Jandan v. Ran- 1848) 2 Barb. 349, 351. dall, (Super. Ct. G. T. 1881) 13 18. Muir v. Schenck, (Sup. 1842) Wkly. Dig. 37. 3 Hill 228. 28 434 NEW YORK LAW OF CONTRACTS [§ 292 another.^' The early provision of the statute of frauds dispensing with the necessity to recite or state in the memorandum of an agreement to answer for the debt of another the consideration for such promise did not aifect the rule that there must in fact be a consideration.^ Thus where, without any obligation on his part to do so, a contractor gratuitously undertakes to pay out of his own , funds the wages owing to laborers from his subcontractor, who had absconded, and in carrying out such arrangement does not pay such laborers the full amount of their claim, but deducts therefrom amounts owing by them to third persons, his promise to pay the amounts so owing by the laborers to such third persons is not supported by a suiScient consideration, there being no dis- charge either of the claims of the laborers against the subcontractor or of such third persons against the laborers.^^ Likewise a promise by a husband to answer for an existing debt of his wife,^ or by a wife to answer for an existing debt of her husband,^' must be sup- 19. Belknap v. Bender, (1878) 75 N. Y. 446; Bradt v. Krank, (1900) 164 N. Y. 515, 58 N. E. 657, revers- ing 35 App. Div. 623 mem., 54 N. Y. S. 1096; Nesbit v. Jencks, (Sup. 1903) 81 App. Div. 140, 80 N. Y. S. 1085; Smith v. Burditt, (Sup. 1905) 107 App. Div. 628, 95 N. Y. S. 188; Murphy v. Watertown, (Sup. 1906) 112 App. Div. 670, 99 N. Y. S. 6; Chaffee v. Thomas, (Sup. 1827) 7 Cow. 358; Quin v. Hanford, (Sup. 1841) 1 Hill 82; Bansinger v. Guenth- ner, (Sup. G. T. 1869) 66 Barb. 186; McCafferty v. Decker, (Sup. 1877) 12 Hun 455; Ryan v. Pistone, (Sup. 1895) 89 Hun 78, 69 State Rep. 259, 35 N. Y. S. 81; Bunnell v. Empire Machinery Co.,- (Sup. G. T. 1889) 1 Silv. Sup. Ct. 511, 24 State Rep. 675, 5 N. Y. S. 591; Schworm v. Good- rich, (Sup. Tr. T. 1899) 29 Misc. 721, 62 N. Y. S. 758; Minster v. Benoliel, (City Ct. G- T. 1900) 32 Misc. 630, 66 N. Y. S. 493, reversed on other grounds 33 Misc. 586, 67 N. Y. S. 1044, 9 N. Y. Annot. Cas. 190; Buckley v. Zimmerman, (Sup. App. T. 1900) 32 Misc. 704, 65 N. Y. S. 512; Tyler v. Jaeger, (Sup. App. T. 1905) 47 Misc. 84, 93 N. Y. S. 658; Brush, etc., Co. v. Ross, (Sup. App. T. 1906) 51 Misc. 44, 99 N. Y. S. 796; Royal Indemnity Co. v. Dan- ziger, (App. T. 1917) 101 Misc. 505, 167 N. Y. S. 379; Delinsky v. Bro- dow, (Sup. App. T. 1908) 113 N. Y. S. 7; Yracheta v. Sanford, (Sup. App. T. 1909) 120 N. Y. S. 117; Berkovr v. Lampel, (Sup. App. T. 1910) 125 N. Y. S. 513; Van Cam- pen V. Ford, (Sup. G. T. 1888) 15 State Rep. 310; Storrs v. Flint, (Super. Ct. 1880) 46 Super. Ct. 498; Odell V. Mulry, (Com. PI. 1880) 9 Daly 381; Patchen v. Brown, (Sup. 1871) 3 Alb. L. J. 150. 20. Patchen v. Brown, (Sup. 1871) 3 Alb. L. J. 150. 21. McCafferty v. Decker, ( Sup. 1877) 12 Hun 455. This is not analogous to the case where a debtor promises his creditor to pay a part of the debt to a third person, as there waa at no time any indebtedness on the part of the con- tractor to the subcontractor's laborers. 22. Steuer v. Hart, (Sup. 1916) 175 App. Div. 829, 162 N. Y. S. 489. 23. Callahan v. O'Rourke, (Sup. 1897) 17 App. Div. 277, 45 N. Y. S. 764; Bauer v. Ambs, (Sup. 1911) 144 App. Div. 274, 128 N. Y. S. 1024; Walker v. Pixley, (Sup, 1917) 178 App. Div. 956, 165 N. Y., S. 1117'. § 292J CONSIDERATION 435 ported by a new consideration. And it is held that if necessaries are furnished a family, such for instance as medical services, under circumstances which in the first instance impose a liability to pay therefor on the husband alone, the wife's subsequent prom- ise to pay therefor must be supported by an additional considera- tion, other than the rendition of the services.^* A husband is not necessarily personally liable for services rendered by an attorney for his wife in litigation between them, and the attorney's consent to the dismissal of the action and the withdrawal of motions therein is not a sufficient consideration for the husband's promise to him to pay for the services rendered his wife, in the absence of any show- ing as to the attorney's interest in the action.^ There being no liability on the part of a stockholder to pay a corporate debt, his promise must, as in other cases, be supported by a new consider- ation.^ So where property has been transferred to a person, the proceeds to be applied in payment of certain debts owing by the transferor to third persons, the mere possession of such property by the transferee will not constitute a sufficient consideration for his subsequent absolute promise to pay such debts.^'^ While a promise by an executor or administrator to pay a debt owing by the estate must, as in case of any other promise by a third person to answer for the debt of another, be supported by a consideration,^ any consideration which would support the promise of any .other person will of course support the promise of an executor or admin- istrator. And it is the accepted rule that if he has in hand sufficient assets of the estate to pay the debts this is a sufficient consideration for his promise.^ The fact that a person, who has without con- sideration promised to pay the debt of another, makes part payment on the debt does not preclude him from asserting a want of con- sideration for his promise.'" 24. Hazard V. Potts, (Sup. App. T. 28. Schoonmaker v. Roosa, (Sup. 1903) 40 Misc. 365, 82 N. Y. S. 246. 1820) 17 Johns. 301; Troy Bank v. 25. Steuer v. Hart, (Sup. 1916) Topping, (Sup. 1®35) 13 Wend. 557, 175 App. Div. 829, 162 N. Y. S. 489. 9 Wend. 273; Glenn v. Burrows, As to when legal services rendered (Sup. 1885) 37 Hun 602. a wife are to.be considered necessa- 28. Troy Bank v. Topping, (Sup. ries for which the hu^hand may be 1832) 9 Wend. 273, 13 Wend. 557; held liable is discussed later. Quin v. Hanford, (Sup. 1841) 1 Hill 26. Richards v. Levison, (Sup. 82. App. T. 1913) 142 N. Y. S. 272. 30. Bell v. Pfadenhauer, (Sup. 27. Belknap v. Bender, (1878) 75 1903) 89 App. Div. 279, 85 N. Y. 8. N. Y. 446, affirming 4 Hun 414, 6 869. Thomp. & C. 611; Storrs v. Flint, (Super. Ct. 1880) 46 Super. Ct. 498. 436 NEW YORK LAW OF CONTRACTS [§ 293 § 293. ■ New Consideration for Promise of Third Person.— The discharge of a pre-existing debt owing by a third person is a legal consideration for the promise of another to pay snch debt,'^ and it is immaterial whether the original debtor was solvent or not,^^ or that he had been adjudged a bankrupt without having received his discharge.^^ If the demand note of a debtor, indorsed by a third person, is given in discharge and payment of a pre- existing debt, the discharge of the debt is a sufficient consideration for the indorsement of the note by such third person.^* And where a renewal note is given, the surrender of the old note is a sufficient consideration for the undertaking of a surety on the new note.^° So the discharge by one person of a doubtful claim against another is sufficient to support the promise of a third person in consider- ation of such discharge.^^ And it has been held that a note given by a father in liquidation of his son's engagement to contribute to the capital of a firm of which the son was a member is supported 31. Stack V. Weatherwax, (Sup. 1889) 1 Silv. Sup. Ct. 548, 24 State Rep. 90, 5 N. Y. S. 510; Becker v. Fischer, (Sup. 1897) 13 App. Div. 555, 43 N. Y. S. 685; Chapman v. Ogden; (Sup. 1899) 37 App. Div. 355, 56 N. Y. S. 73; Citizens' Nat. Bank v. Lilienthal, (Sup. 1899) 40 App. Div. 609, 57 N. Y. S. 567; Jay- cox V. Trembly, (Sup. 1899) 42 App. Div. 416, 59 N. Y. S. 245; Eleventh Ward Bank v. New York, etc.. Fire- proofing Co., (Sup. 1900) 53 App. Div. 631, 31 Civ. Pro. 106, 65 N. Y. S. 770; Wenz v. Meyersohn, (Sup. 1901) 59 App. Div. 130, 68 N. Y. S. 1091; Bacon v. Montauk Brewing Co., (Sup. 1909) 130 App. Div. 737, 115 N. Y. S. 617; American Brass, etc., Co. V. Pine, (Sup. 191S) 185 App. Div. 473, 173 N. Y. S. 147; Hinman V. Moulton, (Sup. 1817) 14 Johns. 466; Struthersv. Smith, (Sup. 1895) 85 Hun 261, 262, 66 State Rep. 2S9, 32 N. Y. S. 905; Murphy v. Carey, (Sup. 1895) 89 Hun 106, 68 State Eep. 864, 34 N. Y. S. 1038; Ameri- can Wire, etc.. Bed Co. v. Schultz, (Sup. App. T. 1904) 43 Misc. 637, 88 N. Y. S. 396; Scanlon v. Wallach, (Sup. Tr. T. 1907) 53 Misc. 104, 102 N. Y. S. 1090; Reiehman v. Pretz- f elder, (Sup. App. T. 1915) 151 N. Y. S. 898; Palmer v. Lawrence, (Super. Ct. 1849) 5 Super. Ct. 161, affirmed 5 N. Y. 389. See also Lelh- und-Sparkassa Aadorf v. Pfizer, (Sup. 1913) 158 App. Div. 506, 143 N. Y. S. 744. 32. Stack V. Weatherwax, (Sup. 1889) 1 Silv. Sup. Ct. 548, 24 State Rep. 90, 5 N. Y. S. 510. 33. American Brass, etc.. Bed Co. V. Pine, (Sup. 1918) 185 App. Div. 473, 173 N. Y. S.. 147. 34. Kelly v. Theiss, ( Sup. App. T. 1897) 21 Misc. 311, 47 N. Y. S. 145, affirming 20 Misc. 718 mem., 44 N. Y. S. 1121. 35. Queens County Bank v. Lea- vitt, (Sup. G. T. 1890) 56 Hun 647, 32 State Rep. 339, 10 N. Y. S. 194. See also Citizens' Nat. Bank v. Lil- ienthal, (Sup. 1899) 40 App. Div. 609, 57 N. Y. S. 567. 36. Struthers v. Smith, (Sup. 1895 ) 85 Hun 261, 262, 66 State Rep. 299, 32 N. Y. S. 905. See also Becker v. Fischer, (Sup. 1897) 13 App. Div. 555, 559, 43 N. Y. S. 685. See supra, section 285 et seq. as to when the settlement of a disputed claim con- stitutes a consideration. § 294] CONSIDERATION 437 by a sufficient consideration.^ Likewise, the agreement of a creditor to accept less than the full amount of the debt in discharge thereof is a sufficient consideration for the promise of a third person to become surety. ^^ And in case of a debt bearing interest the reduc- tion of the agreed rate of interest is a sufficient consideration for a promise by a third person to answer for the debt.^' Under the Married "Women's Property Act, conferring on married women power to contract (see Domestic Relations Law, § 51; 14 McKin- ney's Consol. Laws, p. 70), there can be no question but that the discharge of the debt of a husband is a sufficient consideration for a promise by his wife to answer therefor.^" The surrender of any security held by the creditor will constitute a sufficient con- sideration for the promise of a third person to answer for the debt.*^ Thus the discharge of a mechanic's lien filed against a building is a sufficient consideration for the promise of the owner of the building to pay the claim of the person filing the lien.^^ The same is true as to forbearance granted by the creditor to the debtor.*' Where a person promises to pay the judgment debt of another, for which neither he nor his property is in any way liable, the fact that he is on payment to receive an assignment of the judgment has been held not to constitute a sufficient consideration for his promise." § 294. Mortgages and Conveyances. — While a deed of bargain and sale requires under the technical rules of the common law a consideration for its support,*' a pre-existing debt is considered a sufficient consideration ; ** and in cases free from fraud or duress this is true as regards a conveyance by a wife in discharge of her husband's debt." As between the debtor and his creditor a pre- 37. Becker v. Fischer, (Sup. 1897) N. Y. S. 1038. See supra, section 13 App. Div. 555, 43 N. Y. S. 685. 282, as to the surrender of security 38. Kuhn v. Brown, (Sup. 1874) as a consideration generally. 1 Hun 244, 4 Thomp. & C. 29. 42. Haden v. Buddensick, (Sup. 39. Storz V. Kinzler, (Sup. 1902) 1875) 67 Barb. 188, 4 Hun 649. 73 App. Div. 372, 77 N. Y. S. 64. 43. See infra, section 303, as to 40. Jaycox v. Trembly, (Sup. 1899) forbearance as a consideration. 42 App. Div. 416, 59 N. Y. S. 245; 44. Bell v. Pfadenhauer, (Sup. Queens County Bank v. Leavitt, 1903) 89 App. Div. 279, 85 N. Y. S. (Sup. G. T. 1890) 56 Hun 647, 32 869. State Rep. 339, 10 N. Y. S. 194; 45. See supra, section 234. Sistare v. Heckscher, (Sup. Sp. T. 46. Campbell v. Morgan, (Sup. 1891) 15 N. Y. S. 737. See also 1893) 68 Hun 490, 52 State Rep. 648, Francis v. Ross, (Com. PI. Sp. T. 22 N. Y. S. 1001. 1859) 17 How. Pr. 561. 47. Sistare v. Heckscher, (Sup. Sp. 41. Murphy v. Carey, (Sup. 1895) T. 1891) 15 N. Y. S. 737. 89 Hun 106, 68 State Rep. 864. 34 438 NEW YORK LAW OF CONTRACTS [§ 294 existing debt is itself sufficient, it seems, to sustain a mortgage on either real or personal property given by the debtor to the cred- itor.** And, a fortiori, where the terms of the original loan require the borrower to give an additional chattel mortgage in case the mortgage given at the time proves insufficient or ineffectual, the obligation thus incurred wiU uphold a second mortgage given in pursuance thereof." The authorities are not in accord as to whether a mortgage given to secure the pre-existing debt of a third person must be supported by a new and additional consideration other than the pre-existing debt. In so far as the personal liability of the mortgagor is con- cerned there must be a new consideration, and the same has been held true as to the enforcement of the mortgage.^" On the other 48. Hiscock v. Phelps, (1872) 49 N. Y. 97 (recognizing that the mort- gage would he valid as between the parties, but holding that as the mortgagee parted with no present value the mortgage wasi subject to an outstanding equity of third per- sons) ; Young V. Guy, (1882) 87 N. Y. 457, affirming 23 Hun 1, on prior appeal 12 Hun 325; Barrett v. Weber, (1890) 125 N. Y. 18, 34 State Eep. 358, 25 N. E. 1068, affirming 1 Silv. Sup. Ct. 173, 23 State Eep. 3, 6 N. Y. S. 434; New York County Nat. Bank v. American Surety Co., (Sup. 1902) 69 App. Div. 153, 74 N. Y. S. 692, affirmed 174 N. Y. 544 mem., 67 N. E. 1086; Tiffany v. War- ren, (Sup. G. T. 1862) 37 Barb. 571, 24 How. Pr. 293 (personal prop- erty) ; Caryl v. Williams, (Sup. Sp. T. 1873) 7 Lans. 416; Roberge v. Winne, (Sup. 1893) 71 Hun 172, 54 State Rep. 193, 24 N. Y. S. 562. See also Knapp v. McGowan, (1884) 96 N. Y. 75, 86. But in Coffin v. Loekhart, (1893) 71 Hun 262, 54 State Rep. 580, 24 N. Y. S. 1025, it is held that when a purchaser of real estate, subject to an outstanding mortgage, assumes, in the deed, the payment of the mort- gage as part of the purchase price, and the vendor accepts that agree- ment as complete, without exacting any security as collateral to the same, a bond and mortgage there- after executed by the purchaser to the vendor, as an original undertak- ing, to secure the payment of the mortgage already assumed by him, without any new or other consider- ation, will be invalid for want of consideration, so long as the original agreement to pay the assumed mort- gage remains in full force. Putnam, J., however, dissented on the ground that a mortgage given to secure a concededly valid obligation existing at the time is supported by a suf- ficient consideration. The cases cited infra, this section, to the proposition that no new con- sideration is required though the mortgage is given by a third person, necessarily support the proposition that no new consideration is required when the mortgage is given by the debtor. 49. Hintks v. Field, (Sup. Ct. G. T. 1891) 60 Hun 576 mem., 14 N. Y. S. 247, 37 State Rep. 724, affirmed 129 N. Y. 633, 635 mem., 29 N. E. 1030. 50. Van Campen v. Ford, (Sup. G. T. 1888) 15 State Rep. 310 (note and mortgage given by wife to secure her husband's debt). See also Myers v. Grey, (Sup. Sp. T. 1910) 122 N. Y- S. 1079, affirmed 146 App. Div. 923, 131 N. Y. S. 1130 mem.; Willis v. Al- bertson, (Sup. Sp. T. 1888) 20 Abb. N. Cas. 263. § 295] CONSIDERATION 439 hand the view has been taken that a mortgage given to secure an existing debt is in its nature executed in so far as the right of the mortgagee to have the property subjected to the payment of his claim is concerned, and, though given by a third person, no new consideration other than the existing debt is required."^ It has also been held that an agreement by a prior mortgagee giving a second mortgage precedence over his mortgage is in its nature an executed agreement and when made at the time the second. mort- gage is given need not be supported by any new consideration other than the existing debt.^^ Of course the discharge of the debtor from further liability, or the extension of the time of payment or the like, will constitute a sufficient consideration for the mortgage of a third person.^^ § 295. Pre-existing Debt as Basis for Protection as Purchaser for Value. — Not only is a pre-existing debt a sufficient considera- tion for a transfer of a chattel or a chose in action as between the parties, but the discharge of such an indebtedness has been recog- nized, even prior to the present Negotiable Instruments Law, as a sufficient valuable consideration to entitle a purchaser to protection as a purchaser for value under the law merchant as applied to negotiaible commercial paper,^* and it has been held that a person taking a conveyance in satisfaction of a pre-existing debt may be entitled to protection under the statutes affording protection to purchasers for value and without notice as against unrecorded mort- gages and the like.^° It is held otherwise, however, where a mort- gage is taken as security merely for a pre-existing debt withopt any new consideration or present value.^^ And according to the view 51. Jackson v. Nicol, (Sup. 1897) finned 71 N. Y. S. 67, 173 N. Y. 590 23 App. Div. 139, 48 N. Y. S. 974. mem., 65 N. E. 1114. See also Kirtland v. Hoole, (Sup. G. 54. Goodwin v. Conklin, (1881) 85 T. 1879) 8 Wkly. Dig. 274; Havens N. Y. 21; Day v. Saunders. (App. V. Willis, (Sup. G. T. 1883) 17 1867) 3 Keyes 347, 1 Abb. App.. Dec. Wkly. Dig. 372. 495, 37 How. Pr. 534,. 1 Trans. App. 52. Jackson v. Nicol, (Sup. 1897) 352; Johannessen v. M-unroe, (Sup. 23 App. Div. 139, 48 N. Y. S. 974, 1895) 84 Hun 594, 66 State Hep. 142, appeal dismissed 155 N. Y. 697, 50 32 N. Y. S. 863. N. E. 1118. But see Kam v. Benja- 55. Powers v. Freeman, (Sup. -G. min, (Sup. 1896) 10 App. Div. 419, T. 1869) 2 Lans. 127. 42 N Y S. 99 affirmed 158 N. Y. 725 56. Hiscock v. Phelps, (1872) 49 mem., 53 N. E. 1126. N. Y. 97; Gary v. White, (1873) 02 53. Myers v. Grey, (Sup. Sp. T. N. Y. 138; Young v. Guy, (1882) 87 1910) 122 N. Y. 1079, affirmed 146 N. Y. 457, affirming 23 Hun 1; Breed App Div 923, 131 N. Y. S. 1130 v. National Bank, (Sup. 1901) 57 mem'.; Birdsall v. Wheeler, (Sup. App. Div. 468, 68 N. Y. S. 68, af-.., 1901)' 62 App. Div. 625 mem., af- firmed 171 N. Y. 648 mem., 63 N. E.., 440 NEW YOEK LAW OF CONTRACTS [§ 298 now prevailing in our state, a pre-existing debt is not sufficient to support a conveyance as against prior equities, even when the conveyance is accepted in absolute payment and satisfaction of the antecedent debt.*' Prior to" the Negotiable Instruments Law proAdding that ' ' an antecedent or pre-existing debt constitutes value, ' ' ^* one who took negotiable paper as security merely for a pre-existing debt was not, according to the rule prevailing in our state, entitled to pro- tection as a purchaser for value.^' In a number of the cases in the lower courts, decided soon after the enactment of this law, the courts refused to construe it as modifying the earlier rule,** and in a dictum statement in a case decided in the Court of Appeals the rule was considered as still prevailing.*^ In other cases, however, this enactment is considered as changing the rule so as to conform with that which already prevailed in most jurisdictions, and the holder is held a holder for value,*^ and that it has such effect has been expressly decided by the Court of Appeals in a very recent case.** Rescission of Contract § 296. General Rule. — An executory contract may not only be rescinded or put an end to by the mutual agreement of the parties 1115; O'Brien v. Fleckenstein, (Sup. 271; National Bank v. Foley, (Sup. 1903) 86 App. Div. 140, 83 N. Y. S. Tr. T. 1907) 54 Misc. 126, 103 N. Y. 499. S. 563; Harris v. Fowler, (Sup. App. 57. Weaver v. Barden, (1872) 49' T. 1908) 59 Misc. 523, 110 N. Y. S. N. Y. 286, 293; Howells v. Hettrick, 987; Framingham Trust Co. v. Vil- (1899) 160 N. Y. 308, 54 N. E. 677; lard, (Sup. Sp. T. 1911) 74 Misc. 204, Orthey v. Bogan, (1919) 226 N. Y. 133 N. Y. S. 823. 234, 123 N. E. 487, reversing 177 61. Bank of America v. Waydell, App. Div. 928, 163 N. Y. S. 1125 (1907) 18V N. Y. 115, 120, 79 N. E. mem. 857. 58. See Negotiable Instruments 62. King v. Bowling-Green Trust Law, § 51; 37 McKinney's Consol. Co., (Sup. 1911) 145 App. Div. 398, Law, p. 45. 1-29 N. Y. S. 977; Brewster v. Shra- 59. Coddington v. Bay, (Ct. Err. der, (Sup. Sp. T. ISSO) 26 Misc. 480, 1822) 20 Johns. 637; Leslie v. Bas- 57- N. Y. S. 606; Rosenwald v. Gold- sett, (1892) 129 N. Y. 523, 42 State stein, (City Ct. G. T. 1899) 27 Misc. Rep. 358, 2S N. E. 834; Fisher v. 827, 57 N. Y. S. 224; Maurice v. Sharpe, (Com. PI. 1874) 5 Daly 214. Fowler, (Sup. App. T. 1912) 78 Misc. 60. Sutherland v. Mead, (Siup. 1903) 397, M8 N. Y. S. 425 ; Broderick, 80 App. Div. 103, 80 N. Y. S, 504; etc., Rope - Co. v. M'cGrath, (iSup. Roseman V. Mahoney, (Sup. 1903) 86 App. T. 1913) 81 Misc. 199, 142 N. App. Div. 377, 83 N. Y. S. 749; Y. S. 497. -See also A. E. McBee Co. Hover v. Magley, (Sup. Sp. T. 1905) v. Shoemaker, (.Sup. 1916) 174 App. 48 Misc. 430, 96 N. Y. S. 925; Ganse- Div. 291, 160 N. Y. 6. 251. voort Bank v. Gilday, (City Ct. Tr. 63. Kelso v. Ellis, (1918) 224 N. T. 1907) 53 Misc. 107, 104 N. Y. S. Y. 528, 121 N. E. 364, reversing 171 § 296] CONSIDEEATION 441 without other consideration,^* but its rescission or modification may itself constitute a consideration for a new contract.*" The rescind- ing of a contract containing mutual stipulations is a release by each party to the other. The release of one is the consideration for the release of the other, and the mutual releases form the consider- ation for the new promise and are sufficient to give it full effect.** And where a contract after reciting certain promises by the defendant concluded by stating that a certain prior* agreement between the parties was annulled, this was held to imply that the annulment of the prior agreement was the consideration for the defendant's promises.*'' The rescission of or the relinquishment of rights under a prior contract may also constitute a sufficient con- sideration for a promise by a third person ; *' and in such a case, where the object of the promisor is to enable him to obtain a con- tract with the other party to the prior contract, the latter refusing to enter into a contract with the promisor so long as the contract with the promisee was unrescinded, it has been held immaterial that the prior contract may not have been enforceable by the promisee against the other party.*' Where the property brought into a partnership by one member is subject to the lien of a mort- gage, the surrender by the creditor of his lien is a sufficient con- sideration for a promise by the firm to pay the indebtedness secured App. Div. &12 mem., 155 N. Y. S. 54 N. Y. S. 466; H. G. Vogel Co. v. 1117. Wolff, (Sup. 1913) 156 App. Div. 64. Van Dam v. Tapscott, (Sup. 584, 14,1 N. Y. S. 756, affirmed 209 ) 40 App. Div. 36, 57 N. Y. S. N. Y. 508 mem., 103 N. E. 1124; King 534; Tkinnenbaum v. Josephi, (Sup. v. Broadhurst, (Sup. 1914) 164 App. 1904) 93 App. Div. 341, 87 N. Y. S. Div. 689, 150 N. Y. S. 376; MeLeod 839. The rescission of contracts is v. Hunter, (Sup. Tr. T. 1899) 29 more fully discussed later. Misc. 558, 61 N. Y. S. 73, affirmed 65. Marie v. Garrison, (1S80) 83 49 App. Div. 131, 63 N. Y. S. 15.3; N. Y. 14; Wile v. Wilson, (1883) 93 J. J. Littel, etc., Co. v. Madison n! y! 255 ; Erie County Sav. Bank v. Paper .Stock Co., ( Sup. App. T. 1918) Coit, (1887) 104 N. Y. 532, 5 State 169 N. Y. S. 104. See also Lattimore Rep.' 790, 11 N. E. 54, 26 Wkly. Dig. v. Harsen, (Sup. 1817) 14 Johns. 17; Oregon Pac. R. Co. v. Forrest, 330; Hoar v. Clute, (Sup. 1819) 16 (1891) 128 N. Y. 83, 38 State Rep. Johns. 224. 8'37 28 N E. 137, affirming 32 State 66. Oregon Pac. R. Co. v. Forrest, Rep 178 11 N. Y. S. 8; Triangle (1891) 12i8 N. Y. 83, 91, 38 State Waist Co', v. Todd, (1918) 223. N. Y. Rep. 837, 28 N. E. 137. 27 11'9 N. E. 85, reversing on other 67. Wood v. Knight, (Sup. Ii898) "■rounds 168 App. Div. 693, 154 N. Y. 35 App. Div. 21, 54 N. Y. S. «6. S. 542; Colvin v. Post Mortg., etc., 68. Wile v. Wilson, (1883) 93 Co , 225 N. Y. 510, 122, N. E. 454, N. Y. 255. reversing on other grounds 173 App. 69. Wile v. Wilson, (1883) 93 N. Div. 85, 159 N. Y. S. 361; Wood v. Y. 255. Knight, (Sup. 1'898) 35 App. Div. 21, 442 NEW YORK LAW OF CONTRACTS [§§ 297, 298 by the mortgage.'" Even though a purchaser of land in possession may have been in default in his payments, his surrender of pos- session and all rights under the contract is a sufficient consideration for a promise by the vendor to pay therefor.'^ § 297. Limitation of Eule. — If the contract surrendered is itself invalid for want of consideration its surrender- can form no con- sideration for a new promise between the parties,'^ and though there are authorities in other jurisdictions to the contrary, this has been held true as regards the rescission- of a verbal contract unenforceable by reason of the statute of frauds.'^ Thus where the defendant entered into a verbal contract for the sale of his standing timber, and to obtain a rescission of the contract agreed to pay the purchaser a certain sum, his promise was held to be unenforceable for want of a sufiScient consideration.''* It is also held that a verbal contract of hiring, not to be performed within a year, and therefore unenforceable under the statute, cannot be made the basis of a contract to pay a sum of money by way of liquidating or satisfying any supposed liability, on the part of the employer, existing under it.'^ Where a contract of employment has been terminated by the physical inability of the servant to render future services, the promise of the employer to pay to the servant the wages agreed on during the balance of the original term of employment must be supported by some new considera- tion ; and it has been held that as the servant has no employment to resign, his resignation would not constitute a sufficient con- sideration for the promise.''^ Forbearance to Exercise or Relinquishment of BigJit § 298. General Rule. — As a general rule the forbearance to assert or exercise a legal right is a sufficient consideration," and 70. Rust V. Hauselt, (Super. Ct. 75. Gurfdlich v. Hensler, (-Sup. G. 1S80) 46 Super. Ct. 22. T. 1886) 23 Wkly. Dig. 145. 71. Stebbins v. Breese, (iSup. G. T. 76. Prior v. Flagler, (Com. PI. G. 1884) 19 Wkly. Dig. 261. T. 1895) 13 Misc. 115, 68 State Rep. 72. Marie v. Garrison, (1880) 83 199, 34 N. Y. S. 152, affirming 10 N. Y. 14; Van Allen V. Jones, (Super. Misc. 496, 63 State Rep. 622, 3.1 N. Ot. 1863) 23 Super. Ct. 369. Y. S. 193, which however was decided 73. Silvernail v. Cole, (Sup. G. T. on other grounds. 18'52) 12 Barb. 685; Gundljch v. 77. Hamer v. Sidway, (18.91) 124 Hensler, (Sup. G. T. 1886) 23 Wkly. N. Y. 538, 36 State Rep. 888, 27 N. Dig- 145. E. 256; Rogers v. Wiley, (18S2) 131 74. Silvernail v. Cole, (Sup. G. T. N. Y. 527, 4.3 State Rep. 918, 30 N. 18&2) 12 Barb. 685. E. 582; German- American Bajik v. § 298] CONSIDERATION 443 it is not necessary to show that such forbearance operated as a benefit to the promisor or a detriment to the promisee." Thus for- bearance by the banking department to close an insolvent bank is a sufficient consideration for a promise to make good the capital of the bank.'^ And it is held that a promise by an uncle to pay to his nephew five thousand dollars in consideration of his refraining from drinking liquor, using tobacco, swearing, and playing cards or billiards for money, until he should become twenty-one years of age, is supported by a sufficient consideration.^** The relinquish- Schwinger, (Sup. 1902) 75 App. Div. S93, 78 N. Y. S. 38, affirmed 17« N. Y. 569 mem., 70 N. E. 10i99; Street V. Gait, (Sup. 1910) 136 App. Div. 724, 121 N. Y. S. 514, affirmed 202 N. Y. 575 mem., 96 N. E. 1132; Alden v. Wright, (Sup. 1916) 175 App. Div. 692, 162 N. Y. S. 668; Clyde V. Wood, (Sup. 1919) 189 App. Div. 737, 179 N. Y. S. 252 (forbearance to exercise right to ter- minate contract) ; Babcock v. Chase, (Sup. 1«95) 92 Hun 264, 3 N. Y. Annot. Cas. 25, 72 State Rep. 401, 36 N. Y. S. 879; Sickles v. Herold, (Com. PI. Tr. T. 1895) 11 Misc. 583, 66 State Rep. 337, 32 N. Y. S 1083; Kley V. Higgins, (Sup. Sp. T. 1900) 33 Misc. 367, 68 N. Y. S. 453, re- versed on other grounds 59 App. Div. 581, 69 N. Y. S. 826; Lcckwood v. Title Ins. Co., (Sup. Sp. T. 1911) 73 Misc. 296, 130 N. Y. S. 824; Delisi v. Ficarrotta, (Sup. App. T. 1912) 76 Misc. 488, 135 N. Y. S. 653; Knit Goods Exch. v. Kresoflf, (Sup. App. T. lSil8) 102 Misc. 156, 168 N. Y. S. 634; Frost Veneer Seating Co. v. At- lantic Cabinet Co., (Sup. App. T. 1919) 174 N. Y. S. 15 (forbearance to oppose discharge of receiver ) ; Lemont v. Schindelar, (Sup. App. T. 1920 ) 1»1 N. Y. S. 765 ; Orguerre v. Luling, (Com. PL 1S57) 1 Hilt. 383; Livingston v. Painter, (Sup. G. T. 1865) 43 Barb. 270, 19 Abb. Pr. 28, 28 How. Pr. 517 (forbearance to ex- ercise option to call principal of mortgage debt). In Street v. Gait, (Sup. 1910) 136 Arp. Div. 724, 121 N. Y. S. 514, affirmed 202 N. Y. 575 mem., 96 N. E. 1132, it appeared that the plaintiff haxi purchased from the defendant, a manufacturer, certain goods which he had resold to a third person, who objcicted to aoceipting them because they were not as represented, unless a reduction was made in the price. The defendant on being notified of such fact promised the plaintiff that if he would not accede to the third person's demand and would require the latter either to reject or accept the goods, the defendant would in- demnify him against any loss which he might suffer. In consequence of this promise the plaintiff permitted the third person to reject the goods, refturned the price which had been paid and was forced to resell at a loss. It was held that though the defendant was under no liability to the plaintiff on account of the orig- inal sals to him, his promise to indemnify the plaintiff against loss from the third person's rejection of the goods was supported by a suf- ficient consideration, namely, the re- fraining of the plaintiff from assert- i'Dg his legal right under the con- tract of sale to the third person and consenting that such contract might be canceled. 78. Hamer v. Sidway, (li891) 124 N. Y. 538, 36 State Rep. 888, 27 N. E. 256. 79. Sickles v. Herold, (Super. Ct. G. T. 1895) 11 Misc. 583, 66 State Rep. 337, 32 N. Y. S. 1083. 80. Hamer v Sidway, (1891) 124 N. Y. 538, 36 State Rep. 888, 27 N. E. 256. The court in this case re- fers to several cases in other jxiris- 444 NEW YORK LAW OF CONTRACTS [§ 298 ment by a debtor of his right to take advantage of the bankruptcy- laws may constitute a consideration moving from him." Where two persons are desirous of 'purchasing the same property from a third person at a private sale, refraining by one from attempting to make the purchase is a good consideration for the promise of the other to recompense him.*^ So the refraining or agreeing to refrain from engaging in a particular business may be a considera- tion for a promise to make compensation therefor.*' And it is held that a husband's refraining from a course of conduct, such as the taking of a position or following a particular calling, of which his wife does not approve, is a S'Ufficient consideration for' a promise by her to pay him a certain sum of money.'* A parent has the right to decide what name shall be given his infant child, and his forbearing to exercise this right and giving to his child the name which another person desires that it shall bear are held a sufficient consideratioia for a promise by such other person. And the same is true where at the request of the promisor the parent consents to change the name theretofore given to his child of tender years.*^ Also the surrender by a parent of the care and custody of his child is sufficient consideration for a promise made for the benefit of the child.** Forbearance on the part of a witness to exercise his right to refuse to give self -incriminating testimony may be a sufficient consideration for a promise made to him by the party desirous of obtaining his testimony." Where the consent of a stockholder is deemed necessary to a sale of the property of the corporation, his dictions in which a similar view is 84. Werner v. Werner, (Sup. 1915) taken. 1169 App. Div. 9, 164 N. Y. S. 570 81. Knit Goods Exch. v. KresoflF, (refraining from re-entering the po- (Sup. App. T. 1918) 102 Misc. 156, lice force). 168 N. Y. S. 634. 85. Babcoek v. Chase,' (Sup. 1896) 82. McCallum v. Grossman, (Ma- 92 Hun 264, 3 N. Y. Annot. Cas. 25, rine Ct. 1882) 1 City Ct. 423. 72 State E«p. 401, 36 N. Y. S. 879, 83. Wood V. Whitehead' Bros. Co., wherein the promise involved was (1901) 165 N. Y. 545, 69 N. E. 357, one by a grandfather to leave the affirming 37 App. Div. 625 mem,, 56 child a certain amount in his will. N. Y. S. 1119; Rague v. New York 86. Middleworth v. Ordway, (1908) Evening Journal Pwb. Co., (Sup. 191 N. Y. 404, 84 N. E. 291, affirm- 1914) 164 App. Div. 126, 149 N. Y. ing 117 App. Div. 913 mem., 102 N. S. 668. Y. S. 1143, which affirmed 49 Misc If the agreement as a whole is 74, 98 N. Y. S. 10, 18 N. Y. Annot. illegal as an unlawful restraint of Cas. 102. trade this will preclude either party 87. Nickelson v. Wilson, (1875) from enforcing it. See infra, section 60 N. Y. 362. 543 et seq. as to contracts in re- straint of trade. § ^98] CONSIDEEAfriON 445 consent thereto may be a sufficient consideration for the promise of another, who is interested in effecting the sale so as to enable him to apply the proceeds to the satisfaction of corporate debts for which he is liable as surety, to pay an indebtedness of the cor- poration to such stockholder, as by giving such consent the stock- holder relinquished his right to follow the assets for the satisfaction of his claim and enabled such third person to have the proceeds applied in satisfaction of the corporate debts for which he was also liable.^* So a relinquishment by a stockholder of his right to contest the foreclosure of a mortgage on the corporate property may constitute a consideration for a promise to him.*' A seller has the right to demand that the buyer accept delivery at the appointed day, and if the contract is executory, the risk of loss is on the seller until delivery. A delay in delivery may therefore result to his injury, and his deferring delivery, at the request of the buyer, is a sufficient consideration for a promise by the buyer to be responsible for any expenses or loss resulting from the delay.'" Where notes or other evidences of indebtedness have been deposited with a bank for collection, forbearance by the depositor to exercise his right to withdraw the notes, etc., may be a sufficient consider- ation for a promise by a third person to answer for any indebted- ness of the bank to the depositor by reason of its receiving payment of such notes.'^ The waiver or relinquishment by a person, against whom a judgment has been rendered, of his right of appeal or his consent to the dismissal of an appeal taken by him is a sufficient consideration for a promise made to him.'^ If a creditor claims in good faith that a transfer by his debtor is in fraud of creditors, and threatens suit to set aside the transfer, the relinquishment of his right tp sue is a sufficient consideration for the promise of the transferee to pay the creditor the amount of his claim." Under our statute, which provides that the holder of a pawn ticket shall 88. Lamkin v. Palmer, (1900) 164 92. Kley v. Higgina, (Sup. Sp. T. N. y. 201, 58 N. B. 123, affirming 24 1900) 3i3 Misc. 367, 68 N. Y. S. 453, App. Div. 255, 48 N. Y. S. 427. affirmed as to this but reversed on 89. Marie v. Garrison, (1880) 83 other grounds 59 App. Div. 58il, 69 N. Y. 14, reversing 45 Super. Ot. 157; N. Y. S. 826. Marie V. Garrison, (Super. Ct. Ii8®3) 93. Richfield Springs First Nat. 13 Abb. N. Cas. 210. Bank v. Keller, (Sup. 1908 ) 127 90. Dunn v. Robins, (Sup. G. T. App. Div. 435, 111 N. Y. S. 729. See 1892) 48 State Rep. 45, 20 N. Y. S. also Mechanics' Nat. Bank v. Jones, 341 (Sup. 1902) 76 App. Div. 534, 78 91. Mechanics', etc.. Bank v. Wix- N. Y. S. 800, affirmed 175 N. Y. 518 son, (1870) 42 N. Y. 438, aflBrming mem.., 67 N. E. 1085. 46 Barb. 218. 446 NEW YORK LAW OF CONTRACTS [§ 299 be presumed to be the person entitled to redeem the pledge and that the pawnbroker shall deliver the pledge to the person present- ing the ticket,'* a pledgor by delivering the ticket to a third person changes his position as to his own right to redeem, and consequently- such delivery is a sufficient consideration for such third person's promise to redeem.'* Extending the time for the performance of a contract, such as a btiilding contract or the like, may constitute a consideration for a change in regard to the compensation to be paid for the work.'* The appointment by a manufacturer of a person as his exclusive agent for the sale of his product in a cer- tain locality precludes him from making any other provision for its sale, and furnishes a sufficient consideration for a promise by the agent, such as a promise to purchase a certain quantity of the product." It has been said that an agreement between stockholders that none of them shall sell their stock unless a sale of all their combined stock is made, is wanting in consideration.'* § 299. Eefraining' from Bidding' at Auction Sale.— The view has been taken, where property is sold at auction or a contract let on competitive bidding, that the agreement of one person to refrain from bidding is not a sufficient consideration for the agreement of the other party to give the former an interest in the property or contract in case he should be the successful bidder." According to the better view, however, though the agreement between the parties may be illegal as against public policy, and for this reason unenforceable, it is not without consideration, as the refraining from bidding may not only be a detriment to the promisee but also a benefit to the promisor ; ^ and it is on the ground of public policy alone that such agreements are usually declared unenforce- able.^ And it has been expressly held, in case of a foreclosure 94. General Business Law, § 44; 99. Doolin v. Ward, (Sup. 1810) 19 McKinney's Cons. Laws, p. 52. 6 Johns. 194; Wilber v. How, (Sup. 95. Stone v. Demarest, (Sup. App. l^ll) 8 Johns. 444. T. 1C16) 95 Misic. 543, 159 N. Y. S. 1- Hopkins v. Erisign, (1890) 122 800. N- Y. 144, 153, 33 State R«p. 299, 25 9S H G Voeel v Wolff (Sup ^' ^- ^^' ^™°^ ^- Donovan, (Sup. 191 •) ^56 AprDiv 58l Ui Hi H''^ ''' ^PP- ^^- '^' ^l^ ^'IJ- S. 756, affirmed 209 N. Y. 568 mem., ^f. ' /y"?,^. ^- i°l*?"' J^"P , ^H^, ' in-? TT F 1124 171 ^PP- Div. 45, 156 N. Y. S. 881; - ■ ^- ^1- jojjgg y ■Oaswell, (Sup. 1802) 3 97. Standard Fashion Co. v. Os- Johns. Oas. 29; Thompson v. Davies, trom, (Sup. 1897) 16 App. Div. 220, (^g^p ig^g) jg j^y^^^ ^^jg. Myers v. 78 State Rep. 666, 44 N. Y. S. 6«6. Dorman, (Sup. 1884) 34 Hun 115, 98, Tompkins v. Sheehan, (Sup. 119. 1894) 82 Hun 346, 63 State Rep. 544, 2. See infra, section 513 et seq. as 31 N. Y. S. 225. to legality of contracts entered into § 300] CONSIDEEATION 447 sale under a first mortgage, that the abandonment by a second mortgagee of liis right to bid is a sufficient consideration for the promise of one holding a later mortgage to pay the claim of the second mortgagee if he should become the purchaser. " The plaintiff," says Seabury, J., " certainly had a right to bid at the public sale, and his abandonment of this legal right was a sufficient consideration for the promise of the defendants. . . . The only question which requires discussion is, whether or not the considera- tion for the contract was legal or illegal. ' ' ' § 300. Forbearance to Contest Will. — The forbearance of an heir or distributee to exercise his legal right to contest the will of his ancestor is universally recognized as a legal consideration for a promise by another,* irrespective of whether the promisor is bene- fited by such forbearance or not.^ The same is true as to the for- bearance of one who would take under an earlier will to contest a later wiU.^ It is immaterial whether the person forbearing to contest the will would have succeeded in the litigation. It is suffi- cient that he yields to his adversary the right he possessed to con- test the will. If he does this the compromise itself proves prima facie an acknowledgment by the promisor that there was color of right for his contest.' In order that the refraining from contesting the will of the promisee's ancestor may constitute a consideration, it has been held that it must be made to appear that there was a possibility of injury to the promisee from his so doing; and that if he would take under the will the same benefit he would as heir to chill the biddings at auctions and Clark v. Lyons, (Sup. Sp. T. 1902) other putilic sales, etc. 38 Misc. 5il6, 77 N. Y. S. 9Q7, modi- 3. Delisi v. Ficarrotta, (Sup. App. fled on other grounds 70 App. Div. T. 1912) 76 Misc. 488, 135 N. Y. S. 622, 79 N. Y. S. 1129; Friese v. 633, applying Hamer v. Sidiway, Hoefler, (City Ct. G. T. 1902) 38 (1891) 124 N. Y. 5-38, 36 State Hep. Misc 814, 78 N. Y. S. 1116; Bowden 888, 27 N. E. 256. v. Owen, (Sup. Tr. T. 191;8) 103 4. St. Mark's Church v. Teed, Misc. 56, 171 N. Y. S. 778; Jones v. (1-890) 120 N. Y. 583, 31 State Kep. Jenner, ('Sup. G. T. 1888) 14 State 908, 24 N. E. 1014, affirming 44 Hun Rep. 376. 349, 8 State Rep. 8« ; Moss v. Cohen, 5. St. Mark's Church v. Teed, (1899) 158 N. Y. 240, 53 N. E. 8'; (1890) 120 N. Y. 583, 31 State Rep. Schoonmaker v. Gray, (1913) 208 908, 24 N. E. 1014, affirming 44 Hun N. Y. 209, 101 N. B. 886, 10 Mills 349, 8 State Rep. 841. 548 reversing 148 App. Div. 908 6. Lawrence v. Cammeyer, (Sup. mem., 132 N. Y. S. 1145; Palmer v. 1904) 96 App. Div. 633, 89 N. Y. S. North, (Sup. G. T. 1861) 35 Barb. 282; Seaman v. Seaman, (Sup. 1834) 12 Wend. 381 ; Bedell v. Bedell, (Sup. 1875) 3 Hun 580, 6 Thomp. & Q. 324; 220. 282; Seaman v. Seaman, (Sup. 1834) 7. Seaman v. Seaman, (Sup. 1«34) 12 Wend. 381; Bedell v. Bedell, (Sup. 12 Wend. 381. 448 NEW YORK LAW OF CONTRACTS [§ 301 or distributee, then his refraining from contesting the will cannot operate to his prejudice and is not a sufficient consideration for a promise, though the latter may be interested in the probating of the will, to pay him therefor.^ Agreements of this character are not against public policy. The promisee having a perfect right to contest the wiU or not, his agreement not to contest is considered as any other agreement for the settlement of a disputed claim.' § 301. Forbearajice to Enforce Claim GeneraJly. — Forbearance to enforce payment of an indebtedness or claim presently payable and enforceable by action may operate not only as a detriment to the creditor but as a benefit to the debtor, and may constitute a sufficient consideration for a promise by the debtor." And the agreement of a creditor to forbear enforcing the debt until after the death of the debtor is a sufficient consideration for the debtor's promise that the debt will be paid after his death so as to enable an action to be brought thereon, though but for such promise the debt would have been barred by the statute of limitations." And in such a case it is immaterial that there was no consideration for the creditor's agreement to forbear and he could have enforced the original debt at any time during the debtor's life, where in fact, in reliance on the debtor 's promise, he did forbear until after the debtor's death."^^ So forbearance to enforce a claim is undoubt- edly a sufficient consideration, if one is necessary, to support an assignment as collateral security .^^ Extension of the time for the 8. Seaman v. Seaman, (Sup. 1834) 74 App. Div. 444, 77 N. Y. S. 483. 12 Wend. 381. See also Tebo v. Robinson, (1885) JO 9. Seaman v. Seaman, (Sup. 1834) N. Y. 27, 2 N. E. 383, 8 Civ. Pro. 12 Wend. 381; Schoonmaker v. Gray, 1*1; Rowe v. Thompson, (Com. PI. (1913) 208 N. Y. 209, 101 N. E. 886, Gen. T. L8&3) 15 Abb. Pr. 377. 10 Mills 548, reversing 148 App. Div. 12. Hobart v. Verrault, (Sup. 90S mem., 132 N. Y. S. 1145. 1902) 74 App. Div. 444, 77 N. Y. S. 10. Jaycoxv. Trembly, (Sup. 1899) ^f' ,J° *^^« "^^ ^^toh J., said: 42 App. Div. 416, 59 N. Y. S. 245; ^^ *^« agreement in the present Jeroms v. Jeroms, (Sup. 1853) 18 case was acted upon by the payee, Barb. 24; MoCammon v. Shantz, and the intestate had the benefits (Sup. Sp. T. 1899) 26 Mis<:. 476, 57 f"^'"? therefrom, it would seem N. Y. S. 515; Van Buren v. Wensley, ^^^*/^ principle she ought to be (Sup. Sp. T. 1918) 102 Misc. 248, ^""^^ according to the terms of her ,\.n >.T -& o .Ton T T,- 1, 17 n -D engagement, and having received the 169 N. Y. S. 789; Lehigh Valley R. ,„„ 5+ , , 4. 5 i, it, „ , , /-, i .-, , tn ci benent, as contemplated by the par- S^-J^.'^''^^" .Tta ^°': ^ I ^^ ties, when the agreement of exten- T. 1910) 3 Bradf. 326, note affirmed ^-^^ ^^^ ^^^ \^^ representative 142 App. Div. 928 mem., 126 N. Y. S. ^^^t now to be precluded from 1136, which is affirmed 207 N. Y. availing himself of the plea of the 721 mem., 101 N. E. 1109. statute of limitations." 11. Hobart v. Verrault, (Sup. 1902) 13. Dill, etc., Co. v. Morison. (Sup. §§ 302, 303] CONSIDERATION 449 payment of a pre-existing debt may be such a consideration as will entitle the creditor to protection as a purchaser for value both under the law merchant as applied to negotiable commercial paper," and as to the protection given a purchaser for value as against secret equities and unrecorded mortgages.^^ § 302. Refraining from Suing on Unenforceable Claim; Com- promise. — Though a person may in a sense have the legal right to bring an action on a totally unfounded claim, his refraining from doing so cannot constitute a consideration for an executory prom- ise." On the other hand, if a person asserts a claim in good faith, though it is unfounded in law, his refraining from suing thereon will furnish a sufficient consideration. "Where such a person for- bears to sue he gives up what he believes a right of action and the other party gets an advantage, and, instead of being annoyed with an action, he escapes from the vexation incident to it." As here- tofore shown and as said by Haughton, J. : " It is not necessary, in order to uphold a compromise agreement based upon a surrender or composition or compromise of a claim, that the claim should'be a valid one, or one that can be enforced at law, provided it be made in good faith. A promise made upon a settlement of disputes and to prevent litigation is made upon a good consideration, and the settlement of a doubtful claim will uphold a promise to pay a stipulated sum or do any other lawful act. . . . Courts from the earliest times have favored compromises of bona fide disputes and have held agreements therefor to be founded upon good con- sideration irrespective of the validity of the claim which was compromised. "■'' § 303. Promise by Third Person to Answer for Debt Generally. — Forbearance to enforce a debt is a sufficient consideration for a 1913) 159 App. Div. 583, 144 N. Y. 350, 73 N. E. 30, affirming 86 App. S. 894. Div. 140, 83 N. Y. S. 499. 14. Milius V. KaufFmann, (Sup. 16. Springstead v. Nees, (Sup. 1905) 104 App. Div. 442, 93 N. Y. S. 1908) 125 App. Div. 230, 109 N. Y. S. gg9_ 148. 'See supra, section 288, as to the 1'5. Oary V. White, (1873) 52N. Y. effect of a settlement or compromise 138; Johnson v. Franklin First Nat. of a palpably untenable claim. Bank, (Sup. 1909) 132 App. Div. 17. (Lockwood v. Title Ins. Co., 524, 117 N. Y. S. 39, affirmed 20O (Sup. Sp. T. 1911) 73 Misc. 296, 130 N. Y. 593 mem., 94 N. E. 1095; N. Y. S. 824. Gibbs V. Flour City Nat. Bank, (Sup. 18. Minehan v. Hill, (Sup. 1911) 1.89'5) 86 Hun 103, 68 State Rep. 144 App. Div. 854, 858, 129 N. Y. S. 245, 34 N. Y. S. 195 (assignment of 873. See supra; section 285, as to insurance policy). See also O'Brien the settlement of dis.puted claims gen- V. Fleekenstein, (1905) 180 N. Y. erally. 29 450 KEW YORK LAW OF CONTRACTS [§ 303 promise by a third person to answer therefor,^' or a mortgage given by a third person to secure the debt.^" So the consent of the plain- tif[ to a continuance of a pending action is in the nature of for- bearance to sue and therefore a sufficient consideration for a 19. Meehanics', etc., Bank v. Wix- son, (1870) 42 N. Y. 438, affirming 46 Barb. 218; Risley v. Smith, (1876) 64 N. Y. 576; Pennsylvania Coal Co. V. Blake, (18*1) 85 N. Y. 326, af- firming 20 Alb. L. J. 54; National Bank V. Place, (App. 1881) 86 N. Y. 444, 13 Wkly. Dig. 342; Meltzer v. Doll, (1883) 91 N. Y. 365; Traders' Nat. Bank v. Parker, (1892) 130 N. Y. 415, 42 State Rep. 506, 29 N. E. 1094, affirming 29 State Rep., 373, 8 N. Y. S. 683; Strong v. Sheffield, (1895) 144 N. Y. 392, 63 State Rep. 701, 39 N. E. 330; Kelley v. Phenix Nat. Bank, (Sup. 1897) 17 App. Div. 496, 79 State Rep. 533, 45 N. Y. S. 533; Jayeox v. Trembly, (Sup. 1899) 42 App. Div. 416, 59 N. Y. S. 245; Brumm v. Gilbert, (Sup. 1900) 50 App. Div. 430, 64 N. Y. S. 144; J. H. Mohlman Co. v. McKane, (Sup. 1901) 60 App. Div. 546, 69 N. Y. S. 1046; Williams v. Bedford Bank, (iSup. 1901) 63 App. Div. 278, 71 N. Y. S. 539; Utica City Nat. Bank v. Tall- man, (Sup. 1901) 63 App. Div. 480, 71 N. Y. S. 861, affirmed 172 N. Y. 642 mem., ©5 N. E. 1123; Citizens' Permanent Sav., etc., Ass'n v. Rampe, (Sup. 1902) 68 App. Div. 556, 74 N. Y. S. 192; Emerson v. Sheffer, (iSup. 1906) 113 App. Div. 19, 98 N. Y. S. 1057; Richfield Springs First Nat. Bank v. Keller, (Sup. 1908) 127 App. Div. 435, 111 N. Y. 8. 729; Hart v. Equitable L. Assur. Soc, (iSup. 1916) 172 App. Div. 65-9, 158 N. Y. S. 1063; Elting V. Vanderlyn, (iSup. 1809) 4 Johns. 237; Bloomingdale v. Lisberger, (Sup. 1881) 24 Hun 355; Paul v. Stevens, (Sup. 1890) 57 Hun 171, 32 State Rep. 851, 10 N. Y. S. 442, affirmed 126 N. Y. 630 mem., 27 N. E. 410; Weaver v. Farrington, (City Ct. G. T. 1893) 6 Misc. 54, 56 State Rep. 623, 26 N. Y. S. 78, affirmed 7 Misc. 405, 58 State Rep. 58, 27 N. Y. S. 971; Kelly v. Theiss, (Sup. App. T. 1897) 21 Misc. 311, 47 N. Y. S. 145, affirming 20 Mis«. 718 mem., 44 N. Y. S. 1121; Olin V. Arendt, (Sup. Sp. T. 1899) 27 Misc. 270, 58 N. Y. S. 429; German Sav. Bank v. Brodsky, (Sup. Sp. T. 1902) 39 Misc. 100, 78 N. Y. S. 910, affirmed 82 App. Div. ms mem., 81 N. Y. S. 1126; Niles- Bement-Pond Co. v. Ury, (Sup. App. T. 1907) 53 Misc. 305, 103 N. Y. S. 226; Jamison Semple Co. v. Richard, (Sup. App. T. 1912) 78 Misc. 355, 138 N. Y. S. 401; National Watch Co. V. Weiss, (Sup. Tr. T. 1917) 98 Misc. 453, 163 N. Y. S. 46, affirmed 180 App. Div. 9il6, 166 N. Y. S. 1104 mem. ; Lockner v. Holland, ( County Ct. 19013) 81 N. Y. S. 730; Franchi V. Tirelli, (Sup. App. T. 1905) 92 N. Y. S. 784; Realty Records Co. v. Slutzkin, (Sup. App. T. 1911) 132 N. Y. S. 313; Fellows v. Mulligan, (Sup. App. T. 1913) 140 N. Y. S. 9'85; Forrester v. Parker, (Com. PI. 1887) 14 Daly 208, 6 State Rep. 274; Flanagan v. Mitchell, (Com. PI. G. T. 1890) 16 Daly 223, 32 State Rep. 303, 10 N. Y. S. 234; Ver Valen V. Eckerson, (Sup. G. T. 1877) 5 Wkly. Dig. 392. But see Turner v. Sheridan, (City Ct. G. T. 1900) 32 Misc. 233, 65 N. Y. S. 791, 34 Misc. 805, 68 N. Y. S. 1124. 20. Pennsylvania Coal Co. v. Blake, (18S1) «5 N. Y. 226, affirm- ing 20 Alb. L. J. 54; McLaren v. Percival, (1886) 10.2 N. Y. 675 mem., 1 State Rep. 660, 6 N. E. 582, 1 Silv. Ct. App. 65, affirming 19 Wkly. Dig. 171; Muir v. Greene, (1908) 191 N. Y. 201, 83 N. E. 685, affirmed 115 App. Div. 173, 100 N. Y. S. 722; Forrester v. Parker, (Com. PI. 1887) 14 Daly 208, 6 State Rep. 274. As to the necessity for a new consideration to support a, mortgage given to secure the debt of a third person, see supra, section 294. § 303] CONSIDERATION ■ 451 promise by a third person to pay whatever judgment may be recovered by the plaintiff.^ Likewise forbearance to foreclose a mortgage is a sufficient consideration for the promise of the owner of the equity of redemption, who purchased subject to the mort- gage, to assume or guarantee the payment of the mortgage debt,^ and forbearance by a mortgagee to foreclose is a sufficient consider- ation for the promise of a second mortgagee or the owner of the equity of redemption to pay taxes on the land.^ If a promise to forbear is conditional on a third person's becoming surety for the debtor it does not become effective until the security is given, and furnishes a sufficient consideration for the subsequent promise of the surety.^ Ordinarily it is immaterial who makes the request for forbearance, whether the debtor or the third person under- taking to answer for the debt.^° The mere fact that bankruptcy proceedings were pending against the debtor does not necessarily prevent an agreement by a creditor to forbear enforcement of his claim from being a sufficient consideration for the promise of a third person to answer therefor.^ The same has been held true where a receiver has been appointed by a state court for a corpora- tion and suits against the corporation enjoined, which however did not affect the right of a national bank doing business in another state from proceeding against the property of the corporation not within the state in which the receiver was appointed, and the con- sideration for the guaranty in question was forbearance to take such proceeding.^'' Where the maker of a note forges indorsements thereon and secures its discount, the person discounting the note may immediately sue for the recovery of the money paid the maker. He waives this right, however, if he accepts the indorsers' ratifica- tion and guaranty of the genuineness of the signatures, and this waiver, in effect an extension of the time of payment, is a sufficient 21. Stewart v. McQuin, (Sup. (Sup. 1901) 63 App. Div. 278, 71 1823) 1 Caw. 99. N. Y. S. 539. 22. Citizens Permanent Sav., etc., 2*- ^f°^,^y|^^"^^„ ^°f„„ ^"^ ^- . , _ ,„ ^nno^ cQ A Blake, (1881 85 N. Y. 226. Ass'n V. Rampe, (Sup. 1902 ) 68 App. Vues-Bement-Pond Co. v. Ury, Div. 556, 74 N. Y. S. 192; Sweny v. ^ ^^^ ^3 ^.^^ g^^ Peaslee, (Sup. G. T. 1891) 62 Hun ^o6, 308, 103 N. Y. S. 226. 62,1 mem., 42 State Rep. 48S, 17 N. ^q Emerson v. Sheffer, (Sup. 1906) Y. S. 225; German Sav. Bank v. jj3 j^^^ Y>iv. 19, 98 N. Y. S. 1057. Brodsky, (Sup. Sp. T. 1902) 39 Misc. 27. Union Nat. Bank v. Leary, 100, 78 N. Y. S. 910, affirmed 82 App. (gup. 1904) 95 App. Div. 381, 88 Div. 635 mem., 81 N. Y. S. 1126. n. y. s. 652, affirmed 183 N. Y. 546, 23. Williams v. Bedford Bank, 76 N. E. 1111. 452 NEW YORK LAW OF CONTRA1CT8 [§ 3(H consideration for the indorsers' assumption of liability.^ If the promise to answer for the debt of another in consideration of for- bearance is taken as collateral security, the creditor may, after the period for forbearance has passed, attempt to enforce payment from the principal debtor -without affecting the liability of the surety. Thus where, in consideration of the release of a husband from a body attachment, the wife of the debtor joined with him in a note as security for the payment of the debt, and after a default in the payment of the note the action against the husband was prosecuted to judgment and he was rearrested on a body execution, this was held not to release the wife from liability on the note.^ § 304. Oral Agreement and Implication of Promise to Forbear. — It is not necessary that the creditor's agreement to forbear be in writing to constitute a consideration for a third person's prom- ise to answer for the debt. Nor is it necessary that the creditor should, in express terms, agree to forbear; this may be implied from the nature of the transaction and the surrounding circum- stances.^" Thus where the debtor's bond, payable at a future day and secured by a mortgage on the land of a third person, is accepted by the creditor, this itself will be sufficient ground for presuming that there was an agreement to give an extension for the time that the new obligation and the security had to run,^* and such an agreement will be implied, in the absence of a contrary understanding, where the note of the debtor payable at a future day is given.^^ It has also been held, where it appeared that the as. Oatskill Nat. Bank v. Lasher, 31. Forrester v. Parker, (Com. PI. (Sup. 1915) 165 App. Div. 54.8, 151 1887) 14 Daly 208, 6 State Eep. 274. N. Y. S. 191, 32 N. Y. Grim. 459, 32. Place v. Mcllvain, (1868) 38 afSrming on other grounds 84 Misc. N. Y. 96; Hubbard v. Gurney, (1876) 523, 147 N. Y. S. 641, and affirmed 64 N. Y. 457, 459, 466; Shipman v. 221 N. Y. 551 mem., 116 N. E. 1039. Kelley, (Sup. 1896) 9 App. Div. 316, 29. Lauckner v. Heyss, (Sup. App. 75 gtate Rep. 743, 41 N. Y. S. 328, T. ma) 131 N. Y. a 677 ,ffi,^i„g 16 Misc. 673, 38 N. Y. s! 30 Risley v. Smith (1876) 64 g„ j ^ j^^^^^^ ^'^ ^ ^ N. Y. 576, reversing 39 Super. Gt. ,„ ,o„,, . „n . _,. ^.,„ ' 137; Rothschild v Frank, (Sup. 'f"P; ^f^' ^ ^P^" ^"- ^*f'„^^ 1897) 14 App. Div. 399, 43 N. Y. S. ^1 ^- ^- ^'^^' ^^^""^ ^- W«"^^' 951; Emerson v. Sheflfer, (Sup. 1906) <'^"P- 1^*^) 5 Hill 463; Fellows v. 113 App. Div. 19, 98 N. Y. S. 1057; Prentiss, ('Ct. Err. 1846) 3 Denio Paul V. Stevens, ('Sup. 1890) 57 Hun ^^^- ^^^ ^.Iso Putnam v. Lewis, 171, 32 State Rep. 851, 10 N. Y. S. ('Sup. I18II) 8 Johns. 389; Bangs v. 442, affirmed 126 N. Y. 630, 27 N. E. Mosher, (Sup. G. T. 1856) 23 Barb. 410; Van Bur v. Wensley, (Sup. 478; Dorlon v. Christie, (Sup. 1862) Sp. T. 1918) 102 Misc. 248, 169 N. Y. 39 Barb. 610. S. 789. § 305J CONSIDERATION 453 holder of a mortgage, the mortgagor having become insolvent, threatened to foreclose the mortgage unless the owner of the equity of redemption, who had purchased subject to the mortgage, gave his personal bond as additional security, and after the bond was given forbore to enforce the mortgage for a considerable time — that an agreement to forbear for a reasonable time would be implied, thus furnishing a consideration for the bond.^^ Also where it appeared that the creditor stated to the debtor that he " was not particular about an immediate settlement " of the debt if security was given, and on the strength of this statement the note of a third person was given as security, it was held that, though the debtor did not agree to forbear until the note so given became due, yet where he did forbear for a considerable time an agreement on his part to forbear for a reasonable time would be implied.'* It has also been held that a promise by a third person to pay the debt of another within a reasonable time imports an agreement by the debtor to forbear enforcing the debt for such time, and that such forbearance is a consideration for the promise. " The promise," says Hatch, J., " is not to pay at once, but within a reasonable time, and in order to give force and effect to such language an extension of time was necessary for a reasonable period. "'' The mere fact that security, by way of a promise of a third person to answer for the debt of another, is given a creditor does not import a promise by the creditor to grant forbearance.'* § 305. Necessity for Biudiiigf Agreement to Forbear. — If there is no agreement on the part of the creditor to forbear, the mere fact that he does grant the debtor indulgence, as distinguished from an agreement to forbear generally, is not a sufficient con- sideration for the promise of a third person to answer for the debt.''' And if the agreement to forbear is only for such time as 33. German Sav. Bank v. Brodsky, N. Y. 392, 63 State Rep. 701, 39 (Sup. Sp. T. 1902) 39 Misc. 100, 78 N. E. 330; Brumm v. Gilbert, (Sup. N. Y. S. 9il0, affirmed 82 App. Div. 1900) 50 App. Div. 430, 64 N. Y. S. 635 mem., 81 N. Y. S. 1126. 144, affirming 27 Misc. 421, 59 N. Y. 34. Emerson v. Sheffer, (Sup.. S. 2,37; Breed v. National Bank, 1906) 113 App. Div. 19, 98 N. Y. S. (Sup. 1901) 57 App. Div. 46®, 474, 1057. 68 N. Y. S. ©8; Perkins v. Proud, S3. Union Nat. Bank v. Deary, (Sup. G. T. 1862) 62 Barb. 420; (Sup. 1902) 77 App. Div. 332, 79 Yracheta v. Stanford, (Sup. App. N. Y. S. 217, 12 N. Y. Annot. Gas. T. 1909) 120 N. Y. S. 117. See also 267. Atlantic Nat. Bank v. Franklin, 36. Brumm v. Gilbert, (Sup. 1900) (1892) 56 N. Y. 235. But see Ganse- 50 App. Div. 430, 64 N. Y. S. 144. voort Bank v. Altshul, (Sup. App. 37. Strong v. Sheffield, (1895) 144 T. 1899) 26 Misc. 6, 55 N. Y. S. 733. 454 NEW YORK LAW OF CONTRACTS [§ 305 the creditor may elect, there is no binding obligation on him to forbear for any time whatsoever, and, for want of mutuality of obligation, there is no consideration for the promise of the other party, and this is not affected by the fact that the creditor does grant indulgence to the debtor.^* Also if the offer of a party to answer for the debt of another is conditioned on an arrangement being made with the creditor for forbearance for a certain time, it has been held that a creditor, to entitle himself to the advantage of such offer, must enter into an agreement binding on him to forbear for the stated time, and that the fact that he did not seek to enforce his debt until after the specified time had expired is insufficient.^' On the other hand, if an offer by a third person to answer for the debt of another is made on condition that the creditor forbear, and the creditor does in fact forbear in reliance on the offer, such forbearance renders the promise enforceable, unless it was the intention of the parties that the promisor was not to be bound except on the condition that the creditor should enter into a binding agreement to forbear.^" If there is an agree- In Brumm v. Gilbert, (Sup. 1900) 50 App. Div. 430, 64 N. Y. S. 144, a guaranty by a wife of the existing indebtedness of her husband, which contemplated the continuance of the husband's business and provided for the application of all the profits of the business to the payment of the debt, provided that in case, contrary to the expectation of the husband, he should not be able to pay the debt be- fore a certain time " and should oblige you to require the execution of this guaranty, I shall only be able to acquit myself towards you by pay- ing you one-half of my income, amount to six thousand francs a year, not possessing any capital of which I can dispose. I will, therefore, re- quire the necessary and proportion- ate delay." The creditor did not press payment. It was held that the guaranty did not import an agree- ment by the creditor to forbear gen- erally or for any certain time, and that therefore there was no consid- eration for the guaranty. 38. Strong v. Sheffield, (1«95) 144 N. Y. 392, 63 State Rep. 701, 39 N. E. 330, aflSrming 66 Hun 349, 50 Sta;te Rep. 665, 2.1 N. Y. S. 506. This case involved an action against the defendant as indorser of a note pay- able on demand, given by the maker to the plaintiff to secure an antece- dent, indebtedness. It appeared that there was no request for fonbearance, but the plaintiff, as he testified, agreed that he would not pay the note away, or put it in bank for collection, but would hold it until such time as he wanted the money, and would then make demand for it, and upon this the defendant, at the maker's request, indorsed the note. It was held that the evidence failed to disclose any consideration for the indorsement. 38. McFarland v. Smith, (iSup. 1827) 6 Cow. 669. 40. Strong v. Sheffield, (1895) 144 N. Y. 392, 63 State Rep. 701, 39 N. E. 330; Porter v. Thom, (Sup. 1898) 30 App. Div. 363, 51 N. Y. S. 974; Citizens' Permanent Sav., etc., Ass'n V. Rampe, (Sup. 1902) 68 App. Div. 556, 74 N. Y. S. 192; Niles- Bement-Pond Co. v. Ury, (Sup. App. § 306] CONSIDERATION 455 ment.by the creditor to forbear generally or for a specified time, the fact that a demand note is taken at the time does not prevent the agreement for such forbearance from being a sufficient con- sideration for the promise by a third person to answer for the debt.*^ The same has been held true where a mortgage, given by a third person to secure an overdue debt, was payable on demand, but there was an agreement for forbearance and the mortgage itself recited that it was given in consideration of forbearance to be granted the debtor.^^ § 306. Failure to Specify Time of Forbearaaice. — In order that forbearance to enforce a present indebtedness may constitute a T. 1907) 53 Misc. 305, 103 N. Y. S. 226; Jamison Semple Co. v. Ricliard, (Sup. App. T. 19.12) 78 Misc. 355, 138 N. y. S. 401. See also Hobart v. Verrault^ (Sup. 1902) 74 App. Div. 444, 77 N". y. S. 483. As to the en- forcement of promises on perform- ance of the condition on which the offer was made, see supra, section 46 et seq. In Strong v. Sheffield, (1895) 144 N. Y. 392, 394, 63 State Rep. 701, 39 N. E. 330, Andrews, C. J., said: " There is no doubt tliat an agree- ment by the creditor to forbear the collection of a debt presently due is a good consideration for an absolute or conditional promise of a third per- son to pay the debt, or for any obli- gation he may assume in respect thereto. Nor is it essential that the creditor should bind himself at the time to forbear collection or to give time. If he is requested by his debtor to extend the time, and a third person undertalcesr in- considera- tion of forbearance being given to be- come liable as surety or otherwise, and the creditor does in fact forbear in reliance upon the undertaking, al- though he enters into no enforceable agreement to do so» his acquiescence in the request, and an actual forbear- ance in consequence thereof for a reasonable time, furnishes a good consideration for the collateral un- dertaking. In other words, a re- quest followed by performance ia sufficient, and mutual promises at the time are not essential, unless it was the understanding that the promisor was not to be bound, except on con- dition that the other party entered into an immediate and reciprocal obligation to do the thing requested." This statement is quoted with ap- proval and acted on by the courts in later cases. See, for instance, Rothschild v. Frank, (Sup. 1897) 14 App. Div. 399, 43 N. Y. S. 951; Por- ter V. Thom, (Sup. 1898) 30 App. Div. 363, 51 N. Y. S. 974; Citizens' Permanent Sav., etc., Ass'n v. Rampe, (iSup. 1902) 68 App. Div. 556, 74 N. Y. S. 192; Niles-Bement-Pond Co. v. Ury, (Sup. App. T. 1907) 53 Misc. 305, 306, 103 N. Y. S. 226. 41. Porter v. Thom, (Sup. 1898) 30 App. Div. 363, 51 N. Y. S. 974; Kelly V. TheisB, ( Sup. App. T. 18fl7 ) 31 Misc. Sill, 47 N. Y. S. 145, affirm- ing 20 Misc. 718 mem., 44 N. Y. S. 112il. See also Paul v. Stevens, (Sup. 1890) 57 Hun 171, 32 State Rep. 851, 10 N. Y. S. 442, affirmed 126 N. Y. 630 mem., 27 N. E. 410. The case of Strong v. Sheffield, (1895) 144 N. Y. 392, 63 State Rep. 701, 39 N. E. 330, contains a state- ment by Andrews, C. J., to this effect, and this statement is acted on by the court in Porter v. Thom, (Sup. 1898) 30 App. Div. 363, 51 N. Y. S. a74. 42. Mnir v. Greene, (1908) 191 N. Y. 201, 83 N. E. 685, affirming 115 App. Div. 173, 100 N. Y. S. 722. 456 NEW YORK LAW OF CONTRACTS [§ 306 sufficient consideration, even for the promise of a third person to answer for the debt, it is not necessary that the creditor promise to forbear for any specific' time. An agreement to forbear for a reasonable time or generally, which will be considered as an agreement to forbear for a reasonable time, followed by forbear- ance for a reasonable time, has been, from an early date, con- sistently held sufficient.*^ " The whole current of authority," says Brown, J., " is to the effect that an agreement to withhold suit is a good consideration to support a promise to pay a debt, although no fixed and definite time is expressly agreed upon. . . . The legal effect of such an agreement is to bind the creditor to withhold suit for a reasonable time. " " In case of an agreement to forbear generally, what would be a reasonable time, if not always a question of fact, is at least a mixed question of law and fact depending for its solution on the circumstances of the case ; *^ and where the consideration is an agreement to forbear generally, and forbearance for a reasonable time in pursuance thereof, it is said that the time of forbearance must be alleged in the complaint, that the court may see that it was for a reasonable time.*^ Where the promise is one of forbearance for a reasonable time, and the promisee does not forbear for such time, this has been considered a failure of consideration merely and not a want of consideration, and therefore, to be taken advantage of, must be pleaded.*' 43. Traders' Nat. Bank v. Barker, Brodsky, (Sup. Sp. T. 1902) 39 Misc. (1892) 130 N. Y. 415, 42 State Rep. 100, 78 N. Y. S. 910, affirmed 8i2 50fi, 29.N. E. 10914, affirming 29State App. Div. 635 mem., 81 N. Y. S. Rep. 373, 8 N. Y. S. 683; Strong v. 1126; NileS-Bemeat-Pond Co. v. Ury, Sheffield, (1896) 144 N. Y. 392, 63 (Sup. App. T. 1907) 53 Misc. 305, State Rep. 701, 39 N. E. 330; Muir 103 N. Y. S. 2i2,6. See also Watson v. V. Greene, (1908) 191 N. Y. 201, 83 Randall, (Sup. 1838) 20 Wend. 201; N. E. 685, affirming 115 App. Div. Newsam v. Finch, (Sup. 1857) 25 173, 100 N. Y. S. 722; Citizens' Per- Barb. 175; Berner v. Kaye, (Com, PI manent Sav., etc., Ass'n t. Rampe^ G. T. 1895) 14 Misc. 1, 2, 69 State (Sup. 1902) 68 App. DiT. 556, 74 N. Y. Rep. 297, 35 N. Y. S. 181. S. 192; Union Nat. Bank ▼. Leary, 44. Traders' Nat. Bank v. Parker, (Sup. 1902) 77 App. Div. 332, 79 (1892) 130 N. Y. 415, 420, 42 State N. Y. S. 217, 12 N. Y. Annot. Cas. Rep. 506, 29 N. E. 1094. 257; Emerson v. SheflFer, (Sup. 1906) 45. Traders' Nat. Bank v. Parker, 113 App. Div. 19, 98 N. Y. S. 1057; (1892) 130 N. Y. 415, 42'1, 42 State Elting v. Vanderlyn, (Sup. 1809) 4 Rep. 506, 29 N. E. 1094. Johns. 237; Mutual L. Ins. Co. v. 48. Perkins v. Proud, (Sup. 1862) Smith, (Sup. G. T. 1881) 23 Hun 62 Barb. 420, 428. 535; Pinch v. Skiltoil, (Sup. 1894) 47. Sickles v. Herold, (Com. PI. 79 Hun 531, 61 State Rep. 544, 29' Tr. T.) 11 Misc. 583, 586, 66 State N. Y, S. 925j German Sav. Bank v. Rep. 337, 32 N. Y. S. 1088. § 307] CONSIDERATION 4S7 § 307. In General. — The effect of marriage as a consiaeration arises in several connections. For instance it may arise where a conveyance of settlement is attempted to be attacked as in fraud of creditors or others. In this class of cases, which are not within the proper scope of a treatise on the law of contracts, marriage has been from the earliest times considered as a valuable considera- tion, and in an early case it is said that " a marriage has always been held to be the highest consideration in law. ' ' *' Likewise marriage is regarded in equity as a valuable consideration in eases where such a consideration is required to invoke its aid." And where a valuable as distinguished from a good consideration is necessary for the protection of a person as a bona fide purchaser for value, marriage is regarded as such a consideration.^* It is also well settled that it is a sufficient consideration to support an executory contract ; ^^ and no rule of public policy forbids a contract for the compensation of a party to a marriage in con- sideration of his or her entrance into the marriage.^^ Thus in a book of considerable antiquity the following is given as illustrative of enforceable promises: " If a man say to another. Marry my daughter and I will give thee twenty pounds; upon this promise an action lieth if he marry his daughter;""' and such a contract is held enforceable by our courts,^^ as well as a promise by a father to his son in consideration of the marriage of the latter, especially where the marriage is entered into at the request of the father and in reliance on the father's promise.^" So far as consideration is 48. Sterry v. Arden, (Chan. Ct. 52. Leib v. Dobriner, (Sup. App. 1814) 1 Johns. Ch. 261, 271, af- 1908) 60 Misc. 66, 111 N. Y. S. 650. firmed 12 Johns. 536. See also Foley 53. See Todd v. Weber, (1884) 95 V. Ronalds, (Sup. Sp. T. 1919) 107 N. Y. 1811, 191, referring to Doctor Misc. 125, 177 N. Y. S. 55; Reade v. and Student, dialogue 2, ch. 24. Livingston, (Chan. Ct. 1818) 3 Johns. 54. Leib v. Dobriner, (Sup. App. Ch. 481. T. 1908) 60 Misc. 66, 111 N. Y. S. 49. Bradish v. Gibbs, (Chan. Ct. 650. 1818) 3 Johns. Ch. 523. 55. Sarasohn v. Kamaiky, (1908) 50. See Husband and Wife, 13 R. 193 N. Y. 203, 86 N. E. 20, reversing C L. p. 1015. on other grounds 120 App. Div. 110, 51. Sarasohn v. Kamaiky, (1908) 105 N. Y. S. 53. See also Phalen v. 193 N Y 203, 86 N. E. 20; Eoy v. United States Trust Co., (1906) 186 Salzano, (Sup. 1912) 152 App. Div. N. Y. 178, 181, 78 N. E. 943. O'Brien, 47, 136 N. Y. S. 699; Leib v. Do- J., in his dissenting opinion in this briner, (Sup. App. T. 1908) 60 Misc. case vigorously attacks the position 66 111 N. Y. S. 650. See also Phalen that the marriage of a son is a suffl- V. 'united States Trust Co., (.1906) cient consideration for a promise by 1'86 N. Y. 178, 181, 78 N. E. 943. a father to do something for the son's 458 NEW YORK LAW OF CONTRACTS [§ 307 concerned, marriage is also sufficient to support a promise by the intended husband to the woman,^' such as a promise by the man to leave by will a certain amount or part of his estate to the woman,"'' or a promise to pay to her a certain sum of money, evi- denced by a note.^* Since the provision of the Married Women's Property Acts (see Domestic Relations Law, § 53; 14 McKinney's Cons. Laws, p. 126) that " all contracts made between persons in contemplation of marriage shall remain in full force after such marriage takes place ' ' the subsequent marriage does not discharge the contract."' Though marriage may be a sufficient consideration for an undertaking on the part of the woman, it has nevertheless been held that an antenuptial contract, entered into in contem- plation and in consideration of the marriage, by which the wife relinquishes any claim for dower in her husband's estate, is, for reasons of public policy, not binding on her unless founded on a further consideration of some provision for her in lieu of dower." benefit, where the marriage was not entered into at the request of the father but is the voluntary act of the son. 56. Wright v. Wright, (1873) 54 N. Y. 437, affirming 59 Barb. 505; Peek V. Vandemark, (1885) 99 N. Y. 29, 1 N. E. 41, affirming 33 Hun 214; Banfield v. Rumsey, (Sup. 1874) 2 Hun 112, 4 Thomp. & C. 322; In re Baker, (Surr. Ct. 1902) 38 Misc. 151, 7'7 N. Y. S. 170, 3 Mills 108 j Arms v. Arms, (Sup. G. T 1888) 13 State Rep. 196, affirmed 22 State Rep. 755. The fact that the woman by reason of the marriage would forfeit a pen- sion is an additional consideration to support the promise to her. Peck V. Vandemark, (1885) 99 N. Y. 29, 1 N. E. 41, affirming 33 Hun 214. 57. Peck V. Vandemark, (1885) 99 N. Y. 29, 1 N. E. 41, affirming 33 Hun 214. See also Johnston v. Spicer, (1887) 107 N. Y. 185, 11 State Rep. 436, 13 N. E. 733; Colby V. Colby, (Sup. 1894) 81 Hun 221, 62 State Rep. 631, 30 N. Y. S. 677, 24 Civ. Pro. 148; In re Baker, (Surr. Ct. 1902) 38 Misc. 151, 77 N. Y. S. 170, 3 Mills 108. 58. Wright v. Wright, (1873) 54 N. Y. 437, affirming 59 Barb. 505; Banfield v. Rumsey, (Sup. 1874) 2 Hun 112. 4 Thomp. & C. 322; Arms V. Arms, (Sup. G. T. 1888) 13 State Rep. 196, affirmed 22 State Rep. 755. 59. Wright v. Wright, (1873) 54 N. Y. 437, affirming 59 Barb. 505; Peck V. Vandemark, (Sup. 1884) 33 Hun 214, affirmed 99 N. Y. 29, 1 N. E. 41. 60. Curry v. Curry, (Sup. 1877) 10 Hun 366. See also Clark v. Clark, (Sup. 1882) 28 Hun 509; Graham v. Graham, (Sup. 1893) 67 Hun 329, 511. State Rep. 789, 22 N. Y. S. 29S, affirmed on other grounds 143 N. Y. 57.3, 62 State Rep. 784, 38 N. E. 722. In Curry v. Curry, (1877) 10 Hun 366, 369, Talcott, J., said: "In no case to which we have been referred has it been held that an agreement made before marriage, and without any consideration except the intended marriage, not to claim dower to which the female would otherwise be entitled in consequence of the marriage, can be upheld or would be enforced in equity. The legislation on this subject seems to throw some light upon the views which the legis- lature has taken in regard to the validity and effect of such a contract. The Revised Statutes provide (1 R. S. 741, § 9) [Real Prop. Law, § 197; 49 McKinney's Cons. Law, p. 217] 308] CONSIDERATION 459 The principle that marriage is a consideration for an executory promise is directly recognized by the provision of the statute of frauds which requires all contracts in consideration of marriage to be in or evidenced by a memorandum in writing.^^ § 308. Efifect of Existing: Engagement to Marry. — On the theory evidently that the performance of one's legal duty or obli- gation is not a sufficient consideration for a promise,*^ it has been held that a promise by a father to induce the promisee to carry out his existing engagement to marry the promisor's daughter is without consideration.^ It is the general view, however, that though an original engagement to marry is absolute and entered into sometime before the execution of an antenuptial agreement between the parties, the marriage is still a sufi&cient consideration to support the contract." As the intended spouses are at liberty that ' whenever an estate in lands shall be conveyed to a person and his intended wife, or to such intended wife alone, or to any person in trust for such person and his intended wife, or in trust for such wife alone, for the purpose of creating a jointure for such intended wife, and with her assent, such jointure shall be a bar to any right or claim of dower of such wife, in any lands of the hus- band.' And again, in section 11 [Real Prop. Law, § 198; 49 MeKin- ney's Cons. Laws, p. 219], that 'any pecuniary provision that shall be made for the benefit of an intended wife, and in lieu of dower, shall, if assented to by such intended wife, as above provided, be a bar to any right or claimr of dower of such wife in all the lands of her husband.' It is manifest from these statutes that the legislature did not intend that any contract* made by an intended wife, or with her assent, which did not contain some provision for her by the settlement of lands or by a pecuniary provision, should operate to bar dower." ei. See Personal Property Law, § 31; 40 McKinney's Cons. Laws, p. 53. 62. See infra, section 325 et seq. 63. Gerlach v. Steinke, (Super. Ct. Sp. T, 1880) 22 Alb. L. J. 134, hold- ing that where at the time of a loan by the plaintiff to the defendant the latter was engaged to marry the plaintiff's daughter, the perform- ance of the engagement forms no con- sideration for a promise by the father to forgive the debt if the promisee fulfils his engagement. 64. Kramer v. Kramer, (Sup. 1904) 9Q App. Div. 176, 86 N. Y. S. 129, reversed on other grounds 181 N. Y. 477, 74 N. E. 474. In this case the promise was by a husband made to his wife after their engagement to marry but before the marriage took place, and as regards the effect of the existing engagement to marry, Hatch, J., said : " In the present case the evidence upon the part of the plaintiff is sufficient to justify the finding of an agreement made in consideration of marriage. The con- versation relating thereto was after the engagement of the parties to marry. It related to a consumma- tion by marriage and was, therefore, quite distinct and independent of the promise to marry. It was before the marriage that the agreement was made to pay the money and such pay- ment was based upon the proposed consummation of the parties' engage- ment to marry. The engagement it- self was not mentioned as forming any part of the consideration, but 460 NEW YORK LAW OF CONTRACTS [§ 308 at any time to withdraw from the contemplated marriage, if the promise is made by a third person for their joint benefit and they are parties to the agreement or if both have knowledge of the promise and enter into the marriage in reliance thereon, the fact that an engagement of marriage existed cannot on principle pre- vent the marriage from constituting a sufficient consideration for the promise; and in a recent well considered case the view has been taken by the Court of Appeals that a promise made by a father to his intended son-in-law to pay an annuity to his daughter if the marriage takes place is enforceable against the father, though at the time of the promise an engagement to marry existed.*^ Also, as the obligation to carry out the marriage engagement in no way imposes any duty on either of the parties to a third person, it is difficult to see how the existence of the marriage engagement can in any way aifect the validity of the promise of a third person made to either of the intended spouses to induce the promisee to carry out the engagement and not to exercise his right to try to induce the other party to rescind it.°^ In this connection, Werner, the evidence was that upon marriage the plaintiff would give the specified sum. To hold that under such cir- cumstances the consideration for the agreement to pay was the promise to marry would work a destruction of every antenuptial contract. In all of them the engagement to mrarry ex- isted, and the language of the settle- ments on marriage recited in usual form, ' Whereas a marriage is in- tended to he solemnized between,' etc., ' Witnesseth that in further perform- ance of the said agreement and in consideration of the said intended marriage it is hereby agreed and declared,' etc." 65. De Cicco v. Schweizer, (1917) 221 N. Y. 431, 117 N. E. 807, af- firming 166 App. Div. 919 mem., 152 N. Y. S. 1106. "The situation," says Cardozo, J., " is the same in sub- stance as if the promise had run to husband and wife alike, and had been intended to induce performance by both. They were free by common consent to terminate their engage- ment or to postpone the marriage. If they forebore from exercising that right and assumed the responsibili- ties of marriage in reliance on the defendant's promise, he may not now retract it. The distinction between a promise by A to B to induce him not to break his contract with C, and a like promise to induce him not to join with C in a voluntary rescis- sion, is not a new one. 66. This is undoubtedly the broad view taken in the English cases. For instance, in Shadwell v. Shadwell, (1860) 30 L. J. C. PI. 145, 9 C. B. N. S. 159, 99 E. C. L. 158, the de- fendant's testator wrote to his nephew, the plaintiff, as follows: " My dear L. — I am glad to hear of your intended marriage with E. N., and as I promised to assist you at Starting, I am happy to tell you that I will pay to you one hundred and fifty pounds yearly during my life, and until your annual income derived from your profession of a Chancery barrister shall amount to six hundred guineas, of which your own admission will be the only evi- dence that I shall receive or re- quire." In an action by the nephew to recover, after his marriage with the lady named, the arrears of' the § 309] CONSIDERATION 461 J., says : ' ' Antenuptial contracts, whereby the parents of the parties about to marry have agreed to settle property upon one or both of the spouses, either upon the performance of the marriage ceremony or by testamentary devise or bequest, are of such fre- quent occurrence; especially in England, that they form a distinct class in the body of our law. For the purposes of this discussion we may assume that this action could not be maintained at law, although there is very respectable authority to the contrary in England, where actions at law have been maintained even upon informal agreements of this nature. ' ' ^^ § 309. Promise after Marriage. — If a marriage has already taken place without any promise based thereon, it cannot form the basis for a subsequent promise.** But if an original oral promise, unenforceable itself by reason of the statute of frauds, was in fact made, the obligation of the original promise will con- stitute a sufficient consideration for the subsequent written promise to pay the agreed amoiint ; *' or the subsequent written memo- annuity promised, he was permitted to recover at law. In the case of Coverdale v. East- wood, (1872) L. R. 15 Eq. 121, after proposals of marriage had been ac- cepted, the lady's father wrote to the intended hushand as follows : " V. being my only child, of course she will come into possession of what bef- longs to me at my decease." In other letters he made statements evidenc- ing the same intention. The father, being then a widower, subsequently remarried. Upon his death he left a will bequeathing part of his estate to his widow and creating certain annuities. Upon a bill filed by the daughter for the enforcement of this contract, it was held, notwithstand- ing the manifest equities of the widow, that the daughter was en- titled to the whole estate. See infra, section 336, as to when performance of contract with a third person is a consideration. 67. Phalen v. United States Trust Co., (1906) 186 N. Y. 178, 181, TO N. E. 943. This case contains an extensive review of the English cases on the subject of settlements in con- sideration of marriage. In Sarasohn v. Kamaiky, (1908) 193 N. y. 203, 86 N. E. 20, the son's engagement to marry and the Hebrew ceremony of betrothal were entered into on the faith of the father's oral promise to make provision for the son in consideration of the mar- riage, though the formal contract was not drawn up and executed until shortly before the jnarriage cere- mony, and it was held that the father's promise was enforceable. The court, however, leaves undecided what it states as the interesting question as to what effect an existing and independent engagement to, marry would have on the promise of a father or other person to contpensate one of the parties to the intended marriage. 68. Kramer V. Kramer, ('1905) 181 N. Y. 477, 74 N. E. 474. See also Cloyes V. Cloyes, (Sup. 188S) 36 Hun 145. ee. Arms V. Arms, (App. 1889) 22 State Rep. 755, affirming 13 State Rep. 196. See also Kramer v. Kra- mer, ('Sup. 1904) 90 App. Div. 176, 86 N. Y. S. 129, reversed on other grounds 181 N. Y. 477, 74 N. E. 474. 462 NEW YORK LAW OF CONTRACTS [§ 310 randum of the oral promise will be sufficient^to take it out of the operation of the statute of frauds, as the memorandum of a promise required by the statute to be in writing need not be made at the time of the promise.'" Where a husband made an oral antenuptial agreement to pay money to the wife in consideration of the contem- plated marriage, and after marriage, to satisfy the importunities of the wife, delivered over to her a voluntary note made by his brother payable to the wife, it was held that the note was unen- forceable for want of consideration." On principle, however, it would seem, as held by the Appellate Division, that if in fact the husband had made the oral agreement prior to the marriage and the note was given by the brother in satisfaction of this oral promise of the husband, the discharge of the husband from any liability on his oral promise, though such oral promise may not have been enforceable against him, would have been a sufficient consideration for the promise of the brother.'^ Mutual Promises and Mutuality of Obligation § 310. Mutual Promises Generally. — i An executory promise may furnish a legal consideration,'* and such a promise may, if so accepted, furnish the necessary consideration to support an accord and satisfaction of an existing claim.'* So in case of bilateral contracts, that is, contracts containing mutual promises, the prom- ise of one party constitutes the consideration for the promise of the other party, and, other necessary elements being present, renders the contract binding on and enforceable by either party.''" But it 70. See Statute of Frauds, 25 R. C. 109 N. Y. 267, 285, 15 State Rep. 52, L. p. 639. 16 N. E. 332; Standard Fashion Co. 71. Kramer v. Kramer, (1905) 18a v. Ostrom,' (Sup. 1897) 16 App. Div. N. Y. 477, 74 N. E. 474, reversing 90 220, 44 N. Y. S. 666; Wood v. App. Div. 176, 86 N. Y. S. 129. Knight, (Sup. 1898) 35 App. Div. 7Z. Kramer v. Kramer, (Sup. 1904) 21, 54 N. Y. S. 466; Van Dam v. 90 App. Div. 176, 86 N. Y. S. 129. Tapscott, (Sup. 1889) 40 App. Div. 73. New York Evening Journal 36, 57 N. Y. S. 534; Matter of De Pub. Co. v. Simpson Advertising Co., Forest, (Sup. 1907) 119 App. Div. (Sup. App. T. 1908) 110 N. Y. S. 782, 104 N. Y. S. 342, 39 Civ. Pro. 391. 368, affirmed 189 N. Y. 544 mem., 82 74. Spier v. Hyde, (Sup. 1903) 78 N. E. 1125; Smith v. Dotterweich, App. Div. 151, 158, 79 N. Y. S. 699. (Sup. 1909) 132 App. Div. 489, 116 75. Justice v. Lang, (18i70) 42 N. Y. S. 896, reversed on other N. Y. 493; Britenstool v. Michaels, grounds 200 N. Y. 299, 93 N. E. (1874) 56 N. Y. 607 mem.; Ferry v. 985; Miller v. Drake, (Sup. 1803) 1 Stephens, (1876) 66 N. Y. 32il; Law- Caines 45; Briggs v. Tillatson, (Sup. son v. Bachman, (1880) 81 N. Y. 1811) 8 Johns. 304; Mather v Perry, 616 mem.; King v. Barnes, (1888) (Sup. 1846) 2 Denio 162; Sage v. § 310] CONSIDERATION 463 has been held from an early date that where mutual promises are relied on, the one as a consideration for the other, they must be made at the same time ; that is, they must be concurrent promises ; otherwise the one antecedently made will be without consideration and consequently not sufficient to support the other.'^ If the promises are concurrent, all that is required, when the undertaking of one of two contracting parties gives the consideration for the undertaking of the other, is that there should be mutuality;" that is a covenant or undertaking by each so that each comes under some obligation; a perfect reciprocity in the undertakings or equality in the obligations assumed is not essential.'* Where the consideration is executory the parties may substitute for such consideration any new obligation, and if it is carried into effect it has the same binding force as though the original consideration was paid or discharged.'^ And the view has been taken that if in the first instance there is a valid bilateral contract containing mutual promises, the fact that one party discharges the other from any liability to perform his part will not affect 'the enforceability of the contract by the party so discharged. Thus in case of a contract for the sale of land, if there is a promise by a vendor to convey and by the purchaser to pay the agreed purchase money, the fact that the vendor thereafter, as a gift, discharges the pur- chaser from liability to pay the purchase money, does not prevent Hazard, (Sup. 1849) 6 Barb. 179; ris, (Com. PI. 1847) 5 N. Y. Leg. Houghtaling v. Kanden, (Sup. G. T. Obs. 227. But see Fisher v. Bush, 1856) 25 Barb. 21; Clark v. Clark, (Sup. 1885) 35 Hun 641 • (contracts (Sup. 1882) 28 Hun 509; Merschen- in restraint of trade). dorf V. Koch, (Sup. App. T. 1898) 76. Livingston v. Rogers, (Sup. 22 Misc. 356, 49 N. Y. S. 285; Ameri- 1804) Col. & C. Cas. 331, I Caines can Exch Nat. Bank v. Smith, (Sup. 583; Utica, etc., R. Co. v. Brincker- App. T. 1908) 61 Misc. 49, 113 N. Y. hoff, ('Sup. 1839) 21 Wend. 138, 139; S 236- Van Patten v. Taber, (County Macedon, etc., Plank Road Co. v. Ct. 1911) 71 Misc. 610, 130 N. Y. S. Snediker, (Sup. G. T. 1854) 18 Barb. 1055; Kloberg v. Teller, (Sup. Sp. 317. T. 1918) 103 Misc. 641, 171 N. Y. S. 77. As to the general necessity for 947; Strack v. Fradus, (Sup. App. mutuality of obligation, see infra, T. 1918) 168 N. Y. S. 530; Wood v. section 316. Brener, (Sup. App. T. 1918) 171 78. Columbia College v. Lynch, N. Y. S. 34; Lawrence v. Church, (1877) 70 N. Y. 440. As to ade- (Sup. G. T. 1891) 35 State Rep. quacy of consideration generally, see 956 12 N. Y. S. 420; White v. De- infra, section 351 et seq. njilt (Super. Ct. 1829) 2 Super. Ct. 79. Weill v. Close, (Sup. G. T. 406- Meriden Britannia Co. v. Zing- 1892) 44 State Rep. 662, 18 N. Y. S. sen' (Super. Ct. 1867) 27 Super. Ct. 328, affirmed 139 N. Y. 618 mem., 35 312; Darrow v. Walker, (Super. Ct. N. B. 205, 54 State Rep. 931 mem. 1881) 48 Super Ct. 6; Draper v. Far- 464 NEW YORK LAW OF CONTRACTS [§ 310 the contract from continuing obligatory on the vendor ; ^" and it is immaterial in such a case that at the time the contract was entered into it was the intention of the vendor to discharge the purchaser from liability for the purchase money.*^ A provision in a contract containing mutual promises, stipulating as to the damages recoverable on the failure of one party to perform, does not affect the mutuality of obligation and prevent the promise of such party from being a sufficient consideration for the promise of the other party.^^ K would seem that a promise by a person to enter into a certain contract may constitute a consideration for a promise by the other party to pay him a certain independent sum for so doing,*^ and it has been held that the promise of the plaintiff to sell his property to a corporation to be thereafter formed by the defendant is a sufficient consideration for the defendant's promise to form the corporation and in effect to guarantee the purchase of the property by such corporation.** If the agreement is oral, and the written contract thereafter executed purports on its face to contain the entire agreement of the parties, the pri'or oral agreement to pay one party for entering into the contract cannot be proved, as the effect of such evidence would be to vary the written contract.'" If the mutual promises are independent,*^ nonperformance of one is not necessarily a defense in bar to an action on the other." 80. Ferry v. Stephens, (1876) 66 proper acceptance of tlie oflfer. See N. Y. 321,. affirming 5 Hun 109. infra, section 317. 81. Ferry v. Stephens, (1876) 66 84. Electric Fireproofing Co. v. N. Y. 32,1, affirming 5 Hun 109. Smith, (iSup. 1906) 113 App. Div. 8a. Bage v. Millard, (City Ct. 615, 99 N. Y. S. 37. 1854) 12 N. Y. Leg. Obs. 57. 85. McGarrigle v. MoCosker, (Sup. 83. This question was raised in 1903) 83 App. Div. 184, 8,2 N. Y. S. McGarrigle v. McOosker, (Sup. 1903) 494, affirmed 178 N. Y. 637 mem., 71 83 App. Div. 184, 82 N. Y. S. 494, N. E. 1133. but was not decided, being considered 86. The question as to when unnecessary. promises are dependent- or independ- Thus an executory promise by one ent is discussed later, party to pay the other a certain 87. American Boiler Co. v. amount in consideration of the lat- Fontham, (Sup. Tr. T. 1898) 50 ter's agreement giving the former an N. Y. S. 351, reversed on other option to purchase property is valid grounds 34 App. Div. 294, 55 N. Y. and enforceable, the consideration for S. 923. See also Smith v. Dotter- the promise to pay being the promise weich, (Sup. 1909) 132 App. Div. of the other party not to revoke his 489, 116 N. Y. S. 896, reversed on offer and to enter into the contract other grounds 20O N. Y. 299, 93 N. of sale which is ordinarily brought E. 985. into existence as a contract by a § 311] CONSIDERATION 465 A promise to do an impossible act will not, it seems, constitute a consideration.** To bring a promise within this principle, how- ever, the impossibility must exist in the nature of the thing to be done. The difficulty or improbability of doing it is not sufficient to defeat its effect as a consideration.*^ A promise as a considera- tion is not restricted to a promise by the party himself to do some act ; a promise by him that he will cause a third person to do an act is equally effectual. An agreement cannot be said to be impossible of performance because for its performance the con- currence of a person or persons not parties to the agreement is necessary. In such a case the agreement imports that the party binding himself will cause the act to be done ; it assumes the employ- ment of only legal and proper means for its performance, and that those means will be used by him, and he guarantees that those means shall be effectual; if not he is liable for a breach of his agreement.^** § 311. Application of Rule Generally. — Where adjoining landowners enter into mutual covenants restricting the use of their respective lands, the mutual and reciprocal covenants of the con- tracting parties constitute a consideration for the covenants and agreements of eaeh,'^ and in the ease of executory contracts for the sale of chattels or land the mutual agreements of the parties, the one to sell or convey and the other to pay the purchase price, are a sufficient consideration the one for the other.'^ So in case of a promise by one party to purchase land and convey it to another, a promise by the other party to pay him the purchase price and a reasonable compensation for his services is a sufficient considera- tion.'^ In case of an executory contract of sale, if the buyer is under an obligation to take or accept all of the subject matter of 88. See Watson v. Blossom, (Sup. tis, (1901) 167 N. Y. 194, 60 N. E. G. T. 1888) 18 State Rep. 726, 729, 429, reversing on other grounds 38 4 N. Y. S. 489. App. Div. 240, 57 N. Y. S. 121; Van 89. Watson v. Blossom, (Sup. G. Dam v. Tapscott, (Sup. 1899) 40 T. 1888) 18 State Rep. 726, 729, 4 App. Div. 36, 57 N. Y. S. 534; Fuller N. Y. S. 489. V. Schrenk, (Sup. 1901) 58 App. Div. 90. Rowland v. Phalen, (Super. 222, 68 N. Y. S. 781, affirmed 171 Ct. ]«57) 14 Super. Ct. 43. N. Y. 671 mem., 64 N. E. 1126; 91. Columbia College v. Lynch, Jackson v. Helmer, (Sup. 1902) 73 (1887) 70 N. Y. 440; Norris v. App. Div. 134, 77 N. Y. S. 835; Tiffany, (Com. PI. G. T. 1894) 6 Norris v. Tiffany, (Com. PI. G. T. Misc 380 56 State Rep. 406, 26 1894) 6 Misc. 380, 56 State Rep. 406, N. Y. S. 750. 26 N. Y. S. 750. 92. Maas v. Chatfield, (1882) 90 93. Milholland v. Payne, (Sup. N. Y. 303, affirming 12 Wkly. Dig. 1913) 159' App. Div. 10, 143 N. Y. S. 268; Tradesmen's Nat. Bank v. Cur- 1090. 30 466 NEW YORK LAW OF CONTRACTS [§ 311 the sale which he requires in his business, and he will necessarily need some, it will furnish the necessary consideration for the promise of the seller to sell and deliver the amount which the buyer will need ; ^* and the obligation on the part of the seller to deliver the amount which the buyer will need is a sufficient consideration for the promise of the buyer to take or receive the amount which he shall need.'^ But a contract to purchase all goods the buyer may " want or desire " is not binding for want of mutuality unless supported by some independent or additional consideration other than the promise to purchase.'^ A note given for the delivery of certain certificates which state that a quantity of whisky is kept by the payee on storage, subject to the order of the payee and deliverable on payment of a certain sum, government tax, etc., is supported by a sufficient consideration." So the agreement of a seller to appoint the buyer his exclusive agent in a certain territory for the sale of his product is a sufficient consideration for the buyer's promises to purchase a certain amount of such product.'* In case of an agreement for a submission to arbitration the mutual promises are a good consideration the one for the other.'' In case 94. Ehrenworth. v. Stuhmer, (1920) 229 N. y. 210, 128 N. E. 108, revers- ing 181 App. Div. 939 mem., 1©7 N. Y. S. 1097; Miller v. Leo, (Sup. 1898) 35 App. Div. 589, 55 N. Y. S. 165 (contract for sale of all material required for a certain building) ; Ea:t V. Cayuga Lake Ice Line, (Sup. G. T. 18S3) 66 Hun 636 mem., 50 State Rep. 362, 21 N. Y. S. 887; Reeves v. Fulton Market Refriger- ating Co., (Sup. Tr. T. 1918) 103 Misc. 130, 173 N. Y. S. 568. See also Fuller v. Schrenk, (Sup. 1901) 58 App. Div. 222, 68 N. Y. S. 781, affirmed 171 N. Y. 671 mem., 64 N. E. 1126, where the buyer, a merchant, vi^as under obligation to tal-ie all of his supply of glass from the seller. As to whether such a contract is in- valid for want of certainty see supra, section 68. 95. Wells V. Alexandre, (1891) 130 N. Y. 642, 41 State Rep. 334, 29 N. E. 142, 3 Silv. App. 594, revers- ing 56 Super. Ct. 542, 25 State Rep. 113, 4 N. Y. S. 874, and affirming 3 N. Y, S. 122. In Roth V. Phillips, (City Ct. G. T. 1898) 23 Misc. 240, 51 N. Y. S. 161, it is held, that a promise by a merchant to purchase from a cred- itor all of a certain class of mer- chandise which he might need in his business is a sufficient consideration for a promise by the creditor to ex- tend the time for the payment of an overdue account. 96. Reeves v. Fulton Market Re- frigerating Co., (Sup. Tr. T. 1918) 105 Misc. 130, 133, 173 N. Y. S. 568. 97. Merschendorf v. Koch, (Sup. App. T. 1898) 22 Misc. 356, 49 N. Y. S. 285. 98. Standard Fashion Co. v. Os- trom, (Sup. 1897) 16 App. Div. 220, 44 N. Y. S. 666. 99. Curtis v. Gokey, (1877) 68 N. Y. 300 ; Wood V. Tunnicliff, ( Sup. 1878) 74 N. Y. 38; Green-Shrier Co. V. State Realty, etc., Co., (1910) 199 N. Y. 65, 92 N. E. 98, reversing 129 App. Div. 581, 114 N. Y. S. 49; Shepard v. Watrous, (Sup. 1805) 3 Caines 166. i 312] CONSIDERATION 467 of a lease, if there has been no actual occupation by the lessee, the implied undertaking by the lessor arising from the demise, that the lessee shall have quiet enjoyment, will be a sufficient con- sideration for the lessee's promise to pay the agreed rent.^ A promise by one person to pay a certain sum of money to a third person may constitute a sufficient consideration for a promise by another person to do likewise, and the contract may be enforced by said third person if there is such a relation between the promisee and the third person as to bring him within the rule permitting a third person for whose benefit a contract is made to enforce it.^ So far as consideration is concerned the agreement of the seller to sell will support a provision in the contract that he may retain a part payment if the buyer fails to complete the purchase.^ Husband and wife may by agreement fix the interest which the survivor shall take in the estate of the other in case of death, and where they agree that on the death of either the survivor shall be entitled to the share in the estate of the deceased to which he or she would have been entitled if the deceased had died intes- tate, the mutual promises are a sufficient consideration the one for the other.* In case of mutual promises to make wills, the promise of one of the parties to make a will in favor of the other party is a sufficient consideration for a similar promise by such other party.^ § 312. Mutual Promises of Marriage. — In case of mutual prom- ises of marriage, the promise of one of the parties is a consideration for that of the other,« and it is immaterial that the party seeking to enforce the contract was a minor.'' A promise by one party to marry the other may also be a sufficient consideration for a promise by the latter to pay a sum of money to the former or do some other act ; ^ but if the promisee is at the time married she cannot enter 1. Vernam v. Smith, (1857) 15 stru-ction of agreement 223 N. Y. 235, N Y 327; Wilson v. Baptist Edu- 119 N. E! 400. cational Soc, (Sup. G. T. 1851) 10 5. Kloberg y. Teller, (Sup Sp. T. Barb 308 ^^^^' ^^^ ^'*'^- ^^' ^^ 2. HaVbeck V. Harbeek, (Sup Sp. ^^g; ^.^ ^^,^ .^ necessarily sus- T. 1914) 87 Misc. 420, 149 N. Y S ^^.^^^ .^ practically all cases in 791, affirmed 170 App. Div. 910, 154 ^^.^^^ ^ . ^^^^^^^ j^ ^^^ for the N. Y. S. 1125. breach of a promise to marry. 3. D'Ambrpsio v. Eusso, (Sup. 7. Willard v. Stone, (Sup. 1827) App. T. 1915) 153 N. Y. S. 113. 7 Cow. 22. The status as void or 4. Fleischman v. Furgueson, (Sup. voida;ble of executory contracts by 1916) 174 App. Div. 310, 160 N. Y. infants is discussed later. S. 387, reversed on question of con- 8. See supra, section 307 et seq. 468 NEW YORK LAW OF CONTRACTS [§ 313 into a valid agreement to marry another person, and her promise to do so cannot constitute a consideration for a promise to her,' and the mere fact that an engagement to marry exists between the parties does not constitute a sufficient consideration for a promise by the man to the woman." § 313. Exchange of Pecuniary Obligations. — Persons may exchange their obligations for the payment of money, and on the theory of mutual promises, the promise of one to pay the amount of his obligation may constitute a sufficient consideration for thci promise of the other. Thus where cross notes of the parties equal in amount are exchanged, the one is a sufficient consideration for the other.^'- The same vie\v is taken where one person gives his bill of exchange for the note of the other for a like amount,^^ where there is an exchange of post-dated cheeks for an equal amount,^^ and where one party exchanges his note for a bond of the other not in itself support an executory contract to pay." 11. Cobb V. Titus, (1854) 10 N. Y. 198, 1 Seld. Notes 225; Rice v. Grange, (1'892) iSi N. Y. 149, 42 State Rep. 747, 30 N. B. 46, affirming 39 State Rep. 163, 14 N. Y. S. 911; State Bank v. Smith, (1898) 155^ N. Y. 185, 49 N. E. 680, affirming 85 Hun 200, 66 State Rep. 483, 32 N. Y. S. 999;' Milius v. Kauffman, (Sup. 1905) 104 App. Div. 442, 93 N. Y. S. 669; Rice v. Mather, (Sup. 1829) 3 Wend. 62; Dowe v. Schutt, (Sup. 1846) 2 Denio 621; Wooster v. Jen- kins, (Sup. 1846) 3 Denio 187; Shannon v. Horley, (Sup. Tr. T. 1900) 32 Misc. 623, 66 N. Y. S. 471; Mutual Loan Ass'n v. Brandt, (City Ct. G. T. igffl) 34 Misc. 400, 69 N. Y. S. 652, affirmed as to this but re- versed on other grounds 35 Misc. 270, 71 N. Y. S. 770; Cohn v. Hus- son, (Super. Ct. 1889) 57 Super. Ct. 238, 6 N. Y. S. 897, affirmed' 119 N. Y. 609, 28 State Rep. 852, 23 N. B. 573, 2 Silv. App. 484. 18. Newman v. Frost, (1873) 52 N. Y. 422. 13. Frazier v. Trow's Printing, etc., Co., (Sup. 1881) 24 Hun 281, affirmed 90 N. Y. 678 mem. as regards marriage as a con- sideration. 9. Howe V. Hagan, (Sup. 1905) 110 App. Div. 392, 97 N. Y. S. 86. 10. Blanshan v. Russell, (Sup. 1898) 32 App. Div. 103, 52 N. Y. S. 963, affirmed 161 N. Y. 629 mem., 55 N. E. 1093. See also Bruyu v. Rus- sell, (Sup. 1889) 52 Hun 17, 22 State Rep. 374, 4 N. Y. S. 784. In Blanshan v. Russell, supra, Parker, P. J., says: "The evidence concerning the- marriage engagement clearly does not show a valid con- sideration to support the note. It is not claimed that Mrs. Bruyn prom- ised to marry Mr. De , Witt if he would give her the note or pay her any sum of mone/ whatever. The evidence shows that an e. gagement to marry existed between them at the time the note was executed, but there is nothing whatever to show that the engagement was induced by the giving of the note. The note was not given as a consideration for the engagement, nor was the engage- ment entered into in consideration of the giving of the note. The betrothal had existed for some time before the note was executed, and the mere ex- istence of such an engagement will § 314] CONSIDERATION 469 party for a like amount secured by a mortgage." In case of an exchange of notes, as neither note is to be considered accommo- dation paper the discount by a party of the note secured by him at greater than the legal rate of interest does not invalidate the note for usury.i" And it seems that in an action by one party on the note given to him, the fact that his note given to the other party was not paid when due is not available in defense as a failure of consideration, but, to be available, must be set up as a counter- claim." " If," says McAdam, J., " both notes are due, and each remains in the hands of its payee, the one may doubtless be set off against the other. But the two contracts, though mutual, are independent, and if they are for the payment of money at different times, each must be performed according to its terms. ' ' " The fact that one party receives at the time a note of the other party similar in amount and date of maturity, does not, it seems, as a matter of law establish that the one was given in consideration or exchange for the other and preclude one party from showing that the note given by him was in fact accommodation paper.'* § 314. Implication of Mutual Promise ; General Rule. — In order to render a contract a proper bilateral one, so that the promise of one may be a consideration for the promise of the other, each 14. Burhans V. Carter, (Sup. 1878) A similar statement is found in 13 Hun I5'3. Wooster v. Jenliins, (Sup. 1846) 3 15. Cobb V. Titus, (1854) 10 N. Y. Denio 187, 189, wherein Bronson, 198, 1 Seld. Notes 225; Rice v. C. J., said-: "It is urged that as Mather, (Sup. 1829) 3 Wend. 62. between the original parties, cross See also Mutual Loan Ass'n v. notes or acceptances should be re- Brandt, (City Ct. G. T. 1901) 34 garded as accommodation, in con- Misc. 40O 69 N. Y. S. 652, reversed tradistinction to business securities, on other grounds 35 Misc. 270, 71 But the rule is settled the other way. N. Y. S. 770. Each party may prove the debt IG. Milius V. Kauffman, (Sup. against the other under a commis- 1905) 104 App. Div. 442, 93 N. Y. sion of bankruptcy. And although S. 669; Wooster v. Jenkins, (Sup. one party sells the note or bill at a 1846) 3 Denio 187; Shannon v. Hor- greater discount than seven per ley, (Sup. Tr. T. 1900) 32 Misc. 623, centum, the purchaser will acquire 66 'n. Y. S. 471. See also Rice v. a, good title. It is true that so long Grange, (1892) 131 N. Y. 149, 42 as the securities are in the hands of State Rep. 747, 30 N. E. 46, affirming the original parties, they will bal- 39 State Rep. 163, 14 N. Y. S. 911. ance each other. But it will be by But see Leslie v. Bassett. (1892) 129 way of set-off, and not on the ground N Y 523, 42 State Rep. 35i8, 29 N. that they are invalid." E 834 reversing 59 Super. Ct. 403, 18. Mutual Loan Ass'n v. Brandt, 39 State Rep. 146, 14 N. Y. S. 380. (Sup. App. T. 1901) 36 Misc. 270, 17. Shanon v. Horley, (Sup. Tr. T. 71 N. Y. S. 770, reversing 34 Misc. 190) 32 Misc. 623, 66 N. Y. S. 471. 400, 69 N. Y. iS. 652. 470 NEW YORK LAW OF CONTRACTS [§ 314 party need not in express terms agree to perform his part of the contract. An agreement to do so may be implied from the terms of the agreement as a whole." As said by Cardozo, J. : " The law has outgrown its primitive stage of formalism when the precise word was the sovereign talisman, and every slip was fatal. It takes a broader view to-day. A promise may be lacking, and yet the whole writing may be ' instinct with an obligation,' imperfectly expressed. ... If that is so, there is a contract."^" A promise, however, is not, nnder all circumstances, implied from the fact that a promise has been made by another party to which that sought to be implied would be the correlative and so place 19. Eno V. Woodworth, (1850) 4 N. Y. 249; Clark v. Ulster, etc., R. Co., (1907) 189 N. Y. 93, 81 N. E. 766, affirming 114 App. Div. 908 menu, 100 N. Y. S. 1110; Benedict v. Pincus, (.1908) 191 N. Y. 377, 84 N. E. 284, reversing 113 App. Div. 903, 98 N. Y. S. 1097, which followed its decision on prior appeal 109 App. Div. 20, 95 N. Y. S. 1042; New York V. Belli Paoli, (1911) 202 N. Y. 18, 94 N. E. 1077, affirming 136 App. Div. 939 mem., 121 N. Y. S. 1127, which affirms 63 Misc. 411, 116 N. Y. S. 544; Grossman, v. Schenker, (1912) 206 N. Y. 466, 100 N. E. 39, affirming 144 App. Div. 911 mem., 128 N. Y. S. H25; Wood v. DuflF-Gordon, (1917) 222 N. Y. 88, 118 N. E. 214, revers- ing 177 App. Div. 624, 164 N. Y. S. 576; Ehrenworth v. Stuhmer, (App. 1920) 229 N. Y. 210, 128 N. E. 108, reversing 181 App. Div. 939, 167 N. Y. S. 1097; Baker Transfer Co. v. Merchant's Refrigerating, etc., Mfg. Co., (Sup. 1896) 1 App. Div. 507, 72 State Rep. 601, 37 N. Y. S. 276; Wood V. Knight, (Sup. 1898) 35 App. Div. 21, 64 N. Y. iS. 466; Fuller V. Schrenk, (Sup. 1901) 58 App. Div. 222, 68 N. Y. S. 781, affirmed 171 N. Y. 671 mem., 64 N E 112;6; Mc- Call Co. V. Wright, (Sup. 1909) 133 App. Div. 62, 117 N. Y. S. 775, af- firmed 198 N. Y. 143, 91 N. E. 516 (implication of promise of employer to keep employee in his service) ; Consolidated Rubber Tire Co. v. Fire- stone Tire, etc., Co., (Sup. 1911) 144 App. Div. 225, 129 N. Y. S. 117; Struzewski v. Farmers' P. Ins. Co., (Sup. 1917) 179i App. Div. 318, 166 N. Y. S. 362; East v. Cayuga Lake Ice Line, (Sup. G. T. 1893) 66 Hun 636 mem., 50 iState Rep. 362, 21 N. Y. S. 887; Independent Ice Ass'n V. Andrews, (Sup. 1893) 71 Hun 74, 54 State Rep. 21«, 24 N. Y. S. 611; Sagalowitz v. Pellman, (Sup. App. T. 1900) 32 Misc. 508, 66 N. Y. S. 433; Silberman v. Schwarcz, (Sup. App. T. 1904) 45 Misc. 352, 90 N. Y. S. 382; Geringer v. Friedman, (Sup. App. T. 1913) 80 Misc. 212, 140 N. Y. S. 1035; Reeves v. Fulton Market Refrigerating Co., (Sup. Tr. T. 1918) 105 Misc. 130, 173 N. Y. S. 568; Meyer v. Schwinger, (Sup. App. T. 1913) 141 N. Y. S. 504; Hamilton v. Smith, (Sup. App. T. 1913) 141 N. Y. S. 577; Halpern v. Langrock Bros. Co., (County Ct. 1915) 153 N. Y. S. 985, reversed on other grounds 169 App. Div. 464, 165 N. Y. S. 167; Stadler v. Samuels, (Sup. App. T. 1919) 178 N. Y. S. 324. See also MoDermott v. Palmer, (Sup. G. T. 185,1) 11 Barb. 9, re- versed on other grounds 8 N. Y. 383, 2 E. D. Smith 675, Seld. Notes 124; Richards v. Edick, (Sup. Sp. T. 1853) 17 Barb. 260. 20. Wood V. Duff-Gordon, (1917) 222 N. Y. 88, 91, 11-8 N. E. 214. See also MtfCall Co. v. Wright, (Sup. 1909) 133 App. Div. 62, 117 N. Y. S. 775. § 315] CONSIDERATION 471 the parties under mutual obligations to each other j^i and it is said that a mutual promise is only to be implied to enforce a manifest equity or to reach a result which the acts of the parties indicate that they intended to effect.^^ And where a contract for the sale of chattels was signed by the sellers only and stated that they ' ' agree ' ' to deliver to the buyer certain property at a certain price, ' ' cash on delivery, ' ' it was held that there was no conclusive presumption that the buyer agreed to accept and pay for the property, and that the sellers could show as a fact that there was no promise by the buyer and that therefore their promise was unenforceable for want of mutuality.^ Also the mere fact that the defendant in referring to the arrangement or transaction between the parties uses the words " agreement " or " agreed " will not justify the implication of a mutual promise or obligation on the part of the other party.^ § 315. Application of Rule Generally. — The word ' ' agree- ment," " agree," or " agreed," if used in a contract signed by both parties, though the promise is in the words of one party only, usually imports a promise on the part of the other party as well, as such word is deemed the word of both parties.^ Thus a con- tract of sale, providing that it is " agreed " that the seller shall furnish the buyer with certain property at a stated price, imports a promise by the buyer to accept and pay,^* and where a contract provided that "it is agreed in consideration of " the buyer, a merchant, buying all of his supply of a certain commodity, the sellers " agree " to sell him such commodity at a certain price, this was held to import a promise by the buyer to purchase." The 21. Justice V. Lang, (1873) 52 "agree" or the like as importing a N! Y. 323, 329. mutual promise. 2a. Joseph V. Sulziberger, (Sup. 25. Grossman v. Schemker, (Sup. 1910) 136 App. Div. 499, 121 N. Y. 1912) 206 N. Y. 466, 468, 100 N. E. S 73 39; Moran v. Standard Oil Co., '23.'justice V. Lang, (1873) 5i2 N. (1914) 211 N. Y. 187, 105 N. E. 217, Y. 323. On the earlier appeal in this reversing 153 App. Div. 894 mem., case, 42 N. Y. 493, the view was ex- 137 N. Y. S. 1130; Barton v. Mc- pressed that an agreement hy the Lean, (Sup. 1843) 5 Hill 256; Rich- buyer to pay should be inferred from ards v. Edick, (Sup. 1853) 17 Barb, the provision for payment "cash on 260; Nounenbocker v. Hooper, (Com. delivery" though the question was PI. 1855) 4 E. D. Smith 401. See not necessarily involved, as stated by also Andrews v. Pontue, (Sup. 1840) the court on the second appeal. 24 Wend. 285. 24. Jt)seph V. Sulzberger, (Sup. 26. Barton v. McLean, (Sup. 1843) 1910) 136 App. Div. 499, 121 N. Y. 5 Hill 256. S 73 See next following section as 27. Fuller v. Schrenk, (Sup. 1901) to the effect of the use of the word 58 App. Div. 222, 68 N. Y. S. 781 ; 4'r^ NEW YOiElK LAW OF CONTRACTS ti 31S same has been held true as to a contract for the sale of land, signed by both parties, under which the vendor " agrees " to sell and convey the land at a stated price.^* Also, in case of a contract of employment, where it was mutually agreed between the parties that the employer should pay a certain compensation for the superintendence of repairs or the erection of his building, a promise on the part of the employee to render the services has been implied;^' and a contract of employment signed by both parties, under which the employer ' ' agrees ' ' to employ the other party for a stated time, imports a promise by the latter to serve for such time.^'' And where an instrument is designated as an agreement between the parties and it recites that the employee ' ' agrees ' ' to sell the goods of the employer for a certain time and that the employer ' ' agrees ' ' to pay a certain commission on goods sold, a promise on the part of the employer to furnish the goods to be sold or fill the orders taken by the employee is to be implied.^^ A promise by an employee to render his services is to be implied from a provision giving him the right to terminate the contract after a certain notice,'^ and also, it seems, from a provision that he is to perform his duties to the " satisfaction " of the employer.^' It has also been held that an obligation on the part of the employee to serve is to be implied where the contract, which was signed in duplicate, recites that the employer has engaged the employee for a certain period on certain terms, and further provides that the employee is to leave as a deposit a certain part of his salary for faithful service.'* And where an employment contract recited that affirmed 171 N. Y. 671 mem., 64 N. 1076; Stadler v. Samuels, (Sup. App. E. 1126. T. 1919) 178 N. Y. S. 324; Nounen- ?8. Richards v. Edick, (Sup. 1853) booker v. Hooper, (Com. PI. 1855) 17 Barb. 260. But see Booth v. 4 E. D. Smith 401. Milliken, (Sup. 1908) 127 App. Div. 31. Moran v. Standard Oil Co., 522, 111 N. Y. S. 79il, affirmed on (1914) 211 N. Y. 187, 105 N. E. 217, other grounds 194 N. Y. 553, 87 N. reversing 153 App. Div. 894 mem., E. 1115, where a contract for the sale 137 N. Y. S. 1130. of land recited that the seller 32. Bozzone v. Stafford, (Sup. "agrees" to sell and the contract App. T. 1914) 85 Misc. 53, 146 N. Y. vpas signed by both parties. The fact S. 1076. that the word " agrees " is used is 33. Meyer v. iSchwinger, ( Sup. not, however, noticed by the court. App. T. 1913) 141 N. Y. S. 504. 2S. Grossman v. Schenlier, (1912) 34. Geringer. v. Friedman, (Sup. 206 N. Y. 466, lOO N. E. 39, affirm- App. T. 1913) 80' Misc. 212, 140 N. ing 144 App. Div. 911 mem., 128 Y. S. 1035. See also Silberman v. N. Y. S. 1125. Schwarcz, (Sup. App. T. 1904) 45 30. Bozzone v. Stafford, (Sup! App. Misc. 352, 90 N. Y. S. 382. T. 1914) 85 Misc. 53, 146 N. Y. S. § 315J CONSIDERATION 473 in consideration of the employer engaging the employee in his business the employee is to render his services for a stated period, a promise on the employer's part to hire the employee was implied.^^ But from the mere fact tha,t an employer promises to keep an employee in his employ for a stated time, a promise by the employee to serve for such time cannot be implied.'* The word ' ' sold ' ' as used in a memorandum of a contract for the sale of chattels signed by both parties imports an obligation on the part of the buyer to accept and pay." Where a carrier at the request of a shipper consents or agrees to furnish the latter, at a certain time, with cars for shipment of freight, a promise on the shipper's part to take, use and freight the cars will be implied from his request, thus creating the necessary mutuality of prom- ises to make the contract binding on both parties.'* If a person agrees to pay a certain sum if the promisee will remove a build- ing by a certain day, and the latter agrees to pay a certain sum for every day that shall elapse after the time specified without the building's having been removed, there is a proper case of mutual promises, as this obligates the promisee to remove the building.'^ It has also been held, where separate conveyances in trust by two 35. Halpern v. Langrock Bros. Co., duced no guests to partake of his (County Ct. 1915) 153 N. Y. S. 985, hospitality. The mere order under reversed on other grounds 169 App. such circumstances carries with it Div. 464, 155 N. Y. S. 167. the implication of a promise to pay. 36. Sorrentino v. Bauchet, (Sup. ' Where a relation exists between two App. T. 1916) 161 N. Y. S. 262. parties which involves the perform- 37. Bushnell v. National Bank, ance of certain duties by one of them (Sup. 1877) 10 Hun 378, affirmed 74 and the payment of a reward to him N. Y. 290. hy the other, the law will imply or 38. Clark v. Ulster, etc., R. Co., the jury may infer a promise by each (1907) 189 N. Y. 93, 81 N. E. 766, party to do what is to be done by aflSrming 114 App. Div. 908 mem., him.'" 100 N. Y. S. 1110. In this case Wil- In such a case the shipper's claim lard Bartlett, J, said : " The request of damages for breach of the con- that the car be furnished carried tract to furnish the cars at a certain with it, by implication of law, an time is not waived or discharged by agreement to make use of it if the his signing, without any further con- request was complied with and a sideration, a contract limiting the correlative promise to pay to the liability of the carrier for the trans- defendant in the event of nonuaer portation of the live stock shipped, whatever loss it might thereby incur. Clark v. Ulster, etc., R. Co., ( 1907 ) This obligation is just as clear as 189 N. Y. 93. 81 N. E. 766, affirming would be that of a person who went 114 App. Div. 908 mem., 100 N. Y. into a restaurant and ordered a din- S. 1110. ner for a party of friends to pay for 39. Pettis v. Bloomer, (Com. PI. G. the meal furnished in accordance T. 1861) 21 How. Pr. 317. with his order, even though he pro- 474 NEW YORK LAW OF CONTRACTS I§ 316 parties were contained in the same deed, that the one was in con- sideration of the other and that they were not voluntary convey- ances, though it was not expressly stated in the deed that this was the fact.*" Where a municipality was obliged to sweep and clean its streets, and a department was constituted for the purpose of performing this work through contracts with third persons, and the department, after advertising for bids for the privilege of picking over the dumps, granted the privilege to the best bidder, it was held that an obligation on the part of the municipality to deliver the refuse at the dumps would be implied, and that therefore there was mutuality of obligation rendering the contract granting the privi- lege of picking over the dumps binding on the party to whom the privilege was granted.*^ § 316. Mutuality of Obligation; General Rule. — ^Unless the con- tract is supported by some other consideration, there must be, as a general rule, mutuality of obligation to render it binding on either party. A promise by one party to perform an act or series of acts in consideration solely of the performance of another act or series of acts by the other party, the latter being left entirely free to perform or not on his part, is unenforceable for want of a sufficient consideration,*^ and mutuality of obligation must exist 40. Livingston v. New York L. 4a. Hathaway v. Bennett, (1854) Ins., etc., Co., (Sup. G. T. 1891) 36 ION. Y. 108, 1 Seld. Notes 222; Chi- State Rep. 566, 13 N. Y. S. 105. cago, etc., R. Co. v. Dane, (1870) 43 41. New York v. Delli Paoli, (1911) N. Y. 240; Hurd v. Gill, (1871) 45 202 N. Y. 18, 94 N. E. 1077, affirm- N. Y. 341; Todd v. Weber, (1884) 95 ing L36 App. Div. 939, 121 N. Y. S. N. Y. 181; Levin v Dietz, (1909) 194 1127, which affirrmed 63 Misc. 411, N. Y. 376, 87 N. E. 454, reversing 116 N. Y. S. 544. See also New York 119 App. Div. 875 mem., 104 N. Y. S. V. New York Disposal Corp., (Sup. 1131, wliich affirmed 48 Misc. 59'3, 96 Sp. T. 19.17) 100 Misc. 536, 166 N. Y. S. 468; Grossman v. Schenker, N. Y. S. 963. (191.2) 206 N. Y. 466, 4'68, 100 N. E. "This," says Gray, J., in the Paoli 39; Moser v. Walker, (Sup. 1897) 23 case, supra (202 N. Y. 23), "is not App. Div. 91, 48 N. Y. S. 341; Bay- a case of an omission by the parties, lies v. Automatic F|. Alarm! Ca, which courts will not feel justified (Sup. 1902) 70 App. Div. 557, 75 in supplying; it is a case where the N. Y. S. 555; Geer v. Clark, (Sup. language used by them shows that an 1903) 83 App. Div. 292, 82 N. Y. S. additional, or correlative, covenant 87; Howie v. Kasnowitz, (Sup. 1903) was intended, which the courts 83 App. Div. 295, 82 N. Y. S. 42; should and will supply. The agree- Cook v. Casler, (Sup. 1903) 87 App. ment of the city that its street ref- Div. 8, 83 N. Y. S. 1045; Commercial use should be delivered at the dumps Wood, etc., Co. v. Northampton enumerated was indispensable to the Portland Cement Co., ("Sup. 1906) effectuation of the contract, and for 115 App. Div. 38-8, 100 N. Y. S. 960, that reason it will be implied." affirmed on other grounds 190 N. Y. § 316] CONSIDERATION 475 at the same time.*' If there is no mutuality of obligation it is immaterial that the contract is signed by both the parties and duplicate copies taken by each.''* Thus an agreement by one person to employ another for a stated time is unenforceable by the latter for want of mutuality if there is no promise, express or implied, 1, 82 N. E. 730; Jackson v. Alpha Port Cement Co., (Sup. 1907) 122 App. Div. 345, 106 N. Y. S. 1052; Winslow V. Mayo, (Sup. 1908) 123 App. Div. 758, 108 N. Y. S. 640, affirmed 195 N. Y. 551 mem., 88 N. E. 1135; Bootli V. Milliken-, (Sup. 1908) 127 App. Div. 522, 111 N. Y. S. 791, affirmed on other grounds 194 N. Y. 353, 87 N. E. 1115; Joseph v. Sulzberger, (Sup. 1910) 136 App. Div. 490, 121 N. Y. S. 73; Notman V. Galveston Steamship Co., (Sup. 1910) 137 App. Div. 851, 122 N. Y. S. 598; People v. Public Service Commission, (Sup. 1910) 140 App. Div. 839, 125 N. Y. S. 1000; Jermyn V. Searing, (Sup. 1915) 170 App. Div. 707, 156 N. Y. S. 718; Barbour v. Equitable L. Assur. Soc, (Sup. 1916) 174 App. Div. 759, 161 N. Y. S. 469; Remmej v. Van De Carr, (Sup. 1917) W7 App. Div. 237, 163 N. Y. S. 724; Livingston v. Rogers, (Sup. 1804) 1 Caines 583, Col. & C. Cas. 3311; Bwrnet v. Bisco, (Sup. 1909) 4 Johns. 235; Wood v. Ed- wards, (Sup. 1821) 19 Johns. 205; McFarland v. Smith, (Sup. 1827) 6 Cow. 669; Townsend- v. Corning, (Sup. 1840) 23 Wend. 435, affirming 4 Hill 351; Macedon, etc.. Plank Road Co. V. Snediker, (Sup. G. T. 1854) 18 Barb. 317; Myers v. Cronk, (Sup. 1887) 45 Hun 401, 10 State Rep. 127; Collier v. Trow's Printing, etc.. Binding Co., (Sup. 1888) 49 Hun 147, TB State Rep. 1014, 1 N. Y. S. 844; Wamsley v. Horton, (Sup. 1894) 77 Hun 317, 59 State Rep. 37.3, 28 N. Y. S. 423; Roland v. Pinckney, (Super. Ct. G. T. 1894) 8 Misc. 458, 60 State Rep. 606, 29 N. Y. S. 1102; Wall v. Gillin Printing Co., (Sup. App. T. 1j897) 21 Misc. 649, 48 N. Y. S. 67 ; Krumenacker v. Betz, (Sup. App. T. 1899) 26 Misc. 744, 56 N. Y. S. 1042; Ward v. Zborowski, (Sup. App. T. 1900) 31 Misc. 66, 63 N. Y. S. 219, reversing 30 Misc. 839, 61 N. Y. S. 1151; Col- lins V. American News Co., (Sup. Sp. T. 1901) 34 Misc. 260, 69 N. Y. S. 638, affirmed in opinion below 68 App. Div. 639, 74 N. Y. S. 1123; Farmer v. Putnam, (Sup. App. T. 1901) 35 Misc. 32, 70 N. Y. S. 179; Automatic Vending Co. v. Heins, (Sup. App. T. 1902) 39- Misc. 788, 81 N. Y. S. 301 (contract for placing vending machine on defendant's premises) ; Durkin v. New York, (Sup. App. T. 1905) 49 Misc. 1.14, 96 N. Y. S. 1059; Colt v. O'Connor, (Sup. Sp. T. 1908) 50 Misc. 83, 109 N. Y. S. 689; White v. Kingston Motor Car Co., (Sup. App. T. 1910) 69 Misc. 627, 126 N. Y. S. 150; Sigs- bee V. New Era Mfg. Co., (Sup. App. T. 1916) 95 Misc. 579, 58.0, 159 N. Y. S. 740 ; Acme Wood Carpet Floor- ing Co. V. Broadway, etc., Co., (Sup. App. T. 1913) 142 N. Y. S. 490; Gross V. Stampler, (Sup. App. T. 1917) 165 N. Y. S. 214; Getman v. Getman, (Chan. Ct. 1846) 1 Barb. Ch. 499.; Walker v. Gilber.t, (Super. Ct. 1864) 25 Super. Ct. 214; Briggs V. Smith, (Com. PI. 1871) 4 Daly 110; Rafolovitz v. American To- bacco Co., (Sup. Sp. T. 189.3) 29 Abb. N. Cas. 406, 23 N. Y. S. 274. 43. Remmey v. Van De Carr, (Sup. 1917) 177 App. Div. 237, 163 N. Y. S. 724; Utica, etc., R. Co. v. Brinckerhoff, (Sup. 1'839) 21 Wend. 139; Macedon, etc.. Plank Road Co. V. Snediker, (Sup. G. T. 1854) 18 Barb. 317; Walker v. Gilbert, (Su- per. Ct. 18a4) 25 Super. Ct. 214, 223. 44. Booth v. Milliken, (Sup. 1908) 127 App. Div. 522, 111 N. Y. S. 791. affirmed on other grounds 194 N. Y. 553, 87 N. B. 1115. 476 NEW YORK LAW OF CONTRACTS [§ 316 on his part to render his services/' and an agreement by an employee to render services for a stated period is unenforceable by the employer for want of mutuality if there is no obligation on the part of the employer to employ or retain the employee in his service." This has been held true as regards a contract by which one party is appointed the exclusive selling agent for the other party and is to receive a commission on all goods sold by himself or others, but under which the agent in no way binds himself to sell or attempt to sell any goods for his principal or to do any other act for him.*'' The same is true as to a promise by a buyer to purchase if there is no obligation on the part of the seller to sell,** or by a seller or vendor to sell if there is no obligation on the part of the buyer or purchaser to buy ; *' and for this reason an order for goods may be countermanded by the purchaser before acceptance by the seller, though the order expressly provides that 45. Sigsbee v. New Era Mfg. Co., (Sup. App. T. 19.16) 95 Misc. 579, 159 N. Y. S. 740; Sorrentino v. Bouchet, (Sup. App. T. 1916) 161 N. Y. S. 262; Brigga v. Smith, (Com. PI. 1871) 4 Daly 110. 4G. Lerner v. Letrazzini, (Sup. Sp. T. 1911) 71 Mi&c. 182, 129 N. Y. S. 889, affirmed 144 App. Div. 928 mem., 129 N. Y. S. 1132; Bustonaby v. Re- vardel, (City Ct. Tr. T. 1911) 71 Misc. 207, 130 N. Y. S. 894. 47. Commercial Wood, etc., Co. v. Northampton Portland Cement Co., (Sup. 1906) 115 App. Div. 388, lOO N. Y. S. 960, affirmed on other grounds 190 N. Y. 1, 82 N. E. 730. See also Winslow V. Mayo, (Sup. 1908) 123 App. Div. 758, 108 N. Y. S. 640, affirmed 195 N. Y. 551 mem., 88' N. E. 1135; Redican v. Interchangeable Magnetic Sign Co., (Sup. 1914) 162 App. Div. 803, 146 N. Y. S. 596. 48. Quick V. Wheeler, (1879) 78 N. Y. 300; Howie v. Kasnowitz, (Sup. 1903) 83 App. Div. 295, 82 N. Y. S. 42; Plumb v. Hallauer, etc., Co., (Sup. 1911) 145 App. Div. 20, 130 N. Y. S. 147; Goodyear v. H. J. Koehler Sporting Goods Co., (Sup. 1913) 159 App. Div. 116, 143 N. Y. S. 1046, affirmed 220 N. Y. 749 mem., 116 N. E. 1047; Hallwood Cash Reg- ister Co. V. Finnegan, (Sup. App. T. 1903) 84 N. Y. S. 154; Gary v. Appo, (Sup. App. T. 1903) 84 N. Y. S. 569. Thus a contract by which the plaintiff agrees to purchase and ac- cept a specified number of automo- biles, depositing a sum of money as part payment, but which does not require the defendant to sell and de- liver the machines, lacks mutuality and is unenforceable, especially so where it expressly provides that the defendant shall not be liable in case of its failure to deliver for any cause whatsoever. Goodyear v. H. J. Koehler Sporting Goods Co., Sup. 1913) 159 App. Div. 116, 143 N. Y. S. 1046, affirmed 220 N. Y. 749 mem., 116 N. E. 1047. 49. Levin v. Dietz, (1909) 194 N. Y. 376, 87 N. E. 454, reversing 119 App. Div. 875 mem., 104 N. Y. S. 1131, which affirmed 48 Misc. 593, 96 N. Y. S. 468; Geer v. Clark, (Sup. 1903) 83 App. Div. 292, 82 N. Y. S. 87; Booth v. Milliken, ('Sup. 1908) 127 App. Div. 522, 111 N. Y. S. 791, affirmed on other grounds 194 N. Y, 553, 87 N. E. 1115; Rilcer v. Com- fort, (Sup. 1010) 140 App. Div. 117, 124 N. Y. S. 1106; Burnet V. Bisco, (Sup. 1809) 4 Johns. 235; Getman V. Getman, (Chan. Ct. 1846) 1 Barb. Ch. 499; Hempstone v. Koehler, (Sup. App. T. 1910) 125 N. Y. S. 1094; § 317] CONSIDERATION 477 it is not subject to countermand."" Though an offer may be suffi- ciently definite to admit of an acceptance which if in proper form will create a mutuality of obligation, the offer and the signification of assent or acceptance may be such that no obligation whatsoever is imposed on the offeree. In such a case there is no binding con- tract for want of mutuality of obligation.^^ Thus where the defendant offered by letter to receive and transport for the plain- tiff a quantity of iron not to exceed a certain number of tons, and the plaintiff replied accepting the offer merely but without agree- ing to furnish any amount of iron for transportation, it was held that there was no contract binding on the defendant, as there was an entire want of obligation on the plaintiff's part to furnish any iron for transportation."^ Where a contract for the sale of munic- ipal bonds provided that the purchaser should not be required to take the* bonds unless their validity was approved by a third per- son, and such third person refused his approval, it was held that the contract then ceased to be binding on the purchaser, and for want of mutuality on the seller, even though in the first instance the buyer could have waived such approval, the provision therefor being for his benefit.^^ § 317. Additional Consideration Avoiding Necessity for Mutuality of Obligation. — If there is an additional consideration^ for the promise of one party, other thaft an obligation of the other party to perform, this will furnish the necessary consideration though it is optional with the latter whether he will perform or require performance." Thus, though an agreement for the sale of Gross V. Stampler, (Sup. App. T. is not bound to make any sales and 1917) 165 N. Y. S. 214. But see no limit is placed on the amount Armour v. Cayuga Lake Ice Co., which the plaintiff may order or (Sup. G. T. 1891) 40 State Rep. 709, sell. 16 N. Y. 6. 26 (the court in this 50. See supra, section 24 et seq., as case allowed a recovery without the to the withdrawal of offers generally, question as to the want of mutuality 51. Chicago, etc., R. Co. v. Dane, being noticed). (Sup. 1870) 43 N. Y. 240. See abo In Jackson v. Alpha Portland Ce- White v. Kingston Motor Car Co., ment Co., (Sup. 1907) 122 App. Div. (Sup. App. T. 1910) 69 Misc. 627, 345, 106 N. Y. S. 1052, it is held 126 N. Y. S. 150. that a contract whereby, in considera- 52. Chicago, etc., R. Co. v. Dane, tion of a promise by the plaintiff to (1870) 43 N. Y. 240. give preference to a cement manufac- 53. Ft. Edward v. Fish, (Sup. 1895) tured by the defendant and to 86 Hun 548, 67 State Rep. 529, 33 "push" the sales thereof in a cer- N. Y. S. 784, affirmed on other tain locality, the defendant agrees grounds 156 N. Y. 363, 50 N. E. 973. to furnish said cement for a year 54. Eno v. Woodworth, (1850) 4 at a certain favorable price, is void N. Y. 249, Code Rep. N. S. 262; for lack of mutuality if the plaintiff Grossman v. Schenker, (1912) 206 478 NEW YORK LAW OF CO>n:RACTS t§ 317 land or chattels, consisting of an offer on the part of the vendor or seller to sell without any obligation on the part of the purchaser or buyer to buy, or vice versa, is a nudum pactum unless there is some consideration for the offer, and the offer may be withdrawn at any time before it has been accepted by the buyer or seller, it is otherwise if the agreement, express or implied, of the offeror not to withdraw the offer is based on a valuable consideration.^' And where an option giving a lessee the right to purchase is a part of the lease, the agreements of the lessee contained in the lease are a sufficient consideration to sustain the option,^^ and this is true though additional land is included in the option.^' Also in contracts for the sale of lands or, chattels the making Qf the purchase and payment of the purchase money fuftiishes the necessary consideration for the agreement of the seller to ^ake back the property and repay the purchase money at the option of the buyer.^* If there is a consideration for the promise of an employer to employ a person, independent of any promise by the employee to serve, it will render the employer's promise binding though the employee may have the right to quit at any time.^' If there is an obligation on the part of the promisee to perform to a limited extent, an option being given him to require performance by the ■ N. Y. 466, 468, lOO N. E. 30; Scruggs of offers see supra, section 24 et seq. CotteriU, (Sup. 1902) -ef-^ipR. Div.,683/ 73 N. Y. S. 882; Rague v New York Evening Journal Pub. Co., (Sup. 1914) 164 App. Div, 126, 149 N. Y. S. 668; Fuller v. Art 56. Carney v. Pendleton, (Sup. 1910) 139 App. Div. 152, 123 N. Y. S. 738. 57. Heyward v. Willmarth, (Sup. 1S03) 87 App. Div. 125, 84 N. Y. S. man, (Sup. 1893) (12., Hun 5i6, 53 75. In this case Hirsehberg, J., said : State Rep. 339, 24 N. Y. S. 13; RsL- "The agreement on the part of the folovitz V. American Tobacco^ -Co., respondent to hire and pay rent for (Sup. 1893) 73 Hun 87, 57 State the demised premises is a sufficient Rep. 144, 25 N. Y. S. 1036. consideration for the option of pur- 55. Scruggs V. CotteriU, ('Sup. chase as to the adjoining land as 1902) 67 App. Div. 583, 73 N. Y. S. well as to the land directly covered 882; Electric Fireproofing Co. v. by the lease. The inference is that Smith, (Sup. 1906) 113 App. Div. the respondent would not have leased 615, 99 N. Y. S. 37; Fuller v. Art- the land and have become bound for man, (Sup. 1893) 69 Hun 546, 53 the rent without receiving the privi- State Rep. 339, 24 N. Y. S. 13; lege of purchasing the entire tract." Spitzli v. Guth, (Sup. Sp. T. 1920) 58. Eno v. Woodworth, (1850) 4 112 Misc. 630, 183 N. Y. S. 743; Gor- N. Y. 249, Code Rep. N. S. 262. See ham V. Jackson, (Sup. Tr. T. 1918) supra, section 270. 177 N. Y. S. SO, affirmed 177 N. Y. S. 59. Rague v. New York Evening 916 mem. See also Jones v. Barnes, Journal Pub. Co., (Sup. 1914) 164 (Sup. 1905) 105 App. Div. 287, 94 App. Div. 126, 149 N. Y. S. 668. N. Y. S. 695. As to the withdrawal § 317] CONSIDERATION 479 promisor beyond such extent, the limited obligation may furnish a sufficient consideration for the entire promise of the promisor. Thus, in case of a sale, if it is obligatory on the part of both parties to perform to a certain extent, the obligation of one party to do so may furnish a sufficient consideration for the promise of the other party to give the promisee the right to call for the acceptance or delivery by the promisor of an additional amount of the subject matter of the sale, though there is no obligation on the promisee's part as to such additional amount.*" The giving of an option to purchase property may constitute a consideration for an executory promise by the person to whom the option is given, as thereby the party giving the option shackles his right to dispose of his prop- erty.*^ And if the giving of several options is to be considered as one transaction, the consideration for the option given by one party being the giving of the option by the other party, then there would be a consideration to sustain each option.*^ On the other hand, where it appeared that the plaintiff and the defendant owned separately certain stereotype plates, and by two separate instruments, one of which was signed by each and bearing like date, each gave to the other the optional right to use the other's plates in the printing of certain books, provided that if such plates were used a royalty should be paid by the party using them, it was held that neither option was enforceable for want of consideration, the court treating the instruments as separate and distinct, and neither therefore supported by a consideration.*^ The giving of an option to buy or sell is a sufficient consideration for the agree- ment of the party to whom the option is given that a deposit made by him with a third person shall be paid over to the party giving the option if the former withdraws from the transaction.** Under the common law rule, if the contract is under seal, such as a con- tract to sell land, which imposes no obligation on the purchaser to buy, the seal conclusively imports a sufficient consideration for the seller's promise; but under our statute making a seal only' pre- €0. Disborough. v. Neilson, (Sup. ing, etc., Binding Co., (Sup. 1888) 1802) 3 Johns. Cas. 81. 49 Hun 147, 16 State Rep. 1014, 1 61. Stokes V. Foote, (1902) 172 N. Y. S. 844. N. Y. 327, 339, 65 N. B. 176, revers- 63. Collier v. Trow's Printing, etc., ing on other grounds 49 App. Div. Binding Co., (Sup. 1888) 49 Hun 302, 63 N. Y. S. 887. 147, 16 State Rep. 1014, 1 N. Y. S. 62. Scruggs V. Cotterill, (Sup. 844. 1902) 67 App. Div. 583, 73 N. Y. S. 64. Nagel v. Cohen, (Sup. App. T. 882. See also Collier v. Trow's Print- 1908) 112 N. Y. S. 1066. 480 NEW YORK LAW OF CONTRACTS [§ 318 sumptive evidence of a consideration, if it is shown that there was in fact no consideration, then there is not a suifieient consideration to make the contract binding on the vendor.'" § 318. Unenforceable, Voidable, or Void Promise as Considera- tion. — A promise by one party may be a sufficient consideration for a promise by the other party though the former cannot be enforced by an action on account of some rule of law ; that is, the right to enforce or recover damages for a breach of the promise is not essential to its sufficiency as a consideration. This is the prin- ciple applied to a contract within the statute of frauds which is signed only by the party against whom it is sought to enforce it, and which by reason of his signature is taken out of the operation of the statute.^* Thus in case of a contract for the sale of a chattel, the fact that the buyer's promise to purchase cannot be enforced against him by an action because the memorandum required by the ' statute of frauds was not signed by him, does not prevent his promise from being a sufficient consideration for the promise of the seller to sell, and enable the buyer to maintain an action against the seller by whom alone the memorandum was signed.^ And it seems that an oral promise by a third person to answer for the debt of another, which he is willing and offers to perform, may be a sufficient consideration for a promise by the creditor to for- bear.*^^ So the promise of an infant is voidable merely and not void, and his executory promise may constitute a sufficient con- sideration for the promise of the other party,^' and for this reason an action for breach of a contract to marry, the consideration to support which is the mutual promise of the parties, is maintain- able on behalf of an infant party, though no action could have 65. Bootli V. Milliken, (Sup. 1908) Wend. 460; Pettibone v. Moore, (Sup. 127 App. Div. 522, 111 N. Y. S. 791, 1894) 75 Hun 461, 57 State Rep. affirmed on other grounds 194 N. Y. 363, 27 N. Y. S. 455; In re Hunter, 553, 87 N. E. 1115. The court in (Chan. Ct. 1831) 1 Edw. Ch. 1. this case does not, however, expressly &t. Justice v. Lang, ( 1870) 42 consider the effect of a seal, but holds N. Y. 493, reversing 25 Super. Ct. the contract, though in fact under 333, 30 How. Pr. 425. seal, unenforceable for want of mu- 68. Schmidt v. Cowperthwait, tuality. (Com. PI. G. T. 1884) 12 Daly 3«1, See infra, section 372 et seq., as to 1 City Ct. R. Supp. 39, 66 How. Pr. general effect of a. seal. 477. 66. Worrall v. Munn, (1851) 5 69. Willard v. Stone, (Sup. 1827) N. Y. 229; Justice v. Lang, (1870) 7 Cow. 22. The status, as void or 42 N. Y. 493; Ballard v. Walker, voidable, of an infant's executory (Sup. 1802) 3 Johns. Cas. 60; Mc- contract is discussed later. Crea v. Purmort, (Ct. Err. 1836) 16 § 319] CONSIDEKATION 481 been maintained against her on the contract.'" A void promise, however, cannot constitute a consideration for a promise by another person, as it imposes no obligation whatsoever on the promisor, and therefore the neeessai-y mutuality of obligation, and not merely of remedy, is wanting.'^ Thus at common law the executory contract of a married woman is void in so far as it attempts to impose any obligation on her, and her executory promise could constitute no consideration for the promise of the other party ;''^ and as an agreement to pay usurious interest is void, it is not a sufficient consideration for a promise to postpone payment of the debt.'' It seems that a promise which is condi- tioned entirely on a particular voluntary action of a third person and can become operative only on such action, cannot constitute a consideration, where by the failure of such third person to act the promise never becomes operative.'* § 319. Conditional Obligation; Option to Withdraw. — Though the obligation of one party to perform is to a certain extent con- ditional, it may nevertheless furnish a consideration for the promise of the other party .'^ And the fact that the right to withdraw from the contract on the happening of a certain contingency is con- ferred on one party does not prevent the necessary mutuality of obligation from existing,'* as where one of the parties to a contract is given the right to terminate the contract after a specified notice." Thus in case of a contract of employment for a certain period, the fact that the employer is given the right to terminate the contract after a specified notice does not render it unenforce- able by him for want of mutuality.'* Nor does the fact that in a contract for the sale of goods for future delivery the seller is relieved from liability for nondelivery, where by reason of strikes, 70. Willard v. Stone, (Sup. 1827) 75. Sage v. Hazard, (Sup. G. T. 7 Cow. 22. 1849) 6 Barb. 179. 71. Andriot v. Lawrence, (Sup. G. 76. Bezer v. Hall Signal Co., (Sup. T. 1860) 33 Barb. 142; Perkins v. 1997) 22 App. Div. 489, 48 N. Y. S. Proud, (Sup. G. T. 1862) 62 Barb. 203; Sage v. Hazard, (Sup, G. T. 420, 428. 1849) 6 Barib. 179. 7a. Andjiot v. Lawrence, (Sup. G. 77. McCall v. Wright, (1910) 198 T. 1860) 33 Barb. 142. N. Y. 143, 91 N. E. 516, affirming 73. Vilas V. Jones, (1848) 1 N. Y. 133 App. Div. 62, 117 N. Y. S. 775; 274, How. App. Cas. 7")9; Hunt v. Realty Advertising, etc., Co. v. Engle- Bloomer, (Super. Ct. 1856) 12 Super. bert Lyre Co., (Sup. App. T. 1915) 89 Ct. 202. Misc. 371, 151 N. Y. S. 885. 74. Mandeville v, Avery, (1891) 78. McCall v. Wright, (1910) 198 124 N. Y. 376, 384, 36 State Ren. N. Y. 143, 91 N. E. .516, affirming 338, 26 N. E. 951. 133 App. Div. 62, 117 N. Y. S. 775. 31 482 NEW YORK LAW OF CONTRACTS [§ 320 fires, or other causes delivery is rendered impossible, prevent the seller from enforcing the contract, as this does not relieve him from all liability in case of his refusal to deliver, but only where delivery is rendered impossible by some fortuitous event." It is other- wise, however, it would seem, if one party is given an absolute and unconditional right to withdraw. In such a case his promise, though in the first instance absolute, is purely illusory. And the fact that the employer is given the right to terminate the contract after giving a certain notice is considered ground, on general equi- table principles, for the refusal indirectly to enforce the contract against the employee by way of an injunction restraining him from violating his negative covenant not to render services to others.*" § 320. Stock Subscriptions Prior to Incorporation. — Several elements enter into the question as to the right of a corporation to enforce subscriptions to its stock made in contemplation of the formation of the corporation. Mr. Morawetz in his work on Cor- porations states the rule under one class of cases as follows : "If a number of persons mutually agree to become shareholders in a corporation to be formed by them subsequently, either under a special charter or under some general law, the agreement between the parties is originally made up of a series of ordinary common law contracts. If the parties intend to become shareholders, with- out further act on their part, immediately after the incorporation of the company, their agreement may very properly be held to include a continuing offer to become shareholders as soon as the corporation shall be formed. This offer may be accepted by the corporation, through its regular agents, after organization, unless previously revoked; by such acceptance the contract of member- ship is consummated, and the parties become stockholders in the corporation, with all the resulting rights and liabilities. ' ' *^ Our courts in a number of eases have taken a similar yiew.*^ "A dif- 79. Meade v. Poppenberg, (Sup. 82. Buffalo, etc., R. Co. v. Dudley, 1915) 167 App. Div. 411, 153 N. Y. S. (1856) 14 N. Y. 336; Yonkera Ga- 182. See also Wood v. Glens Falls zette Co. v. Taylor, (Sup. 1898) 30 Automobile Co., (Sup. 1916) 174 ^PP- Div. 334, 51 N. Y. S. 969, 5 App. Div. 830, 161 N. Y. S. 808. N- Y. Annot. Cas. 384; Lowville, etc., 80. American League Baseball Club ^- '^°-^- ™^°"' <^"P- l^O^') ^^^ V. Chase, (Sup. Sp. T. 1914) 86 Misc. f^^ f'^" f^ mem., 101 N. Y. ,8. 441, 149 N. Y. S. 6; Metropolitan w '/7^ ^"3 ^?in'''T™ ?;■''■ Exhibition Co. V. Ward, (Sup 1890) !!„ i'o4 N^'v 9 I« II' t^"' wT 24 Abb. N. Cas. 393, 9 N. Y. S. 779. ,„„^ (g^^ jg^i, ^ gju ,,,3. ^^,^ ^_ 81. Morawetz on Corporations, Crandall, (Chan. Ct. 1843) 1 Sandf. § 47. Ch. 179. § 320] CONSIDERATION 483 ferent case is presented," says Mr. Morawetz, " where the parties mutually agree to subscribe for shares in a corporation to be formed thereafter. Here there is no unconditional agreement to become shareholders as soon as the corporation shall be formed, but it is contemplated that the parties shall themselves perform an additional act before becoming shareholders; namely, execute the statutory contract of membership by subscription upon the stock-books. It is plain, therefore, that in this case there is no offer which the corporation can accept, and the parties do not become stockholders, and cannot be charged as such, unless they subsequently carry out their agreement by subscribing for the shares. ' ' ^ This statement has likewise been approved by our courts.*^* A still different case is presented where a person signs In Yonkers Gazette Co. v. Taylor, (Sup. 1898) 30 App. Div. 334, 336, 51 N. Y. S. 969, 5 N. Y. Annot. Cas. 384, Hatch, J., says : " The law is fairly well settled that where parties propose to form a, corporation and become shareholders therein, and such parties intend to become such share- holders without further act upon their part, upon the incorporation of the company, and the agreement remains open and is unrevoked, and the corporation is formed in pursu- ance of it, and thereafter acts upon it, by accepting the same, such agree- ment is valid and binding as a sub- scription to the capital stock of such corporation. Buffalo & Jamestown E. E.. Co. V. Clark, 22 Hun 359; S. C, sub nom. Buffalo & Jamestown R. R. Co. V. Gifford, 87 N. Y. 294. These decisions recognize that such an agreement is not valid and bind- ing when made, as there is then in existence no party representing the company who is capable of contract- ing. But when the company is or- ganized and acts upon the contract by an acceptance of what in regarded as an open continuing proposal, it becomes a valid binding agreement, to be enforced according to its terms. In the Clark and Gifford cases there was the element of ratification by the subscribers by payment of calls upon the stock after the corporation was organized. We do not under- stand, however, that the doctrine of these cases makes recognition by the subscriber an essential prerequisite. The contract becomes of force when the proposal remains open and the corporation accepts the same." 83. Morawetz on Corporations, § 49. 84. Lake Ontario Shore R. Co. v. Curtiss, (1880) 80 N. Y. 219; Avon Springs Sanitarium Co. v. Weed, (Sup. 1907) 119 App. Div. 560, 104 N. Y. S. 58. See also Eastern Plank Road Co. V. Vaughan, (1856)' 14 N. Y. 546, affirming 20 Barb. 155; Yonkers Gazette Co. v. Taylor, (Sup. 1898) 30 App. Div. 334, 51 N. Y. S. 969, 5 N. Y. Annot. Cas. 384. In Lake Ontario Shore R. Co. v. Curtiss, (1880) 80 N. Y. 219, where the agreement was "to subscribe for and take stock " in the corporation to be formed, Danf orth, J., said : " It is therefore not a subscription to the capital stock of the plaintiff, taking effect presently, but a promise, each subscriber with the other, to do so at some future time. ... If any action could be maintained upon it by any person, it must be some one of the subscribers or his assignee. The legal effect of the contract is re- stricted to them. The general rule applicable to the parties before us, and the instrument, signed by the 484 NEW YORK LAW OF CONTRACTS [§ 320 a subscription to stock in a corporation to be formed for a certain purpose, without any mutual agreement between co-subscribers for the formation of the corporation. In such a case third persons are not entitled to form a corporation for the particular purpose which can acquire any right to enforce the subscription.^ . According to the prevailing view and in the absence of a statute to the contrary, a subscriber to the stock of a corporation to be thereafter formed may withdraw from the enterprise if he exer- cises the right before the corporation is organized and his sub- scription accepted. Where persons sign an agreement to form a corporation and a present subscription to its stock when organ- ized, intending a contract with such corporation, the subscription of each of the parties cannot constitute more than a continuing offer of the proposed corporation, and can become a binding con- tract of subscription only when the corporation is formed, and the offer to subscribe then accepted, because until that time there are not the necessary parties to the contract in existence.*^ If after the incorporation of the proposed corporation the subscriber rati- fies his prior subscription or agreement to subscribe, and his sub- scription is accepted by the corporation, the subscription contract then becomes binding on him.*'^ And for the purpose of sustaining defendant, is that when two persons, 1132. See also Schenectady, etc., for a consideration sufficient as be- Plank Road Co. v. Thatcher, (1854) tween themselves, covenant to do 11 N. Y. 102. some act, which if done would inei- In Buffalo, etc., R. Co. v. Giflford, dentally result in the benefit of a supra, the defendant, with others, mere stranger, that stranger has not subscribed an instrument written in a right to enforce the covenant, al- a pocket memorandum book, which though one of the contracting parties stated that " in consideration and might enforce it as against the other. for the purpose of becoming stock- As to the plaintiff the contract is holders in " the B. & J. R. R. Co., purely voluntary, and without con- they " do hereby subscribe and take sideration." . the number of shares ... of the 85. Avon Springs Sanitarium Co. capital stock of said company set v. Weed, (1907) 189 N. Y. 557 mem., opposite their respective names," and 82 N. E. 1123, adopting dissenting they agreed to pay therefor " as re- opinion of McClennan, P. J., 119 App. quired by said company," and subse- Div. 560, 566, 104 N. Y. S. 58. quently articles of association were 86. See Corporations, 7 R. C. L. filed, and plaintiff was organi^red P- 243. under the General Railroad Act (ch. 87. Buffalo, etc., R. Co. v. Gifford, 140, Laws of 1850), defendant not (1882) 87 N. Y. 294, affirming 22 being named in the articles as one Hun 359 (sub nom. Buffalo, etc., R. of the corporators. After the organi- Co. V. Clark ) ; Avon Springs Sani- zation of the plaintiff, the def end- tarlum Co. v. Kellogg, (Sup. 1908) ant's name was entered as a stock- 125 App. Div. ,51, 109 N. Y. S. 153, holder on its stock ledger; calls were affirmed 194 N Y. 567 mem., 88 N. E. made of instalments on its stock, of § 321] CONSIDERATION 485 a bond and mortgage given on such a subscription, the validity of which was recognized by the subscriber after the due organiza- tion of .the coi'poration, a redelivery of the bond and mortgage has been held inferable.^^ To impose any liability by reason of the original contract of subscription, the corporation when formed must be of the character contemplated by the subscription ; *\ but a necessary change in the proposed name of the corporation, due to a conflict with the name of an existing corporation, will not have the effect of releasing the subscriber from liability.'" The subscription must also be definite and certain as to the face value of the stock or shares to be taken.'^ § 321. Performance of Conditions of Offer; General Rule. — Where a promise to pay money or do some other act is made on condition that the promisee perform a certain act or acts, and the promisee is under no obligation in the first instance to perform such conditions, this, though not a binding contract for want of consideration or mutuality of obligation, is a continuing offer for a reasonable time or until revoked, and the performance of the conditions by the promisee will constitute an acceptance of the offer and furnish the necessary consideration to render the promise enforceable.^^ Where the promisor has had the benefit of the con- which. notice was given to the de- 89. Woods Motor Vehicle Co. v. fendant, and in response he paid two Brady, (1905) 181 N. Y. 145, 73 instalments of ten per cent each.. In N. E. 674, reversing 90 App. Div. an action to recover the instalments 610 mem., 85 N. Y. S. 1151, which called for it was held that the de- aflSrmed 39 Misc. 79, 78 N. Y. S. 203. fendant was liahle on his subscrip- 90. Yonkers Gazette Co. v. Taylor, tion as a common law subscription. (Sup. 1898) 30 App. Div. 334, 51 In this case Earl, J., said: "While N. Y. S. 969, 5 N. Y. Annot. Cas. the subscription was not valid and 384. binding before the complete forma- 91. Woods Motor Vehicle Co. v. tion of the corporation, because there Brady, (1905) 181 N. Y. 145, 73 was no party with whom the defend- N. E. 674. ant could then contract, yet after the ea. Lamoreux v. Gould, (1802) 7 corporation was formed it accepted N. Y. 349; Willetts v. Sun Mut. Ins. the subscription and recognized the Co., (1871) 45 N. Y. 45; Sands v. defendant as a stockholder, and he Crooke, (1871) 46 N. Y. 564; White recognized himself as a stockholder v. Baxter, (1874) 71 N. Y. 254, af- and ratified and confirmed his sub- firming 41 Super. Ct. 358; Mane v. scription by payments thereon. He Garrison, (1880) 83 N. Y. 14; Todd thus, within all the authorities, upon v. Weber, (1884) 95 N. Y. 181; general principles, became a stock- Miller v. MeKenzie, (1884) 95 N. Y. holder in the company, liable to pay 575 ; Beckwith v. Brackett, ( 1 884 ) the full amount of his subscrip- 97 N. Y. 52; Smith v. St. Philips ITL." Church, (1888) 107 N. Y. 610, 618, «« W.lk V Crandall (Chan. Ct. 12 State Eep. 783, 14 N. E. 825, 28 ,843) Ttndf. Ohm Wkly. Dig. 2S9; Cox v. Stokes, (1898) 486 NEW YORK LAW OF CONTRACTS [§ 321 sideration for which he bargained, it is no answer to an action against him to say that the promisee was not bound by the contract to do the act.'^ And as said by Folger, J. : " When performance of the condition is made there does then attach a consideration, which relates back to the making of the promise, and it becomes , obligatory. " ^* " "When a defendant, ' ' says Andrews, J., ' ' has actually received the consideration of an agreement by a voluntary 156 N. Y. 491, 505, 51 N. B. 316; Keuka College v. Ray, (190'!) 167 N. Y. 96, 60 N. E. 325, affirming 41 App. Div. 200, 58 N. Y. S. 745 ; Mel- ville V. Kruse, (1903) 174 N. Y. 306, 66 N. E. 965, affirming 69 App. Div. 211, 74 N. Y. S. 826; Midleworth v. Ordway, (1908) 19a N. Y. 404, 84 N. E. 291, affirming 1'17 App. Div. 913 mem., 102 N. Y. S. 1143, which affirmed 49 Misc. 74, 98 N. Y. S. 10, 18 N. Y. Annot. Cas. 102; Grossman V. iSchenker, (1912) 20-6 N. Y. 466, 468, 100 N. E. 39 ; Roosevelt v. Nus- baum, (Sup. 1902) 75 App. Div. 117, 77 N. Y. S. 457; Tanenbaum v. Jo- sophi, (Sup. -1904) 93 App. Div. 341, 87 N. Y. S. 839; Robb v. Washington, etc.. College, (Sup. Tr. T. 1911) 103 App. Div. 327, 93 N. Y. S. 92, modi- fied as to other matters 185 N. Y. 485, 7S N. E. 359; Leonardi v. Times Square Automdbile Co., (Sup. 1908) 127 App. Div. 192, 111 N. Y. S. 523; American Woolen Co. v. Moskowitz, ('Sup. 1913) 159 App. Div. 382, 144 N. Y. S. 532; Rague v. New York Evening Journal Pub. Co., (Sup. 1914) 164 App. Div. 126, 149 N. Y. S. 668; Lajam v. Abraham Sahdala, etc., Corp., (Sup. 1918) 184 App. Div. 490, 171 N. Y. S. 611; Living- ston v. Rogers, (Sup. 1804) 1 Cai. 583, Col. & C. Cas. 331; New York, etc., R. Co. V. Pixley, (Sup. Sp. T. 1853) 19 Barb. 428; -Wayne, etc.. Collegiate Institute v. Smith, (Sup. G. T. 1861) 36 Barb. 576; Richmond- ville Union Seminary, etc., v. Brown- ell, (Sup. G. T. 1-862) 37 Barb. 535; Van Rensselaer v. Aikin, (Sup. G. T. 1865) 44 Barb. 547, reversed on other grounds 44 N. Y. 126; Reynolds v. Guilbert, (Sup. 1878) 13 Hun 301; Dix V. Shaver, (Sup. 1878) 14 Hun 392 ; Baker v. Angell, (Sup. Ct. G. T. 1887) 46 Hun 679, 12 State Rep. 406; Herendeen v. De Witt, (Sup. 1888) 49 Hun 53, 17 State Rep. 298, 1 N. Y. S. 467; Lawlor v. Densmore- Compton Bldg. Co., (Sup. Sp. T. 1909) 63 Misc. 458, 118 N. Y. S. 468, af- firmed on opinion below 135 App. Div. 920, 120 N. Y. S. 1131; Wilkinson v. Chamber of Commerce, (Sup. Tr. T. 1911) 73 Misc. 141, 130 N. Y. S. 676; Lynch v. Murphy, (Sup. App. T. 1913) 81 Misc. 180, 142 N. Y. S. 373; Weiss v. Josias, (N. Y. Munic. Ct. 191«) 97 Misc. 598, 161 N. Y. S. 834; Spitzli v. Guth, (Sup. 8p. T. 1920) 112 Misc. 630, 183 N. Y. S. 743 ; Automatic Strapping Mach. Co. v. Twisted Wire, etc., Co., (Sup. Sp. T. 1913) 142 N. Y. S. 6, reversed on other grounds 159 App. Div. 656, 144 N. Y. S. 1037; H. C. Miner Litho- graphing Co. V. Gray, (Sup. App. T. 1919) 175 N. Y. S. 421; Gorham v. Jackson, (Sup. Tr. T. 1918) 177 N. Y. S. 80, affirmed in 188 App. Div. 999 mem., 177 N. Y. S. 916; Castor- land Milk, etc., Co. v. Shantz, (Sup. Sp. T. 1919) 179 N. Y. S. 131; Meyers V Stix, (Com PI. G. T. 1891) 36 State Rep. 848, 13 N. Y. S. 301; Nesibit V. Bendheim, (Com. PI. G. T. 1891) 39 State Rep. 109, 15 N. Y. S. 300; Smith v. Spies, (Super. Ct. 1829) 2 Super. Ct. 477; Waterbury v. Graham, (Super. Ct. 1850) 6 Super. Ct. 215; Darrow v. Walker, (Super. Ct. 1881) 48 Super. Ct. 6; Egan V. Thomson, (Com. PI. G. T. 1878) 57 How. Pr. 324. 93. Meyers v. Stix, (Com. PI. G. T. 1891) 36 State Rep. 848, 851, 13 N. Y. S. 301. 94. Willetts V. Sun Mut. Ins. Co., (1871) 45 N. Y. 45, 47, i 322] CONSIDERATION 487 performance of an act by the other party, upon his proposition or suggestion, such performance constitutes a consideration which will uphold the defendant's promise.'"* To impose liability on the promisor it is essential, as a general rule, that the condition be fully perf ormed.''^ It is also essential that the performance by the offeree be in reliance on the offer. Thus where a member of a part- nership offered to be personally liable for a claim against the partnership if the offeree would purchase the claim, and a con- siderable time thereafter the latter purchased the claim, without, however, relying on the previous offer or having it in his mind, it was held that the offeror was not liable." § 322. Application of Eule. — If a person promises to pay a sum of money to a railroad or do some other act on condition that it construct its contemplated road, the construction of the road may constitute an acceptance of the offer and furnish a sufficient consideration for the promise,'* but this effect cannot be given to the promise of the railroad to construct its road." So if a person promises to do a certain act if the promisee will refrain from interposing a defense or opposition to the relief sought in an action, and the latter does refrain from putting in such a defense or opposition, this will constitute a good consideration for the promise.^ The same is true as to a promise by a seller to allow a rebate or discount in case purchases are made to a stated amount, and purchases are made to such amount ; ^ or a promise to become surety for another if a certain credit is given the latter, and such credit is given.' If a promise is made on condition that certain services be rendered, their rendition will furnish a sufficient con- sideration for the promise irrespective of Whether there is any obligation on the part of the promisee to render the services ; ^ and a note given on condition that certain services be rendered 95. Marie v. Garrison, (1880) 83 1. Marie v. Garrison, (1880) 83 N. Y. 14, 26. N. Y. 14. 96. Van Rensselaer v. Aikin, 2. Cohen v. Hirsch, (Com. PI G. (1870) 44 N. Y. 12,6, reversing 44 T. 1893) 6 Misc. 5»6, 55 State Rep. Barb. 547: Myers v. Cronk, (Sup. ^^l, 2,6 N. Y. S. 1. 1887 ) 46 Hun 401, 10 State Rep. 127. ^ 3- G"^*" ^- /^f \°i^"' < ^^P" ^f,^ > .rr T^ /-, /c 146 App. Div. 744, 131 N. Y. S. 450; 97. Remmey V. VanDeCarr, (bup. -Waterbury v. Graliam, (Super. Ct. 1917) 177 App. Div. 237, 163 N. Y. jgg^j g ^^^^^ C^. 215. S. 724. 4_ NiemoUer v. Duncombe, (Sup. 98. Dix V. Shaver, (Sup. 1878) 14 igoi) 59 App. Div. 614, 69 N. Y. S. Hun 392. 88, affirmed 172 N. Y. 621 mem., 65 99 Utica, etc., R. Co. v. Brinclcer- N. E. 1120; Fraker v. Hyde, (Sup. hoff, (Sup. 1839) 21 Wend. 139. 190«) 127 App. Div. 620, 111 N. Y. 488 NEW YORK LAW OF CONTRACTS [§ 323 by the payee becomes binding and enforceable as soon as the serv- ices are rendered, though there was no agreement by the payee to render the services and though the amount of the note was far in excess of the vahie of the services.^ So if an option to purchase is given a lessee on condition that he make improvements on the premises, though no obligation is imposed on him to make such improvements, his making them furnishes a sufficient consid- eration for the option and renders it binding on the lessor.* If A oifers B a certain sum on the consideration that he quit a cer- tain business, B by quitting the business accepts the offer and furnishes a consideration for the promise to pay. The same has been held true where the promise is to pay fixed instalments so long as the rielinquishment continues; and after the promisee has relinquished the business a consideration for the promise as a whole is supplied and the promisor cannot withdraw from his engagement so long as the promisee keeps out of the business.^ If an offer is made to a person to pay him a certain amount if he will sell his property to a third person, the making of the sale will furnish a sufficient consideration for the promise, though in the first instance no obligation was imposed on the seller to make the sale.* On the same principle a reward may be legally claimed by one complying with the conditions on which it is offered, although the promisor could have sued no one for not doing the thing called for.* Likewise a subscription to a charitable corpora- tion or the like is enforceable if made in consideration of or on condition that the promisee do or perform some act that it was not legally bound to do and such act is performed." § 323. Effect of Subsequent Promise or Offer to Perform. — Where a promise to pay money or do some other thing is made on the condition that the promisee perform some act, with- out the latter 's agreeing or binding himself so to perform, it is the performance of the condition which furnishes the con- sideration. This effect cannot be given to the promise of the S. 757. See also Butterly v. Deer- Journal Pub. Co., (Sup. 1914) 164 ing, (Sup. 1912) 152 App. Div. 777, App. Div. 126, 149 N. Y. S. 668. 787, 137 N. Y. S. 836. 8. Wilkinson v. Chamber of Com- 5. Miller v. McKenzie, (1884) 95 ferce, (Sup. Tr. T. 1911) 73 Misc. N. Y. 575. 141, 130 n. Y. S. 676. 6. Spitzli V. Guth, (Sup. Sp. T. 9. Pierson v. Morch, (1880) 82 1920) 112 Misc. 630, 183 N. Y. S. N. Y. 503; Todd v. Weber, (1884) 743. 95 N. Y. 181, 192. 7. Rague v. New York Evening 10. See infra, section 381. § 324] CONSIDEEATION 480 promisee to perf orm/^ nor to his mere offer to perform where such offer is declined by the promisor.^^ Thus where the defendant promised to pay to the plaintiff a certain sum if the latter would procure and give to the former a certain indemnity bond, the plaintiff not assuming any obligation to procure and give the bond, and sometime thereafter the plaintiff procured and tendered to the defendant such a bond as was contemplated, but the defend- ant refused to accept it, it was held that this did not supply the necessary consideration and render the defendant's promise enforceable. In this connection Parker, P. J., says : ' ' What the plaintiff did towards performance on his part was, that something over two months after the agreement he tendered to the defend- ants such a bond as was mentioned in the agreement, and demanded that they pay over the $4,000 and interest. The defendants refused to accept the bond or to pay over the money. In other words, they claimed that, not being bound by their promise, they were under no obligation to do so. It seems very clear that they were not bound by that promise ; and I cannot see how a mere subsequent offer on plaintiff's part to do the thing which at the time of the contract he would not undertake to do, could make the defendants' promise a binding one. "When the promisor allows the promisee to proceed, and, upon the faith of such promise, do that which the promisor requested him to do, it is equitable that he himself be held liable upon his promise ; but when the promisee does no more than to renew his request, the promisor is still at liberty to grant or refuse it, as he shall see fit, even though the promisee has by that time put himself in a condition to do that which he then for the first time offers to do. If the defendants had accepted the bond when the plaintiff tendered it, then their liability to pay over the money would be clear. Then the plain- tiff would have fully performed on his part. He would have ' given ' the defendants the bond. But that the defendants were obliged to accept that bond and pay over the money, merely because it was then tendered to them, I cannot agree to. ' ' ^^ § 324. Part Performance under Contract Wanting Mutuality. — ^Where a contract lacks in the first instance mutuality of obli- gation and contemplates a series of acts or is continuing in its 11. Utica, etc., E. Co. v. Brincker- 13. Cook v. Castler, (Sup. 1903) hoff, (Sup. 1839) 21 Wend. 139. 87 App. Div. 8, 10, 83 N. Y. S. 1045. 12. Cook V. easier, (Sup. 1903) 87 App. Div. 8, 83 N. Y. S. 1045. 490 NEW YORK LAW OF COITORACTS [§ 324 nature, the fact that the party on whom no obligation to perform was imposed acts on the contract without incurring an obligation for further performance, does not aid in upholding the contract as a whole. ^* In so far, however, as the contract is performed it may govern the right of the parties.'^ Thus where a seller promises to seU goods to a buyer in such quantities as he may order from time to time, without imposing any obligation on him to make any purchases, the fact that the buyer gives orders which are filled does not prevent the seller from putting an end to the agreement and refusing to make further sales.^^ And where a carrier made an offer to transport iron not to exceed a certain amount, and the person to whom the offer was made merely accepted the offer without binding himself to ship any particular amount of iron, it was held that the carrier was not required, after transporting certain lots, to continue transportation of other lots, as the tender of the prior lots for shipment did not oblige the shipper to furnish any additional quantity and consequently con- 14. Chicago, etc., R. Co. v. Dane, (1870) 43 N. Y. 240; Plumb v. Hal- lauer, etc., Co., (Sup. 1911) 145 App. Div. 20, 130 N. Y. S. 147; Eafolovitz V. American Tobacco Co., (Sup. Sp. T. 1,893) 29 Abb. N. Cas. 406, 23 N. Y. S. 274. See also Hurd v. Gill, (1871) 45 N. Y. 341. But see Roose- velt V. Nusbaum, (Sup. 1878) 75 App. Div. 117, 77 N. Y. S. 457 (set out later in the text of this section) ; Sagalowitz v. Pellman, (Sup. App. T. 1900) 32 Misc. 508, 66 N. Y. S. 433; Manhattan Carting Co. v. Keen's English Chop House, (Sup. App. T. 1920) 180 N. Y. S. 409. And compare National Gum, etc., Co. v. Braendly, (Sup. 1898) 27 App. Div. 219, 223, 51 N. Y. S. 93. This case involved an agreement by an em- ployee not to disclose trade secrets in ease he left his employers. It was claimed that the contract was with- out consideration because there was, in the first instance, no obligation on the part of the employer to employ the defendant or to keep him in his employ. It was held that as the employer did employ the defendant and pay him the agreed salary and keep him there until he saw fit to leave, this performance, by the em- ployer supplied the lack of a previous obligation on his part, if there was such a lack, Rumsey, J., saying: "Although there might have been no obligation on the plaintiff to keep him for any particular time, yet so long as it did keep him and was will- ing to keep him, and paid the salary which it had agreed to pay him, it performed its part of the contract and he was bound to perform his." There was, however, in fact an addi- tional consideration for the defend- ant's promise, namely, the purchase of the business, in which the defend- ant was employed, from the defend- ant's former employer, made at the request of the defendant and on the faith of his promise to enter the plaintiff's employ and not to disclose the trade secrets if he should leave such employ. 15. Quick V. Wheeler, (1879) 78 N. Y. 30O Rosenfeld v. Segalowitz, (Supp. App. T. 1910), 123 N. Y. S. 815; Michigan Carbon Works v. Schad, (Sup. G. T. 1888) 17 State Rep. 505, 1 N. Y. S. 490. 16. Rafolovitz v. American. To- bacco Co., (Sup. Sp. T. 1893) 29 Abb. N. Cas. 406, 23 N. Y. S. 274. § 325] CONSIDERATION 491 stituted no consideration for the original promise as a whole." In another ease, however, it appeared that the plaintiff agreed to sell to the defendant goods at a certain price, and further covenanted that the defendant should have the sole agency for the sale of the plaintiff's goods of the kind sold, which was con- strued as an agreement to sell to the defendant exclusively, pro- vided he continued to handle the plaintiff's goods in fair quantities. There was no express agreement by the defendant to purchase any particular amount of goods, but he did make purchases and handled the plaintiff's goods in fair quantities. The plaintiff put an end to the contract and sued the defendant for the price of goods sold and delivered, and the defendant counterclaimed for damages for breach of the plaintiff's covenant to give him the exclusive agency. It was held that the purchase of the plaintiff's goods in fair quantities supplied the necessary consideration for the covenant for exclusive agency, and that the plaintiff was there- fore liable for its breach.^* Performance of Legal Duty or Obligation § 325. In Geneial. — The performance of or promise to perform one's legal duty or obligation or to pay a legal liability is not a sufficient consideration for an executory promise by another per- son." Where the' duty or obligation is imposed by contract, it is 17. Chicago, etc., R. Co. v. Dane, 562, affirming 31 Hun 100; Robin- (1870) 43 N. Y. 240. son v. Jewett, (1889) 116 N. Y. 40, is; Roosevelt v. Nusbaum, (Sup. 26 State Rep. 387, 22 N. E. 224, af- 1902) 75 App. Div. 117, 77 N. Y. S. firming 14 State Rep. 223; Arend v. 457. Smith, (1897) 151 N. Y. 502, 45 The result reached in this case N. E. 872; Olmst^ad v. Latimer, can, it seems, be sustained only on (1899) 159 N. Y. 313, 53 N. E. 5; the theory that the covenant for the Tonawanda First Nat. Bank v. Rob- so-called exclusive sales agency is an inson, (1907) 188 N. Y. 45, 80 N. E. independent or severable contract, 567, affirming 105 App. Div. 193, 94 which would continue for such a N. Y. S. 767; Weed v. Spears, (1908) reasonable time as would enable the 193 N. Y. 289, 86 N. E. 10, reversing defendant to resell the goods bought. 120 App. Div. 904 mem., 106 N. Y. It cannot, it seems, be considered as S. 1149; Cosgray v. New England authority for the proposition that Piano Co., (Sup. 1896) 10 App. Div. the plaintiff was under any obliga- 351, 75 State Rep. 125i4, 41 N. Y. S. tion to continue to fill orders sent 886; Corcoran v. New York Cent. R. in by the defendant. Co., (Sup. 1898) 25 App. Div. 479, 19. Lamoreux v. Gould, (1852) 7 49 N. Y. S. 701, affirming 20 Misc. N Y 349 361- Vanderbilt v. 197, 45 N. Y. S. 881, and affirmed 164 Schreyer, (1883) 91 N. Y. 392, 12 N. Y. 587 mem., 58 N. E. 1086; Ahb N Cas. 390; Seybolt v. New Woodriff v. Hunter, (Sup. 1901) 65 York, etc., R. Co., (1884) 95 N. Y. App. Div. 404, 411, 73 N. Y. S. 210; 492 NEW YORK LAW OF CONTRACTS [§ 325 immaterial that the promisee could have refused to perform such contract and could not have been compelled to do so by a decree for specific performance. If he did refuse to perform the con- tract he could do so only upon paying or being compelled to pay the prtomisor the damages occasioned by nonperformance, and that, Jughardt v. Reynolds, (Sup. 1902) 68 App. Div. 171, 74 N. Y. S. 152; Holmes v. Seaman, (Sup. 1907) 117 App. Div. 381, 102 N. Y. S. 616, af- firmed 191 N. Y. 512 mem., 84 N. E. 1114; Temple V. Brooks, (Sup. 1915) 165 App. Div. 661, 151 N. Y. S. 490; Teele v. Mayer, (Sup. 1916) 173 App. Div. 869, 160 N. Y. S. 116; McDonald v. Neilson, (Ct. Err. 1823) 2 Cow. 139, 183, per Sutherland, J.; Reynolds v. Ward, (Sup. 1830) 6 Wend. 501; Gibson v. Renne, (Sup. 1838) 19 Wend. 389; Farrington v. Bullard, (Sup. G. T. 1863) 40 Barb. 512; Tilden v. New York, (Sup. G. T. 1870) 56 Barb. 340; Wayne v. Sherwood, (Sup. 1878) 14 Hun 423, aflBrmed 76 N. Y. 599 mem.; Joslyn V. Dow, (Sup. 1880) 19 Hun 494; Dunekel v. Dunckel, (Sup. G. T. 1890) 56 Hun 25, 29 State Rep. 477, 8 N. Y. S. 888; Bigelow v. Davol, (Sup. 1893) 69 Hun 74, 53' State Rep. 407, 23 N. Y. S. 494; Hermann V. Passmore, (Sup. 1893) 72 Hun 526, 55 State Rep. 239, 25 N. Y. S. 773; Wildey v. Robinson, (Sup. 1895) 85 Hun 362, 66 State Rep. 423, 32 N. Y. S. 1018; Babeock v. Kuntzsch, (Sup. 1895) 85 Hun 615, 66 State Rep. 47, 32 N. Y. S. 663; Schneider v. Heinsheimer, (Sup. App. T. 1899) 26 Misc. 11, 55 N. Y. S. 630; Harvey v. Ayres, (Sup. Tr. T. 1902) 37 Misc. 164, 74 N. Y. S. 883; Seymour v. Hughes, (Sup. App. T. 1907) 55 Misc. 248, 105 N. Y. S. 249; Feldman v. Rockford Co., (Sup. Eq. T. 1910) 70 Misc. 66, 126 N. Y. S. 646; Seneca Falls v. Botsch, (Sup. Sp. T. 1914) 86 Misc. 481, 149 N. Y. S. 320; Nahoum v. Slocum, etc.. Trading Co., (Sup. App. T. 1920) 111 Misc. 627, 182 N. Y. S. 318; Myers V. Grey, (Sup. Sp. T. 1910) 122 N. Y. S. 1079, affirmed 146 App. Div. 923, 131 N. Y. S. 1130 mem.; Moore V. Bloomingdale, (Sup. App. T. 1910) 126 N. Y. S. 125; Kennedy v. Trager, (Sup. App. T. 1916) 158 N. Y. S. 740; Bickart v. Hoffmann, (Com. PI. G. T. 1892) 46 State Rep. 886, 19 N. Y. S. 472; Wood v. Mulock, (Super. Ct. 1882) 48 Super. Ct. 70; Tryon v. Jennings, (Com. PI. Sp. T. 1861) 12 Abb. Pr. 33, 22 How. Pr. 421; Proctor v. Thompson, (Sup. Sp. T. 1.882) 13 Abb. N. Cas. 340. In Butler v. Mail, etc., Pub. Co., (Sup. 1900) 54 App. Div. 382, 66 N. Y. S. 788, reversed on other grounds 171 N. Y. 208, 63 N. E. 951, it appeared that the defendant had .recovered a, judgment against the plaintiff for a breach by the latter of his contract to furnish a certain amount of advertisements for publi- cation in the defendant's newspaper. The amount recovered was the full amount to have been paid by the plaintiff if he had furnished the ad- vertisements and they had been in- serted in the paper. Thereafter the parties agreed that the plaintiff might pay the judgment in instal- ments of one hundred dollars, and for every hundred dollars paid on the judgment the defendant would publish for the plaintiff one hundred dollars' worth of advertisements. In- stalments to the amount of the judg- ment were paid, and as each instal- ment was paid the defendant gave a receipt calling for both a credit on the judgment and for the publication of one hundred dollars' worth of ad- vertisements, and finally entered satisfaction of the judgment. As the effect of the agreement was to a large extent to place the parties in the same position as though no judg- ment had been recovered on the early contract for furnishing advertise- § 325] CONSIDERATION 493 in contemplation of law, would be eqtiivalent to performance.^" The general rule applies where the contract imposing the original liability is between the promisor and several persons and the promise is made to one of them to induce him to continue perform- ance." The duty, however, must be one the performance of which could have been enforced either in law or in equity or dam- ages recovered for its nonperformance. If an oral contract is unenforceable by reason of the statute of frauds it cannot be con- sidered as imposing an obligation on the promisor to perform it and for such reason prevent his performance of the oral contract from being a sufficient consideration for a new promise to him.^^ It would be otherwise, however, if the oral promise was under the circumstances enforceable in equity, though no action at law could have been maintained for its breach. Thus if the circumstances are such that a person's oral promise to purchase land at a fore- closure sale and reconvey it to the promisee will be enforced in equity, the performance of such promise is not a consideration for a promise to such person made to induce him to perform the oral promise.^' If the new promise is made as a compromise of a bona fide dispute as to the obligation of the parties under the prior con- tract, the compromise of the dispute furnishes the necessary con- sideration for the new promise, though the promisee may not under ments, and as the plaintiff had fully consideration; and it is difficult to carried out . the agreement on his see wherein the actual consideration part, it was held that there was a for the promise by the defendant to sufficient consideration for the de- do something for the benefit of the fendant's promise to publish the ad- plaintiff, namely, to publish free of vertisements to be furnished by the cost to him advertisements to be fur- plaintiff. " In the last analysis, nished by him, really lies, therefore," says Hatch, J., "the 20. Vanderbilt v. Schreyer, (1891) agreement was a mere arrangement 91 N. Y. 392, 400, 12 Abb. N. Gas. for compensation for furnishing ad- 390. vertising matter to the defendant for 21. Leibmann v. Dean, (County its newspaper, and the payment of Ct. 1916) 95 Misc. 97, 158 N. Y. S. the judgment was an incident thereto 537. as a part of the compensation for 28. Myers v. Grey, (Sup. Sp. T. procuring the advertisements." This 1910) 122 N. Y. S. 1079, 146 App. illustrates quite forcibly the frequent Div. 923, affirmed 131 N. Y. S. 1130 attempt of the courts to find some mem. See also Norton v. Pattee, consideration for an agreement, (1877) 68 N. Y. 144; Mapes v. which does justice between the par- Snyder, (1875) 59 N. Y. 450. ties, at the expense of the general 23. Myers v. Grey, (Sup. Sp. T. rule that the performance of one's 1910) 122 N. Y. S. 1079, affirmed 146 legal duty (in this case the plain- App. Div. 923, 131 N. Y. S. 1130 tiff's duty to pay the judgment mem. against him) does not constitute a 494 NEW YORK LAW OF CONTRACTS [§ 326 such compromise be in fact required to do any more than he was legally bound to do by the prior contract.^* § 326. Application of Rule Generally. — Where a lessee is under a covenant to make necessary repairs, the making of them is not a sufficient consideration for a new promise by the lessor to renew the lease,^ or to pay the whole or a part of the cost of the repairs, and the same would be true as to a promise made to an assignee of the leasehold estate after the assignment, as by the assignment he became subject to the liability of the lessee to make the repairs.^' Similarly if the lessor has agreed to make repairs, the making of them is not a sufficient consideration for a promise by the lessee to pay a part of the cost thereof.^ Likewise where the abutting property owners were by statute liable for the expense of paving a street, their payment of the same will not furnish a considera- tion for a promise by the municipality to relieve them from any future liability to pay for the repavement of the street. " The owners," says Cardozo, J., " lost nothing by what occurred; they simply paid what by law they could have been obliged to ,pay, and it has never been held that the performance of a legal duty, or the payment of a legal liability, furnished any consideration to support a promise. " ^' A promise to an executor in consideration of his performing an act devolving on him as a part of his official duty is not supported by a sufficient consideration,^' such as a promise to him in consideration of his applying the assets of the estate to the payments of debts as required by law,^" Or a promise to him in consideration of his paying a legacy or a part thereof then due and payable. ^^ Likewise a promise by a beneficiary for life of a trust fund to waive his right to a part of the income of 24. See supra, section 285 et seq. 28. Tilden v. New York, (Sup. G. as to the effect of a compromise or T. 1870) 56 Barb. 340. settlement of a dispute as a con- 29. Converse v. Kellogg, (Sup. G. sideration. T. 1850) 7 Barb. 590; Dunckel v. 25. Byrne v. Romaine, (Chan. Ct. Dunckel, (Sup. G. T. 1890) 56 Hun 1835) 2 Edw. Ch. 445. 25, 29 State Rep. 477, 8 N. Y. S. 888; 26. Everson v. Heffernan, (Sup. Slater v. Slater, (Sup. Sp. T. 1905) 1901) 59 App. Div. 533, 69 N. Y. S. 46 Misc. 332, 94 N. Y. S. 900, af- 2,68. firmed 114 App. Div. 160, 99 N. Y. S. 27. Bickart v. Hoffmann, (Com. 564, which is affirmed 188 N. Y. 633 PI. G. T. 1892) 46 State Rep. 886, 19 mem, 81 N. E. 1176. N. Y. S. 472 (replacing flag pole). 30. Dunckel v. Dunckel, (Sup. G. See infra, section 338, as to the T. 1890) 56 Hun 25, 29 State Rep. necessity for a consideration to sup- 477, 8 N. Y. S. 888. port contracts between lessor and 31. Converse v. Kellogg, (Sup. G. lessee entered into after the execu- T, 1850) 7 Barb. 590. tion of the lease. § 326] CONSIDERATION 495 the fund in consideration merely of the performance by the trus- tee of the duties imposed on him by law is unenforceable for want of consideration.'^ The same is true as to a promise to a trustee to pay him additional commissions or compensation for the per- formance of his legal duties,*' and as to a promise for additional compensation made to an assignee for the benefit of creditors after he has undertaken the duties of the trust.'* Where it was the duty of a stenographer for the assembly to do stenographic work for members, a promise by a member to pay the stenographer for doing so is unenforceable for want of consideration.'^ An agree- ment by a solvent corporation with its creditors to distribute its assets ratably is merely a promise to do what the law requires, and furnishes no consideration for a promise by a creditor to for- bear the enforcement of his claim.'* The general principle has also been applied to a promise to pay an enhanced price or do some other act to induce a seller to perform his executory contract of sale ;" and where the plaintiff had agreed, for a certain sum, to 32. In re Bishop, (Surr. Ct. 1915) 89 Misc. 355, 151 N. Y. S. 768, 14 Mills 41. 33. Wildey v. Robinson, (Sup. G. T. 1895) 85 Hun 362, 66 State Rep. 423, 32 N. Y. S. 1018. 34. Carpenter v. Taylor, (1900) 164 N. y. 171, 58 N. E. 53, revers- ing 28 App. Div. 622 mem., 51 N. Y. S. 1139. 35. Temple v. Brooke, (Sup. 1915) 165 App. Div. 661, 151 N. Y. S. 490. 36. Mt. Vernon Rattan Co. v. Joachinson, (Sup. 1907) 119 App. Div. 71, 103 N. Y. S. 1045. 37. Schneider v. Heinsheimer, (Sup. App. T. 1899) 26 Misc. 11, 55 N. Y. S. 630; Kuhmarker Mfg. Co. v. Hills, (Sup. App. T. 1914) 146 N. Y. S. 1013; Carnana v. Prudential Spice Co., (Sup. App. T. 1919) 178 N.Y. S. 401; Porter v. Orensein, (Siip. App. T. 1920) 180 N. Y. S. 418. In Fulton Grain, etc., Co. v. An- glim, (Sup. 1899) 44 App. Div. 488, 60 N. Y. S. 957, it appeared that a guaranty of the payment of the price of goods, which recited a future sale and delivery of the goods, was en-tered into after the principal contract had been made and a part of the goods delivered thereunder. It was held that the subsequent deliv- eries were a sufficient consideration for the guaranty both as to the goods theretofore delivered as well as the subsequent deliveries. No special no- tice as affecting the consideration is taken by the court of the fact that the guaranty was subsequent to the principal contract, and it may be, as a matter of fact, that under the cir- cumstances the seller would have been justified in withholding future deliveries unless cash on delivery was paid. If this was so, undoubtedly the waiver of such right would have con- stituted a sufficient consideration for the guaranty. Again, due to the fact that the court cites as its authority the case of Smith v. Molleson, (1896) 148 N. Y. 241, 42 N. E. 669, it may be that the guaranty was given in pursuance of the buyer's promise to do so made at the time of the princi- pal contract. If this was so the guaranty was also based on a suffi- cient consideration. (See supra, sec- tion 239.) If, however, the above suppositions are not true, it would seem that the seller did no more than he was required to do by the existing 496 NEW YORK LAW OF CONTRACTS [§ 326 furnish all the ashes necessary to the construction of a building, and thereafter refused to proceed with the contract unless he was paid for the ashes by the load, it was held that if this new agree- ment was merely to give an additional compensation it was with- out consideration, though it would be otherwise if it was intended as a modification of the original contract.^ So where, after a contract for the purchase of a building in process of construction was made, the seller, to induce the purchaser to complete his con- tract, promised to do additional work to the building, it was held that there was no consideration for such promise.^' The rule has also been applied to a promise by an employer to increase the salary of his employee, made during the term of the employment, or to pay him extra compensation for services which his contract required him to render ; *° such as a promise of additional compen- contract, and it is difficult to see where there was a consideration for the guaranty, if it was given merely to induce the seller to make deliv- eries as required hy the previous con- tract. 38. Galway y. Prignano, (Sup. App. T. 1912) 134 N. Y. S. 571. 39. Jughardt v. Reynolds, (Sup. 1902) 68 App. Div. 171, 74 N. Y. S. 152. 40. Cosgray v. New England Piano Co., (Sup. 1896) 10 App. Div. 351, 75 State Rep. 1254, 41 N. Y. S. 81 Bloodgood V. Wuest, (Sup. 1902) 69 App. Div. 356, 74 N. Y. S. 913 Price V. Press Pub. Co., (Sup. 1907 117 App. Div. 854, 103 N. Y. S. 296 Carrere v. Dun, (Sup. App. T. 1896) 18 Misc. 18, 75 State Rep. 491, 41 N. Y. S. 34. If, however, the employee under- takes to render services not within the original contract the agreement of the employer to pay extra com- pensation therefor is binding. Free- land V. Bacon, (City Ct. G. T. 1889) 27 State Rep. 273, 7 N. Y. S. 674. In Wright v. Fulling, (Sup. 1906) 104 App. Div. 49, 93 N. Y. S. 228, it appeared that the defendant em- ployed the plaintiff as manager and agent of certain real estate consisting of building lots, and it was provided that the plaintiff was to be the sole agent of the defendant in the sale of the lo'ts, and to receive as a commis- sion ten per cent of the selling price of all lots sold, whether sold by the defendant or by the plaintiff, except- ing that as to a certain class of lots sold directly by the plaintiff the com- mission was to be two and one-half per cent. Under another contract all services rendered by the plaintiff, ex- cept as to sales made by him, were fully paid for. It was held that the promise to pay him the two and one- half commission on sales made by the defendant was without consideration, as no services whatsoever were ren- dered by the plaintiff as to such lots as a consideration for such commis- sion. In Price v. Press Pub. Co., (Sup. 1907) 117 App. Div. 854, 103 N. Y. S. 296, the rule was applied where the contract provided that the employee should be paid " not less " than cer- tain stated sums during the succes- sive years of the employment, and the employer, as an inducement to the employee not to quit the employ- ment, promised to give him a certain bonus at the end of the term. A promise by an employer made at the time of employment or during the employment, if no period of em- ployment is fixed and the employee is at liberty to leave at any time, to § 326] CONSIDERATION 497 sation to a lawyer for services rendered in the collection of a claim, where the fee for his services was fixed at the time of his employ- ment," or a promise for additional compensation for services ren- dered by a real estate agent in negotiating a sale of land or man- aging the property ; *^ to an agreement by an employee to a reduc- tion in the agreed compensation ; *^ to a promise for additional compensation to a partner where the partnership agreement required the plaintiff to give his entire time and efforts to the partnership business ; ** and to a promise by the plaintiff to dis- continue an action for rent on the promise of the defendant to pay the amount admitted to be due in a few days.^^ The payment by a debtor of his admitted indebtedness is no consideration for a promise by the creditor. For instance, in case of a lease, the continued payment of rent by the lessee affords no consideration for a promise by the lessor not to exercise his reserved right to terminate the lease ; ^ nor does the payment by the state of the indebtedness concededly owing for the construction of a road afford any consideration for an agreement by the creditor to keep the road in repair." Where a contract for the sale of land requires the vendor to accept the purchaser's unindorsed notes for a part of the purchase money, and he refuses to carry out his contract unless the purchaser secures an indorser on the notes, the carry- ing out of the contract does not constitute a consideration for a third person's indorsement of such notes.^* In ease of a promise by a father to compensate his minor child for services rendered in pay at his death a certain sum, in 150 App. Div. 66, 134 N. Y. S. 762; addition to a monthly wage, for each Pepe v. Rodena Realty Co., (Sup. year of the employment, is not a App. T. 1914) 144 N. Y. S. 1070. promise merely to make the employee 43. Romaine v. Beacon Litho- a present of such additional amount graphic Co., (Com. PI. G. T. 1895) or to pay her extra compensation for 13 Misc. 122, 68 State Rep. 108, 34 performing her duties, and if clearly N. Y. S. 124. proven is enforceable against the em- 44. Kenney v. Trager, (Sup. App. payer's estate. Barrett v. Bailey, T. 1916) 158 N. Y. S. 740. (Sup. 1901) 59 App. Div. 300, 69 45. Farrington v. BuUard, (Sup. G. N. Y. S. 246. T. 1863) 40 Barb. 512. 41. Jackson v. Stone, (Sup. 1900) 46. Seymour v. Hughes, (Sup. App. 48 App. Div. 628, 64 N. Y. S. 820. T. 1907) 55 Misc. 248, 106 N. Y. S. . A fortiori this is true where the 249. promise for additional compensation 47. Seneca Falls v. Botsch, (Sup. was not made until after the services Sp. T. 1914) 86 Misc. 481, 149 N. Y. were rendered. Brauer v. Lawrence, S. 320. (Sup. 1914) 165 App. Div. 8, 150 48. Harvey v. Ayres, (Sup. Tr. T. N. Y. S. 497. 1902) 37 Misc. 164, 74 N. Y. S. 883. 48. Mayer v. Penfield, (Sup. 1912) 32 498 NEW YORK LAW OF CONTRACTS [§ 327 the family, it is held that as he, as parent, is entitled to the bene- fit of the child's services, his promise is without consideration;*' but if a father has emancipated his minor child the latter becomes entitled to his own earnings, and it is generally recognized that if thereafter he works for his father there is a sufficient consideration for the father 's promise to pay for his services.^" Where a debtor arrested in a civil suit has given bond for his release, a note given the plaintiff's attorney in consideration of his consenting to the debtor's release is without consideration.^' § 327. Promotion of Domestic Peace. — Where husband and wife are living apart under a decree or separation agreement, the wife's consent to the resumption of the marital relations is a suffi- cient consideration for a promise by the husband ; ^^ and the same is true as regards the agreement of a wife to dismiss a well-founded action for divorce or separation and to return to her husband.^^ And where the parties were living apart and an action for separa- tion had been instituted by the wife, and the husband, in consider- ation of her return and the resumption of marital relations, prom- ised to make a certain provision for her by will, it has been held immaterial whether her claim for a separation was well founded or not, as the husband by entering into the agreement recognized it as well founded.^ 49. Bolton V. Terpeny, (Sup. G. T. award of alimony to be paid weekly. 1882') 14 Wkly. Dig. 833.. See also Under sequestration proceedings a Fort V. Gooding, ( Sup. G. T. ISSO) 9 legacy payable to the husband was Barb. 371, 375. taken. Thereafter, in consideration 50. Stanley v. National Union of the wife's return to her hus- Bank, (ISSa) 115 N. Y. 122, 134, band and the dissolution of the de- 23 State Rep. 966, 22 N. E. 29. cree of separation and proceedings 51. Donai v. Lutjens, (Sup. 1897) thereunder, which was ordered on the 21 App. Div. 254, 47 N. Y. S. 659, application of the parties, the hus- aflSrmed 165 N. Y. 622 mem., 59 N. E. band assigned the legacy to his wife. 1121. It was held that there was a valuable 58. Goldstein v. Goldstein, (Sup. consideration for the assignment, and Sp. T. 1901) 35 Mi&c. 251,- 71 N. Y. S. therefore that it was good as against 807; Griffin v. Griffin, (Sup. Sp. T. existing creditors of the husband. 1912) 77 Misc. 468, 137 N. Y. S. 3; 53. Adams v, Adams, (1883) 91 Dewey V. Durham, (Sup. G. T. 1884) N. Y. 381, affirming 24 Hun 401; 19 Wkly. Dig. 47. Sommer v. Sommer, (Sup. 1903) 87 In Tisdale v. Rider, (Sup. 1907) App. Div. 434, 84 N. Y. S. 444; Rodg- 119 App. Div. 594, 104 N. Y. S. 77, ers v. Rodgers, (Sup. 1919) 186 App. it appeared that a wife had obtained, Div. 77, 174 N. Y. S. 324. in a proceeding in which the sum- 54. Goldstein v. Goldstein, (Sup. mons was by publication, a decree of Sp. T. 1901) 35 Misc. 251, 71 N, Y. S, separation against her husband and an 807. § 327 J CONSIDERATION 499 On the other hand, as a general rule, no agreement can be enforced on the alleged consideration of the continuance of the marital relations, made while the parties are living together, for each is bound to do this by the marriage contract and the law requires each of them to observe and perform that contract and obligation.^^ And where a newly married couple were living together, a promise, such as a note, given by a third person to the wife, in order to promote domestic peace between the spouses and induce the wife to cease her faultfindings and importunities, has been held unenforceable for want of a consideration.'^ Thus where a brother of a husband gave his note payable to the wife, it was held unenforceable, 'Brien, J., saying : " I do not think that any principle, or any case, has been found to the effect that a written promise by a stranger, in the form of a note given to a husband in order that he might deliver the same to his wife to secure domestic peace between a newly married couple, is in law a good promise in consideration of marriage. The circumstance that the one who made the promise was the brother of the dis- tressed husband cannot change the case, it remains just the same as if the promise was sent to some other husband for the benefit of some other wife. The real and only consideration for the note was family peace between husband and wife. ... It is her duty to see to it that peace is maintained without price, so far as it is within her power. ... In any aspect of this case it would seem to be impossible to make anything of this note but a naked promise, and so was not the subject of an action." ''^ Where a husband of intemperate habits agreed to convey land to his wife if he got drunk again, and a deed was drawn up and left with his attorney to be delivered to his wife if he got drunk, it was held that there was no consideration for his agreement to convey, and that as the delivery was not properly one in escrow the convey- ance was ineffectual, though the husband did in fact get drunk and the conveyance was turned over by the attorney to the wife.'^ S<5. Kramer v. Kramer, (1905) 181 N. Y. 477, 74 N. E. 474, reversing 90 N. Y. 477, 74 N. E. 474, reversing 90 App. Div. 176, 86 N. Y. S. 129. App. Div. 176, 86 N. Y. S. 129; 5S. Bosea v. Lent, (Sup. Tr. T. Griffin v. Griffin, (Sup. Sp. T. 1912) 1904) 44 Misc. 437, 90 N. Y. S. 41. 77 Misc. 468, 137 N. Y. S. 3. " It is undisputed," says Kellogg, J., 56. Kramer v. Kramer, (1905) 181 "that the husband might give his N. Y. 477, reversing 74 N. E. 474, 90' property to the wife without any App. Div. 176, 86 N. Y. S. 129. consideration, might give it to her 57. Kramer v. Kramer, (1905) 181 for the reason that he became intoxi- 500 NEW YORK LAW OF CONTRACTS [§ 328 It would also seem that if the wife is living apart from her hus- band without any reasonable cause whatsoever, her return is the performance merely of her marital duty and cannot constitute a consideration for a promise by the husband to make a provision for her.^^ § 328. Performance by Carrier of Legal Duty. — In case of con- tracts with carriers by land or vessel, an agreement to increase the freight rate, after a binding contract for the transportation has been entered into, must be supported by a new consideration,^" and the same would be true as to a subsequent agreement limiting the general liability of the carrier for injury to or loss of the goods in transit." And where a railroad company carrying the mail is, by its contract with the government, under a legal obliga- tion to carry the mail agent accompanying the mail, the per- formance of this duty is not a sufficient consideration for the agreement of the agent to release the company from liability to himself for injuries received through the company's negligence.'^ The mere performance by a railroad company of its statutory duty to issue a mileage book is not a sufficient consideration to support a contract or promise by the holder restricting the manner in which he may use the book.^ It has been held, where a railroad cated and that it was unsafe in his 61. Wiggins v. Erie R. Co., (Sup. hands, or that he felt that it was a 1875) 5 Hun 185. fair and just compensation to her 6{J. Seybolt v. New York, etc., R. for the trouble and annoyance which Co., (1884) 95 N. Y. 562, affirming she suffered on account of his intoxi- 31 Hun 1€0. cation, or for love and aflfection. But 68. Parish v. Ulster, etc., R. Co., he did not deliver the deed; he sim- (1908) 192 N. Y. 353, 85 N. E. 153, ply agreed to deliver it, and the reversing 113 App. Div. 894 mem., agreement is without any considera- 98 N. Y. S. 1109; Corcoran v. New tion whatever. An executory con- York Cent., etc., R. Co., (Sup. 1898) tract to be of force must be mutually 25 App. Div. 479, affirming 49 N. Y. binding, and there must he a con- S. 701, and affirmed 20 Misc. 197, 45 sideration passing from each party as N. Y. S. 861, 164 N. Y. 587 mem., 58 an agreed equivalent for the consid- N. E. 1086. See also Horton v. Erie eration to come from the other. ... R. Co., (Sup. 1901) 65 App. Div. 587, So far as the idea enters that the 10 N. Y. Anno. Cas. 321, 72 N. Y. S. wife was to live with and care for 1018. the husband, it can furnish no con- In this connection Cullen, Ch. J., sideration, because that is a duty says : " It is contended . . . that resting upon her growing out of the though the defendant did issue mile- marital relation." age books, it incorporated therein 59. Jones v. Jones, (Sup. Sp. T. certain conditions and restrictions; 1903) 40 Misc. 360, 82 N. Y. S. 325. that while the plaintiff might have 60. Allen v. Bareda, (Super. Ot. insisted upon the issue to her of a 1860) 20 Super. Ct. 204. mileage book, with the privileges ac- § 329] CONSIDERATION 501 company as part of the consideration for the conveyance of a strip of land for a right of way agreed to furnish the grantor free transportation, subject to the sole condition that the annual passes issued should be used by the grantor only, that a provision inserted in a pass for the relief of the carrier from liability for injuries received by the grantor while being transported was unenforce- able for want of consideration. " In these circumstances," says Adams, P. J., " we think the defendant [the carrier] obligated itself to furnish the plaintiff with transportation, relieved from any other condition; and that when it assumed to attach to the fulfilment of such obligation an additional condition, and one which was never within the contemplation of the parties, it foisted up'^n the plaintiff a new contract for which no consideratiou passed. In other words, the defendant was bound by the subsist- ing contract between it and the plaintiff to furnish the latter with transportation over its road for a consideration agreed upon; but when it undertook to make for itself what was in effect a new con- tract, by imposing upon the plaintiff a condition which was not contained in the original contract, it furnished no consideration therefor, and consequently is in no position to enforce the same. ' ' ^* § 329. Restoration of Property to Owner. — The restoration of property wrongfully withheld from the owner, without claim of right or title and under such circumstances that the law would have compelled restoration, is not a sufficient consideration for a promise.*" " It would be a premium on wrong-doing," says Learned, P. J., " to say that the courts would enforce a promise to pay money, made to induce one to surrender to the rightful owner property to which the possessor had no title and no right of possession. One who has possession, but no right to possession whatever, may possibly delay the rightful owner by refusing to deliver. But to say that such possessor parts with anything of corded to the holder thereof by the the law." Parish v. Ulster, etc., R. terms of the statute, and sued for the Co., (1908) 192 N. Y. 353, 360, 85 statutory penalty in case it was re- N. E. 153. fused, nevertheless by accepting the 64. Dow v. Syracuse, etc., R. Co., ticket so issued she became bound by (Sup. 1903) 81 App. Div. 362, 80 its limitations and restrictions. We N. Y. S. 941. think not. The company received the 6B. Tolhurst v. Powers, (1892) 133 full price of the mileage book as fixed N. Y. 460, 45 State Rep. 665, 31 N. E. by the statute, and therefore there 326, affirming 61 Hun 105, 39 State was no consideration for any agree- Rep. 581, 15 N. Y. S. 420; McDonald ment by the plaintiff to limit its use v. Neilson, (Ct. Err. 1823) 2 Cow. to a greater extent than prescribed by 139, 183. 502 NEW YORK LAW OP CONTRACTS [§ 329 value when lie merely does his duty, and gives up what he has no right to retain, is very inconsistent with sound principle. . . . The voluntary surrender of what one has no right to retain can- not be a good consideration for a promise. The promisee parts with nothing. He gives up nothing to which he has or claims a right. ' ' ^^ This is held true where, after a judgment in i^eplevin in favor of the defendant, a promise is made to the sheriff to induce him to perform his duty to return the property to the defendant.*' So where a creditor has possession of his debtor's property, but without any lien thereon or right to retain possession, his sur- render of possession is not a sufficient consideration for the promise of a third person to pay the indebtedness ; *^ and it is held that the surrender of a paper, the retaining of which was unlawful and which a court of equity would have ordered to be delivered up, is not such a consideration as will support an executory contract.** The same view has been taken where the consideration of a mort- gage was the surrender by the mortgagee to the mortgagor, a trus- tee, a certificate of deposit issued by the mortgagee and represent- ing a sum of money the trustee was at the time entitled to have paid to him.'" It is also held that where the circumstances under which the plaintiff acquired a lease were such that a court of equity- would compel him to assign it to a corporation of which he was an officer, his assignment of the lease to the corporation is not a suffi- cient consideration for a promise by the corporation to pay there- fOr.'i And where it is the duty of one holding the legal title to letters patent for an invention to assign them to the one having the entire beneficial ownership, the performance or agreement to perform such duty cannot constitute a consideration for the lat- ter 's promise to compensate the former for doing so.'^ It has also GG. Tolhurat v. Powers, (Sup. 1891) 69. Crosby v. Wood, (1852) 6N. Y. 61 Hun 105, 107, 39 State Rep. 581, 369. 15 N. Y. S. 420. 70. Towanda First ISTat. Bank v. 67. Hofheimer • V. Campbell, (App. Robinson, (1907) 188 N. Y. 45, 80 1874) 59 N. Y. 269, affirming 7 Lans. N. E. 567, affirming 105 App. Div. 157. 193, 94 N. Y. S. 767. 68. Tolhurst V. Powers, (1892) 133 71. Robinson v. Jewett, (1889) 116 N. Y. 460, 45 State Rep. 665, 31 N. E. N. Y. 40, 26 State Rep. 387, 22 N. E. 326, affirming 61 Hun 105, 39 State 224, affirming 14 State Rep. 223. Rep. 581, 15 N. Y. S. 420. The prop- 72. Cowles v. Rochester Folding erty in this case was surrendered to Box Co., (Sup. 1903) 81 App. Div. the third person who had been au- 414, 80 N. Y. S. 811, affirmed on thorized by the owner to take or other grounds 179 N. Y. 87, 71 N. E. receive it. 468. § 330] CONSIDERATION 503 been held, where goods stolen from the owner were found by him in the possession of a third person, that his promise to pay such person for the goods in order to gain possession was unenforceable for want of consideration.'^ If there is a bona fide claim of right to retain the property, and the agreement is based on a settle- ment and compromise of such claim, there is then a sufficient consideration^^ § 330. Continued Performance of Building Contracts.— In case of building contracts or the like, a promise by the employer to pay the contractor additional compensation or to do some other act for his benefit to induce the contractor to continue the perform- ance of his contract must be supported by a new consideration to be enforceable. The mere continuance by the contractor to per- form his contract instead of abandoning it is not, according to the view taken in our state, a sufficient consideration.'^ " Even 73. Marcus v. Mayer, (Sup. App. T. 1914) 147 N. Y. S. 973. 74. See supra, section 285 et seq., aa to the compromise and settlement of claims generally. 75. Vanderbilt v. Schreyer, ( 1883) 91 N. Y. 392, 12 Abb. N. Cas. 390; Casterton v. Melntire, (Super. Ct. G. T. 1893) 3 Misc. 380, 54 State Rep. 148, 23 N.Y. S. 301; Leibmann v. Dean, (County Ct. 1916) 95 Misc. 97, 158 N. Y. S. 537. See also Innes v. Ryan, (Sup. App. T. 1902) 37 Misc. 806, 76 N. Y. S. 921. In Lattimore v. Harsen, (Sup. 1817) 14 Johns. 330, a bond with a penalty was given by the contractor for the faithful performance of his contract, and after the work was partly done it was agreed that for its completion the contractor should be paid by the day for his services and for the materials furnished. This was a modification of the con- tract as to the method of payment and as such binding on the parties. The court, however, says : " By the former contract, the plaintiffs sub- jected themselves to a certain penalty for the nonfulfilment, and if they chose to incur this penalty they had a right to do so, and notice of such intention was given to the defendant, upon which he entered into the new arrangement. Here was a sufficient consideration for this promise." And this statement ig sometimes thought to be authority for the position that the continuance of performance of the contract was itself a sufficient consideration for the additional com- pensation. This seems to be the view taken in Stewart v. Keteltas, ( 1867 ) 36 N. Y. 388, 2 Trans. App. 288, affirming 22 Super. Ct. 261. In this case it ap- peared that by an oral agreement made at the time the written contract was entered it was stipulated that the contractor should not be required to do certain work called for by the written specifications, but it was held by the court that this oral agree- ment could not be shown to vary the written contract. During the prog- ress of the work the contractor made the claim that he was not required to do this work, and the employer agreed that it need not be done, but that if the contractor did do it he would pay him a certain additional sum. It was held that the contractor could recover such additional sum. The court cites as its authority for the position the Lattimore case, and says: "The defendant [employer] thus released the plaintiffs [the con- tractors] from all claims he might 504 NEW YORK LAW OT CONTRACTS [§ 330 though it lay," says Kuger, C. j\, " in his [the contractor's] power to refuse to perform his contract, he could do this only upon paying the other party the damages occasioned by his nonperform- ance, and that in contemplation of law would be equivalent to per- formance. He had no legal or moral right to refuse to perform the obligation of the contract into whi'eh he had upon a good con- sideration voluntarily entered.'* Thus where the plaintiff con- tracted with the defendant to build a house, agreeing to accept a certain bond and mortgage in part payment, but afterwards refused to finish his contract unless the defendant would guarantee the payment of the bond, it was held that the guaranty could not be enforced for want of consideration, for in building the house the plaintiff did only that which he had contracted to do." So where a contractor found excavation work, which he had agreed to do for a certain price, more difficult than he expected, the promise of the employer to pay him additional compensation to induce him to continue the work has been held unenforceable for want of a consideration.'* As a general rule the continuance to perform the contract will not be a sufficient consideration for a promise by a third person." If a contractor has been released by the default of the other party from further obligation to perform his contract, the waiver of his right to decline further perform- ance may constitute a sufficient consideration for a new. promise by the employer or by a third person ; such as a promise by a third person to pay for the work if the contractor will complete it.'" So where during the progress of the performance of a contract have had against them for breach of by the contractor to accept less than the contract, in refusing to do this the former agreed price for the work, work under it, and their subsequent 76. Vanderbilt v. Schreyer, (1883) agreement to do the sheath-piling 91 N. Y. 392, 400, 12 Abb. N. Cas. was sufficient consideration to sup- 390. port his promise to pay for it." 77. Vanderbilt v. Schreyer, (1883') In H. G. Vogel Co. v. Wolff, (Sup. 91 N. Y. 392, 12 Abb. N. Cas. 390. 1913) 156 App. Div. 584, 141 N. Y. S. 78. Casterton v. Mclntire, (Super. 756, affirmed 209 N. Y. 568 mem., 103 Ct. G. T. 1893) 3 Misc. 380, 54 State N. E. 1124, the view seems to have Rep. 148, 23 N. Y. S. 301. been taken, in case of a contract for 79. Vanderbilt v. Schreyer, (1883) the installation of a sprinkling sys- 91 N. Y. 392, 12 Abb. N. Cas. 390. tem, that where the owner of the See also Mannetti v. Doege, (Sup. building refused to allow the con- 1900) 48 App. Div. 567, 568, 62 N. Y. tractor to perform the work, irre- S. 918. spective of whether such refusal was 80. Tallman v. Bresler, (Sup. G. T. wrongful or not, his subsequent con- 1873) 65 Barb. 369, affirmed 56 N. Y. sent to the worlc being done was a 635 mem. sufficient consideration for a promise § 331} CONSIDERATION 505 for the installation of the plumbing in a building under construc- tion, plumbing material already installed was stolen, and there was a bona fide dispute as to whether the plumber or the owner of the building should bear the loss, the settlement of this dispute may furnish a consideration for the owner's promise to pay the plumber an additional compensation for the work required to be done again.^i § 331. Part Payment of Debt Generally. — The most frequent application of the general rule as to performance of a legal duty is where a part payment is made on a liquidated demand past due and enforceable by an action; and it has been settled from an early date that such a payment alone is not a sufficient considera- tion for the creditor's agreement to surrender or discharge the part unpaid.*^ "This single question," says Potter, J., " was presented to the English court in 1602, when it was resolved (if not decided) in Pinnel's case (5th Co. E. 117), ' that payment of a lesser sum on the day in satisfaction of a greater cannot be any satisfaction for the whole,' and that this is so although it was agreed that such payment should satisfy the whole. This simple question has since arisen in the English courts and in the courts of this country in almost numberless instances, and has received the same solution, notwithstanding the courts, while so ruling, have rarely failed, upon any recurrence of the question, to criticise and condemn its reasonableness, justice, fairness or honesty. No respectable authority that I have been able to find has, after such unanimous disapproval by all the courts, held otherwise than was held in Pinnel 's case. " *' It is held immaterial that a receipt in full is given,** or that in accordance with the agreement with the cred- itor the debtor borrowed from friends the money necessary to 81. Innes v. Ryan, (Sup. App. T. 12 Wend. 110; Pennell v. Bucki, 1902) 37 Misc. 801, 76 N. Y. S. 921. (Sup. 1895) 84 Hun 432, 65 State 82. Bunge v. Koop, (1872) 48 N. Y. Rep. 623, 32 N. Y. S. 407; Segal v. 225; Baker V. Alger, (1872) 51 N. Y. Heuer, (Sup. App. T. 1901) 33 Misc. 625; Bliss V. Shwarts, (1875) 65 601, 67 N. Y. S. 924; Knit Goods N. Y. 444; Dambmann v. Schulting, E;:ch. v. Kresoff, (Sup. App. T. 1918) (1878) 75 N. Y. 55, reversing 12 102 Misc. 156, 168 N. Y. S. 634; Hun 1, -wliicli affirmed 54 How. Pr. Acker v. Phxnix, (Chan. Ct. 1834) 289; McKinzie v. Harrison, (1890) 4 Paige 305. 120 N. Y. 260, 264, 30 State Rep. »». Jaffray v. Davis, (1891) 124 934, 24 N. E. 458; Duncan v. New N. Y. 164, 167, 35 State Rep. 106, 26 York Mut. Ins. Co., (1893) 138 N. Y. N. E. 351, 4 Silv. Ct. App. 315. 88, 92, 51 State Rep. 661, 33 N. E. 84. Bunge v. Koop, (1872) 48N.Y. 730; Keeler v. Bartine, (Sup. 1834) 225. 506 NEW YORK LAW OF CONTRACTS [§ 331 make the part payment.*" Where a debt is overdue, a part pay- ment cannot constitute a consideration for the postponement of payment of the residue ; ** thus in case of a conditional sale the pay- ment of overdue instalments is no consideration for an extension of the time for the payment of other instalments." So a promise by a debtor to pay one of several debts when due is not a sufficient consideration for the creditor's promise to forbear as to the other debts,** and a promise of a debtor to pay a part of the debt when due, and a payment in pursuance thereof, are on the same footing.*' If a legatee is entitled to receive payment of his legacy a part pay- ment thereof by the executor is no consideration for the legatee's promise to postpone payment of the residue.^" As a general rule, in case of joint debtors, a payment of a part of the debt by one is not a sufficient consideration for the promise of the creditor to 85. Bunge v. Koop, (1872) 48 N. Y. 225, affirming 28 Super. Ct. 1; AlbricM v. Johnson, (City Ct. Tr. T. 1887) 2 City Ct. 350. In Bunge v. Koop, (1872) 48 N. Y. 225, Earl, C, says : " The money, when paid, was to belong, and in fact did belong, to the defendants. It was to be paid and was paid as their money. Suppose a debtor agreed to go to work and earn the money, or to dig for it in the earth, would this furnish a new consideration to up- hold an agreement of the creditor to take less' than his conceded due? In all cases an embarrassed debtor must make some effort to procure the money to make a compromise, but no case can be found holding that the fact that he had agreed to make such effort furnishes any consideration to uphold the compromise. The debtor is legally bound to pay, and it is utterly indifferent to the creditor where he gets the means to do it; that is the matter of the debtor, and all his efforts are expended in simply endeavoring to discharge a legal obli- gation. Hence the fact that the de- fendants agreed to induce their friends to loan them the money, and that they did induce them to loan it, furnishes no new consideration to uphold the compromise." 86. Halliday v, Hart, (1864) 30 N. Y. 474; Parmelee v. Thompson, (1871) 45 N. Y. 58; Pabodie v. King, (Sup. 1815) 12 Johns. 426; Miller v. Holbrook, (Sup. 1828) 1 Wend. 317; Gibson v. Renne, (Sup. 1838) 19 Wend. 389; Converse v. Kellogg, (Sup. 1850) 7 Barb. 590; Tammien V. Clause, (Sup. 1873) 67 Barb. 430; Graham v. Negus, (Sup. 1890) 55 Hun 440, 443, 29 State Rep. 114, 8 N. Y. S. 679; Babcock v. Kuntzsch, (Sup. G. T. 1895) 85 Hun 615, 66 State Rep. 47, 32 N. Y. S. 663; Bloomingdale v. Braun, (Sup. App. T. 1913) 80 Misc. 527, 141 N. Y. S. 590; Manchester v. Van Brunt, (City Ct. G. T. 1892) 46 State Rep. 566, 19 N. Y. S. 685, affirmed 2 Misc. 228, 50 State Rep. 588, 22 N. Y. S. 362; Hunt V. Bloomer, (Super. Ct. 1856) 12 Super. Ct. 202; Van Allen v. Jones, (Super. Ct. 1863) 23 Super. Ct 369; Quelting v. Pleas, (City Ct. Ch. 1884) N. Y. Daily Reg. Apr. 26, 1884. 87. Bloomingdale v. Braun, (Sup. App. T. 1913) 80 Misc. 527, 141 N. Y. S. 590. 88. Tryon v. Jennings, (Com. PI. Sp. T. 1861) 12 Abb. Pr. 33, 22 How. Pr. 421. <89. Miller v. Holbrook, (Sup. 1828) 1 Wend. 317. 90. Converse v. Kellogg, (Sup. 1850) 7 Barb. 590. § 332] CONSIDERATION 507 forbear to sue tlie payor until he had endeavored to collect the balance from the other debtor.*^ And where persons are suc- cessively liable for the payment of a note an agreement between them that in consideration of a part payment by those primarily liable the person secondarily liable will release the former from liability to him is unenforceable for want of consideration.'^ The agreement of a lessor, in so far as it is executory, to reduce the rent agreed to be paid by a lessee must be supported by a new con- sideration. The payment of the reduced rent is itself insufflcient.'^ , An indebtedness may, however, be the subject of a gift by the creditor to the debtor, and the creditor on receiving part payment could in this way forgive or discharge the balance of the debt.'* And where a lessor, without any consideration therefor, agrees to reduce the rent reserved, it is held that in so far as the agreement is carried out by the lessor's acceptance of the reduced rent in full satisfaction in accordance with the agreement it is binding on him and he cannot revoke or repudiate it and maintain an action for the sum deducted ; '* and in such a case it is not essential that a receipt in full be given, as it is only important as evidence of the agreement of the parties.'^ It has been held that where, on the part payment of a debt evidenced by a note or the like, the security or evidence of the debt is surrendered with the intention to dis- charge the entire debt, it will be effective for such purpose.*' § 332. Recovery of Interest after Payment of Principal. — Interest agreed to be paid is a part of the debt, and payment of the principal and its acceptance do not constitute a waiver of the right to recover interest theretofore accrued.'* " "When inter- est," says Spring, J., " is the result of an agreement or of a course of dealing giving rise to an implied agreement, or is prescribed by legislative authority, it is a part of the compensation, and not a mere incident. It being, then, a part of the principal indebted- 91. Pabodie v. King, (Sup. 1815) 1909) 132 App. Div. 397, 116 N. Y. S. 12 Johns. 426. See also Harrison v. 726. Close, (Sup. 1807) 2 Johns. 448. 96. Zindler v. Levitt, (Sup. 1909) 92. Keeler v. Bartine, (Sup. 1834) 132 App. Div. 397, 116 N. Y. S. 726. 12 Wend. 110. 97. Babeock v. Bonnell, (1880) 80 93. Coev. Hobby, (1878) 72 N. Y. N. Y. 244, affirming 44 Super. Ct. 141, affirming 7 Hun 157. See supra, 568; Larkin v. Hardenbrook, (1882) section 238. 90 N. Y. 333; Knit Goods Exch. v. .r 94. See supra, section 233, as to Kresoff, (Sup. App. T. 1918) 102 ^ift of debt owing donor by donee. Misc. 156, 168 N. Y. S. 634. 95. McKenzie v. Harrison, (1890) 98. Devlin v. New York, (1892) 120 N. Y. 260, 30 State Rep. 934, 24 131 N. Y. 123, 42 State Rep. 744, 30 N, E. 458; Zindler v. Levitt, (Sup. N. B. 45; Watts v. Garcia, (Sup. G, 508 NEW YORK LAW OF CONTRACTS [§ 333 ness, any payment made which does not include the interest no more pays the obligation than partial pajrment of a promissory note discharges the debt. ' ' '* If, however, the interest is recover- able only by way of damages for nonpayment, the acceptance of the principal sum precludes the right to claim interest thereon,^ and acceptance of the principal sum under protest will not save the right to recover interest ; ^ but a special agreement may be effective to reserve the right to recover the interest.^ § 333. Part Payment in Connection with Additional Con- sideration. — If there is a consideration in addition to the part payment or agreement to make part payment of an existing debt, this may be sufficient for the creditor 's agreement to discharge the entire debt,* and it is said by Potter, J., that the courts " have seemed to seize with av-idity upon any consideration to support the agreement to accept the lesser sum in satisfaction of the larger, or, in other words, to extract if possible from the* circumstances of each case a consideration for the new agreement, and to substitute the new agreement in place of the old and thus to form a defense to the action brought upon the old agreement. " ^ A composition with creditors, under which the several creditors forego a part of their several claims, has been consistently upheld from an early date.^ A part payment of the debt or an agreement to make such pay- ment, by a third person, is a sufficient consideration for the cred- itor's agreement to discharge or release the balance; ' but the fact T. 1863) 40 Barb. 656; Leigliton v. (Sup. 1920) 191 App. Div. 114, 180 Leighton Lea A&s'n, (Sup. Sp. T. N. Y. S. 743. 1910) 122 N. Y. S. 139. 4. Blair v. Wait, (1877) 69 N. Y. 99. Smith v. Buffalo, (Sup. Sp. T. 113, affirming 6 Hun 477. 1896) 39 N. Y. S. 881, 883. 5. Jaffray v. Davies, (1891) 124 1. Tillotson V. Preston, (Sup. N. Y. 164, 168, 35 State Rep. 106, 26 1808) 3 Johns. 229; Cutter v. New N. E. 351, 4 Silv. App. 315. See also York, (1883) 92 N. Y. 166; In re Knit Goods Exch. v. Kresoflf, (Sup. Hodgman, (1893) 140 N. Y. 421, 428, App. T. 1918) 102 Misc. 156, 168 K 55 State Rep. 800, 35 N. E. 660; Moers Y. S. 634, 635. V. Den Norske Handelsbank, (Sup. 6. Blair v. Wait, (1887) 69 N. Y. 1920) 191 App. Div. 114, 180 N. Y. 113; Thearsson v. Peterson, (App. S. 743; Middaugh v. Elmira, (Sup. 1866) 2 Keyes 636, 4 Abb. App. Dec. 1880) 23 Hun 79; Smith v. BuflFalo, 396; Fellows v. Stevens, (Sup. 1840) (Sup. Sp. T. 1896) 39 N. Y. S. 881. 24 Wend. 294. See supra, section 2. Moers v. Den Norske Handels- 257. bank, (Sup. 1920) 191 App. Div. 114, 7. Bliss v. Shwartz, (1875) 65 N. 180 N. Y. S. 743. Y. 444, affirming as to this but re- 3. Grote v. New York, (1907) 190 versing on other grounds 7 Lans. N. Y. 235, 82 N. E. 1088, reversing 186; Smith v. Gould, (Sup. 1895) 84 117 App. Div. 768, 102 N. Y. S. 977; Hun 325, 65 State Rep. 579, 32 N. Moers v. Den Norske Handelsbank, Y. S. 373. See also August v. § 334] CONSIDERATION 509 that the money to make the part payment is advanced by a third person as a mode of payment by the debtor, and not as a considera- tion for the agreement of the debtor to accept a part in discharge of the whole debt, does not bring the transaction within the rule, as it is in reality a part payment by the debtor.* Thus where an agent of the debtor negotiated with the creditor for a compromise of his claim, and on the latter 's agreement to accept a part in pay- ment of the whole gave his personal draft as a mode merely of paying for his principal, the debtor, a part of the sum agreed on, this was held not to show a sufficient consideration for the cred- itor's agreement to discharge or release the unpaid balance of his claim ; ' and the same has been held true where, as a mode of pay- ing the cash amount agreed on, the checks of third persons were turned over to the creditor.^" The relinquishment by a debtor of his right to take advantage of the bankruptcy laws is an additional consideration rendering binding the agreement of the creditor to accept a parit payment in satisfaction of the debt.^^ As a claim against a partner individually may be more valuable than a claim against the partnership, it is held that the giving of his individual note by one member of a firm for a part of the firm debt is a sufficient consideration on the part of the creditor to release and discharge the maker from further liability.^^ § 334. Promise to Pay Interest, etc., as Consideration for Extending Time of Payment. — In case of an overdue debt, a promise to pay interest so long as the creditor shall forbear or until the debtor shall pay the debt forms no sufficient considera- tion for the creditor's promise to forbear, where the debtor is already bound to pay interest." " This," says Marcy, J., in an early case, " was a promise to do precisely what he [the debtor] O'Brien, (Sup. Tr. T. ISM) 30 Misc. 12. Ludington v. Bell, (1879) 77 54, 61. N. y. S. 720, affirmed 50 App. N. Y. 138, reversing 43 Super. Ct. Div. 626, 63 N. Y. S. 989. 557. See supra, section 279, as to 8. Bliss V. Shwartz, (1875) 65 N. whether the giving of the individual y. 444, reversing 7 Lans. 186. See note of a partner is a consideration aso Bunge v. Koop, (1872) 48 N. Y. for the release of the other partners. 225, 229. 13. Kellogg v. Olmsted, (1862) 25 9! Bliss V. Shwartz, (1875) 65 N. N. Y. 189; Parmelee v. Thompson, Y 444 reversing 7 Lans. 186, 64 (1871) 45 N. Y. 58; Olmstead v. Barb. 215. Latimer, (1899) 158 N. Y. 313, 53 10. Bunge v. Koop, (1872) 48 N. N. E. 5; Moser v. Walker, (Sup. y 225. 1897) 23 App. Div. 91, 48 N. Y. S. 11. Knit Goods Exeh. v. Kresofif, 341; Reynolds v. Ward, (Sup. 1830) (Sup App T. 1918) 102 Misc. 156, 5 Wend. 501; Van Allen v. Jones, 168 N Y S 634 (Super. Ct. 1863) 23 Super. Ct. 369. 510 NEW YORK LAW OF CONTRACTS [§ 334 was bound to do without a promise. If the debtor 's promise to pay interest creates no additional obligation, it is no consideration for a contract to delay."" The same view is taken in a recent case in the Court of Appeals where the consideration for the creditor 's promise to forbear to enforce a mortgage was the debtor's con- tinued performance of the terms of the mortgage as regarded taxes, insurance and interest.^^ And a promise by a mortgagee to forbear for a certain time if interest is paid by the owner of the equity of redemption, who took subject to the mortgage, but which does not deprive the owner of the right to pay off the mortgage at any time, is unenforceable for want of consideration, as no per- sonal obligation on the part of the owner to pay the interest is assumed by him.^^ If the extension is for a definite time and the debtor thereby foregoes his right to pay the debt and thus avoid further liability for interest, it would seem, on principle, that his promise is a sufficient consideration for the creditor's prom- ise to forbear until the fixed time, as it may be a benefit to the creditor whereby the investment of his moneys is secured as well as a possible detriment to the debtor, and this is the view taken in most of the other jurisdictions." In our state, however, the Court of Appeals at quite an early date refused to adopt this view and held that the express promise of the debtor to forego his right to pay until the extended time had elapsed was of no more effect than an agreement which might be implied from an exten- sion granted at his request ; '* and this is now the well established See also Robertson v. Clocke, (Sup. dered by the Appellate Division in 1897) 18 App. Div. 363, 36G, 46 N. Olmstead v. Latimer, (Sup. 1896) 9 "i. S. 87. App. Div. 163, 75 State Rep. 500, 41 14. Reynolds v. Ward, (Sup. 1830) N. Y. S. 44, reversed 158 N. Y. 313, 5 Wend. 501, holding that as such a 53 N. E. 5, it is stated to be the bet- promise did not bind the promisor, it ter view; and the court refused to did not discharge a surety. follow the majority opinion in the 15. Olmstead v. Latimer, (1899) Kellogg case, which it is claimed 158 N. Y. 313, 53 N. E. 5. should be overruled. This decision of 16. Moser v. Walker, (Sup. 1897) the Appellate Division is cited with 23 App. Div. 91, 48 N. Y. S. Ml; approval in the later case of Robert- Title Guarantee, etc., Co. v. Weiher, son v. Clocke, (Sup. 1897) 18 App. (Sup. Tr. T. 1900) 30 Misc. 250, 63 Div. 363* 46 N. Y. S. 87. See also N. Y. S. 224. As to the necessity for Valentine v. Heydecker, (Sup. 1878) mutuality of obligation generally see 12 Hun 676; Goldman v. Ehrenreich, supra, section 316. (Sup. Sp. T. 1900) 33 Misc. 433, 68 17. This is also the view taken by N. Y. S. 424. Davies, J., in his dissenting opinion 18. Kellogg v. Olmsted, (1862) 25 in Kellogg v. Olmsted, (1862) 25 N. N. Y. 189, affirming 28 Barb. 96. Y. 189, 192. And in the opinion ren- § 334] CONSIDERATION 511 rule in our state." The original case in which the question arose was one where a surety claimed his release on account of the creditor's agreement extending the time of payment, which requires an agreement based on a consideration, and the reluctance to reach a conclusion resulting in the surety's discharge may have uncon- sciously influenced the court in its decision. There is, however, no principle on which such a case can be distinguished from one in which the creditor seeks to enforce payment contrary to his promise, and this is the view now taken by the courts.^" Thus a promise, based on the debtor's promise to pay interest on the debt, to extend the time of payment of a debt secured by a mortgage is not a bar to the maintenance of an action to foreclose the mortgage instituted prior to the time to which payment is thus sought to be extended.^^ The view has been taken that as the debtor may recover back immediately usurious interest paid, such a payment is equally ineffectual.^^ The rule prevails in our state that where a moneyed obligation provides generally for the payment of a certain rate of interest before maturity, no provision being made as to interest after maturity, interest after maturity is allowed as damages, and the legal rate is recoverable and that only, whether it is more or less than the agreed rate.^ It is consequently held that if the obligation before maturity bears less than the legal rate the agreement of the debtor after maturity to pay an enhanced rate or the legal- rate is not a sufficient consideration for the cred- itor's agreement to extend the time of payment.^^ 19. Olmstead v. Latimer, (1899) N. Y. S. 195; Eepelow ^. Walsh, 158 N. y. 313, 53 N. E. 5, reversing (Sup. 1904) 98 App. Div. 320, 90 9 App. Div. 163, 75 State Kep. 500, N. Y. S. 651. 41 N. Y. S. 44, and reviewing the 21. Repelow v. Walsh, (Sup. 1904) earlier cases; Mutual L. Ins. Co. v. 98 App. Div. 320, 90 N. Y. S. 651; Aldrich, (Sup. 1899) 44 App. Div. Carr v. Morris, (Sup. 1920) 191 App. 620, 60 N. Y. S. 195; Repelow v. Div. 671, 181 N. Y. S. 813. WalsJh, (Sup. 1904) 98 App. Div. 22. Hunt v. Bloomer, (Super. Ct. 320, 90 N. Y. S. 651; Carr v. Morris, 1856) 12 Super. Ct. 202. See supra,- (Sup. 1920) 191 App. Div. 671, 181 section 318, as to whether a void or N. Y. S. 8il3; Title Guarantee, etc., voidable promise is a sufficient con- Co. V. Weiher, (Sup. Tr. T. 1900) 30 sideration. Misc. 250, 63 N. Y. S. 224; Barden 23. O'Brien v. Young, (1894) 95 V. Sworts, (Sup. Sp. T. 1920) 112 N. Y. 428; Sands v. Gilleran, (Sup. Misc 384, 183 N. Y. S. 184. See also 1913) 159 App. Div. 37, 144 N. Y. S. Parmelee v. Thompson, (1871) 45 3B7. N. Y. 58; Weil v. Bonner, (Sup. Sp. 24. Sands v. Gilleran, (Sup. 1913) T. 1878) 5 Wkly. Dig. 493. 159 App. Div. 37, 144 N. Y. S. 337; no. Mutual L. Ins. Co. v. Aldrich, Neukirch v. McHugh, (Sup. 1914) (Sup. 1899) 44 App. Div. 620, 60 165 App. Div. 406, 1.50 N. Y. S. 1032. 512 NEW YOKK LAW OF CONTRACTS [§ 335 The payment of interest on an indebtedness by a person who is not liable therefor is a sufficient consideration for the creditor's promise to extend the time of payment ; ^^ thus where the owner of the equity of redemption, who was under no personal obligation to pay either the principal or the interest, pays the overdue inter- est, this is a sufficient consideration for the mortgagor's promise to extend the time of payment.^* The payment of interest before it becomes due will itself constitute a sufficient consideration for the extension.^ § 335. Payment of Costs. — On the theory that costs do not become a legal debt against a party to an action until judgment, his payment or agreement to pay costs before judgment may, it has been held, constitute a sufficient consideration for a promise by the other party.^* Thus where pending an action on a note against the maker and his sureties, one of the sureties, in consider- ation of his release from further responsibility, the discontinuance of the action, and the promise of the plaintiff to use due diligence to recover the amount of the note and the costs from the maker and pay over to the surety a part of the amount collected, paid one-half of the note and the costs of the action, it was held that the payment of the costs was a good consideration for the release of the surety and the promise of the plaintiff to use due diligence to recover from the maker.^ But where there was no dispute as to the plaintiff's right to recover, and the costs would have been awarded him as a matter of course, it has been held that the defendant's payment of costs, on the plaintiff's promise to dis- continue the action and extend the time for the payment of the debt involved, is not a sufficient consideration for his promise to forbear, and that therefore a surety for such debt is not discharged 25. Krebs v. Carpenter, (Sup. some other consideration than- the 1908) 124 App. Div. 755, 109 N. Y. S. continued payment of interest, etc. 482; Jester v. Sterling, (Sup. 1881) If the interest called for is the legal 25 Hun 344. rate a pecuniary consideration might 26. Krebs v. Carpenter, (Sup. subject the transaction to the de- 1908) 124 App. Div. 755, 109 N. Y. S. fense of usury. It is suggested, 482. therefore, in such cases that a pre- 27. Babeock v. Clark, (Sup. 188.1) payment of some interest would be 23 Hun 391. See supra, section 278, the better way to avoid the dilemma, as to the effect of paying debt or 28. Warfield' v. Watkius, (Sup. G. part thereof before it becomes due as T. 1859 ) 30 Barb. 395. See also a consideration. Eecleston v. Ogden, (Sup. G. T. 1861) The customary method of extend- 34 Barb. 444. ing mortgages by agreement of the 29. Warfield v. Watkins, (Sup. G. parties must, to be effective, have T. 1859) 30 Barb. 3,85. 336] CONSIDERATION 513 by the agreement to forbear.'" The same view was taken where an action to recover rent was dismissed on the payment of costs by the lessee, and such payment was held not to be a sufficient con- sideration for the promise of the lessor to reduce the rent." § 336. Performance of Contractual Duty to Third Person. — The rule that the performance of one 's duty or obligation is not a consideration is generally applied though the duty is one owing to a third person and the promise is to induce the promisee not to break his contract with such third person. ^^ " The courts of this state are committed," says Cardozo, J., in a recent case, " to the view that a promise by A to B to induce him not to break his con- tract with C is void. ' ' ^ Thus where the plaintiff had entered into a contract with a corporation to render services to it for a certain time, a promise by the president of the corporation to give him a certain amount of stock if he faithfully performed his contract was held to be without consideration,'* and the same has been held true where an officer and stockholder of a corporation promised to be personally liable for the compensation to be paid for services to be rendered the corporation under a contract existing at the 30. Parmelee v. Thompson, (1871) 45 N. Y. 58. 31. Coe V. Hobby, (1878) 72 N. Y. 141, affirming 7 Hun 157. 32. Arend v. Smith, (1897) 151 N. Y. 502, 45 N. E. 872; Petze v. Leary, (Sup. 1907) 117 App. Div. 829, 102 N. Y. S. 960; Teele v. Mayer, (Sup. 1916) 173 App. Div. 869, 160 N. Y. S. 116. See also Vanderbilt v. Sthreyer, (1883) 91 N. Y. 392, 12 Abb. N. Gas. 390. But see Fulton Grain, etc., Co. v. Anglim, (Sup. 1899) 44 App. Div. 488, 60 N. Y. S. 957; Mannetti v. Doege, (Sup. 1900) 48 App. Div. 567, 62 N. Y. S. 918; Levine v. Morrison, (Sup. App. T. 1915) 155 N. Y. S. 435. 33. De Gieco v. Schweizer, (1917) 221 N. Y. 431, 435, 117 N. E. 807. 34. Petze v. Leary, (Sup. 1907) 117 App. Div. 829, 102 N. Y. S. 960. It would be otherwise, as suggested in this case, if the promise was made in consideration of the promisee entering into the contract with the corporation and faithfully carrying it out, as so entering into the con- 33 tract would be something the promisee was not under obligation to do (see supra, section 262) ; but it is not enough that the promise was made simultaneously with the contract of service with the corporation. In this connection, Gaynor, J., said : " If the making of the contract by the plaintiff with the corporation had been the consideration to the defend- ant for the malcing of the contract by him witli the plaintiff, or, con- versely, if the plaintiff had been in- duced to enter into his contract with the corporation by the contract of the defendant with him, there would be a legal consideration. But that is negatived by the allegation of the complaint that the consideration was that the plaintiff should faithfully perform his contract of service with the corporation — not that he should make it. This excludes any other or further consideration, for it is alleged to be the consideration. The making of the two contracts simultaneously might enable a finding of fact to be made that the consideration or in- 514 NEW YORK LAW OF CONTRACTS [§ 336 time.'^ Also, where the defendant was indebted to a corporation, and on payment being demanded by its president and being tmable to pay at the request of the president and in order to raise money to pay the debt he gave his note to the president to be discounted and the money applied in paying the indebtedness to the corpora- tion, the president promising to renew the note if the defendant was unable to pay it when due, it was held that the promise to renew was without consideration, as the defendant in paying his indebtedness to the corporation did no more than he was legally bound to do.'' A promise by a third person to A and B jointly to induce them to carry out a contract between them which they are free to abandon, and not to rescind or modify such contract, is not sub- ject to the objection that it is a promise to induce them to perform an existing duty and therefore without consideration.''^ The same principle should apply, it would seem, to a promise to one party to a contract not merely to induce him to perform but also to induce him not to seek its rescission.'* Also where the promisor does not contract on behalf or for the benefit of the third person to whom the duty is owing, it would seem that the obligation to perform the contract must be one owing to the promisor and for which the promisee would be liable to the promisor in damages. And it has been held that the performance of work in which the promisor is beneficially interested may be a sufficient consideration for his promise to pay therefor though the promisee was under ducement to the defendant to make in this case, cannot be deemed a suf- his contract was the making of the ficient consideration, in that in so other contract by the plaintiff, but doing he does something he was - we have not to do with a question of not legally bound to do, as it is held evidence but with one of pleading; that the fact that money with which and we may not assume that that a debtor pays a part of hisi debt is was the consideration, for the com- loaned to or borrowed by him is not plaint alleges that the consideration a sufficient additional consideration was another thing, i. e., that the for the agreement of the creditor to plaintiff should faithfully keep his accept the part payment in discharge contract of service." of the debt. See supra, section 331. 35. Teele v. Mayer, (Sup. 1916) 37. De Cicco v. Schweizer, (1917) 173 App. Div. 869, 160 N. Y. S. 1116. 221 N. Y. 431, 435, 117 N. E. 807. 36. Arend V. Smith, (1897) 151 N. 3«. See De Cicco v. Schweizer, Y. 502, 45 N. E. 872. (1917) 221 N. Y. 431, 435, 117 N. B. The fact that the debtor may be 807. See supra, section 308, as to said to borrow the money with which where marriage as a consideration is to pay the debt to the corporation, affected by the fact of an existing though not considered by the court engagement to marry. 337] CONSIDERATION 515 contract with a third person to do the work. Thus, where a building was being erected by a contractor, who had sublet a part of the work to the plaintiff, and the latter, being afraid that he would not be paid by the contractor, threatened to stop the work, whereupon the owner of the building, to induce him to continue the work, promised to pay him therefor, it was held that there was a sufficient consideration for the owner's promise." Meritorious Consideration; Natural Love and Affection § 337. General Rule. — In reference to consideration, natural love and affection is frequently spoken of as a good or meritorious consideration as distinguished from a valuable consideration; it does not, however, constitute a sufficient consideration to render enforceable an executory promise.'"' From an early date it has been recognized as sufficient to support a conveyance by way of covenant to stand seized,^'^ and a court of equity enforces, at the suit of the beneficiary, a conveyance in trust whether he is a e 39, Manoetti v. Doege, (Sup. 1900) 48 App. Div. 567, 62 N. Y. S. 918. In this case Hirschberg, J., says : " The general rule undoubt- edly is that an agreement to do what one is under contract to do will not furnish a sufficient consideration to support a promise. In the cases cited by the appellant the existing en- gagement or contract was made with the promisor, and not, as in thisi in- stance, with a third person. The plaintiff here was under no engage^ ment or contract with the defendant. The defendant could not compel the plaintiff to continue the work, inas- much as the latter had not contracted with him to do it. Nor would an agreement to do what one is under contract to do be sufficient consider- ation to support a promise made by a third person unless some new con- sideration exists at the time of the promise as between the promisor and promisee. And that ia the situation here. The defendant had an interest in the prompt prosecution of the work. The plaintiff, apprehensive of losing his pay, had concluded to throw up the job and take the chances of any claim by S. for dam- ages. The defendant thereupon, in consideration of the benefit result- ing to him from uninterrupted work upon the house, made a new and in- dependent contract with the plaintiff, by the terma of which the latter con- sented to and did proceed with the work instead of abandoning it, and in consideration of which the de- fendant promised to pay the entire sixty dollars. This was a valid and enforceable contract under the authorities." 40. Whitaker v. Whitaker, (1873) 52 N. Y. 368; Wilbur v. Warren, (1887) 104 N. Y. 192, 5 State Rep. 602, 10 N. E. 263; Gouge v. Gouge, (Sup. 1898) 26 App. Div. 154, 49 N. Y. S. 879; Duvoll v. Wilson, (Sup. 1850) 9 Barb. 487; Hadley v. Reed, (Sup. G. T. 1890) 34 State Rep. 949, 12 N. Y. S. 163. 41. Eysaman v. Eysaman, (Sup. 1881) 24 Hun 430; Hayes v. Ker- show, (Chan. Ct. 1844) 1 Sandf. Ch. 258. See also Jackson v. Sebring, (Ct. Err. 1819) 16 Johns. 515; Du- voll V. Wilson, (Sup. 1850) 9 Barb. 487, 491. 516 NEW YORK LAW OF CONTRACTS [§ 337 volunteer or not.^^ Natural love and affection is also considered in some cases sufficient to move a court of equity to aid the defective execution of conveyances and powers.*' Thus it has been held from an early date that though a conveyance by a husband to his wife is void at law under the common law rule, still as it is supported by a meritorious consideration, in love and affection and the moral duty of the husband to provide for his wife, it should be given effect by a court of equity.** And according to the view taken in some eases natural love and affection was sufficient to move a court of equity to decree specific performance of a covenant under seal, which in so far as consideration is con- cerned was considered at common law by virtue of the seal to import a consideration for the purpose of rendering the covenant a legal obligation, and avoid the general rule that a court of equity will not decree the specific performance of voluntary covenants; the better view, however, is to the contrary.*^ A decision in the Appellate Division has been thought by some to take the view that the love and affection existing between a mother and her son, and his moral obligation to support her, constitute a sufficient consideration to support a promise by him to support her, and to uphold a mortgage given by him to secure the per- formance of such a promise. The language of the decision does not, however, it seems, support this contention, and the real hold- ing seems to be that the fact that a part of the consideration is 42. Hammerstein v. Equitable covenant to transfer stock. But if Trust Co., (Sup. 1913) 156 App. Div. the actual transfer be made, the equi- 644, 141 N. Y. S. 1065, affirmed 209 table interest will be enforced; for N. Y. 429, 103 N. B. 706. the transfer constitutes the relation In Bunn v. Winthrop, (Chan. Ct. between trustee and cestui que trust, 1815) 1 Johns. Ch. 329, 357, Chan- though voluntary and without con- cellor Kent says: " It will be suf- sideration." flcient, on this subject of aiding 48. See DuvoU v. Wilson, (Sup. voluntary agreements, to recur to the 1850) 9 Barb. 487, 490. distinction declared by Lord Eldon, 44. Hunt v. Johnson, (1870) 44 in EUicon v. Ellison, 6 Ves. 662, as N. Y. 27, distinguishing and explain- being one which red-uces this point to ing White v. Wager, (1862) 25 N. Y. something like established rule. If 328, and Winans v. Peebles, (1865) you want, according to that distinc- 32 N. Y. 423; Shepard v. Shephard, tion, the assistance of chancery to (Chan. Ct. 1823) 7 Johns. Ch. 57. raise an interest by way of trust, on See also Garlick v. Strong, (Chan. a covenant, or executory agreement, Ct. 1882) 3 Paige 440; Neufille v. you must have a valuable or meri- Thomson, (Chan. Ct. 1837) 3 Edw. torious consideration; for the court 92. will not constitute you cestui que 45. Duvoll v. Wilson, (Sup. 1850) trust, when you are a mere volunteer, 9 Barb. 487. and the claim rests in covenant, as a § 338] CONSIDERATION 517 love and affection and the moral obligation resting on the son is immaterial.*^ § 338. Application of General Rule.— It is held that the meri- torious consideration arising out of the duty of a husband or par- ent to support his wife or child and his natural love and affection is insufficient to render enforceable an executory promise made by him to or for the benefit of his wife or child," such as a promissory note executed by a husband to his wife as a gift/* or by a parent to his or her child,** or even, since the statutory abolition of the common law rule that a seal conclusively imports a sufficient con- sideration,°° a voluntary covenant or engagement under seal," 46. Calhoun v. Calhoun^ (Sup. 1900) 49 App. Div. 520, 63 N. Y. S. 601. The reporters of this case, in both the official report of -the Appellate Division and in the New York Sup-' plement, consider the court as holding that love and affection and the moral obligation resting on the son consti- tute a sufficient consideration for the son's promise. The writer, -however, does not think that this is justified, as will appear from the statement of the court which is as follows: " When the mortgage in suit was ex- ecuted the defendant obligated him- self, and intended so to do, to sup- port the plaintiff during her natural life, and it is immaterial whetiier he assumed such obligation wholly in payment for the farm which she had conveyed to him, or paBtly in pay- ment for such conveyance and partly on account of love and affection and in discharge of the moral obligation whicli devolved upon him by reason of his relationship to her. Either or both would furnish an adequate con- sideration to support the mortgage." 47. Whitalcer v. Whitaker, (1873) 52 N. Y. 368; Wilbur v. Warren, (1887) 104 N. Y. 192, 5 State Rep. 602, 10 N. E. 263, affirming as to this but reversing on other grounds 40 Hun 203; In re James, (1895) 146 N. Y. 78, 66 State Rep. 246, 40 N. E. 876, affirming 78 Hun 121, 60 State Rep. 184, 28 N. Y. S. 992; Duvoll v. Wilson, (Sup. 1850) 9 Barb. 487; Snyder v. Guthrie, (Sup. 1880) 21 Hun 341. See also Slater v. Slater, (.Sup. 1906) 114 App. Div. 160, 99 N. Y. S. 564, affirmed 188 N. Y. 633 mem., 81 N. E. 1176, and affirming 46 Misc. 332, 94 N. Y. S. 900. 48. Whitaker v. Whitaker, (1873) 52 N. Y. 368; Wills v. Evans, (Sup. 1879) 8 Wkly. Dig. 368. In Wright v. Wright, (Sup. 1823) 1 Cow. 598, a note executed by one brother and delivered to another aa a gift causa mortis was enforced against his estate. But under the present view the donor's note or other obligation is not the subject of a gift. Harris v. Clark, (Sup. G. T. 1848) 2 Barb. 94, affirmed 3 N. Y. 93. 49. Strevell v. Jones, (Sup. 1905) 106 App. Div. 334, 94 N. Y. S. 627, affirming 92 N. Y. S. 719; Phelps V. Phelps, (Sup. G. T. 1858) 28 Barb. 121, affirmed as to this but modified on other grounds 23 N. Y. 69 (sub nom. Dodge v. Pond) ; In re Wiles, (Surr. Ct. 1917) 101 Misc. 701, 168 N. Y. S. '940., 50. See infra, section 373 et seq. 51. Wilbur v. Warren, (1887) 104 N. y. 192, 5 State Rep. 602, 10 N. E. 263; In re James, (1895) 146 N. Y. 78, 66 State Rep. 246, 40 N. E. 876, affirming 78 Hun 121, 60 State Rep. 184, 28 N. Y. S. 992; Duvoll v. Wil- son, (Sup. 1850) 9 Barb. 487. In Lawrence v. Morris, (Sup. 1915) 167 App. Div. 186, 152 N. Y. S. 777, it appeared that a mother, in order to induce the attorney for her chil- dren not to oppose her application 51>8 NEW YORK LAW OP CONTEACTS [§ 338 such as a husband's bond executed as a gift to his wife,^^ or a covenant for title in a voluntary deed executed by a husband or father to his wife or child.^^ And where a grantee covenants as a part of the consideration for the conveyance to assume and pay a mortgage on the land, his agreement to pay is in the nature of an indemnity to the grantor leaving the land the primary fund, and if in consideration of natural love and affection for a child he conveys the land to it by deed with full covenants containing no reference to the mortgage, the father incurs no liability to the child on his covenants, to discharge the incumbrance.^* It is also held that the moral obligation on the part of the father of an for the discharge of the committee appointed over her person and prop- erty as an insane person, agreed to make provision tor the support of her indigent children. Prior to her dis- charge a surety company entered into an agreement, for a consideration evi- dently proceeding from the mother, that it would guarantee that the mother fulfilled' her agreement to provide for her children in a certain manner, and after the discharge of the committee the mother gave her hond with the company as surety for the payment of the agreed annual sum to the children. The court ex- pressed the view that the bond was enforceable for the benefit of the chil- dren on the same theory on which a conveyance or transfer in trust by a parent for the benefit of his children wa^ enforced in Hammerstein v. Equitable P. Co., (1913) 209 N. Y. 429, 103 N. E. 706, and the recovery by the parent of the property con- veyed denied. The decision, however, did not go to this extent, but was merely that a court of equity would not under the circumstances declare the bond void at the suit of the mother. 50. In re James, (1895) 146 N. Y. 78, 66 State Rep. 246, 40 N. E. 876, affirming 78 Hun 121, 60 State Rep. 184, 28 N. Y. S. 992. See also Schlitz V. Koek, (Sup. 1910) 138 App. Div. 53,5, 123 N. Y. S. 302. In Van Amburgh v. Kramer, (Sup. 1878) 16 Hun 205, however, a, bond secured by a mortgage executed by a husband to his wife was enforced against the land in the hands of a subsequent grantee of the husband. •The court in this case, after stating that a bond and mortgage may be made by way of gift, and citing to this Isenhart v. Brown, (Chan. Ct. 1834) 2 Edw. 341, which is no longer recognized, further stated that the seal was presumptive evidence of a consideration not overcome by proof that a valuable consideration was not paid (see infra, section 372 et seq., as to the general effect of a seal) and that it was unnecessary to pur- sue the subject whether there was a consideration for the bond, because the referee did not find that the bond and mortgage were made without any consideration, but refused to find that there was no value or consider- ation paid therefor. 53. Wilbur v. Warren, (1887) 104 N. Y. 192, 5 State Rep. 602, 10 N. E. 263; Duvoll V. Wilson, (Sup. 1850) 9 Barb. 487. Though the deed in such a case re- cites a nominal consideration and natural love and affection, it may be shown for the purpose of a recovery of substantial damages that there was in fact an additional valuable consideration. King v. Union Trust Co., (Sup. 1911) 148 App. Div. 110, 133 N. Y. S. 18. 54. Wilbur v. Warren, (1887) 104 N. Y. 192, 5 State Rep. 602, 10 N. E. 263, reversing 40 Hun 203. § 338] CONSIDERATION 519 illegitimate child to provide foi' its support is not a sufficient con- sideration for his promise to make provision for its future support either by will or othervirise.^^ Similarly it is held that the volun- tary promise of a wife to pay a sum of money to her imsband is unenforceable for want of consideration,^* and also a note executed by a mother to her daughter."' So where a father, who was the owner of a farm and entitled to the possession thereof, agreed with his daughter, to whom he had orally promised to give the farm, to lease it from her and pay a stipulated rent therefor, and did thereafter pay her certain sums on account of the said rent, it was held that, though the payments actually made took effect as gifts, his promise to continue such payments for the future was void, for want of any consideration to support it, and could not after his death be enforced against his representatives either at law or in equity.^* The voluntary promise of a parent to a child or of one spouse to the other, based on love and affection, will not be enforced after his or her death against his or her estate,^' or, in case of such a promise by a husband to his wife, even as against collateral heirs or distributees.*" In case of a promise by a parent to a child, such as a note executed by the former to the latter, the fact that the parent had given property to other children, and gave the note for the purpose of equalizing the distribution of his estate among the children, does not furnish any additional consideration so as to i5, it appeared that a real estate agent without any previous employment by the landowner received an offer from a third person to purchase the land. He communicated to the landowner 34 tliat lie had such an offer and asked the landowner if he would accept it and pay to him a certain commission for finding the purchaser, which the landowner agreed to do, but after- wards decided not to sell. It was held that as any services which may have been rendered in securing the customer were done voluntarily and without any agreement by the land- owner to pay therefor, and that as the agent did not act in reliance on the promise, the promise of the land- owner to pay the commission was without consideration. 7. Fulton V. Varney, (Sup. 1-907) 117 App. Div. 572, 102 N. Y. S. 608; Winch V. Farmers' Loan, etc., Co., (Com. PI. G. T. 1895) 11 Misc. 390, 65 State Rep. 426, 32 N. Y. S. 244; Edwards v. Tennis, (Sup. App. T. 1919) 10-5 Misc. 60-9, 173 N. Y. S. 500, reversing on otlier grounds 190 App. Div. 478, 179 N. Y. S. 807; Fine V. Nehring, (Sup. App. T. 1918) 172 N. Y. S. 689. 8. Fulton V. Varney, (Sup. 1907) 117 App. Div. 572, 102 N. Y. S. 608. 9. Chilcott V. Trimble, (Sup. G. T. 1852) 13 Barb. 502. 530 NEW YORK LAW OF CONTRACTS [§ 343 If the services were rendered under circumstances showing that it was the intention of both parties that they were to be paid for, though no compensation was fixed, an express promise to pay a certain sum therefor is enforceable, as there was an existing and original obligation to pay the reasonable value of such services and this may be fixed by the agreement of the parties ; ^^ but where services were rendered under an agreement for a reasonable com- pensation and thereafter the parties agreed on their reasonable value, a subsequent promise by the employer to pay an additional amount therefor has been held unenforceable for want of con- sideration." If the promisor received no benefit from past services rendered without his request, his subsequent promise to pay therefor is without consideration." Thus if services are rendered an adult child or a father without the request of the father or child of the person to whom they are rendered, and consequently without any obligation on his part to pay therefor, his subsequent promise to pay is not enforceable as he received no benefit from the services rendered.-'^ And where extra work is done by a subcontractor and the contractor is not benefited thereby, the latter 's subsequent promise to pay therefor has been held unenforceable." While mere gratitude for past gratuitous services is not a suf- ficient consideration for a promise to pay therefor,^^ the fact that gratitude to a large extent may have influenced the promisor in fixing the amount he promises to pay for services not gratuitously rendered does not affect the binding force of the promise.^^ § 343. Goods Sold and Services Rendered Persons under Dis- ability. — Though there may be no obligation on the part of a per- 10. Worth V. Case, (1870) 42 N. Y. 13. Herendeen v. De Witt, (Sup. 362; Cowee v. Cornell, (1878) 75 1888) 4a Hiui 53, 17 State Rep. 298, N. Y. 91; Yarwood v. Trusts, etc., 1 N. Y. S. 467; Drake v. Bell, (Sup. Co., (Sup. 1904) 94 App. Div. 47, 87 Sp. T. 1899) 26 Misc. 237, 239, 55 N. Y. S. 947; Irt re Bradbury, (Sup. N. Y. S. -945, per Gaynor, J. 1905) 105 App. Div. 250, 93 N. Y. S. 14. Majory v. Schubert, (Sup. 1903) 418; Strevell v. Jones, (Sup. 1905) 82 App. Div. 633, 81 N. Y. S. 703. 106 App. Div. 334, 94 N. Y. S. 627. 15. Yarwood v. Trusts, etc., Co., ir. Hill V. Granat, (Sup. App. T. (Sup. 1904) 94 App. Div. 47, 87 1912) 134 N. Y. S. 529. N. Y. S. 947. 12. Perkins v. Smith, (Sup. 1903) 16. Yarwood v. Trusts, etc., Co., 83 App. Div. 630, 81 N. Y. S. 955; (Sup. 1904) 94 App. Div. 47, 87 Ehle V Judson, (Sup 1840) 24 Wend. N. Y. S. 947, appeal dismissed 182 97; Spear v. Downing, (Sup. G. T. N. Y. 527, 74 N. E. 1128. 1861 ) 34 Barb. 522, 12 Abb. Pr. 437, 22 How. Pr. 30. § 343] CONSIDERATION 531 son under disability, such as an infant or a married woman at common law, to pay for services rendered or articles delivered on request, a promise to pay made after the disability is removed is, according to the better view, supported by the original benefits received." " If there be," says CuUen, C. J., " an equitable obli- gation which would also be a legal one were it not for the legal disability of the party, such as infancy or coverture, then the obli- gation, which is not merely moral, but also equitable, is sufficient consideration to support a new promise after the disability of the promisor has ceased. ' ' ^' And in an earlier case where a recovery was allowed on the promise of a woman, made after discoverture, to pay for goods sold her during coverture and for which the hus- band was in no way liable, Balcom, J., said: " The goods were sold and delivered by the vendors with the expectation on their part that they would receive pay for the same, and upon the defend- ant's express promise that she would pay for them, and under such circumstances that the vendors had no claim therefor against her husband. The goods were valuable, and the defendant per- sonally received the benefit of them; and the price she agreed to pay therefor is a debt which, ' in equity and conscience,' she ought to pay. In other words, she ought in common honesty to pay for the goods. Her promise so to do was made for value ac- tually received by her personally ; and it was to discharge a moral obligation, founded upon an antecedent valuable consideration, created for her own personal benefit, and at her special instance and request ; and I am of the opinion the law makes such promise obligatory upon her. It seems to me that the defendant's moral obligation to pay this debt is so interwoven with equities as to fur- nish a good consideration both upon principle and authority for her promise to pay it. I will add that the fact is controlling with me, that the defendant personally received a valuable considera- tion for the money she has promised to pay, and this distinguishes the case from some that seem to weigh against the conclusion that the defendant 's promise is valid. ' ' " 17. Goulding v. Davidson, (1863) (Sup. Sp. T. 1899) 26 Misc. 237, 239, 26 N. y. 604, 25 How. Pr. 483; Gay 55 N. Y. S. 945, per Gaynor, J. V Ballou, (Sup. 1830) 4 Wend. 403; 18. Parsons v. Teller, (1907) 188 Ehle V. Judson, (Sup. 1840) 24 Wend. N. Y. 318, 324, 80 N. E. 930. 97- Wilson v. Burr, (Sup. 1841) 25 19. Goulding v. Davidson, (1863) Wend. 386; Halsey v. Reid, (Sup. 26 N. Y. 604, 611, 25 How. Pr. 483, 1875) 4 Hun 777; Drake v. Bell, reversing 28 Barb. 438. In this case. 532 NEW YORK LAW OF CONTRACTS [§ 344 § 344. Released or Discharged Claim Generally. — If a claim is discharged by the creditor by his own act, though for less than may have been in fact owing, there iS} according to the view taken in our state, no obligation whatsoever on the part of the discharged debtor to pay any balance of the debt, and the prior indebtedness is not sufficient to support his subsequent promise to pay.^" This is held true where a debt had been discharged by an accord and satisfaction, though for less than may have been owing, ^' or by a release.^^ Similarly where a grantor claimed that his grant of a life estate to the grantee was procured by fraud, and in compromise of his suit to have the conveyance set aside the grantee executed a release of his estate, it was held that as there was no liability whatsoever on the grantor to give any addi- tional compensation for the release, his subsequent promise to do however, there was the additional element of fraud in the original pur- chase arising from the married wo- man's holding herself out as unmar- ried. In the earlier case of Watliins v. Halstead, (Super. Ct. 1849) 4 Super. Ct. 311, the view was taken that as the original promise of the married woman to pay for the goods was void her promise after discoverture was unenforceable, as there was: no precedent liability connected with her moral obligation to pay. This case may be distinguished, however, in one element from the Goulding case in that it may have been that though the wife at the time of the purchase was living separate and apart from her husband, still the goods furnished may have been necess:a,ries, and her husband could in the first instance have been held liable for their reason- able value, though as a fact the hus- band when sued successfully de- fended. Under the present statutes remov- ing the contractual disabilities of married women this question will not arise. 20. Straus v. Cunningham, (Sup. 1913) 159 App. Div. 718, 144 N. Y. S. 1014; Stafford v. Bacon, (Sup. 1841) 1 Hill 532, 2 Hill 352, 25 Wend. 384; Zoebisch v. Von Minden, (Sup. 1888) 47 Hun 213, 13 State Rep. 349, re- versed on other grounds 120 N. Y. 406, 31 State Rep. 499, 24 N. E. 795. See also Crans v. Hunter, (1863) 28 N. Y. 389, 394. This is not analogous to the case of a promise by a debtor to pay a debt which has been discharged in bankruptcy or insolvency proceed- ings, the discharge in the latter cases being by act of the law and not an act of the party. As to this see infra, section 346. 21. Stafford v. Bacon, (Sup. 1841) 1 Hill 532, 2 Hill 352, 25 Wend. 384. See .also Piatt v. Walrath, (Sup. 1843) Hill & D. Supp. 59, 61. 22. Zoebisch v. Von Minden, (Sup. Ct. G. T. 1886) 23 Wkly. Dig. 387, holding that a mortgage by a wife given to secure a debt of her hus- band's which had been discharged by a release was without consideration. In Stearns v. Tappin, (Super. Ct. 1856) 12 Super. Ct. 294, the court assumes for the purpose of argument only that a new promise to pay a debt discharged by a release is sup- ported by a sufficient consideration, and assuming such to be the fact holds that the plaintiff cannot re- cover thereon because the transfer to him of the note evidencing the origi- nal debt did not carry the cause of action arising out of the new promise. § 345] CONSIDERATION 533 SO was not supported by a sufficient consideration.^' In case of a limited guaranty, such as a guaranty on the transfer of a note, without indorsement, that the note is collectable, the view has been taken that after the guarantor has been discharged by the laches of the other party there is not such a moral obligation on the guarantor to pay as will support his promise to do so.^* If there is a bona fide dispute or controversy as to whether the discharge was in fact sufficient to extinguish the priop indebtedness, either On account of fraud on the part of the debtor or otherwise, the compromise and settlement of this dispute may constitute a suffi- cient consideration for the debtor's promise to pay in respect to the prior indebtedness.^^ § 345. Claim Discharged by Composition with Creditors. — Though the cases are not in entire accord, the better view seems to be that ordinarily where a debt is discharged by a composition with creditors, no moral obligation to pay the unpaid part of the claim remains which will support a subsequent promise to pay it.^* In this regard a distinction is made between an involuntary pro- ceeding in insolvency or bankruptcy and a voluntary discharge. " The reason of the distinction," says Van Brunt, P. J., " seems to be obvious. In the former case the proceeding is for the pur- pose of devolving the whole of the debtor's property at once, as far as it will go to the payment of his debts, and that thereby he may be discharged from all further liability. The creditor, against his will, is prevented from keeping alive his claim against his debtor. In the case of a composition deed, it is by the voluntary act of the creditor that he releases the debtor, and he acts under 23. Pendleton v. Pendleton, (Sup. State E«p. 349, reversed on other 1873) 1 Thomp. & C. 95. grounds 120 N. Y. 406, 31 State Rep. 24. Vanderveer v. Wright, (Sup. 499, 24 N. E. 795; Slade v. Wilson, 1849) 6 Barb. 547. (Sup. G. T. 1876) 2 Wkly. Dig. 148. 25. Crans v. Hunter, (1863) 28 See also Robinson v. Striker, (Sup. N. Y. 389, 393; Zoebisch v. Von Min- 1888) 47 Hun 546, 549, 15 State Rep. den, (1890) 120 N. Y. 406, 31 State 42, affirmed 113 N. Y. 635 mem., 20 Rep. 499, 24 N. E. 795. As to the N. E. 878; Ooon v. Stoker, (Sup. settlement of a controversy as a con- G. T. 1886) 2 State Rep. 626. But sideration, see supra, section 285 et see Stafford v. Bacon, (Sup. 1841) seq. 1 Hill 532, 2 Hill 352, 25 Wend. 384; 2©. Taylor v. Hotchkiss, (Sup. Howell v. Wright, (Sup. 1886) 41 1903) 81 App. Div. 470, 475, 80 Pun 167, 4 State Rep. 148, affirmed N. Y. S. 1042; Straus v. Cunning- 122 N. Y. 667 mem., 25 N. E. 912, 34 ham, (Sup. 1913) 159 App. Div. 718, State Rep. 212, 3 Silv. App. 142; 144 N. Y. S. 1014; Zoebisch v. Von Ainsworth v. Powell, (Sup. G. T. Minden, (Sup. 1888) 47 Hun 213, 13 1879) 8 Wkly. Dig. 333. 534 NEW YORK LAW OF CONTRACTS [§ 345 no compelling force to do that which he is unwilling to do. " ^' In case of a composition with creditors the parties may expressly pro- vide for the survival of a moral obligation similar to that which remains in case of the involuntary discharge of a debtor, which will support a subsequent promise by the debtor to pay the dis- charged debt, where it does not result in a preference or fraud on other creditors.^* " The rule is, we think," says Scott, J., in this connection, " satisfied by holding that, unless specially reserved, no moral obligation to pay the debts survives a voluntary com- position and release, but that where at the time of the release the debtor expressly recognizes and reserves a moral obligation to pay notwithstanding the release, that express reservation keeps alive the obligation after release to the extent that it will furnish a sufficient consideration for a subsequent and quite distinct promise to pay. It is entirely optional with a debtor, under such circumstances, whether or not he will reserve a moral obligation, and if he elects to do so we can see no rule of law which is violated by holding that that reservation will support a subsequent promise to pay. ' ' ^' Thus where it appeared that a firm of stockbrokers in embarrassed circumstances requested its creditors to accept secu- rities at a certain value, which was in excess of their market value, and to execute releases of their claims, stating that they would offer their " moral obligation " to take back the securities at the price fixed, and the creditors accepted the plan of settlement and executed releases of their claims, it was held that though this did not impose on the firm any legal obligation to take back the secu- rities at the price fixed, yet there was a moral obligation to do so which survived the releases and which was sufficient to support the firm's subsequent promise to retake the securities at the valua- tion fixed.^" It is also held that the general rule does not apply where the composition is effected under the provision of the bank- ruptcy statute after the debtor has been adjudged a bankrupt, as 217. Zoebisch. v. Von Minden, (Sup. 29. Straus v. Cunningham, (Sup. 1888) 47 Hun 213, 216, 13 State 1913) 159 App. Div. 718, 721, 144 Rep. 349. N. Y. S. 1014. 28. Taylor v. Hotehkiss, (Sup. 30. Taylor v. Hotchkiss, (Sup. 1903) 81 App. Div. 470, 80 N. Y. S. 1903) 81 App. Div. 470, 80 N. Y. S. 1042, affirmed 179 N. Y. 546 mem., 1042, affirmed 179 N. Y. 546 mem., 71 N. E. 1140; Straus v. Cunmng- 71 N. E. 1140. ham, (Sup. 1913) 159 App. Div. 718, 144 N. Y. S. 1014. § 346] CONSIDERATION 535 such a discharge is to be deemed involuntary and iii the nature of a discharge in bankruptcy rather than a voluntary composition.'^ § 346. Debt Barred by Statute of Limitations or Dis- charge in Insolvency or Bankruptcy.— The fact that the enforce- ment of a debt has become barred or discharged by act of law as distinguished from an act of the parties does not necessarily re- lease the debtor from all moral or equitable obligation to pay the same, and it may furnish the consideration for a subsequent prom- ise of the debtor to pay it. Thus it has been held from an early date that a prior legal obligation or liability, though barred by the statute of limitations or a discharge in bankruptcy or the state insolvency laws, is sufficient to support a new promise to pay.'^ And a claim barred by a discharge in bankruptcy will sustain a judgment confessed thereon.'* " The rule of law is well-nigh uni- versal," says Collin, J., in a recent case, " that such a promise has an obligating and validating consideration in the moral obligation of the debtor to pay. The debt is not paid by the discharge in bankruptcy. It is due in conscience, although discharged in law, and this moral obligation, uniting with the subsequent promise to pay, creates a right of action. " '* In case of a debt discharged 31. Herrington v. Davitt, (1917) 220 N. Y. 162, 115 N. E. 476, affirm- ing 165 App. Div. 942 mem., 149 N. Y. S. 1087, which affirmed 145 N. Y. S. 452. In this case Collin, J. (p. 168), in response to the propo- sition that the case was governed by the general rule applicable to a vol- untary composition, quotes with ap- proval the following statement of the Wisconsin court : " This claim is based upon the ground that a dis- charge in bankruptcy in a composi- tion is not a discharge by operation of law, but ia one effected by the voluntary assent of the creditors. The adjudications are to the effect that a debt which has been extin- guished by a voluntary agreement of the debtor and creditor will not sup- port a new promise, and that one discharged by operation of law will support one. The proceeding result- ing in the discharge of a debtor from liability, based on a composition after bankruptcy proceedings are insti- tuted, is not in Its nature such a voluntary act of the creditor as is considered in law as being a volun- taiy assent of the creditor to the satisfaction of the debt." 32. Dusenbury v. Hoyt, (1873) 53 N. Y. 521; Dewey v. Moyer, (1878) 72 N. Y. 70, affirming 9 Hun 473; Herrington v. Davitt, (1917) 220 N. Y. 162, 115 N. E. 476, affirming 165 App. Div. 942 mem., 149 N. Y. S. 1087, which affirmed 145 N. Y. S. 452; Scouton v. Eislord, (Sup. 1810) 7 Johns. 36; Danforth v. Culver, (Sup. 1814) 11 Johns. 146; Shippey v. Henderson, (Sup. 1817) 14 Johns. 178; Doty V. Wilson, (Sup. 1811) 14 Johns. 378 ; Erwin v. Saunders, ( Sup. 1823) 1 Cow. 249; McNair v. Gilbert, (Sup. 1829) 3 Wend. 344; Drake v. Bell, (Sup. Sp. T. 1899) 26 Misc. 237, 239, 55 N. Y. S. 945 ; Conover v. Brush, (Chan. Ct. 1843) 2 N. Y. Leg. Obs. 289. 33. Dewey v. Moyer, (1878) 72 N. Y. 70, affirming 9 Hun 473. 34. Herrington v. Davitt, (1917) 220 N. Y. 162, 167, 115 N. E. 476. 536 NEW YORK LAW OF CONTRACTS [§ 347 under the insolvency laws, it was held in an early case that it was immaterial that the creditor to whom the promise was made was a petitioning creditor and the assignee of the debtor in the insol- vency proceedings.'^ In case of a debt barred by a discharge in insolvency or bankruptcy proceedings, the question whether the new promise is the real cause of action and the discharged debt the consideration which supports it, or whether the new promise operates as a waiver by the bankrupt of the defense which the discharge gives him against the original demand, has occasioned much diversity of judicial opinion. The former view is taken by the courts in our state and is probably the one supported by the best authorities.^^ § 347. Suificiency of Promise to Pay Barred Debt. — Though it may not be necessary that the new promise to pay a debt discharged in bankruptcy or insolvency proceedings be ex- pressed in so many words, it will not be implied from an acknowl- edgment of the debt unless such acknowledgment contains words from which a promise ■feo pay is necessarily implied;'^ nor is it sufficient that the debtor acknowledges that a moral obligation exists on his part to pay the discharged debt.'* So a part payment on the discharged debt is insufficient to revive the debt.'' This is the rule that was adopted by the federal Supreme Court in an 315. McNair V. Gilbert, (Sup. 1829) 38. Mandell v. Levy, (Sup. App. 3 Wend. 344. T. 1905) 47 Misc. 147, 93 N. Y. S. 36. Herrington v. Davitt, (1917) 545. 220 N. Y. 162, 115 N. E. 476; 38. Lawrence v. Harrington, (1890) Scheper v. Brigga, (Sup. 1898) 28 123 N. Y. 408, 33 State Rep. 717, 25 App. Div. 115, 117-, 50 N. Y. S. 869; N. E. 406; Wheeler v. Simmons, (Sup. Depuy V. Swart, (Sup. 1829) 3 Wend. 1891) 60 Hun 404, 39 State Rep. 135, 139; Moore v. Viele, (Sup. 1830) 797, 15 N. Y. S. 462; Meyer v. Bar- 4 Wend. 420; Stearng v. Toppin, tels, (Sup. App. T. 1907) 56 Misc. (Super. Ct. 1856) 12 Super. Ct. 294. 621, 107 N. Y. S. 778. See also Dusenbury v. Hoyt, (1873) In Lawreneef v. Harrington, (1890) 53 N. Y. 521, 524; Dewey v. Moyer, 122 N. Y. 408, 414, 33 State Rep. (1878) 72 N. Y. 70, 75; Taylor v. 717, 25 N. E. 406, Brown, J., says: Hotchkiss, (Sup. 1903) 81 App. Div. "A different ■rule prevails in case of 470, 474, 80 N. Y. S. 142, affirmed a debt discharged in bankruptcy from 179 N. Y. 546 mem., 71 N. E. 1140. that applied to the defense of the 37. Lawrence v. Harrington, (1890) statute of limitations. In the latter 122 N. Y. 408, 33 Stater Rep. 717, 25 case payment of a part of the debt N. E. 406; Scheper v. Briggs, (Sup. is regarded as an acknowledgment 1898) 28 App. Div. 115, 50 N. Y. S. of the existence of the debt, and the 869; Kiernan v. Pox, (Sup. 1899) 43 law implies a promise to pay the App. Div. 58, 59 N. Y. S. 330; Man- residue. But in the case of a debt dell v. Levy, (Sup. App. T. 1905) discharged in bankruptcy a promise 47 Misc. 147, 93 N. Y. S. 545. cannot be inferred, but must be ex- § 347] CONSIDERATION 537 early case in which it was announced that nothing is sufficient to revive the discharged debt unless it contains an expression by the debtor of a clear intention to bind himself to the payment of the debt, and in which it was held that a letter written by the debtor to the creditor, stating, " Be satisfied; I intend to do right; all will be right between my just creditors and myself," was insuf- ficient as a promise to pay the discharged debt.^" Thus, a letter written by a debtor who has been discharged in bankruptcy, stat- ing that it is his duty to devote the profits of his business to the discharge of his debts, and that he proposes to pay the debt in question before paying other debts, but from which it is evident that this intention is to be carried out only in ease his affairs should continue so prosperous that he would be easily able to do so, and that the debtor does not intend to bind himself by any promise which will interfere with the business in which he is engaged or with the use of his money as he might see fit to use it after the letter was written, — does not constitute a promise to pay which will revive the debt.^^ The same view has been taken as to a statement by the debtor in a letter which, after expressing his inability to pay the discharged debt, continued as follows: " I will say to you that when I am in a position to pay there is no one I would more cheerfully pay. I have a number of interests in real estate and hope to realize on some of them soon, and when I do I will not forget the deceased friend's family. Please excuse press, and so all tlie cases agree tliat case out of the statute. Not so in partial payments will not revive the the class of cases we are considering, debt." Nothing is sufficient to revive a dis- 40. Allen v. Ferguson, (1873) 18 charged debt unless the jury are au- Wall. 1, 21 U. S. (L. ed.) 854. In thorized by it to say that there is this case Mr. Justice Hunt said: the expression by the debtor of a "All the authorities agree in this, clear' intention to bind himself to the that the promise by which a dis- payment of the debt. Thus, partial charged debt is revived must b'e clear, payments do not operate as a new distinct, and unequivocal. It may be promise to pay the residue of the an absolute or a conditional promise, debt. The payment of interest will but in either case it must be un- not revive the liability to pay the equivocal, and the occurrence of the principal, nor is the expression of an condition' must be averred if the intention to pay the debt sufficient, promise be conditional. The rule is The question must be left to the jury different in regard to the defense of with instructions that a promise the statute of limitations against a must be found by them before the debt barred by the lapse of time. In debtor is bound." that case, acts or declarations recog- 41. Scheper v. Briggs, (1898) 28 nizing the present existence of the App. Div. 115, 50 N. Y. S. 869. debt have often been held to take a 538 NEW YORK LAW OF CONTRACTS [§ 348 me for not answering your letter before this. I will call and explain my position more fully in person. ' ' *^ While the promise to pay need not be absolute but may be conditional, still, if condi- tional, it can only be enforced in accordance with its terms and not as an absolute promise.''^ Laws of 1882, ch. 324, which is brought into section 31 of the Personal Property Law (40 McKinney's Cons. Laws, p. 54), requires a promise to pay a debt which has been discharged in bankruptcy to be in writing, and of course there must be a compliance with such provision to render the promise enforceable." § 348. Plieading; Declaring on Discharged Debt. — Irre- spective of the question whether or not the new promise to pay a debt discharged under the insolvency or bankruptcy laws is the cause of action, it is held in our state that for the purpose of the remedy the creditor may declare on the original debt, and set up the new promise to defeat the discharge when pleaded in defense. This rule was first announced as regards a debt barred by a dis- charge under our insolvency laws,*" and was later applied by the Court of Appeals in an action on a debt discharged in bankruptcy for the reason that it had become a well settled and long estab- lished rule of pleading,*^ and in a late case where the claim was discharged by a composition with creditors effected in pursuance of the bankruptcy statute after the debtor had been adjudged a bankrupt." It is immaterial that under the Code practice, no repli- 4a. Kiernan V. Fox, (Sup. 1899) 43 67 App. Div. 6-21, 73 N. Y. S. 11^9; App. Div. 58, 59 N. Y. S. 330. Meyer v. Bartels, (Sup. App. T. 1907) 43. Lawrence v. Harrington, (1890) G6 Misc. 621. 107 N. Y. S. 778. 122 N. Y. 408, 33 State Rep. 717, 25 45. Shippey v. Henderson, (Sup. N. E. 406, wherein it was held that 1817) 14 Johns. 178. But see Stearns a promise to do certain work for the v. Tappin, (Super. Ct. 1856) 12 creditor and apply it in payment of Super. Ct. 294, 303 (dictum), the discharged debt could not be con- 4/3. Dusenbury v. Hoyt, (1873) 53 strued as a promise to pay in any N. Y. 521, reversing 14 Abb. Pr. N. S. other way than that stipulated in the 132, 36 Super. Ct. 94. See also promise; and that expressions con- Scheper v. Eriggs, (Sup. 1898) 28 tained in the debtors' letters -to the App. Div. 115, 117, 50 N. Y. S. 869; effect that " we do not calculate you Gruenberg v. Treanor, (Sup. App. T. will suffer any loss by us," "we will 1903) 40 Misc. 232, 81 N. Y. S. 675. do the best we can and all that is in 47. Herrington v. Davitt, (1917) our power to save you harmless," 220 N. Y. 162, 115 N. E. 476, affirm- were not indicative of an intention ing 165 App. Div. 942 mem., 149 to pay at all events. N. Y. S. 1087, which affirmed 145 N. 44. Bair v. Hilbert, (Sup. 1903) Y. S. 452. "The action," says Col- 84 App. Div. 621, 82 N. Y. S. 1010, lin, J., in this case "might, had the explaining decision in prior appeal plaintiff so elected, have been brought § 349] CONSIDERATION 539 cation being now required, the pleading will not disclose the new promise, as this objection is equally applicable where a new promise is relied on to avoid the defense of infancy or the statute of limi- tations, and in this case the plaintiff may now, as before the Code, declare on the original demand.^* § 349. Promise Made to Creditor; Assignment of Original Note. — In case of a debt barred by the statute of limi- tations the new promise removing the bar of the statute, though made to the original creditor, inures to the benefit of an assignee of the debt, as the new promise merely revives the debt, and when the evidence of the debt is a negotiable note which is subsequently transferred, the promise, though made to the payee, inures to the benefit of the holder, and may be proved by him in an action in which no other cause of action is stated in the complaint than the note itself.*' It is otherwise, however, where the new promise is one to pay a debt barred under the bankruptcy or insolvency laws; and where the original debt was evidenced by a negotiable note such a promise will not inure to the benefit of a transferee of the note, as such transfer does not carry the new cause of action arising out of the new promise, though the old indebtedness evidenced by the note was the consideration for the new promise.^" In this connection, Oakley, C. J., after referring to the effect of a new promise removing the bar of the statute of limitations, says: " When the promise of the debtor is to pay a debt that has been extinguished — a debt from which he has been wholly discharged upon the new promise. It would be original demand is, however, sane- more accurate and consistent with tioned by usage. The discharge in the provisions of section 481 of the bankruptcy is, under such practice, Code of Civil Procedure, and the regarded as a discharge of the debt other sections regulating the plead- sub modo only, and the new promise ings in an action, to allege the new as a waiver of the bar to the recov- promise as the real foundation of the ery of the debt created by the dis- action. The note was a debt prov- charge. The new promise with such able in the bankruptcy proceedings. other facts as are essential to con- The legal obligation which it created stitute it a valid cause of action may, or evidenced was, by virtue of the however, be alleged." confirmation of the composition offer 48. Dusenbury v. Hoyt, (1873) 53 and the discharge in the proceedings, N. Y. 521. discharged by force of the statute, 49. Dean v. Hewit, (Sup. 1830) 5 and the remedy of plaintiff existing Wend. 257. at the time the discharge was granted 50. Depuy v. Swart; (Sup. 1829) 3 to recover her debt by action barred. Wend. 135; Moore v. Viele, (Sup. The right of action is given by a new 1830) 4 Wend. 420; Stearns v. Tap- and efficacious promise. The pra«- pin, (Super. Ct. 1856) 12 Super. Ct. tice of bringing the action upon the 294. 540 NEW YORK LAW OF CONTBACTS [§ 349 — and whether by force of a legal proceeding or by the voluntary act of the creditor must be immaterial, the legal effect and legal consequences of the promise are substantially different. The promise does not then revive the original debt, nor, where the evidence of that debt is a negotiable note, does it inure to the bene- fit of a subsequent indorsee. The premise is then a new contract, creating a new and distinct cause of action ; and in an action upon this contract, proof of the original debt is not otherwise important than as necessary to raise the moral obligation, which is the true consideration of the promise, and alone gives it validity. The reasons for this distinction may not be obvious, and, when stated, may be thought technical or refined; but the cases are numer- ous in which they have been recognized and followed, and it may be said with truth that no distinction is more clearly and fully established. The reasons upon which it is founded are, that the statute of limitations acts, not upon the contract, but upon the remedy alone. The debt subsists, although the right to maintain an action for its recovery for the time is gone. Hence, when a new promise has removed the bar that the lapse of time had alone created, the payment of the debt, as the original- cause of action, may be again enforced. But the discharge of a debtor, under a bankrupt or insolvent law, and just as certainly by a release, acts upon the contract itself, and puts an end forever to the obliga- tion that it created. Hence it is a new debt that, in these cases, the new promise creates; and it is upon the promise, as a distinct and original agreement, that the action of the creditor, who seeks to enforce it, must be founded. ' ' ^^ This rule is not affected by our Code practice permitting or requiring an action to be brought in the name of the real party in interest, and consequently author- izing an assignee of a nonnegotiable cause of action to sue thereon in his own name, as the assignment of the note evidencing the 51. Stearns v. Tappin, (Super. Ct. note. It destroys forever its nego- 1856) 12 Super. Ct. 294, 299. Fol- tiability, and renders its subsequent lowing the above reasoning, the court transfer wholly void. As a subse- in this case continued : " What, then, quent indorsee acquires no title, he are tlie consequences of this estab- can maintain no action upon the lished distinction, in their applica- note itself; and unless the new prom- tion of the case before us? They ise, creating a. new debt, was made are these, that as the discharge or to himself, he can maintain no ae- release of a debtor, by annulling the tion upon the promise, which cannot contract, extinguishes the debt, so follow, as an incident, a note that when a negotiable note is the evi- has ceased to exist." dence of the debt, it extinguishes the i 350] CONSIDERATION 541 original debt is not an assignment of the cause of action based on the new promise.^^ But if the new promise is made to the original creditor and thereafter he should assign the cause of action so created, this will, it would seem, enable his assignee to sue thereon, and under the Code practice in his own name. § 350. Payment of Debt of Promisor. — If one person, a mere volunteer without compulsion of law or legal obligation, pays the debt of another, the debtor is not liable to reimburse him therefor.^^ But according to the view taken in most jurisdictions, if one with- out any obligation to do so pays the indebtedness of another the latter 's promise to repay the amount is supported by a good and sufficient consideration; and this view is taken in our state in a number of the earlier cases.^* And where a plaintiff paid money to redeem the defendant's land from a tax sale under the mistaken belief that the land involved was his own land, it was held that the defendant's promise to repay the amount so expended was based on a suiBcient consideration, even though the tax sale may not have been a valid one. ' ' By the promise as made, ' ' says Davis, P. J., " he treated the payment of the money as properly made for his benefit, and the fact that it was made by the plaintiff, and operated to redeem the lot from the tax sale, and that the defendant enjoyed the benefit of such redemption, was sufficient consideration to uphold the promise. "^^ And in an earlier case 52. Stearns v. Tappin, (Super. Ct. stantial benefit resulting to the de- 1856) 12 Super. Ct. 294, 302. fendant from this payment. He is 53. Ingraham v. Gilbert, (Sup. G. exonerated from his liability to Stan- T. 1855) 20 Barb. 151. As is shown ton. Nor does this case fall within later, the law will not, as a general the rule that makes void promises rule, imply, as for money paid to the founded upon a past consideration, use of another, a promise to repay unless moved by a precedent request, such a volunteer. . . . Where a man pays a sum of 54. Doty V. Wilson, (Sup. 1811) 14 money for me, without my request, Johns. 378. See also St. Nicholas and I afterwards agree to the pay- Ins. Co. V. Howe, (Super. Ct. 1860) ment, this is equivalent to a previous 20 Super. Ct. 450. request to do so. If this be a sound In Doty V. Wilson, (Sup. 1811) 14 and just conclusion from the cases, Johns. 378, Thompson, Ch. J., said: it is directly applicable to the case " If a moral obligation to pay a debt before us. The benefit to the def end- is a sufficient consideration to uphold ant, connected with his express prom- a promise to pay it, as was laid down ise to pay, must be deemed equiva- by this court in Stewart v. Eden (2 lent to a previous request. It was an Caines 152 ) , the circumstances at- adoption of the payment as made for tending this case are abundantly the benefit of the defendant, and a suflScient to raise such a considera- subsequent ratification is equivalent tion. But the case does not rest on to an original command." this' alone. Here is a real and sub- 55. Sandford v. Wheeler, (Sup. 542 NEW YORK LAW OF CONTRACTS [§ 350 where the plaintiff and the defendant owned lots of land adjoin- ing each other, and the plaintiff by mistake paid taxes on the defendant's land, and the latter on being acquainted with such fact promised to repay the money, it was held that he was liable on his promise, the court stating that the money having been paid for the defendant's benefit his promise to repay it was equivalent to a previous request.^* In another case it appeared that the plaintiff as sheriff had arrested the defendant on a capias ad satis- faciendum and suffered him to escape, and was compelled to pay the amount of the judgment to the judgment creditor. The defendant afterwards promised to pay the sheriff the amount, and it was held that the latter could recover upon that promise.^' And in a ease where it appeared that a sheriff had become liable for a judgment debt through the neglect of his deputy in not returning a fieri facias, and the deputy paid the judgment, it was held that the judgment debtor's promise to the deputy to repay the amount was supported by a sufficient consideration.^* On the other hand, the view has been taken by the Appellate Division, third depart- ment, in a fairly recent case, that where a debt is paid by a person under no obligation to the creditor, and who had not been requested to do so by the debtor, and thereafter the debtor promises to reim- burse such person for the moneys expended in his behalf, the promise is not enforceable against the debtor for want of con- sideration ; ^' and it is further held that liability on the part of the debtor cannot be upheld upon the theory .of ratification by a principal of the acts of an agent, as such ratification only operates to make the acts of the agent the acts of the principal and does not create any liability on the part of the principal to the agent.'" 1878) 2 City Ct. 227, affirmed 73 case has been modified in the later N. Y. 607 mem. cases. 56. Nixon v. Jenkins, (Com. PI. The decision in Ingraham v. Gil- 1857) 1 Hilt. 318. • bert, (Sup. G. T. 1855) 20 Barb. 151, 57. Doty V. Wilson, (Sup. 1811) '* ^"^^"^ ^^^™' S^'''^^ some support to 14 Johns 378 position taken in the Thomson case, but in that case the court ex- 58. Sternbergh v. Provoost, (Sup. pressly states that no express prom- G. T. 18al) 13 Barb. 365. igg .,^^8 established by the evidence, 59. Thomson v. Thomson, (Sup. and in the earlier part of the deci- 1902) 76 App. Div. 178, 78 N. Y. S. sion refers to the Doty case with 389. In this case the court concedes seeming approval. that its position is opposed to the 60. Thomson v. Thomson, (Sup. decision in the Doty case, supra, but 1902) 76 App. Div. 178, 78 N. Y. S. contends that the doctrine of that 389. § 351] CONSIDERATION 543 Adequacy of Consideration § 351. In General. — ^While the courts have sometimes spoken of contracts as not fair and eonseionable, and for such reason not to be upheld,*^ the reason for doing so is primarily based on an element of fraud actual or constructive,^^ and the inadequacy of the consideration does not at law go to its sufficiency if in fact it can be deemed of value.^' "Almost every bargain," says Cowen, J., in an early case, " is incapable of being made exactly 61. Jackson v. Alpha Portland Ce- ment Co., (Sup. 1907) 122 App. Div. 345, 106 N. Y. S. 1052; Haskell v. Smith, (Sup. App. T. 1904) 86 N. Y. S. 779. 60. See supra, section 141 et seq., as to fraud generally. 63. Earl v. Peck, (1876) 64 N. Y. 596, 598 ; Columbia College v. Lynch, (1877) 70 N. Y. 440; Ludington v. Bell, (1879) 77 N. Y. 138, 141; Hamer v. Sidway (1891) 124 N. Y. 538, 36 State Rep. 888, 27 N. E. 256; Parsons v. Teller, (1906) 188 N. Y. 318, 325, 80 N. E. 930; Ga Num v. Palmer, (1916) 216 N. Y. 603, 111 N. E. 223, reversing on other grounds 159 App. Div. 86, 144 N. Y. S. 457, 11 Mills 548; Randall v. Grant, (Sup. 1901 ) 59 App. Div. 485, 69 N. Y. S. 221; Yarwood v. Trusts, etc., Co., (Sup. 1904) 94 App. Div. 47, 87 N. Y. S. 947; Ellis v. Keeler, (Sup. 1908) 126 App. Div. 343, 110 N. Y. S. 542; Oakley V. Boorman, (Sup. 1839) 21 Wend. 588; Citizens' Mut. L., etc.. Fund Ass'n v. Webster, (Sup. Sp. T. 1857) 25 Barb. 263; Hurd v. Green, (Sup. 1879) 17 Hun 327; Babcock v. Chase, (Sup. 1895) 92 Hun 264, 3 N. y. Annot. Cas. 25, 72 State Rep. 401, 36 N. Y. S. 879 (proviso in con- sideration naming infant) ; McKay v. Buffalo Bill's Wild West Co., (Sup. App. T. 1896) 17 Misc. 396, 39 N. Y. S. 1041 ; Bush v. Whitaker, (Sup. Sp. T. 1904) 45 Misc. 74, 91 N. Y. S. 616; Voland v. Reed, (Sup. App. T. 1917) 164 N. Y. S. 19; Lemont v. Schindelar, (Sup. App. T. ISaO) 181 N. Y. S. 765; Osgood v. Wallach, (Sup. G. T. 1886) 2 State Rep. 596; Grabosski v. Gewerz, (Com. PI. G. T. 1892) 44 State Rep. 127, 129, 17 N. Y. S. 528; Darrow v. Walker, (Super. Ct. 1881) 48 Su- per. Ct. 6. In Bush V. Whitaker, (Sup. Sp. T. 1904) 45 Misc. 74, 91 N. Y. S. 616, it appeared that an uncle wrote to his nephew, " You get me up a cane that will be good enough for you when I get through with, and I will leave the cane and $l,000i with it when I get through." The nephew sent a cane of the value of about forty dol- lars, which the uncle used until his death, twenty years afterwards. It was held that there was a sufficient consideration for the uncle's promise to will the nephew the thousand dol- lars. Wright, J., said : " The con- tract is not void because of inade- quacy of consideration. The prom- isee acted on tlie faith of the promise and in accordance with it to the satisfaction of the promisor. This was a sufficient consideration to up- hold the promise to will the amount stated, in the absence of any fraud, duress or undue influence or other forceful reasons. As to the value of the cane to the testator, who can say? A court cannot say, in view of the circumstances of this case, the peculiar nature of the transaction, that for reasons of particular senti- ment, and as an object of pretium aflfectionis, the cane was not, in the opinion of the testator, of the value of $1,000. The testator alone could declare its value to him. This he did by accepting, keeping and using it iinder his promise." 544 NEW YORK LAW OF CONTRACTS [§ 351 equal on both sides. . . . Hence the law has declared that the slightest consideration is sufficient for the greatest undertaking." " For the purpose of sustaining a promise of a bank to collect a note as the basis of an action for nonfeasance, which will not lie against a mandatary, i. e., one acting without reward, it has been held that the chance of profit to the bank, from the money collected being left with it on deposit after collection, is sufficient, and it is not necessary to show that profit would inevitably accrue to the bank ; it is enough that a reasonable expectation exists that such will be the result.'^ And it has been held that if a landowner, in con- sideration of the occupation of his land by the promisee for a particular business which he deems will be a real or fancied bene- fit to the property, promises to indemnify the promisee from loss in such business, this may constitute a sufficient consideration for the contract to indemnify against loss.^ A person may give or agree to give an exorbitant price for a thing if he sees fit.*^ " If one, ' ' says Foster, J., ' ' voluntarily and fairly purchases either real or personal property of another, at a fixed price, and executes his note for the payment of the purchase money, he will not be allowed, when sued thereon, to prove, for the purpose of defeat- ing or reducing the amount of the recovery on the note, that the property in fact was not worth one-half or one-quarter, or even one-tenth, of the amount at' which he purchased it. ' ' "^ And it is said that if an article sold be of the slightest value to either the buyer or seller, it will suffice by way of consideration fon the buyer's promise to pay the agreed price.«* Even though the buyer 64. Oakley v. Boorman, (Sup. 18.39') which may be incurred in the busi- 21 Wend. 588, 594. ness. This statement has frequently been 67. In re Todd, (Surr. Ct. 1905) approved by the courts in later cases. 47 Misc. 35, 95 N. Y. S. 211, 4 Mills See, for instance, Ludington v. Bell, 579. (1879) 77 N. Y. 138, 141; Waydell v. 68. Worth v. Case, (1870) 42N.Y. Luer, (Ct. Err. 1S46) 3 Denio 410; 362, 369. McKay v. Buffalo Bill's Wild West 69. Johnson v. Titus", (Sup. 1842) Co., (Sup. App. T. 1896) 17 Misc. 2 Hill 606. See also Hand v. Field- 396, 399, 39 N. Y. S. 1041; Darrow ing, (Sup. 1808) Anth. N. P. 87. V. Walker, (Super. Ct. 1881) 48 In Johnson v. Titus, supra, the Super. Ct. 6. seller of mulberry trees which were 65. Smedes v. Utica Bank, (Sup. nearly lifeless and of practically no 1823) 20 Johns. 372. value to the buyer was permitted to 66. Sands v. Crooke, (1871) 46 recover the agreed price. N. Y. 564, 565. In addition, however. But in Stone v. Frost, (1874) 61 to the possible benefit to the land- N. Y. 614 mem., aiSrming 6 Lans. owner, there is also the possible detri- 440, where the plaintiff purchased ment to the promisee front losses and paid for grape roots which were ' § 352] CONSIDERATION 545 acknowledges that the price he agrees to give is in effect a charity to a great extent, yet his promise to pay is enforceable.™ Like- wise the amount of the pecuniary consideration on which a promise to answer for the debt of another is based is immaterial; the nominal consideration of one dollar is fully effective.'^ And it has been held that the obligation of a bailee of a machine for hire to ' ' take and keep ' ' it, being a burden on him to a certain extent, is a sufficient consideration for the contract of the bailor to let the machine, though the chief inducement to the letting is a promise by the bailee to pay a percentage of the profits from its use, and there is no obligation on his part to put the machine to useJ^ § 352. Services. — In case of services, the courts have, with seem- ing accord, recognized the right of the person to whom the serv- ices are rendered or to be rendered to fix the amount he will pay therefor, though excessive.'^ Thus, where the defendant's testator, having taken by mistake a fatal dose of aconite, and being aware of his approaching death, executed and delivered to the plaintiff, who had been his housekeeper for seven or eight years and to whom he was indebted for services, a promissory note for the sum of ten thousand dollars, the consideration expressed being " for serv- ices rendered, ' ' the note was held valid, although the amount was dead and as found by the jury worth- (Sup. 1904) 94 App. Div. 47, 87 less, he was permitted to recover back N. Y. S. 947, appeal dismissed 182 the price paid. N. Y. 527, 74 N. E. 1128; In re 70. In re Todd, (Surr. Ct. 1905) Bradbury, (Sup. 1905) 105 App. Div. 47 Misc. 35, 95 N. Y. S. 211, 4 Mills 250, 93 N. Y. S. 418; Geseheidt v. 579. Drier, (Sup. G. T. 1892) 63 Hun 71. Childs v. Barnum, (Sup. G. T. 627 mem., 44 State Rep. 481, 17 N. Y. 1851) 11 Barb. 14, affirming 3 Super. S. 741; Root v. Strang, (Sup. 1894) Ct. 58. 77 Hun 14, 59 State Rep. 258, 28 72. Voland v. Reed, (Sup. App. T. N. Y. S. 273; Brady v. Smith, 1917) 164 N. Y. S. 19. (Super. Ct. G. T. 1894) 8 Misc. 465, 73. Worth V. Case, (1870) 42 N. Y. 60 State Rep. 58, 28 N. Y. S. 776; 362, affirming 2 Lans. 264; Earl v. In re Flagg, (Surr. Ct. 1899) 27 Pecic, (1876) 64 N. Y. 596; Cowee v. Misc. 401, 59 N. Y. S. 167; 1 Mills Cornell, (1878) 75 N. Y. 91; Miller 77; In re Todd, (Surr. Ct. 1905) 47 V. McKenzie, (1884) 95 N. Y. 575, Misc. 35, 95 N. Y. S. 211, 4 Mills 582; Ga Nun v. Palmer, (1916) 216 579; Darrow v. Walker, (Super. Ct. N. Y. 603, 111 N. E. 223, reversing 1881) 48 Super. Ct. 6. See also Par- on other grounds 159 App. Div. 86, ish v. Juckett, (Sup. 1913) 157 App. 144 N. Y. S. 457, 11 Mills 548; Nie- Div. 27, 141 N. Y. S. 973, 11 Mills moller v. Duncombe, (Sup. 1901) 59 207. But see Murphy v. Murphy, App. Div. 614, 69 N. Y. S. 88, af- (Sup. 1907) 118 App. Div. 61, 102 firmed 172 N. Y. 621 mem., 65 N. E. N. Y. S. 1117. 1120; Yarwood v. Trusts, etc., Co., 35 546 NEW YORK LAW OF CONTRACTS [§ 352 far greater than the value of the services.'* And where on the hearing of a claim against an estate on an instrument wherein the deceased, a roving peddler, for services rendered to him by the claimant, promised that she should be paid five thousand dollars after his death from his estate, " for all my trouble and all her kindness to me," it appeared that for several years he had stayed at the claimant's house for several days at a time, five or six times a year, absolutely without recompense, and more than once was cleaned up from a lousy condition while there, it was held that his calling it a " unique charity ' ' was evidence that he knew the promised compensation was beyond the actual value of the services rendered, but that he had an absolute legal right to do what he did and that the claim was enforceable against his estate.'^ And in a somewhat similar case a note for five thousand dollars payable at the maker's death for slight services rendered him, which, however, he thought saved his life, was enforced..'^ Where, in consideration of the supervision by the promisee of the painting of the promisor's house, a promisor agreed to conduct cer- tain speculations for the promisee and indemnify him against loss, it was held that the inadequacy of the services as a consideration did not affect the binding effect of the promise of indemnity." "While services rendered a person in negotiations for the lease of municipal property, the lease of which must be made at public auction, may not be of much actual value to the promisor, they are still a sufficient consideration for his promise to pay therefor.'* If services are rendered in the collection of a claim against a municipality, it is no defense to a promise to pay therefor that as a matter of fact the claim would have been paid by the municipal- ity independently of the promisee's services." - .c 74. Earl v. Peck, (1876) 64 N. Y. $5,000, payable at his death, which 596. took place many years afterward, 75. In re Todd, (Surr. Ct. 1905) and the court denied the proposition 47, Misc. 35, 95 N. Y. S. 211, 4 Mills that the inadequacy of the consider- 579. ation was ground for not enforcing 76. Yarwood v. Trusts, etc., Co., payment of the note against his (Sup. 1904) 94 App. Div. 47, 87 N. estate. Y. S. 947. In this case a wandering 77. Osgood v. Wallack, (Sup. G. peddler was taken into a house dur- T. 1886) 2 State Rep. 596. ing inclement weather by reason of 78. Myers v. Dean, (1892) 132 N. the intercession of two children who Y. 65, 43 State Rep. 391, 30 N. E. rendered services to him for several 259, affirming as to this but revers- days in dressing his frozen limbs. ing on other grounds 16 Daly 251, 32 In consideration for such services he State Rep. 313, 10 N. Y. S. 532. executed in favor of each a note for 79. Rogers v. Polytechnic Insti- § 353] CONSIDERATION -547 § 353. Inadequacy as Viewed in Equity and as Evidence of Fraud. — In equity gross inadequacy of consideration may, in con- nection with other circumstances, be ground for the denial of equitable relief in the enforcement of a contract, as where specific performance of a contract is the relief sought,*" and may be evi- dence of fraud so as to authorize relief even from an executed contract.'^ But though there may be an equity which may be founded on gross inadequacy of consideration, it can only be where the inadequacy is such as to involve the conclusion that the party did not understand or was the victim of some imposition.*^ ' ' There is no case," says Chancellor Johnson, " where mere inadequacy of price, independent of other circumstances, has been held suffi- cient to set aside a sale made between parties standing on equal ground, and dealing with each other without any imposition or oppression. And the inequality amounting to fraud must be so strong and manifest as to shock the conscience and confound the judgment of any man of common sense. " *' " There is no general rule of equity," says James, J., " which relieves a party from hard and unreasonable bargains after they become executed, merely because they are such. On the contrary, mere inadequacy is not a sufficient ground for avoiding a sale, unless the inadequacy is so gross as to afford presumptive evidence of actual fraud, ... or is attended with actual fraud, surprise, ignorance, mistake, delu- sion, or imbecility of mind."** And as a general rule, as said by AUen, J., "a covenant is well supported in law and in equity by any consideration, however slight. ' ' *° tute, (Sup. 1903) 87 App. Div. 81, Osgood v. Wallack, (Sup. G. T. 188ft) 84 N Y. S. 12. 2 State Rep. 596, 599. 80. Margraf v. Muir, (1874) 57 ,i° ®i^??^^ ^- ^J'^' (^^P- ^P- T. N. Y. 155. See SpeciHc Performance, 1.8f 2 ) 7 How. Pr. 309, where in con- 25 R r L t) 208 sideration of a loan of $100 for a P" ' few months the borrower agreed' to 81. See supra, section 155. p^^y. one-half the profits of a boarding 82. Parmelee v. Cameron, (1869) house to be fitted up in part with the 41 N. Y. 392; Hennessy v. Corneille, money loaned and to be run by the (Sup. 1901) 61 App. Div. 620, 69 borrower, the court said that the N. Y. S. 1126; Sagan V. Ward, (Sup. consideration was so grossly inade- Sp. T. 1902) 38 Misc. 367, 77 N. Y. quate that a court of equity would S. 893, aflSrmed 86 App. Div. 620, 83 not permit it to be enforced. N. Y. S. 436, which is affirmed 178 83. Osgood v. Franklin, (Chanc. N. Y. 560 mem., 7ft N. B. 1099; Ct. 1816) 2 Johns. Ch. 1, 23. Franklin v. Osgood, (Ct. Err. 1817) 84. Parmelee v. Cameron, (1869) 14 Johns. 527, affirming 2 Johns. 41 N. Y. 392, 396. rh. 1 ; Robbins v. Clock, ( Sup. Sp. T. 85. Columbia College v. Lynch, TTOS) 59 Misc. 289, 112 N. Y. S. 246; (1877) 70 N. Y. 440, 445. 548 NEW YORK LAW OF CONTRACTS [§ 354 Failure of Consideration § 354. Total Failure of Consideration Generally. — Wliere the consideration for which money is paid fails, the payor may as a general rule recover back the money so paid ; *^ and where the sole consideration for the present payment of money is the agreement of the person to whom the money is paid to do some act which he wrongfully fails to do, there is a failure of consideration which entitles the person making the payment to recover back the money so paid." It has been held that where the consideration for the cancellation and discharge of an existing indebtedness wholly fails, the creditor may resort to and enforce such indebtedness.'* But if a claim is released in consideration of the executory promise of the debtor, the failure of the debtor to perform his promise does not revive the released claim so as to enable the creditor to sue thereon; his remedy in such a case is restricted to an action on the new promise.*' Belief in equity has been granted by way of rescission where the consideration for a conveyance of land wholly failed.'" A failure of consideration is also a defense to an executory promise to pay money ; '^ and though this may not have been true under the common law rule in case of a contract under seal which conclusively imported a consideration, it is true as to a contract under seal for the payment of money, since the statutory provision abolishing the conclusive presumption of a consideration 86. Tausig v. Drucker, (Sup. App. 88. Sheppard v. Hamilton, (Sup. T. 1904) 90 N. Y. S. 380. G. T. 1859) 29 Barb. 156; Central 87. Archer v. Eckerson, (Sup. City Bank v. Dana, (Sup. G. T. 1896) 10 App. Div. 598, 42 N. Y. S. 1860) 32 Barb. 296. 137; Putnam v. Westcott, (Sup. 89. Morehouse v. Oswego Second 1821) 19 Johns. 73; Murray V. Rich- Nat. Bank, (1885) 98 N. Y. 503; ards, (Sup. 1828) 1 Wend. 58; Smith Spier v. Hyde, (Sup. 1903) 78 App. V. Farnworth, (Sup. 1876) 6 Hun Div. 151, 159, 79 N. Y. S. 699. 598; Benning v. Pouker, (Sup. App. 90. Quick v. Styvesant, (Chan. Ct. T. 1907) 54 Misc. 211, 104 N. Y. S. 1830) 2 Paige 84. 409; Independent Owners' Garage 91. McLaurin v. Cuba Co., (Sup. Co. V. Hirsch, (Sup. App. T. 1913) 1903) 87 App. Div. 558, 84 N. Y. S. 81 Misc. 177, 142 N. Y. S. 346; Cut- 526; Tappen v. Van Wagenen, (Sup. ler V. American Exch. Nat. Bank, 1808) 3 Johns. 465; Tallmadge v. (Super. Ct. 1886) 53 Super. Ct. 163, Wallis, (Ct. Err. 1840) 25 Wend, affirmed 113 N. Y. 593, 21 N. E. 710, 107; Smith v. McClusikey, (Sup. G. 23 State Rep. 665. T. 1866) 45 Barb. 610; Fairfield v. The question as to when the law Feagles, (Sup. G. T. 1891) 37 State will imply a contract to repay money Rep. 554, 13 N. Y. S. 743. on failure of consideration is more In an early case Senator Spencer fully discussed later. says : " It is a universal principle § 354] CONSIDERATION 549 for a contract under seal.^^ And as a general rule, where the sole consideration for a person's promise to pay money is the performance by the promisee of some act, though the performance of such act may not in the strict sense be a condition precedent to the liability of the other party to make the payment, still if the party to whom the payment is to be made thereafter wrongfully fails to perform the stipulated act, there is said to be a failure of consideration for the promise to pay which may be set up in de- fense to an action to enforce the payment.'* So where the executory promise of the mortgagee is the sole consideration for the bond and mortgage given by the other party, the failure of the mortga- gee to perform his promise constitutes a failure of consideration precluding him from enforcing the mortgage.'* Where a renewal note is given, and there is no express agreement for the surrender of the old note, the failure to return the old note does not itself constitute a failure of consideration for the new note ; ^^ it has been held otherwise, however, where there was an express agreement that the old note should be surrendered.'^ Where the sole con- sideration for the extension of a mortgage is the anticipated ex- tension of a junior mortgage, the consideration for the former extension fails, and the agreement therefore is no longer binding, if no extension of the junior mortgage is granted." Where a in all cases of contract, that a party Winter v. Livingston, (Sup. 1816) who deprives another of the con- 13 Johns. 54; Petry v. Christy, (Sup. sideration on which his obligation 1821) 19 Johns. 53; Crocker v. was founded can never recover dam- Crane, (Sup. 1839) 21 Wend. 211; ages for its nonfulfilment. The total Newman v. Overbaugh, (Sup. Sp. T. failure of the consideration, espe- 1909) 116 N. Y. S. 3j69; Miller v. cially when produced by the act of Ritz, (Com. PI. 1854) 3 E. D. Smith the plaintiff, is a valid defense to 253; Westervelt v. Fuller Mfg. Co., an action, except in certain cases, (Com. PI. 1885) 13 Daly 352; Raven where a seal is technically held to v. Rubino, (Sup. G. T. 1884) 20 conclude the party." Dyett v. Pen- Wkly. Dig. 124. See also Schnurr dleton, Ct. Err. 1826) 8 Cow. 727, v. Quinn, (Sup. 1903) 83 App. Div. 733. 70, 82 N. Y. S. 468. But see Murphy 92. Tallmadge v. Wallis, (Ct. Err. v. Lippe, (Super. Ct. 1873) 35 Su- 1840) 25 Wend. 107. See infra, sec- per. Ct. 542. tion 372 et seq., as to the effect of a 94. Newman v. Overbaugh, (Sup. seal as importing a consideration. Sp. T. 1909) 116 N. Y. S. 369. 93. Bookstaver v. Jayne, (1875) 95. Low v. Learned, (Com. PI. 60 N. Y. 146; Sherman v. White, 1895) 13 Misc. 150, 68 State Rep. 23, (App. 1847) How. App. Cas. 29; 34 N. Y. S. 68. Block V. Stevens, (Sup. 1902) 72 96. Miller v. Ritz, (Com. PL 1854) App. Div. 246, 76 N. Y. S. 213; 3 B. D. Smith 253. Pfister V. Heins, (Sup. 1910) 136 97. Priest v. Gumprecht, (Sup App. Div. 457, 121 N. Y. S. 173 1903) 81 App. Div. 631, 80 N. Y. S. 550 NEW YORK LAW OF CONTRACTS [§ 355 check is given as a deposit merely and not as a part payment for property, if the sale is not consummated the consideration for the check fails and it is unenforceable.'^ Where notes are given to cover future advances to be made by the payee on behalf of the maker, the failure to make the advances constitutes a failure of consideration for the notes.'' An oral contract of insurance is valid, and if the policy when- delivered, through mutual mistake or fraud on the part of the insurer, does not cover the contem- plated risk, the insurer is still liable in accordance with the oral contract and the policy may, if necessary, be reformed. Therefore the fact that the policy as issued does not cover the contemplated risk does not constitute a failure of consideration for the premi- ums so as to authorize their recovery back by the insured.^ In case of a sale of a note or other chose in action, the insolvency of the maker or debtor does not constitute, it would seem, a failure of consideration for the promise of the buyer to pay the agreed price.^ § 355. Partial Failure of Consideration. — A partial failure of consideration is not available as a full defense to an action to (enforce an executory contract.' So where the consideration for a note is in part only an executory promise of the payee, the failure of the payee to perform his promise does not constitute a total 759, affirmed 178 N. Y. 595 mem., 70 v. Osgood, (Sup. 1849) 8 Barb. 130, N. E. 1108. 134; Lewis v. McMillan, (Sup. G. 98. Scliultze V. Cohen, (Sup. App. T. 1863) 41 Barb. 420; S. & B. Knit- T. 1915) 156 N. Y. S. 610. See also ting Mills v. Solomon, (Sup. App. Weber v. Williams, etc., Co., (Sup. T. 1920) 184 N. Y. S. 591; Umon App, T. 1913) 144 N. Y. S. 619. Foundry, etc., Car Wheel Works v. 99. Union Bank v. Fleitman, (Sup. New York Lumber Drying Co., ( City 1915) 168 App. Div. 171, 153 N. Y. Ct. Tr. T. 1887) 13 State Rep. 701; S. 929. Washburn, etc., Mfg. Co. v. Wilson, 1. International Ferry Co. v. (Super. Ct. 1882) 48 Super. Ct. 159. American Fidelity Co., (1913) 207 In Gildersleeve v. Pelham, etc., R. N. Y. 350, 101 N. E. 160, reversing Co., (Com. PI. G. T. 1882) 11 Daly 145 App. Div. 906 mem., 129 N. Y.. 257, 16 Wkly. Dig. 128, however, S. 1129. where it appeared that the defend- 2. Elwell V. Chamberlain, (Super. ant gave his note in compromise of Ct. 1859) 17 Super. Ct. 320, affirmed a claim on which an action was 31 N. Y. 611. But see Bruce v. Burr, pending against him and in consider- (Com. PI. 1875) 5 Daly 510, affirmed ation that the plaintiff would release on other grounds 67 N. Y. 237. him from such claim and discontinue 3. McGill v. Holmes, (Sup. 1900) the action, and the release was given 48 App. Div. 628, 64 N. Y. S. 787, but the action was not discontinued, 54 App. Div. 630, 66 N. Y. S. 359, a recovery on the note was denied on affirmed 168 N. Y. 647 mem., 61 the ground that the consideration for N. E. 1131; Tallmadge v. Wallis, the note had failed in a material (Ct. Err 1840) 25 Wend, 107; Vielie part. § 355] CONSIDERATION 551 failure of consideration, and is not therefore available in defense of an action thereon as a failure of consideration.* The statutory provision permitting the consideration for contracts under seal to be inquired into ' ' to the same extent ' ' as unsealed contracts does not enable the obligor to set up a partial failure of considera- tion as a full defense to an action on a bond, but such a defense can be set up only as a partial defense as in case of unsealed contracts.^ A partial failure of consideration may be set up in reduction of the amount of recovery ; ^ and this is fully applicable to promis- sory notes, as between the parties thereto or as against one not entitled to protection as a bona fide purchaser for value,' and, since the statutory provision abolishing the common law con- clusive presumption of consideration arising from the seal, to ac- tions on sealed instruments.^ The defense of a partial failure of consideration is available as a defense pro tanto to a surety.' It has also been established in this state from an early date, in case of a contract involving mutual promises, that one party when sued on his promise may recoup whatever damages he may be entitled to recover for the breach of a promise by the plaintiff, though it does not go to the entire consideration for the promise sued on, and though the promises are independent,^" and may also recoup for any fraud practiced on him by the plaintiff.^^ But. this right of recoupment is not strictly based on the theory of failure of consideration, partial or total, but is rather the setting- o£E of one cause of action against another, and since the adoption of our Code form of practice is to be set up by way of counterclaim.^^ 4. Bellows V. Folsom, (Super. Ct. Chambers, (Sup. G. T. 1865) 44 1864) 25 Super. Ct. 138. Barb. 42, 43 Barb. 622, 11 Abb. Pr. 5. Tallmadge v. Wallis, (Ct. Err. 110; Fisher v. Sharpe, (Com. PI. 1840) 25 Wend. 107, 114. 1874) 5 Daly 214. 6. Sawyer v. Chambers, (Sup. 6. 8. Johnson v. Miln, (Sup. 1835) T. 1865) 44 Barb. 42, 43 Barb. 622, 14 Wend. 195, 199. 11 Abb. Pr. 110; Gilmartin v. Van 9. Gillespie v. Torrance, (1862) 25 Horn, (Sup. App. T. 1907) 107 N. Y. N. Y. 306. S. 131; Union Foundry, etc.. Car 10. Spalding v. Vanderoook, (Sup. Wheel Works v. New York Lumber 1829) 2 Wend. 431; Eeab v. Mc- Drying Co., (City Ct. Tr. T. 1887) Alister, (Ct. Err. 1831) 8 Wend. 13 State Rep. 701; Fisher V. Sharpe, 109, 4 Wend. 483; Batterman v. (Com. PI. 1874) 5 Daly 214. Pierce, (Sup. 1842) 3 Hill 171. 7. Block V. Stevens, (Sup. 1902) 11. Springer v. Dwyer, (1872) 50 72 App. Div. 246, 76 N. Y. S. 213; N. Y. 19. Spalding V. Vandercook, (Sup. 1829) 12. Gillespie v. Torrance, (1862) 2 Wend. 431; Payne v. Cutler, (Sup. 25 N. Y. 306. 1835) 13 Wend. 605; Sawyer v. 552 NEW YORK LAW OF CONTRACTS [§ 356 "A careful examination of the subject," says Selden, J., " I think must lead to the conclusion, that wherever recoupment, strictly- such, is allowed, distinct causes of action are set off against each other. This would seem to follow from the right of election, which all the cases admit the defendant has, to set up his claim for dam- ages by way of defense, or to resort to a cross-action to recover them."^' For this reason it is held that an accommodation in- dorser when sued on a note given for the purchase price of goods sold cannot set up as a defense a breach of warranty by the seller." Where part payments are made on an executory contract such as a contract for the sale of land, chattels or the like, and the party making such payments is in default in performing his part of the agreement, and the other party is able and willing to perform, there is not such a failure of consideration as will entitle the party making such payments to recover back tthe money so paid.^* "When the principal and surety are sued together, a successful recoupment by the former will inure to the benefit of the latter as well, although the surety could not, if sued alone, avail himself of this defense.^^ In case of a release, based on a compromise and settlement, a part of the consideration for which is the executory promise of the debtor, the latter 's failure to perform such promise does not defeat the release, the remedy of the creditor being by way of an action for damages for its nonperformance.^^ § 356. Application of Rules Generally. — In an early case where the bail gave his note for the amount of the judgment recovered against his principal, and thereafter the judgment was reversed on a writ of error, it was held that there was a failure of consid- eration for the note which rendered it unenforceable.'^^ And where a son was under an obligation to furnish his mother her support or pay her an annuity, and in contemplation of her leaving his home he gave her a note for instalments of the annuity to accrue, and thereafter the mother changed her mind and remained with her son, it was held that the consideration for the note failed and 13. Gillespie v. Torrance, (1862) IS. Springer v. Dwyer, (1872) 50 25 N. Y. 306. N. Y. 19. 14. Gillespie v. Torrance, (1862) 17. Post v. Thomas, (1914) 212 25 N. Y. 306. N. Y. 264, 106 N. E. 69. 15. Wright V. Smith, (Sup. 1897) 18. Tappcn v. Van Wagenen, (Sup. 13 App. Div. 636, 43 N. Y. S. 728; 1808) 3 Johns. 465. Thrasher v. Bentley, (Sup. 1873) 2 Thomp. & C. 309, 3il0. '§ 356] CONSIDERATION 563 that it was therefore unenforceable.^' In case of a note given for goods sold, it has been held that if the seller exercises his right of stoppage in transitu, and thereafter sells the goods as his own, there is a failure of consideration for the note.^ So where the consideration for the acceptance of a draft on the defendant was the acceptance of a draft drawn by the defendant on the plain- tiff's assignor, the former draft being payable before the maturity of the latter, and to place the plaintiff's assignor in funds to meet the defendant's draft, it was held that where the plaintiff's assignor became insolvent and failed to pay the draft drawn on him, there was a failure of the consideration for the defendant's acceptance, which could be set up in defense of his liability on his acceptance, if the plaintiff was not in a position to entitle him to protection as a purchaser for value.^ Where the entire consideration for a note is an interest in land thereafter to be conveyed by the payee to the maker, even though the conveyance is not a condition prece- dent to the maker's liability on the note, if the vendor is unable to convey the interest stipulated for, there is a failure of considera- • tion which may be set up in defense to an action on the note ; ^^ it would be otherwise as regards the mere failure of the vendor to convey where the purchaser has been let into possession and has retained the possession and enjoyment of the interest to be con- veyed.^' It has also been held that where the consideration for a note is the agreement of the payee to accept it in renewal of an old note and to surrender the latter, his failure to surrender the old note operates as a total failure of consideration for the new note and precludes a recovery thereon.^* Failure of consideration is also said to be the fundamental principle which led the courts to deny the lessor's right to recover rent where the lessee has been evicted from the demised premises.^^ In case of sales, the fact that the subject matter of the sale proves of less value than it was supposed to be, but not wholly worthless, does not constitute 19. Fairfield v. Feagles, (Sup. G. 22. Vielie v. Osgood, (Sup. 1849) T. 1891) 37 State Rep. .'554, 13 N. Y. 8 Barb. 130. But see Parsons v. S. 743. Gaylord, (Sup. 1808) 3 Johns. 463. 20. Babcock v. Bonnell, (Super. 23. Freligh v. Piatt, (Sup. 1826) Ct. 1878) 44 Super. Ct. 568, affirmed 5 Cow. 494. 80 N. Y. 244. 24. Miller v. Eitz, (Com. PI. 1854) 21. Leslie v. Basseftt, (1892) 129 3 E. D. Smith 253. N. Y. 523, 42 State Eep. 358, revere- 25. Dyett v. Pendleton, (Ct. Err. ing 29 N. B. 834, 59 Super. Ct. 403, 1826) 8 Cow. 727, -733. 39 State Bep. 146, 14 N. Y. S. 380. 554 NEW YORK LAW OF CONTEACTS [§ 35ff either a total or partial failure of consideration for the buyer's payment or promise to pay the agreed price.^* And where the consideration for a note is the sale by the payee to the maker of the note of a third person, indorsed by the seller, the transac- tion is an executed one, and the nonpayment of the latter note wh^ due cannot be set up by the buyer in an action against him on his note as a failure of consideration." Where a valid and binding contract for the sale of land is entered into and a check given by the purchaser in part payment, the fact that the seller refuses to sign a mere formal contract, as stipulated in the original contract, does not constitute a failure of consideration for the check, as the vendor being bound by the original contract his refusal to sign a second contract in no way affected his liability.^* Though the plaintiff may not have performed his promise, which was the entire consideration for the defendant 's promise on which the action is based, still, if the defendant has received in effect the equivalent of a full performance, he cannot set up such non- performance as a failure of consideration. This is exemplified in a contrast of two cases where the consideration was a promise by the plaintiff to discontinue an action. In one, where the de- fendant in consideration of the plaintiff's promise to discontinue an action against a third person promised to pay the debt, the plaintiff instead of discontinuing the action proceeded to judg- ment on which an execution was issued and levied, and it was held that the consideration for the defendant's promise had failed.^' In the other the defendant gave his note for a debt of his own on which an action was pending, and the plaintiff agreed to discontinue the action. The plaintiff did not discontinue the action, but the defendant set' up in the suit, by way of supplemental answer, the plaintiff's agreement to do so, and the suit had not been brought to trial. It was held in an action on the note that the fact that the suit had not been discontinued did not show a total failure of consideration for the note.^" 26. Hall V. Minturn, (1874) 55 E. 46, aflBrming 39 State Rep. 163, N. y. 676 mem., affirming 6 Lans. 14 N. Y. S. 911. 56; Hand v. Fielding, (Sup. 1808) 2'8. Caren v. Liebovitz, (Sup. 1906) Anth. N. P. 87; Elwell v. Chamber- 113 App. Div. 674, 99 N. Y. S. 952. lain, (Super. Ct. 1859) 17 Super. Ct. i2e. Bookstaver v. Jayne, (1875) 320. 60 N. Y. 146. 27. Rice v. Grange, (1892) 131 30. Whitlock v. Coulter, (City Ct. N. Y. 149, 42 State Rep. 747, 30 N. Tr. T. 1882) 1 City Ct, 428. § 367] CONSIDERATION 555 § 357. Purchase Money for Land Conveyed or Chattels Sold. — In case of a sale of a chattel with implied warranty of the seller's title, if the seller has no title, in consequence of which the chattel is taken from the buyer by the true owner, this maj', as a general rule, be set up in defense to an action for the price as a failure of consideration.^^ It is also held, in case of a conditional sale, that if the seller retakes the property absolutely, on the default of the buyer in making the stipulated payments, he cannot thereafter re- cover the unpaid instalments, as the consideration fails.^^ The question whether the total failure of title, on a conveyance with warranty, is a good defense to a suit on a note or bond given for the purchase money, is one on which judges have entertained dif- ferent opinions. "Where there is a covenant of warranty or for quiet enjoyment merely, which covenant is not broken until there has been an eviction or something equivalent to an eviction, there is great difficulty in permitting the purchaser to show a total or partial failure of title either in bar of the action or to reduce the amount of the recovery. It is a well known fact that land is fre- quently conveyed with general warranty, which is warranty against eviction only, when both parties to the sale perfectly understand that the title is doubtful or that there is some outstanding con- tingent interest which may, perhaps at some future period, be the means of evicting the purchaser; and to protect the purchaser and to enable him to recover against the vendor the covenant of war- ranty is inserted in the deed. And yet in many cases of this kind, the purchaser continues to hold and enjoy the land until all ques- tions as to the title are removed, by lapse of time or otherwise. Permitting the purchaser to set up such a title before eviction would, as a general rule, be making a new contract for the parties, which they never intended to make themselves ; ^ and in such a case the right to set up the failure of title as a failure of consider- ation has been denied. ^^ And it has been held that a plea of 31. Forgotston v. Cragin, (Sup. requires the seller, if he retakes the 1901) 62 App. Div. 243, 70 N. Y. S. property sold under a conditional 979. sale, to resell the property on the 32. White v. Gray, (Sup. 1904) 96 account of the buyer, and if he fails App. Div. 154, 156, 89 N. Y. S. 481; to do so, gives the buyer the right Cooper V. Payne, (Sup. 1906) 111 to recover the payments made. App. Div. 785, 97 N. Y. S. 863; Nel- 33. Tallmadge v. Wallis, (Cu Err. eon V. Gibson, (Sup. 1911) 143 App. 1840) 25 Wend. 107, 115. Div. 894, 129 N. Y. S. 702. 34. Whitney v. Lewis, (Sup. 1839) The Personal Property Law, § 67 21 Wend. 1.31; Tibbets v. Ayer, (Sup. (40 McKinney's Cons. Laws, p. 103), 1843) Hill & D. Supp. 174. See also 556 NEW YORK LAW OF CONTRACTS [§ 358 " want of seizin " is not a good plea in bar to an action of debt on a bond given for the purchase money for land conveyed with covenant of seizin where the purchaser has not been evicted.'^ The same view is taken where chattels in the possession of the seller are sold and delivered to the buyer; the latter cannot, unless the possession of the chattels has been taken from him, set up the want of title in the seller in defense of an action for the agreed price.'^ On the other hand, where there has been an ac- tual eviction of the purchaser by a title or claim which entitled the party recovering the property to mesne profits, so that the amount of damages which the grantee would be entitled to recover for the breach of warranty thus broken would- be the full extent of the unpaid purchase money with the interest due thereon, the view is generally taken that there is a virtual failure of the whole con- sideration of the note or bond given for the purchase money, and that in such a case the purchaser, to avoid circuity of action, should be permitted to plead such total failure of consideration as an absolute bar to the suit." And it is said that the eifect of setting up such a defense would operate as an estoppel against the pur- chaser, if he should attempt to bring an action for a breach of warranty after he had been once satisfied for his damages in this manner.'* If the purchaser has enjoyed the possession for a period of time for which he cannot be made to account for the mesne profits, and interest on the purchase money for the period cov- ered by such time has not been paid, there is not a total failure of consideration, as the purchaser has had the benefit of the possession without having paid the equivalent therefor and with- out liability to account to anyone therefor.'' § 358. Pleading Defense of Total or Partial Pailitre.— The defense of a total failure of consideration was, prior to the Code form of practice, admissible under the general issue.*" It was otherwise, however, as to the defense of a partial failure, and to Lattinv. Vail, {Sup. 1837) 17 Wend. 107, 116; Tibbets v. Ayer, (Sup. 188; Winslow v. Buel, (Sup. Sp. T. 1843) Hill & D. Supp. 174; Vielie v. 1854) 11 How. Pr. 373. Osgood, (Sup. 1849) 8 Barb. 130, SS. Tallmadge v. Wallis, (Ct. Err. 134. 1840) 25 Wend. 107. , 38. Tallmadge v. Wallis, (Ct. Err. 36. Vibbard v. Johnson, (Sup. 1840) 25 Wend. 107, 116. 1821) 19 Johns. 77; Case v. Hall, 39. Tibbets v. Ayer, (Sup. 1843) (Sup. 1840) 24 Wend. 102. Hill & D. Supp. 174. 37. Frisbee v. Hoffnagle, (Sup. 40. Payne v. Cutler, (Sup. 1835) 1814) 11 Johns. 50; Tallmadge v. 13 Wend. 605; Tibbets v. Ayer, (Sup. Wallis, (Ct. Err. 1840) 25 Wend. 1843) Hill & D. Supp. 174. CONSIDERATION 557 make such a defense available it was necessary to accompany the plea of the general issue with notice of the special defense." As said by Sutherland, J., in an early case: "A total and entire failure of consideration, on the ground of fraud or otherwise, may be given in evidence under the general issue without notice ; but a partial failure cannot be given in evidence without special notice; it does not go to the foundation of the action, and show that the plaintiff is not entitled to recover anything, but is merely in miti- gation of damages. "^2 This view is still recognized since the adoption of our Code form of practice, and the defense, in reduc- tion of the amount of the recovery, of a partial failure of consid- eration is not admissible under a general denial.*' And it also seems that the defense of a total failure of consideration is in the nature of new matter and must, under our Code form of practice, be specially pleaded." In setting up the defense of a failure of con- sideration, it should be alleged whether the failure is a total failure of consideration which goes to the whole recovery, or merely a par- tial failure which is in the nature of a counterclaim and goes merely in reduction of the amount of the recovery .^^ 41,. Pjeople V. Judges of C. P., giving notice of such a defense is (Sup. 1834) 12 Wend. 246; Payne v. recognized in Burton v. Stewart (3 Cutler, (Sup. 1835) 13 Wend. 605; Wend. 236); Reab v. McAlister (8 Tibbets v. Ayer, (Sup. 1843) Hill & Wend. 109) ; Barber v. Rose (5 Hill, D. Supp. 174. 76), and some other cases which are 42. People v. Judges of C. P., reported. See also Sedgwick on the (Sup. 1834) 12 Wend. 246. Measure of Damages, 456. After so In Eldridge v. Mather, (1849) 2 long an adherence to a rule which N. y. 157, 158, Shankland, J., said: is just in itself, and so well calcu- "We are of opinion that in this state lated to eifectuate the object of all the rule is fully -settled and should pleading, viz., to apprise the opposite be adhered to, that where the de- party of the true grounds of dispute, fendant is sued upon a contract, and it is too late to inquire as to the desires to set up in defense a partial origin of the rule or whether it is want or failure of consideration in supported by English precedents." mitigation of damages, he must give 43. Dubois v. Hermance, (1874) notice thereof. This principle was 56 N. Y. 673, 674 mem.; Wray v. expressly adopted as early as 1814, Miller, (Sup. App. T. 1910) 120 N. by the supreme court of this state in Y. S. 787. See also Rogers v. Poly- the case of Runyan v. Nichols (11 technic Institute, (Sup. 1903) 87 Johns. 547), and was again impli- App. Div. 81, 84 N. Y. S. 12. edly sanctioned in 1816 in the case 44. Forgotston v. Cragin, (Sup. of Bleecker & Bleecker v. Vrooman 1901) 62 App. Div. 243, 70 N. Y. S. (13 Johns. 302). The practice of 979. giving notice in such cases was fol- 45. Clough v. Murray, (Super. Ct. lowed in Spalding v. Vandercook (2 G. T. 1862) 19 Abb. Pr. 97. Wend. 431), and the necessity of 558 NEW YORK; LAW OF CONTRACTS [§§ 359, 360 § 359. Against Whom Defense Available. — A party to nego- tiable paper given in consideration of the payee's executory promise, such as a promise to deliver goods in the future, cannot set up the defense of a failure of consideration, arising from the subsequent failure to deliver the goods, as against one who pur- chases the paper in due course before the breach of the payee's promise to deliver the goods, even though the purchaser had knowledge of the consideration on which the paper was based,^' or even after such breach if the purchaser had no knowledge of it.*' Thus where the consideration for the acceptance of a draft drawn to the order of the drawer is the agreement of the drawer to deliver goods to the acceptor, the failure of the drawer to make delivery does not constitute a failure of consideration which can be set up against a holder who acquired the draft prior to the default of the drawer in the delivery of the goods, even though he may have had notice of the nature of the consideration for the acceptance.** It would be otherwise, however, if the chose in ac- tion was not negotiable, as an assignee of a non-negotiable chose in action takes subject to all defenses inherent in the transaction which would have been available against the assignor.** If a promise is made for the benefit of a third person his right to en- force it is a derivative one, and is enforceable by him only on the same terms that it could have been enforced by the party through whom he derives his right ; and, therefore, the defense of a total or partial failure of consideration may be set up against him.5« Pleading and Proof of Consideration Generally § 360. In General. — At common law, though the promise is in writing, the consideration need not be expressed but may be proved in all cases by extrinsic evidence, the requirement as to a consideration being satisfied if there is in fact a consideration.^ ie. Davis V. McCready, (1858) 17 ing on other grounds 38 App. Div. N. Y. 230; Tradesmen's Nat. Bank 240, 57 N. Y. S. 121. V. Curtis, (1901) 167 N. Y. 194, 49. Newman v. Overbaugh, (Sup. 60 N. E. 429, affirming as to this but Sp. T. 190&) 116 N. Y. S. 369. See reversing on other grounds 38 App. also Jermyn v. Searing, (Sup. 1915) Div. 240, 57 N. Y. S. 121. 170 App, Div. 707, 156 N. Y. S. 718. 47. Davis v. McCready, (1858) 17 50. Detmer Woolen Co. v. Van N. Y. 230. Horn, (Sup. App. T. 1908) 59 Misc. 48. Tradesmen's Nat. Bank v. Cur- 163, 110 N. Y. S. 312. tis, (1901) 167 N. Y. 194, 60 N. E. 51. Thompson v. Blanchard, (1850), 429, affirming as to this but revers- 3 N. Y. 335, 337; Keuka College v. 360] CONSIDERATIOlSr 559 As a consideration is essential to the validity and enforcement of an executorj' contract, the complaint in an action for its breach must show, as a general rule, that the contract is supported by a suffi- cient consideration.'^^ But where a copy of the instrument sued on is set forth in the complaint and that instrument on its face shows the existence of a valid consideration, no other averment of a con- sideration need be made, for in a complaint thp-t is deemed averred which by reasonable and fair intendment can be implied from the facts," as where the contract set forth is one containing mutual promises,^* or where it recites the promise of the defendant to be for ' ' value received. " " So if the agreement is one which imports a consideration without any recital of "value received," ^^ no allegation of a consideration is necessary." If the promise is not in a form which imports a consideration, and none is recited in the contract so as to raise a prima facie presumption of one, the fact that there was a consideration must be proved by the party seeking to enforce the contract, instead of casting on the promisor the duty to show that there was no consideration for his promise.^^ Ray, (1901) 167 N. Y. 96, 60 N. E. 326, affirming 41 App. Div. 200, 58 N. y. S. 745; Barnes v. Ferine, (Sup. G. T. 1852) 15 Barb. 249, affirming 9 Barb. 202, and affirmed 12 N. Y. 18; Katelsohn v. Reich, (Sup. App. T. 1906) 50 Misc. 585, 99 N. Y. S. 327. See also Post v. Doremus, (1875) 60 N. Y. 37i, 376. 52. National Citizens' Bank v. Toplitz, (1904) 178 N. Y. 464, 467, 71 N. E. 1; Holmes v. Northern Pac. R. Co., (Sup. 1901) 65 App. Div. 49, 72 N. Y. S. 476 ; Hevia v. Wheelock, (Sup. 1913) 155 App. Div. 387, 140 N. Y. S. 351; Burnet v. Bisco, (Sup. 1809) 4 Johns. 235; Spear v. Down- ing, (Sup. G. T. 1861) 34 Barb. 522, 12 Abb. Pr. 437, 22 How. Pr. 30; Dolcher v. Fry, (Sup. G. T. 1862) 37 Barb. 152; Polland v. Hollander, (Sup. Sp. T. 1909) 62 Misc. 523, 115 N. Y. S; 1042; Richards v. Levi- son, (Sup. App. T. 1913) 142 N. Y. S. 272; Rafolovitz v. American To- bacco Co., (Sup. Sp. T. 1893) 29 Abb. N. Cas. 406, 23 N. Y. S. 274. 53. Prindle v. Caruthers, (1857) 15 N. Y. 425, 12 Super. Ct. '670, note; Wood V. Knight, (Sup. 1898) 35 App. Div. 21, 54N.Y. S. 466. 54. Wood V. Knight, (Sup. 1898) 35 App. Div. 21, 54 N. Y. S. 466. 515. Prindle v. Caruthers, (1857) 15 N. Y. 425, 12 Super. Ct. 670, note; Meyer v. Hibsher, (1872) 47 N. Y. 265 ; Owens v. Blackburn, ( Sup. 1914) 161 App.. Div. 827, 146 N. Y. S. 966; Jerome v. Whitney, (Sup. 1811) 7 Johns. 321; Walrad v. Petrie, (Sup. 1830) 4 Wend. 575. 56. See following sections as to in- struments importing a consideration. 57. Carnwright v. Gray, (1891) 127 N. Y. 92, 38 State Rep. 56, 27 N. B. 835; Abrahamson v. Steele, (Sup. 1917) 176 App. Div. 865, 163 N. Y. S. 827; Troy Bank v. Top- ping, (Sup. 1835) 13 Wend. 557; Underbill v. Phillips, (Sup. 1877) 10 Hun 591 ; Johannessen v. Miin- roe, (Sup. 1895) 84 Hun 594, 599, 66 State Rep. 142, 32 N. Y. S. 863. 55. Duffield V. Johnston, (1884) 96 N. Y. 369, affirming 10 Daly 360; Bradt v. Krank, (1900) 164 N. Y. 515, 58 N. E. 657, reversing 35 App. Div. 623 mem., 54 N. Y. S. 10'96; 560 NEW YORK LAW OF CONTRACTS [§ 360 If the instrument sued on does not import a consideration the complaint must allege one, and the defense of a want of consider- ation is available under a general denial ; ^» it is otherwise as to a partial failure of consideration, for that is available in reduction of the amount of recovery only.*" Where the consideration is in issue it seems that the plaintiff should not be permitted to prove or rely on two inconsistent propositions, as his evidence to prove the one as the consideration for the promise necessarily disproves the truth of the other.'^i If the nature of the consideration is stated it excludes proof of other or further consideration.^^ The decisions are not in accord as to whether a general allegation that the contract in question was based on a "valuable consideration " or that the promise was made for value is sufficient. According to the better view this is regarded as a conclusion of law and there- fore insufficient.*^ Deyo V. Tliompson, (Sup. 1900) 53 App. Div. 9, 65 N. Y. S. 459; Schworm v. Goodrich, (Sup. Tr. T. 1899) 29 Misc. 721, 62 N. Y. S. 758; Richards v. Levison, (Sup. App. T. 1913) 142 N. Y. S. 272; Patchen v. Brown, (Sup. 1871) 3 Alb. L. J. 150. But in Fitch v. Redding, (Super. Ct. 1850) 6 Super. Ct. 130, 136, which was an action on a check, that itself imported a consideration, Duer, J., says : " We cannot think that a de- fense which is rested upon the single ground of the absence of a valuable consideration deserves much favor in a court of justice. Where the prom- ise is deliberate, and is reduced to writing, the rule of law which per- mits the defense (although the fact is otherwise stated by many of our text writers) is almost peculiar to our own jurisprudence, and is con- demned by the general sense of legis- lators and jurists, as well as of mer- chants. Still, aa the rule undoubt- edly exists, it must be obeyed, and the defense, when clearly established, be admitted to prevail; but it is not inconsistent to say that, considering the nature of the defense, the party who relies upon it should be held to the strictest proof, and every doubt that he suffers to remain be decided against him, In the present case. however, these observations are not necessary to justify our decision, since our objections to the defense apply not merely to the sufficiency of its proof, but to the reality of its existence." 59. Schworm v. Goodrich, (Sup. Tr. T. 1899) 29 Misc. 721, 62 N. Y. S. 758; Wray v. Miller, (Sup. App. T. 1910) 120 N. Y. S. 787. 60. See supra, section 355. 61. Winchell v. Latham, (Sup. 1827) 6 Cow. 682; Wray. v. Miller, (Sup. App. T. 1910) 120 N. Y. S. 787. 62. Petze v. Leary, (Sup. 1907) 117 App. Div. 829, 102 N. Y. S. 960. 63. Fulton V. Varney, (Sup. 1907) 117 App. Div. 572, 102 N. Y. S. 608; Neukirch v. McHugh, (Sup. 1914) 165 App. Div. 406, 150 N. Y. S. 1032; Kinsella v. Lockwood, (Sup. App. T. 1913) 79 Misc. 619, 140 N. Y. 513; Waterbury-Wallace Co. V. Ivey, (Sup. App. T. 1917) 99 Misc. 260, 163 N. Y. S. 719; Dahl v. Scan- dinavian Trust Co., (Sup. Sp. T. 1919) 108 Misc. 135, 177 N. Y. S. 489. See also Czerney v. Haas, (Sup. 1911) 144 App. Div. 430, 129 N. Y. S. 537; Browning v. Terwilliger, (Sup. 1911) 144 App. Div. 516, 129 N. Y. S. 431. But see St. Lawrence County Nat. Bank v. Watkins, (Sup. 1912) § 361] CONSIDERATION 561 § 361. Instruments Importing^ a Consideration Generally. — Though ordinarily there is no presumption that a promise to pay money or do some other act is based on a consideration, and the promisee is required to allege and prove a sufficient consideration, the view was taken in an early case in our state that if the word " agree " is used in a written promise to pay money, the instru- ment will ordinarily import a consideration; and where the con- tract was as follows : " I do hereby agree and bind myself to pay to Samuel Andrews the sum of one hundred dollars, whenever and as soon as Sheriff street shall be opened," it was held, as an additional reason for reversing the judgment below, that the law would imply a consideration from the use of the word ' ' agree. ' ' '* In so far as a consideration may be necessary for the assignment of a chose in action so as to carry the beneficial interest to the assignee, the law will presume that there was a sufficient considera- 153 App. Div. 551, 138 N. Y. S. 116, reversing 76 Misc. 633, 135 N. Y. S. 461. In Neukircli v. McHugh, (Sup. 1914) 165 App. Div. 406, 407, 150 N. Y. S. 1032, Laughlin, J., after referring to the conflict between the cases in the First and Third Depart- ment, said : " In view of the former decisions of this court on the precise point now presented, which being only one of pleading is not vital, and with which it is no hardship to comply, I think that we should adhere to the rule prescribed by the decisions in this department, and leave it for the Court of Appeals to correct us if we are in error, and to decide whether the rule that an allegation that a promise to pay or that a note or other instrument was duly assigned 'for value received' (Prindle v. Ca- ruthers, 15 N. Y. 425; Benedict v. Kress, 97 App. Div. 65; National Citizens' Bank v. Toplitz, 178 N. Y. 464, 467), is a sufficient allegation of the fact, should apply where the alle- gation is, as here, that the parties ' for a valuable consideration ' made and entered into a certain contract." 64. Andrews v. Pontue. (Sup. 1840) 24 Wend. 285. In this case Cowen, J. (p. 289), said: "Words like these, standing alone, were in Easter 36 term, 1839, held by the Queen's Bench in England, to import a con- sideration, and were received as suffi- cient to sustain an action upon an account stated. Davies v. Wilkin- son, 1 Jurist (Am. ed. by Halst. & Voorh.) 372. The words were, 'I. agree to pay C. D. £695, at four in- stalments (mentioning time and place for all except £95), and adding, ' Tlie remaining £95 to go as a set- off,' etc., on a certain debt. The court pronounced this to be an agree- ment, not a promissory note; and held that the word ' agree,' of itself, imported a consideration. Lord Den- man, Ch. J., said : ' I think the promise in this case conveyed by the words " I agree to pay," imports a consideration, without doing any vio- lence to the language.' And the three other learned judges, Littledale, Pat- teson and Coleridge, expressly con- curred in the remark. The case is in point, and agrees with what has long been understood from the word agree- ment, as used in the statute of frauds. It means not only a promise but a quid pro quo, Wain v. Warl- ters, 5 East 10 [which involved the stat'iite of frauds and the necessity for a statement of the consideration in the memorandum]. Lord Ellen- borough, in the case cited, denied 562 NEW YORK LAW OF CONTRACTS [§ 362 tion.^ And in case of an assignment of a deposit in a savings bank by the delivery of the pass-book and an order on the bank to pay the amount to the transferee, it has been held that if neces- sary a consideration for the transfer would be presumed.*^ An assignment of a chose in action by way of a gift may, however, as in case of gifts of chattels, be made so as to be effective to carry the entire interest in the chose in action to the donee or assignee without any consideration whatsoever.^' § 362. Recital of Consideration Generally. — The recital of a consideration is prima facie evidence of the fact,^* and the use of the phrase ' ' value received ' ' imports a sufficient consideration.*' In case of a conveyance by a trustee the recital of the consideration that the word was to be understood in a loose and incorrect sense, ' as synonymous to promise or undertak- ing,' but ' in. its more proper and correct sense, as signifying a mutual contract on consideration between two or more parties.' In this view the court concurred. So much for the word wlien used in a, statute; a fortiori when used in a contract. The statute might have been made operative without such a construc- tion. In the view we are now tak- ing, this contract cannot." 05. Eno V. Crooke, (1854) 10 N. Y. 60, 1 Seld. Notes 234. See also Hol- lister V. Kolb, (Sup. G. T. 1891) 59 Hun 615, 35 State Rep. 825, 12 N. Y. S. 613. 66. McGuire v. Murphy, (Sup 1905) 107 App. Div. 104, 94 N. Y. S. 1005. See also Dinley v. McCullagh, (Sup. 1895) 92 Hun 454, 72 State Rep. 416, 36 N. Y. S. 1007. 67. Durland v. Durland, (Sup. 1894) 83 Hun 174, 64 State Rep. 149, 31 N. Y. S. 596, affirmed 153 N. Y. 67, 47 N. E. 42. 68. In re Steglich, (Sup. 1904) 91 App. Div. 75, 86 N. Y. S. 257, hold- ing that a recital of " one dollar and other good and valuable consideration ... in hand paid " is prima facie sufficient to support the promise. 69. Eastern Plank Road Co. v. Vaughan, (1856) 14 N. Y. 546, af- firming 20 Barb. 155; Meyer v. Hib- sher, (1872) 47 N. Y. 265; Becker v. Fischer, (Sup. 1897) 13 App. Div. 555, 43 N. Y. S. 685; Banker v. Coons, (Sup. 1899) 40 App. Div. 572, 58 N. Y. S. 47; Rice v. Rice, (Sup. 1899) 43 App. Div. 458, 60 N. Y. S. 97; Harris v. Buchanan, (Sup. 1905) 100 App. Div. 403, 91 N. Y. S. 484; Hamilton v. Hamilton, (Sup. 1908) 127 App. Div. 871, 112 N. Y. S. 10; Owens v. Blackburn, (Sup. 1914) 161 App. Div. 827, 146 N. Y. S. 966; Lasher v. Rivenburgh, (Sup. 1920) 191 App. Div. 676, 181 N. Y. S. 818; Jerome v. Whitney, (Sup. 1811) 7 Johns. 321; Walrad v. Petrie, (Sup. 1830) 4 Wend. 575, 576; Connecti- cut Mut. L. Ins. Co. V. Cleveland, etc., R. Co., (Sup. G. T. 1863) 41 Barb. 9, 26 How. Pr. 225; Chapin v. Hollister, (Sup. G. T. 1872) 7 Lans. 456; Holliday v. Lewis, (Sup. G. T. 1878) 14 Hun 478 mem.; Howell v. Wright, (Sup. G. T. 1886) 41 Hun 167, 4 State Rep. 148, affirmed 122 N. Y. 667 mem., 3 Silv. App. 142, 25 N. E. 912; Hayes v. Hood, (Sup. G. T. 1S90) 57 Hun 585, 32 State Rep. 28, 10 N. Y. S. 265; Hawxhurst v. Pitch, (Sup. G. T. 1889) 2 Silv. Sup. 499, 24 State Rep. 729, 6 N. Y. S. 134; Ku&sey v. Dempsey, (Sup. Tr. T. 1908) 60 Misc. 317, 113 N. Y. S. 271; Canning v. Lane, (Sup. App. T. 1913) 139 N. Y. S. 884; Muzzey v. Cable, (Sup. G. T. 1884) 19 Wkly. Dig. 142; Blackman v. Cavin, (Sup. G. T. 1885) 21 Wkly. Dig. 445. § 362] CONSIDERATION 563 is prima facie proof that it was in fact as recited ; ■"• and the gen- eral rule prevails in our state that the recital in a conveyance or transfer of property of a pecuniary consideration and its receipt 'is prima facie evidence that it was paid,'^ even as against strangers such as creditors of the grantor or the like who seek to attack the conveyance as voluntary and fraudulent as to them, or grantees who seek protection as bona fide purchasers for value.'^ This effect is not, however, given to a recital of a nominal consideration,'* and a recital of the consideration as " one dollar and other good and valuable consideration " is held a recital of a nominal consid- eration merely.'* In executory contracts the recital of a considera- tion paid does not preclude the promisor, as between the parties, from disputing the fact.'° It is a well settled legal principle that the actual consideration of a written instrument may be shown, even though to that extent that it contradicts or varies the con- sideration expressed in the writing itself.'* Where it is shown that there was no such consideration as that recited, a different con- sideration may be shown and the contract thereby sustained ; " but where the contract is not under seal and it is shown that the con- sideration mentioned in the contract was not in fact actually given or promised, and a party to it claims that there was some other con- sideration, it is incumbent on him to show it.'* Where the agree- ment recites and acknowledges a consideration as paid, if there was in fact an agreement to pay the consideration recited as paid, 70. Clarke v. Davenport, (Super. 75. Fargis v. Walton, (1887) 107 Ct. 1857) 14 Super. Ct. 95. N. Y. 398, 12 State Rep. 60, 14 N. E. 71. Davin v. Isman, (1920) 228 303; Presbyterian Church, v. Cooper, N. y. 1, 126 N. E. 257, reversing (1889) 112 N. Y. 517, 21 State Rep. 187 App.'oiv. 889 mem., 174 N. Y. S. 503, 20 N. E. 352; Rohkohl v. Suss- 900. man, (Sup. App. T. 1908) 61 Misc. 72. Wood v. Chapin, (1856) 13 246, 113 N. Y. S. 586. N Y 509; Lacustrine Fertilizer Co. 76. Cameron v. Fraser, (Sup. Tr. V. Lake Guano, etc., Co., (1880) 82 T. 1905) 48 Misc. 8, 94 N. Y. S. N Y. 476; Turner v. Howard, (Sup. 1058. 1886) 10 App. Div. 555, 42 N. Y. S. 77. Fargis v. Walton, (1887) lOV 335; Jackson v. McChesney, (Sup. N. Y. 398, 12 State Rep. 60, 14 N. E. 1827) 7 Cow. 360; Amsden v. Man- 303; Richfield Springs First Nat. Chester (Sup. G. T. 1862) 40 Barb. Bank v. Keller, (Sup. 1908) 127 App. 158- McDonough v. JEtna L. Ins. Co., Div. 435, 111 N. Y. S. 729. (Sun Tr T 1902) 38 Misc. 625, 78 78. Fargis v. Walton, (1887) 107 N y' S 217. N. Y. 398, 12 State Rep. 60, 14 N. E. 73 Turner v. Howard, (Sup. 1896) 303, reversing 51 Super. Ct. 32. See 10 App Div 555 42 N. Y. S. 335. also Rohkohl v. Sussman, (Sup. App. 74 Turner V. Howard, (Sup. 1896) T. 1908) 61 Misc. 246, 113 N. Y. S. 10 App. Div. 555, 42 N. Y. S. 335. 586. 564 XBW YORK LAW CF CONTRACTS [§ 363 this will be sufficient to sustain the contract." There is no pre- sumption, however, that as a matter of fact there was such an agree- ment.*" If the contract recites a nominal consideration as paid and also " other valuable considerations," proof that the nominal consideration was not in fact paid does not rebut the presumption as to the existence or truth of the other recital.*^ If instead of relying on the recital of " value received " as importing a con- sideration, the plaintiff sets forth specially in what the value re- ceived consisted, it then becomes incumbent on him to prove the particular consideration according to the averment.*^ If the agree- ment, such as an option to purchase land, recites a consideration as paid by the purchaser, his testimony that it was in fact paid, in connection with the prima facie presumption arising from the recital, is sufficient, as against the testimony of the vendor that there was no consideration, to make a preponderance of the evi- dence in favor of a finding that the recited consideration in fact existed.^' § 363. Recital of Consideration in Sealed Contract. — If the contract is under seal and also recites a consideration, though the presumption of a consideration arising from the seal may be rebutted,** the general rule has been laid down that the expression of a consideration in such an instrument is not subject to contra- diction for the purpose of invalidating the instrument.*'^ Thus where a contract giving a purchaser the option to purchase land is under seal and recites a consideration, though nominal as in case of one dollar the receipt of which is acknowledged, it has been held that it cannot be shown for the purpose of invalidating the contract that in fact there was no consideration.*" This has also 79. Childs V. Barnum, (Sup. G. T. App. Div. 868, 13.5 N. Y. S. 948, 153 1851) 11 Barb. 14, affirming 3 Super. App. Div. 903, 138 N. Y. S. 503. Ct- 58. 82. Jerome v. Whitney, (Sup. 1811) 80. Fargis v. Walton, (1887) 107 7 Johns. 321. See also Lansing v. N. Y. 398, 12 State Rep. 60, 14 N. E. M'Killip, (Sup. 1805) 3 Caines 286. 303, 27 Wkly. Dig. 471, reversing 51 83. Jones v. Barnes, (Sup. 1905) Super. Ct. 32. See also Rohkohl v. 105 App. Div. 287, 94 N. Y. S. 695. Sussman, (Sup. App. T. 1908) 61 84. See infra, section 373 et seq. ' Misc. 246, 113 N. Y. S. 586. 85. Fuller v. Artman, (Sup. 1893) 81. Kam v. Benjamin, (Sup. 1896) 69 Hun 546, 53 State Rep. 339, 24 10 App. Div. 419, 76 State Rep. 99, N. Y. S. 13; Olin v. Arendt (Sup. 42 N. Y. S. 99, affirmed 158 N. Y. Sp. T. 1899) 27 Misc. 270, 58 N. Y. 725 mem., 53 N. E. 1126; Williams S. 429. See also Wells v. Well?, V. Whittell, (Sup. 1902) 69 App. (Sup. 1896) 8 App. Div. 422, 426^ Div. 340, 346, 74 N. Y. S. 820; Less- 75 State Rep. 224, 40 N. Y. S. 836. ler V. De Loynes, (Sup. 1912) 150 86. Fuller v. Artman, (Sup. 1893) § 3i63] CONSIDERATION 5&5 been held true where a promise under seal to answer for the debt oi; another recited a consideration.*^ And there is no doubt but that the recital of a consideration in a deed of bargain and sale is conclusive as to the fact that there was a svifficient consideration to support the deed ; and though it may be shown by oral evidence that the consideration was other than that recited or that it was not paid when its receipt is acknowledged, it cannot be shown that there was in fact no consideration for the purpose of invalidating the deed, which to be effective must under the technical rules of the common law be based on a consideration.** This view, however, as applied to executory contracts is not recognized to its full extent, and though a bond or note under seal for the payment of money recites a consideration, such as " value received," it may be shown, since the abolition of the conclusive presumption arising from the use of a seal,*' that there was in fact no consideration for the promise, and a recovery thereby defeated."" And it is held that an instrument under seal in the form of a mortgage on real estate, which on its face expresses a consideration and purports to have been given as security for a debt, may nevertheless, as between the parties, be shown to have been purely voluntary or without any consideration, and so unenforceable.'^ 69 Hun 646, 53 State Rep. 339, 24 613 mem.; Bradley v. McCutcheon, N. Y. S. 13. See also Spitzli V. Gutli, (Sup. App. T. 1916) 97 Misc. 412, (Sup. Sp. T. 1920) 112 Misc. 630, 161 N. Y. S. 394; Reynolds v. Stein, 183 N. Y. S. 743. (Sup. App. T. 1909) 117 N. Y. S. 87. Olin V. Arendt, (Sup. Sp. T. 985. See also Lessler v. De Loynes, 1899) 27 Misc. 270. 58 N. Y. S. 429. (Sup. 1912) 150 App. Div. 868, 135 In CMlds V. Barnum, (Sup. G. T. N. Y. S. 948, 153 App. Div. 903, 138 1851) 11 Barb. 14, affirming 3 Super. N. Y. S. 503. Ct. 58, the view is talcen that where 91. Baird v. Baird, (1895) 145 a contract under seal to answer for N. Y. 659, 71 State Rep. 312, 40 the debt of another recites a con- N. E. 222, affirming 81 Hun 300, 62 sideration of one dollar " paid," State Rep. 748, 30 N. Y. S. 785. See proof that the dollar wag not paid, also Davis v. Bechstein, (1877) 69 without further proof that there was N. Y. 440; Parlihurst v. Higgins, no agreement to pay it, does not (Sup. 1895) 38 Hun 113. sufficiently prove that there was no In Baird v. Baird, (1895) 145 N.Y. consideration for the promise. 659, 665, 71 State Rep. 312, 40 N. E. 88. Grout V. Townsend, (Ct. Err. 222, O'Brien, J., says: "There are, 1845) 2 Denio 336. See supra, sec- it is true, expressions to be found in tion 234, as to the necessity for a some cases to the effect that while consideration to support a bargain the question of consideration is open and sale deed. to be varied by parol proof, yet the 89. See infra, section 374. party cannot be permitted to claim 90. Anthony v. Harrison, (Sup. that a deed or other instrument with 1878) 14 Hun 198, affirmed 74 N. Y. a consideration clause or a seal, or 566 NEW YORK LAW OF CONTRACTS [§ 364 § 364. Commercial Paper Generally. — Under our early statutes the broad rule was frequently laid down that commercial paper prima facie imports a consideration sufficient for its support. This included bills of exchange, checks and promissory notes.^^ " The effect of laws," says Brown, J., in this connection, after referring to our early statute which followed the statute of Anne (3 and 4 Anne, ch. 9), and placed notes on the same footing as inland bills of exchange, " which make promissory notes nego- tiable, or which authorize actions of debt upon them, though non- negotiable, is to take them out of the common law rule which requires that every contract must be shown by the party who sues both, is wholly without consideration, and thus entirely defeat it. If this idea is anything more than a some- what shadowy and fanciful remnant of the ancient law, it is not easy to define its precise scope or practical application when applied to an execu- tory instrument like a mortgage. To say that in a case like this it is open to the defendant to reduce by parol proof the sum expressed as the consideration to one dollar or any other nominal sum, but that he can- not go any farther, would be to con^ fess that the distinction, if it exists, is altogether without substance. The instrument would be defeated in either case." In Cheney v. Thornton, { Sup. G. T. 1892) 43 State Rep. 510, 17 N. Y. S. 545, it was sought to foreclose a mortgage given by a wife to her hus- band at a time (prior to the Act of 1887) when such a mortgage was void at law, though upheld in equity if based on a valuable consideration. It was held that the burden was on the plaintiff to show that there was a valuable consideration for the mortgage, and that as this had not been done a judgment for the plain- tiff was improper. 92. Raubitschek v. Blank, (1880) 80 N. Y. 478, affirming 44 Super. Ct. 564; Carnwright v. Gray, (1891) 127 N. Y. 92, 38 State Rep." 56, 27 N. E. 835; Hegeman v. Moon, (1892) 131 N. Y. 462, 43 State Rep. 662, SON. E. 487; Durland V. Durland, (1897) 153 N. Y. 67, 47 N. E. 42; Yarwood v. Trusts, etc., Co., (Sup. 1904) 94 App. Div. 47, 51, 87 N. Y. S. 947; Goshen, etc., Turnpike Road v. Hur- tin, (Sup. 1812) 9 Johns. 217; Troy Bank v. Topping, (Sup. 1832) 9 Wend. 273, 277, 13 Wend. 557, 569; Sawyer v. MeLouth, (Sup. G. T. 1866) 46 Barb. 350; Foote v. Valen- tine, (Sup. G. T. 1888) 48 Hun 475, 16 State Rep. 15, 1 N. Y. S. 410, 14 Civ. Pro. 332; Egan v. Egan, (Sup. G. T. 18-90) 55 Hun 610, 30 State Rep. 157, 5 Silv. Sup. 456, 8 N. Y. S. 899; Root v. Strang, (Sup. 1894) 77 Hun 14, 59 State Rep. 258, 28 N. Y. S. 273 ; Johannessen v. Mun- roe, (Sup. 1895) 84 Hun 594, 66 State Rep. 142, 32 N. Y. S. 863; Olsen v. Ensign, (Com. PI. 1894) 7 Misc. 682, 58 State Rep. 378, 28 N. Y. S. 38; Smith v. Unangst, (Sup. App. T. 1897) 20 Mist. 564, 46 N. Y. S. 340, affirming 19 Misc. 711, 43 N. Y. S. 1164; Bottum v. Scott, (Sup. G. T. 1887) 11 State Rep. 514, 27 Wkly. Dig. 370, affirmed 120 N. Y. 623 mem., 23 N. E. 1152; Arms v. Arms, (App. 1889) 22 State Rep. 755; Gra- bosski V. Gewerz, (Com. PI. G. T. 1892) 44 State Rep. 127, 17 N. Y. S. 528; Fitch v. Redding, (Sui)er. Ct. 1850) 6 Super. Ct. 130; Cohn v. Hus- son, (Super. Ct. 1889) 57 Super. Ct. 238, 6 N. Y. S. 897, affirmed 119 N. Y. 609, 28 State Rep. 852, 23 N. E. 573, 2 Silv. App. 484; Kinsman v. Bird- sail, (Com. Pi. 1854) 2 E. D. Smith 395. § 364] CONSIDERATION 56T upon it to be supported by a consideration, and enables the holder to maintain an action thereon without alleging or proving a con- sideration. In other words a consideration is implied from the character of the instrument. . . . Promissory notes and inland bills of exchange were, by virtue of these laws, put upon an . equality. They were made negotiable if they contained words of negotiability, but whether negotiable or not, and whether they expressed value received or not, it was no longer necessary in actions thereon to aver and prove consideration. ' ' *^ The pre- sumption of a consideration arises though the note is payable at a certain time at or after the maker 's death,^* and though the promise is in terms a direction to his executor to pay.'^ It is not neces- sary that the note contain the usual recital of ' ' value received ; " ^^ in fact, this recital would itself import a consideration.'' If the note attempts to recite the actual consideration and in doing so shows that what was claimed as a consideration was insufficient therefor in law, this rebuts any presumption that there was any other consideration to support the note, and therefore the note will not import a consideration, but on its face will be considered un- enforceable.'* But to bring the case within this rule the attempt to state the consideration must show with reasonable certainty that the consideration so recited was not in fact sufficient.'' In some of 93. CarnwrigM v. Gray, (1891) Sprague v. Sprague, (Sup. 1894) 80 127 N. Y. 92, 98, 38 State Rep. 56, Hun 285, 61 State Rep. 862, 30 N. Y. 27 N. E. 835. S. 162; McLeod v. Hunter, (Sup. Tr. 94. Carnwright v. Gray, (1891) T. 1899) 29 Misc. 558, 61 N. Y. S. 127 N. Y. 92, 38 State Rep. 56, 27 73, affirmed 49 App. Div. 131, 63 N. E. 835; Hegeman v. Moon, (1892) N. Y. S. 153; Kinsman v. Birdsall, 131 N. Y. 462, 43 State Rep. 662, 30 (Com. PI. 1854) 2 E. D. Smith 395. N. E. 487; Blackman v. Cavin, (Sup. 97. See supra, section 362. G. T. 1881) 21 Wkly. Dig. 445. 98. Ten Eyck v. Vanderpoel, (Sup. 95. Hegeman v. Moon, (1892) 131 1811) 8 Johns. 120. This case in- N. Y. 462, 43 State Rep. 662, 30 N. B. volved a note given, by the adminis- 4g7_ trator of B by which he promised to 96. Carnwright v. Gray, (1891) pay to C a certain sum "for value 127 N. Y. 92, 38 State Rep. 56, 27 received by B and his heirs." N E 835, affirming 57 Hun 518, 33 99. Hegeman v. Moon, (1892) 131 State Rep. 98, 11 N. Y. S. 278; N. Y. 462, 43 State Rep. 662, 30 N. B. Hickok V. Bunting, (Sup. 1902) 67 487; Hickok v. Bunting, (Sup. 1904) App Div. 560, 73 N. Y. S. 967; 92 App. Div. 167, 86 N. Y. S. 1059, Pittsburgh First Nat. Bank v. Stallo, affirmed 182 N. Y. 530 mem., 74 N. E. (Sup. 1914) 160 App. Div. 702, 145 1118. N Y S 747- Underbill v. Phillips, In Hegeman v. Moon, (1892) 131 (Sup 1877) 'lO Hun 591; Root v. N. Y. 462, 43 State Rep. 662, 30 Strang, (Sup. 1894) 77 Hun 14, 59 N. E. 487, the note recited that the State Rep. 258, 28 N. Y. S. 273; consideration was money due the 568 NEW YORK LAW OF OONTRACTS [i 365 the eases laying down the general rule that notes, etc., import a consideration, it appears from the report that the instrument was negotiable in form, and even contained the recital " value re- ceived." No particular stress was, however, laid on these facts, and, as is shown later, it was held under the earlier statute that the rule applied whether the note was negotiable or not.^ A con- sideration will not be imported in case of a note calling for the payment of a certain sum in chattels,^ nor in case of a note pay- able to two persons in the alternative, as to "A or B."^ "Where a note is given by an executor or administrator for a debt owing by the estate, it prima facie imports, as in other cases, a considera- tion, namely, assets of the estate.^ § 365. Necessity that Paper Be Negotiable. — Prior to the present Negotiable Instruments Law a note was held to import a consideration irrespective of whether it was negotiable in form or not.^ This law, however, declares that " every negotiable instru- soeiety, and therefore not a note pay- able to one or the other of two per- sons. Wells' V. Monihan, ( Sup. G. T. 1891) 35 State Rep. 494, 13 N. Y. S. 156. 4. Troy Bank v. Topping, (Sup. 1835) 13 Wend. 557, 9 Wend. 273, explaining Ten, Eyck v. Vanderpoel, (Sup. 1891) 8 Johns. 120, and Schoon- maker v. Rossa, (Sup. 1820) 17 Johns. 301. In Troy Bank v. Topping, (Sup. 1835) 13 Wend. 557, 569, Suther- land, J., after a review of the earlier cases, said: "A promissory note, then, imports a consideration, and it is unnecessary to state any in pleading, or to prove any upon the trial in the first instance. When given by an executor or administra- tor, it is prima facie evidence of assets, because they are the legal consideration upon which such a promise ought to be and is presumed to be founded. It is but prima facie evidence, however, between the origi- nal parties, and the defendant may show that in fact there was a defi- ciency of assets, and of course no consideration to support the note." 5. Oarnwright v. Gray, (1891) 127 N. Y. 92, 38 State Rep. 56, 27 N. E. 835, affirming 57 Hun 518, payee for cash advanced to the maker's son and others, and this was held insufficient to rebut the pre- sumption that it was given for a sufficient consideration. And in Hickok v. Bunting, (Sup. 1904) 92 App. Div. 167, 86 N. Y. S. 1059, on prior appeal 67 App. Div. 660, 73 N. Y. S. 967, affirmed 182 N. Y. 530 mem., 74 N. E. 1118, the note recited that as the maker had been the cause of a loss to the payee, he had given her a certain sum of money which he held in trust for her, and promised to pay such sum to her, 'and this was held insufficient to rebut the presumption that there was a sufficient consideration for the note. 1. See next following section. a. Lansing v. M'Killip, (Sup. 1805) 3 Gaines 286; Jerome v. Whitney, (Sup. 1811) 7 Johns. 321. See also Saxton V. Johnson, (Sup. 1813) 10 Johns. 418. 3. Walrad v. Petrie, (Sup. 1830) 4 Wend. 575, 576. This qualification would not apply to a note payable to an unincorpo- rated society " or its treasurer," as the latter phrase should be treated as surplusage or as merely designat- ing the treasurer as the agent of the MS] CONSIDERATION 569 ment is deemed prima facie to have been issued for a valuable consideration " (Negotiable Inst. Law, § 50; 37 McKinney's Cons. Laws, p. 42.) And while under this law a negotiable note imports a consideration irrespective of whether it contains the recital " value received " or not,^ this provision is considered as restrict- ing the presumption to commercial paper negotiable in f orm.'^ As a result of this change the plaintiff, in an action on a non-negoti- able note, if the note does not recite a consideration such as ' ' value received," which itself would import a consideration,' must allege 33 State Rep. 98, 11 N. Y. S. 278; Wells V. Monihan, (Sup. G. T. 1891) 35 State Rep. 494, 13 N. Y. S. 156, affirmed 129 N. Y. 161, 41 State Rep. 409, 29 N. E. 232. See also Hege- mau V. Moon, (1892) 131 N. Y. 462, 43 State Rep. 662, 30 N. E. 487; Durland v. Durland, (1897) 153 N. Y. 67, 47 N. E. 42; Hickok v. Bunting, (Sup. 1902) 67 App. Div. 5«0, 565, 73 N. Y. S. 967; Goshen, etc.. Turnpike Road v. Hurtim, (Sup. 1812) 9 Johns. 217; Paine v. Noelke, (Super. Ct. Sp. T. 1877) 53 How. Pr. 273. 6. Benedict v. Kress, (Sup. 1904) 97 App. Div. 65, 89 N. Y. S. 607; Pflster V. Heins, (Sup. 1910) 136 App. Div. 457, 121 N. Y. S. 173; Pittsburgh First Nat. Bank v. Stallo, (Sup. 1914) 160 App. Div. 702, 145 N. Y. S. 747; Bobrick v. Hoboken Second Nat. Bank, (Sup. 1916) 175 App. Div. 550, 162 N. Y. S. 147, affirmed 220 N. Y. 649, 115 N. B. 1034; Abrahamson v. Steele, (Sup. 1917) 176 App.- Div. 865, 163 N. Y. S. 827; McLeod v. Hunter, (Sup. Tr. T. 1899) 29 Misc. 558, 61 N. Y. S. 73, affirmed 49 App. Div. 131, 63 N. Y. S. 153; Moak v. Stevens, (Sup. Tr. T. 1904) 45 Misc. 147, 91 N. Y. S. 903; In re Pinkerton, (Surr. Ct. 1906) 49 Misc. 363, 366, 99 N. Y. S. 492, 5 Mills 245; Waterbury -Wallace Co. V. Ivey, (Sup. App. T. 1917) 99 Misc. 260, 163 N. Y. S. 719. See also Bringman v. Von Glahn, ( Sup. 1902 ) 71 App. Div. 537, 75 N. Y. S. 845; Hickok V. Bunting, (Sup. 1904) 92 App. Div. 167, 86 N. Y. S. 1059, on prior appeal 67 App. Div. 560, 73 N. Y. S. 967, affirmed 182 N. Y. 530 mem., 74 N. E. 1118. 7. Deyo v. Thompson, (Sup. 1900) 53 App. Div. 9, 65 N. Y. S. 459; Fulton V. Varney, (Sup. 1907) 117 App. Div. 572, 102 N. Y. S. 608; St. Lawrence County Nat. Bank v. Watkins, (Sup. 1912) 153 App. Div. 551, 138 N. Y. S. 116, affirming as to this but reversing on other grounds 76 Misc. 633, 135 N. Y. S. 461; Kerr v. Smith, (Sup. 1913) 156 App. Div. 807, 142 N. Y. S. 57; Owens V. Blackburn, . (Sup. 1914) 161 App. Div. 827, 146 N. Y. S. 966; Kinsella v. Lockwood, (Sup. App. T. 1913) 79 Misc. 619, 140 N. Y. S. 513; Wray v. Miller, (Sup. App. T. 1910) 120 N. Y. S. 787; Richards v. Levison, (Sup. App. T. 1913) 142 N. Y. S. 272. But see Hickok v. Bunting, (Sup. 1902) 67 App. Div. 560, 73 N. Y. S. 967. The note in- volved in this case was made in 1893, prior to the Negotiable Instruments Law, though the action was brought thereon thereafter. The court cites as authority for the statement that a note, whether negotiable or not, imports a consideration, the earlier case of Oarnwright v. Gray, 127 N. Y. 92, cited supra. On a second ap- peal (92 App. Div. 167, affirmed 182 N. Y. 530 mem.), it is not very clear on what exact ground the decision is based, that is, whether because the note was negotiable it imported a consideration, or whether it in fact recites what will be presumed a sufficient consideration. 8. See supra, section 362. 570 XEW YOEIv LAW OF CONTRACTS [§ 360 and prove that the note is supported by a consideration.' And though the decisions are not in accord, the better view seems to be that a general allegation that the note was given for a " valu- able consideration " or for value is an allegation of a legal con- clusion merely and not of fact, and is therefore insufficient.^" If, however, the note, whether negotiable or not, recites that it was given for " value received " or the like, it will then import a consideration, and in an action thereon no allegation or proof in the first instance that it was based on a consideration is neces- sary." And the same is true, where the note is negotiable, whether it contains the recital " value received " or not.^^ § 366. Indorsement cf Commercial Paper; Acceptance of Bill. — It is held, as a general rule, that an indorsement of a negotiable bill or note which purports to pass the title to the indorsee imports a consideration so as to enable the indorsee to maintain an action thereon against the indorser without proving a consideration." The restrictive indorsements which are held to negative the presumption are such as indicate that they are not intended to pass the beneficial interest, but merely to enable the indorsee to collect for the benefit of the indorser, such as an indorsement " for collection " or others showing that the indorser is entitled to the proceeds. Thesie merely create an agency to receive payment and negative the presumption of a transfer to the indorsee for a consideration.^^ The fact that the indorsement is to the indorsee for the benefit of a third person is not a restrictive indorsement within such' rule. The indorser in such a case parts with his whole title to the bill or note and the presumption is that he does so for a consideration. The only effect of the indorse- ment, by way of restriction, is to give notice of the right of the beneficiary named in the indorsement and to protect him against 9. Deyo v. Thompson, (Sup. 1900) Tr. T. 1908) 60 Misc. 317, 113 N. Y. 53 App. Div. 9, 65 N. Y. S. 459; S. 271. Fulton V. Varney, (Sup. 1907) 117 12. Pittsburgh First Nat. Bank v. App. Div. 572, 102 N. Y. S. 608; Stallo, (Sup. 1914) 160 App. Div. Kerr v. Smith, (Sup. 1913) 156 App. 702, 145 N. Y. S. 747. Div. 807, 142 N. Y. S. 57. 1^. Hoolc v. Pratt, (1879) 78 N. ,„ „ ,. „,„ Y. 371, affirming 14 Hun 396. See 10. See supra, section 360. ^j^^ ^^^^ ^ Unangst, (Sup. App. 11. Owens V. Blackburn, (Sup. x. 1897) 20 Misc. 564, 46 N. Y. S. 1914) 161 App. Div. 827, 146 N. Y. 340, affirming 19 Misc. 711, 43 N. Y. S. 966; Lasher v. Rivenburgh, (Sup. S. 1164. 1920) 191 App. Div. 676, 181 N. Y. 14. Hook v. Pratt, (1879) 78 N. S. 818; Mussey v. Dempsey, (Sup. Y. 371, affirming 14 Hun 396. 367] CONSIDEKATION 571 a misappropriation." The acceptance of a bill of exchange by the drawee is likewise presumed to have been based on a sufficient consideration. And this rule is recognized in our Negotiable Instruments Law, § 50 (37 McKinney's Cons. Laws, p. 42), in the provision that every person whose name appears on a negotiable instrument is deemed prima facie to have become a party thereto for value.^' § 367. Rebutting Importation of Consideration Generally .^^ If the instrument is such as imports a consideration, the presump- tion is not conclusive but may be rebutted by the defendant." Still it is incumbent on him to destroy the prima facie case.-'^ The plaintiff in suing is not required to allege in his pleading that the instrument was given for a consideration,^' or, in the first instance, to prove any consideration on the trial ; ^^ the presumption is sufficient to make a prima facie case in his favor on which he may rest until evidence is introduced sufficient to rebut it.^^ The fact that a note is payable to the wife of the promisor does not itself rebut the presumption of a consideration,^ and the same is held true where a note is made by a mother payable to her child.^' 15. Hook V. Pratt, (1879) 78 N. Y. 371, affirming 14 Hun 396. 16. National Park Bank v. Saitta, (Sup. 1908) 127 App. Div. 624, 111 N. y. S. 927, affirmed 196 N. Y. 548 mem., 89 N. E. 1106. 17. Hickok V. Bunting, (Sup. 1902) 67 App. Div. 560, 73 N. Y. S. 967; Kennedy v. Heyman, (Sup. 1918) 183 App. Div. 421, 170 N. Y. S. 828, reversing on other grounds 167 N. Y. S. 311; Dubois v. Baker, (Sup. G. T. 1863) 40 Barb. 556, affirmed 30 N. Y. 355 (evidence re- viewed and held to support a finding that there was no consideration for a note). 18. Velie v. Titus, (Sup. 1891) 60 Hun 405, 39 State Rep. 897, 15 N. y. S. 467; Grabosski v. Gewerz, (Com. PI. G. T. 1892) 44 State Rep. 127, 17 N. Y. S. 528; Kinsman v. Birdsall, (Com. PI. 1854) 2 E. D. Smith 395. 19. See supra, section 360, as to pleading consideration where instru- ment is such that it imports a con- sideration. 20. Carnwright v. Gray, (1891) 127 N. Y. 92, 38 State Rep. 56, 27 N. E. 835; Troy Bank v. Topping, (Sup. 1835) 13 Wemd. 557. 21. Carnwright v. Gray, (1891) 127 N. Y. 92., 38 State Rep. 56, 27 N. E. 835; Bringman v. Von Glahn, (Sup. 1902) 71 App. Div. 537, 75 N. Y. S. 845; Abrahamson v. Steele, (Sup. 1917) 176 App. Div. 865, 163 N. Y. S. 827; Foote V. Valentine, (Sup. G. T. 1888) 48 Hun 475, 16 State Rep. 15, 1 N, Y. S. 410, 14 Civ. Pro. 332; Bruyn v. Russell, (Sup. 1889) 52 Hun 17, 22 State Rep. 374, 4 N. Y. S. 784; White v. Davis, (Sup. G. T. 1891) 42 State Rep. 901, 17 N.,'Y. S. 548; Gra- bosski V. Gewerz, (Com. PI. G. T. 1892) 44 State Rep. 127, 17 N. Y. S. 528. iia. Muzzey v. Cable, (Sup. G. T. 1884) 19 Wkly. Dig. 142. 2'3. Sprague v. Sprague, (Sup. 1894) 80 Hun 285, 61 State Rep. 862, 30 N. Y. S. 162. 572 NEW YORK LAW OF CONTRACTS [§ 3&9 Where a person signs a note as a comaker it is not sufficient for him to show that he received no consideration, as that he signed as an accommodation maker, but he must show that no considera- tion passed to his comakers." So evidence that the parties sometimes exchanged notes for mutual accommodation is insuf- ficient to rebut the presumption.^ "Where a cashier's check is issued by a bank at the request of a depositor payable to a third person, it will be presumed that a consideration therefor moved from the depositor to the bank, and therefore the bank cannot escape liability thereon merely by showing that no consideration moved from the payee to it.^^ As between the drawer and payee of a check, it has been held that long delay in presenting the check for payment and until after the death of the drawer may be suf- ficient to rebut the presumption that it was given for a considera- tion.^' "Where the instrument sued on imports a consideration such as a note or the like, which recites that it was given for " value received," and the only evidence of a want of consideration is the denial of the defendant, this is not sufficient as a matter of law to overcome the presumption, and the case should be left to the jury as a question of fact ; ^^ but the presumption of a con- sideration is not sufficient to take the case to the jury where all the evidence clearly shows that in fact there was no consideration.^" § 368. Effect of Introduction of Evidence by Plaintiff to Show Consideration. — The party in whose favor the presumption of a consideration arises does not, by introducing evidence show- ing an actual consideration, necessarily waive his right to avail himself of the presumption which the law affords, casting on him- self the burden of proving the actual consideration so shown, and relieving the defendant of the onus of rebutting the presumption 24. Kinsman v. Birdsall, (Com. 36 N. Y. S. 1007. See also Kramer PI. 1854) 3 E. D. Smith 395. See v. Kramer, (1905) 181 N. Y. 477, also Hale v. Shannon, (Sup. 1890) 484, 74 N. E. 474, per Gray, J., dis- 57 Hun 466, 32 State Rep. 1079, 11 senting opinion. Compare Moak v. N. Y. S. 129. Stevens, (Sup. Tr. T. 1904) 45 Misc. 2'5. White v. Davis, (Sup. G. T. 147, 91 N. Y. S. 903. 1891) 42 State Rep. 901, 17 N. Y. S. 28. 'Strickland v. Henry, (1930) 548. 175 N. Y. 372, 67 N. E. 611. 26. Bobriek v. Hohoken Second 29. Kramer v. Kramer, (1905) 181 Nat. Bank, (Sup. 1916) 175 App. N. Y. 477, 74 N. E. 474; Kennedy v. Div. 550, 162 N. Y. S. 147, affirmed Heyman, (Sup. 1918) 183 App. Div. 220 N. Y. 649 mem., 115 N. E. 1034. 421, 170 N. Y. S. 828, reversing on 27. Dinley v. MoCuUagh, (Sup. other grounds 167 N. Y. S. 311. 1895) 92 Hun 454, 72 State Rep. 416, 36S] CONSIDERATION 573 of a consideration.'" But if the promisee's own evidence estab- lishes what he claims was the consideration, and such evidence plainly excludes the idea that there was any other consideration, and that shown is insufScient in law, this will overcome any pre- sumption of a sufficient consideration as effectively as if the evi- dence had been introduced by the defendant.'^ " The general 30. Durland v. Durland, (1897) 153 N. Y. 67, 47 N. E. 42; Lasher v. Eivenburgh, (Sup. 1920) 191 App. Div. 676, 181 N. Y. S. 818. See also In re Pinkerton, (Surr. Ct. 1906) 49 Misc. 363, 99 N. Y. S. 492, 5 Mills 245. In Durland v. Durland, (1897) 153 N. Y. 67, 74, 47 N. E. 42, Mar- tin, J., said: " The paper which is the basis of this> claim is a promis- sory note and must be treated as such, there can be no doubt. A good consideration is not only stated on the face of the note, but the presump- tioil is that it is a valid obligation based upon a good and legal con- sideration, and the burden of show- ing that there was a want of con- sideration rested upon the defendant. The appellant, while admitting this presumption, contends that because the respondent introduced evidence to show an actual consideration, therefore she cannot avail herself of the presumption which the law affords. With this contention we do not agree. We think it cannot be properly held that the plaintiff, by giving evidence showing an actual consideration, thereby waived the right to avail herself of the presump- tion which the law affords or that it relieved the defendant from the burden of proving his defense." 31. Blanshan v. Russell, (Sup. 1898} 32 App. Div. 103, 52 N. Y. S. 963, affirmed 161 N. Y. 629 mem., 55 N. B. 1093 (distinguishing Durland V. Durland, (1897) 153 N. Y. 74, 47 N. B. 42) ; Pendleton v. Pendleton, (Sup. G. T. 1873) 1 Thomp. & C. 95; Bruyn V. Russell, (Sp. 1889) 52 Hun 17, 22 State Rep. 374, 4 N. Y. S. 784; In re Pinkerton, (Surr. Ct. 1906) 49 Misc. 363, 99 N. Y. S. 492, 5 Mills 245; Mussey v. Dempsey, (Sup. Tr. T. 190i8) 60 Misc. 317, 113 N. Y. S. 271; Schultze v. Cohen, (Sup. App. T. 1915) 156 N. Y. S. 610. See also Mussey v. Dempsey, (Sup. Tr. T. 1908) 60 Misc. 317, 113 N. Y. S. 271. In Bruyn v. Russell, (Sup. 1889) 52 Hun 17, 19, 22 State Rep. 374, 4 N. Y. S. 784, where the action was on a note which recited as a con- sideration "value received," Lan- don, J., said: "At the outset of the trial, the plaintiff, anticipating the attack by 'the defendants upon the consideration, attempted to establish it affirmatively. She undertook to show that the testator gave her the note because a promise of marriage existed between them, and because he desired to recognize and reward the life-long acts of kindness which the plaintiff had bestowed upon him and the members of his household. . . . The testimony of the plaintiff very plainly, and perhaps expressly, ex- cluded the idea that any other con- sideration existed. Such being the case, the presumption of a valid con- sideration which the note, unex- plained, imported, was no longer of any avail to the plaintiff. If she failed to establish the actual con- sideration she asserted she could not ask to recover, because the defend- ants had not affirmatively overcome the presumption of consideration which the note itself imported; or, if establishing the particular consider- ation which she asserted, it should be found that such consideration had not sufficient legal validity to uphold the note, the words ' for value received,' in the note, could not be invoked to supply legal validity to a consideration otherwise ascertained 574 ISTEW YORK LAW OF CONTRACTS '[-§ 369 principle," says Davie, S., " deducible from these somewhat con- flicting authorities seems to be that if the claimant is not content to rest his case upon the presumption, but gives affirmative proof to establish the consideration, no other consideration than that to which the evidence is directed will be assumed or presumed; and if the preponderance of evidence shows such consideration to be legally insufficient, the presumption will not supply the defect. ' ' ^^ § 369. Burden of Proof to Rebut Presumption; General State- ment. — Where the instrument sued on is such as to import a con- sideration, as a note or the like, it is said by Martin, J., that ' ' the burden of showing that there was a want of consideration rests upon " the promisor.*^ And a similar statement is found in other cases.^* Thus where a note recited that it was given for " value received " it has been said that this is sufficient to throw on the promisor or his representatives " the burden of proving that it to be invalid. The true consider- ation may be inquired into. It is presumed to be good until it is shown what it is; but when this is shown, whether by one party or the other, its true character is ascertained." And on a later appeal, sub nom. Blan- shan V. Russell, (Sup. 1S98) 32 App. Div. 103, 105, 52- N. Y. S. 963, Parker, P. J., said : " It is true that the recital ' for value received ' in a note imports a consideration, and the bur- den is upon the defendant to over- come the presumption arising there- from. But if the plaintiff, upon the trial, proves that the note was made and delivered for a consideration that the law does not recognize as sufficient to sustain the promise, the burden which rested upon defendant has been met by the evidence in the case quite as effectively as if it had been introduced by the defendant himself. In the case before us the evidence introduced by the plaintiff to show a consideration, and par- ticularly the statement of the maker of the note that he gave it as a re- ward for what Mrs. Bruyn had done for him, very clearly forbids any speculation by the jury that the ' value received ' was other than as so shown. In the face of that evi- dence they would- have no right to infer that some other and sufficient consideration in fact existed. Hence, the trial judge had the right to as- sume that there was no consideratiou other than appeared in the evidence before him, and was correct in his conclusion that none, sufficient in law, could there be found. The de- cision in Durland v. Durland, above cited, does not Conflict with these conclusions." 32. In re Pinkerton, (Surr. Ct. 1906) 49 Misc. 363, 368, 99 N. Y. S. 492, 5 Mills 245. 33. Durland v. Durland, (1897) 153 N. Y. 67, 75, 47 N. E. 42. 34. Blanshan v. Russell, (Sup. 1898) 32 App. Div. 103, 105, 52 N. Y. S. 963; Harris V. Buchanan, (Sup. 1905) 100 App. Div. 403, 91 N. Y. S. 484; Troy Bank v. Topping, (Sup. 1835) 13 Wend. 557, 569; Russell v. Cook, (Sup. 1842) 3 Hill 504; Saw- yer V. MoLouth, (Sup. G. T. 1866) 46 Barb. 350, 354 ; Tiffany v. Bower- man, (Sup. 1874) 2 Hun 643, 5 Thomp. & C. 169; Bruyn v. Russell, (Sup. 1889) 52 Hun 17, 22 State Rep. 374, 4 N. Y. S; 784; Root v. Strang, (Sup. 1894) 77 Hun 14, 59 State Rep. 258, 28 N. Y. S. 273; Sprague v. Sprague, .(Sup. 1894) 80 § 370] CONSIDEEATION r;75 was given for nothing. ' ' ^^ And it has been said that the presump- tion " would prevail until overcome by sufficient evidence to con- vince the jury that no valid consideration existed. ' ' ^° "Where the action was on a cheek it has been held that the presumption of a consideration can be repelled only by affirmative evidence, and that it remains so long as the truth may be reconciled with the evidence adduced to impeach it." And where in an action on a note it was proved that when the note was executed and delivered the payee handed the maker money, a roll of bills (the amount of which the witness did not know), but the maker, after having counted it, said it was all right, it was held that the testimony did not tend to prove that the money paid was less than the amount of the note, but that, on the contrary, the legal presumption was that the money paid was equal to the amount secured by the note, and that until that presumption was rebutted the jury would be bound so to find.^* § 370. Meaning of Phrase " Burden of Proof."— It is not always clear in what sense the phrase " burden of proof " is used by the court in laying down the general rule stated in the preced- ing paragraph. That is, whether it means, first, that the plaintiff may rely on the presumption in the first instance, which he may unquestionably do, and the onus is then on the defendant to intro- duce evidence to rebut the prima facie case thereby raised; or, second, whether it is intended to go further and hold that where such evidence has been introduced and the evidence on the ques- tion of consideration is conflicting, the burden still rests on the promisor to prove by a preponderance of the evidence that there is no consideration. In some of the cases, it may be that the phrase is used in the second sense.^' On the other hand it has been said. Hun 285, 61 State Kep. 862, 30 N. 52 Ilun 17, 19, 22 State Rep. 374, 4 y. S. 162; Hawxhurst v. Ritch, N. Y. S. 784. (Sup. 1889) 2 Silv. Sup. 499, 24 37. Fitch v. Redding, (.Super. Ct. State Rep. 729, 6 N. Y. S. 134; Bot- 1850) 6 Super. Ct. 130. turn V. Scott, (Sup. G. T. 1«87) 11 38. Sawyer v. McLouth, (Sup. G. State Rep. 514, affirmed 120 N. Y. T. 1866) 46 Barb. 350. 623 mem., 23 N. E. 1152; White v. 39. In Durland v. Durland, (1897) Davis, (Sup. G. T. 1891) 42 State 153 N. Y. 67, 75, 47 N. E. 42, the Rep. 901, 17 N. Y. S. 548; Muzzey v. full statement of Martin, J., is as Cable, (Sup. G. T. 1884) 19 Wkly. follows: "The paper which is the Dig. 142. basis of this claim is a promissory 35. Hawxhurst v. Ritch, (Sup. note and must be treated as such, ' 1889) 2 Silv. Sup. 499,24 State Rep. there can be no doubt. A good con- 729, 6 N. Y. S. 134. sideration is not only stated on the 36. Bruyn v. Russell, (Sup. 1889) face of the note, but the presump- 5716 NEW YORK LAW OF OONTRACTS [§ 370 and this seems the proper view, that if the prima facie case, made by the note and the importation of a consideration therefor, is assailed by evidence tending to disprove it, ' ' the burden of estab- lishing the consideration upon the whole case rests with the plain- tifE."*" This is the full effect which is usually given to a pre- tion is that it is a valid obligation based upon a good and legal con- sideration, and the burden of show- ing that there was a want of con- sideration rested upon the defendant. The appellant, while admitting this presumption, contends that because the respondent introduced evidence to show an actual consideration, therefore she cannot avail herself of the presuniption which the law af- fords. With this contention we do not agree. We think it cannot be properly held that the plaintiff, by giving evidence showing an actual consideration, thereby waived the right to avail herself of the presump- tio which the law affords or that it relieved the defendant from the bur- den of proving his defense." In view of the fact that the court is review- ing the sufficiency of the evidence to «how a want of consideration, and affirms a reversal by the General Term of the Supreme Court which reversed on the facts a judgjnent en- tered on the report of a referee, it is possible that the second meaning was intended. 40. Carnwright v. Gray,- (Sup. 1890) 57 Hun 518, 519, 33 State Rep. 98, 11 N. y. S. 278, affirmed on other grounds 127 N. Y. 92, 38 State Rep. 56, 27 N. E. 835. See also Rice v. Rice, (Sup. 1899) 43 App. Div. 458, 463, 60 N. Y. S. 97; Hardinge v. United States Zinc Co., (Sup. 1916) 171 App. Div. 742, 157 N. Y. S. 852; Bruyn v. Russell, (Sup. 1891) 60 Hun 280, 38 State Rep. 50, 14 N. Y. S. 591; In re Pinkerton, (Surr. Ct. 1906) 49 Misc. 363, 366, 99 N. Y. S. 492, 5 Mills 245. In Bringman v. Von Glahn, (Sup. 1902) 71 App. Div. 537, 75 N. Y. S. 845, Jenks, J., cites Durland v. Dur- land, (1897) 153 N. Y. 67, 47 N. E. 42, as using the phrase " burden of proof" in this sense, and say&: " Ir the defendant had offered any evi- dence that showed or tended to show want of consideration, then it was in- cumbent upon the plaintiffs to show by a fair preponderance of evidence' upon the whole case that there was consideration." In Irving v. Irving, (Sup. 1895) 90 Hun 422, 425, 70 State Rep. 640, 35 N. Y. S. 744, affirmed 149 N. Y. 573 mem., 43 N. E. 987, Parker, J., takes a similaar view, saying : " Upon the plaintiffs rest the burden of prov- ing a valuable consideration. The production of the note, by the pre- sumption of the law, accomplishes that result in the first instance, yet when the defendant has offered evi- dence in rebuttal of this presump- tion, the burdfen rests upon the plaintiffs of sustaining, by further proof, the allegation of value. And when the tribunal which is to pass upon the evidence approaches its con- sideration, it does so with the rule of law in mind and controlling its action, that the burden of establish- ing the consideration rested upon the plaintiff throughout the trial, and that from all the evidence it must appear that he has met that burden in order to entitle him to recover." Again, in Abrahamson v. Steele, (Sup. J917) 176 App. Div. 865, 866, 163 N. Y. S. 827, Shearn, J., said: " The expression in certain cases to the effect that the burden of proving the defense of lack of consideration is upon the defendant is loose and has occasionally tended to mislead. What is meant is that the burden of producing or coming forward with proof of lack of consideration is upon the defendant. In other words, in § 371] CONSIDERATION" 577 sumption which, is sufficient to establish a prima facie case. As said by Andrews, C. J. : " There is coiifusion sometimes in treat- ing of the burden of proof, arising out of inexact definitions. The burden is upon a plaintiff to establish his cause of action when it is in proper form denied by the other party. ... It is very com- mon to say in such cases that the burden is upon the defendant to establish the fact relied upon. All that this can properly mean is that when the plaintiff has established a prima facie case, the defendant is bound to controvert it by evidence, otherwise he will be cast in judgment. When such evidence is given, and the case upon the whole evidence, that for and that against the fact asserted by the plaintiff, is submitted to court or jury, then the question of the burden of proof as to any fact, in its proper sense, arises, and rests upon the party upon whom it was at the outset, and is not shifted by the course of the trial, and the jury may be properly instructed that all material issues tendered by the plaintiff must be established by him by a preponderance of evidence. ' ' *^ § 371. Necessity to Plead Want of Consideration. — As a gen- eral denial puts in issue only the facts which the plaintiff is required to prove to make out his cause of action, it is held that if the action is on an instrument which imports a consideration, such as a note, the defense of want of consideration must be set up in the answer and is not available under a general denial.^^ A similar rule prevails, it seems, where the action is on an instru- ment under seal, the seal still raising the prima facie presump- tion of a consideration." And where the complaint unnecessarily alleges that the note sued on, negotiable and therefore importing a consideration, was given for a valuable consideration, it has been held insufficient to deny simply this unnecessary allegation which in its nature is a mere conclusion of law." If the instrument is default of any such proof, the plain- Siefke, (1895) 144 N. Y. 354, 359, tiflf is entitled to judgment upon the 1 N. Y. Annot. Cas. 159, 63 State presumptions raised by the law. Rep. 662, 39 N. E. 358. Where such proof is introduced the 42. Sprague v. Sprague, (Sup. burden of proof on this issue, upon 1894) 80 Hun 285, 61 State Rep. the whole ease, remains with the 862, 30 N. Y. S. 162. plaintiflf. There is no such thing as 43. See infra, section 379. the shifting of the burden of proof 44. Abrahamson v. Steele, (Sup. upon any issue that a plaintiff is 1917) 176 App. Div. 865, 163 N. Y. hound to establish in order to re- S. 827. In this case Shearn, J., cover, whether the evidence consists said : " When a complaint on a of presumptions or otherwise." promissory note alleges delivery and 41. Farmers' Loan, etc. Co. v. alleges consideration, it merely al- 37 578 NEW YORK LAW OF CONTRACTS [§ 372 not under seal and is not in such a form as to import a considera- tion, the plaintiff must allege in the complaint and prove the con- sideration," and of course the defendant under the general denial can avail himself of the defense of want of consideration. A gen- eral allegation in the answer that there was no consideration is regarded as a statement of a fact and not a conclusion of law, and therefore sufficient. And this has been held true as to an allegation that there was no " valuable or other legal considera- tion," as it is in effect an allegation that there was no considera- tion.^^ It is held otherwise, however, as regards an allegation that there was no " adequate " consideration for the promise, as this is an allegation of law merely.*' Sealed Contracts § 372. Effect of Seal at Common Law. — Under the common law rule contracts under seal were enforceable without regard to any- actual consideration for the promise of the obligor. The seal itself conclusively imported a sufficient consideration.^^ "It is not for leges presumptions of law. No issue is raised by the denial of a presump- tion of law or by the denial of im- material and unnecessary allegations in a complaint. Neither does a de- nial of presumptions of law or denial of immaterial and unnecessary alle- gations in a complaint convey any information of the defense relied upon. "Such an aliswer serves no pur- pose and is a mere nullity. Where lack of consideration for the issuance of a promissory note is a defense, it is of an affirmative character, and in order to be in accord with the function and serve the purpose of an answer, the fact relied upon must be alleged." 45. See supra, section 360. 46. Towanda First Nat. Bank v. Robinson, (Sup. 1905) 105 App. Div. 193, 94 N. Y. S. 767, affirmed 188 N. Y. 45, 80 N. E. 567. 47. Ellis V. Keeler, (Sup. 1908) 126 App. Div. 343, 110 N. Y. S. 542. In this case Hooker, J., said: "The first statement is that there was never any adequate consideration for the alleged agreement. It is clear that this is but a conclusion of law, for the question whether the con- sideration is adequate in a given case ia one of law, to be ascertained from such facts as may be pleaded to support the conclusion. Doubtless a different question would have been presented if these defendants had pleaded that there was no consider- ation whatsoever to support the con- tract; but in averring that the con- sideration was inadequate, it is clear that the full purport of the allega- tion cannot be disclosed without some statement of fact to amplify the conclusion expressed in the term ' inadequate.' " 48. Livingston v. Tremper, (Sup. 1809) 4 Johns. 416; Dorr v. Munsell, (Sup. 1816) 13 Johns. 430; Parker V. Parmele, (Sup. 1822) 20 Johns. 130; Mann v. Eckford, (Sup. 1836) 15 Wend. 502, 518; Wilson v. Bap- tist Educational Soc, (Sup. 1851) 10 Barb. 308; Bunn v. Winthrop, (Chan. Ct. 1815) 1 Johns. Ch. 329. See also Johnson v. Miln, (Sup. 1835) 14 Wend. 195. 198. § 372] CONSIDERATION 579 me," said Spencer, C. J., in an early case, " to question the wisdom of the common law in denying to a party who has entered into an agreement, under his hand and seal, a right to impeach it, on the ground of a want of consideration. It is sufficient that the law is so. " ^* ' This rule was recognized in equity as well as at law.^" A seal even at common law did not protect the contract from attack for illegality or prevent inquiry into the legality of the consideration." In an action on an instrument under seal failure of consideration, total or partial, could not be pleaded as a defense.^^ It was also well settled that a voluntary bond payable on or after the death of the obligor was effective to create a debt against his estate, though in the distribution of assets preference was to be given to debts against the estate based on an actual con- sideration but not to legacies.^^ Fraud going to the inducement as distinguished from the execu- tion of the instrument could not be pleaded in defense to an instru- ment under seal."'' Thus where a bond was given for the payment of the price of property sold, fraudulent representation as to the quality and value of the property could not be set up as a defense 49. Parker v. Parmele, (Sup. 1822) 20 Johns. 130, 134. There has been considerable dis- agreement, among both law writers and the courts, as to the theory on wiich the common law rested. On the one hand the view is taken that a consideration is at common law equally necessary to sustain an in- strument under seal as in case of a simple contract, but that in the former the consideration is conclu- sively implied or presumed; thus making it rather a matter of proof. See Anthony v. Harrison, (Sup. 1878) 14 Hun 198, 199, 201-205. On the other hand the view has been taken that no consideration is necessary to render a person liable on his promise under seal, sealed contracts being in this respect differ- ent from simple contracts, and the question in no sense a matter of evi- dence. This latter would seem to be the view taken by the court in Mann V. Eckford, (Sup. 1836) 16 Wend. .502, wherein it was held that the provision of the Revised Statutes making a seal only presumptive evi- dence of a consideration did not apply to antecedent contracts. See also Isenhart v. Brown, (Chan. Ct. 1834) 2 Edw. 341, as explained in In re James, (Sup. G. T. 1894) 78 Hun 121, 125, 60 State Rep. 184, 28 N. Y. S. 992. 50. Bunn v. Winthrcp, (Chan. Ct. 1815) 1 Johns. Ch. 329, 336. 51. Gray v. Haak, (1851) 4 N. Y. 449; Bruce v. Lee, (Sup. 1809) 4 Johns. 410, 413. As to illegal con- tracts generally, see infra, section 384 et peq., and as to the effect of a ceal as precluding proof of illegality, see infra, section 393. 52. Vrooman v. Phelps, (Sup. 1807) 2 Johns. 177; Dorian v. Sam- mis, (Sup.) 2 Johns. 179, note; Dorr V. MunEcll, (Sup. 1816) 13 Johns. 430; Parker v. Parmele, (Sup. 1822) 20 Johns. 130; Dale v. Roose- velt, (Ct. Err. 1827) 9 Cow. 307. 53. Isenhart v. Brown, (Chan. Ct. 1834)' 2 Edw. 341. 54. Vrooman v. Phelps. (Sup. 1807) 2 Johns. 177; Dorr v. Mun- 580 KEW YORK LAW OF CONTRACTS [§ 373 in bar of the action.'" And the effect of a release could not be avoided for fraud going to the inducement for its execution.^^ Fraud, however, going to the execution of the instrament, which rendered it, though under seal, void ab initio, was admissible in defense under the plea of non est factum." A transfer of chattels by an instrument under seal, in so far as consideration was con- cerned, was fully effective, though there was no other consideration for the transfer and no delivery of the subject matter which would be necessary to uphold the transaction as a gift.'^ Likewise, a mortgage under a seal imported a consideration, and proof of a failure or want of consideration was not admissible to impeach it.^' § 373. Statutory Modification of Common Law Rule Generally. — At a very early date a modification was made of the common law rule that a seal conclusively imported a sufficient considera- tion for the promise of the obligor. This early provision is found in the Revised Statutes and is as follows : "In every action upon a sealed instrument, and where a set-off is founded upon any sealed instrument, the seal thereof shall only be presumptive evidence of a sufficient consideration, which may be rebutted in the same man- ner, and to the same extent, as if such instrument were not sealed. ' ' ^^ The present provision is found in the Code of Civil Procedure and is as follows : "A seal upon an executory insti'u- ment, hereafter executed, is only presumptive evidence of a suf- ficient consideration, which may be rebutted, as if the instrument was not sealed. " ^^ It was held under the early provision that it did not apply to cases in which the sealed instrument was net directly in issue as the foundation of a recovery or of a defense by way of set-off, but was in evidence for a collateral purpose only .^2 The modification has no effect to change the general rule sell, (Sup. 1816) 13 Johns. 430; 57. Van Valkenburgh v. Rouk, Franchot v. Leach, (Sup. 1826) 5 (Sup. 1816) 12 Johns. 337. Cow. 506; Champion v. White, (Sup. 58. Bunn v. Winthrop, (Chan. Ct. 1826) 5 Cow. 509; Jackson v. Hills, 1815) 1 Johns. Ch. 329. (Sup. 1828) 8 Cow. 290; Stevens v, 59. Calkins v. Long, (Sup. Sp. T. Judson, (Sup. 1830) 4 Wend. 471; 1855) 22 Barb. 97. Osterhout v. Shoemaker, (Sup. 1842) 60. 2 Rev. Stat. p. 'iO&, § 77. 3 Hill 513; Belden v. Davies, (Super. ei. Code Civ. Proc. § 840. Ct. 1829) 2 Super. Ct. 433. 62. Fay v. Richards, (Sup. 18S9) 56. Vrooman v. Phelps, (Sup. 21 Wend. 626 Gilleland v. Failing, 1807) 2 Johns. 177; Dorr v. Mun- (Sup. 1848) 5 Denio 308. sell, (Sup. 1816) 13 Johns. 430. In Fay v. Richards, (Sup. 1839) 5€. Franchot v. Leach, (Sup. 1826) 21 Wend. 626, the defense to an ae- 5 Cow. 506; Belden v. Davies, (Su- tion on a note was want of consider- per. Ct. 1829) 2 Super. Ct. 433. ation, and it appeared that the note § 374] CONSIDERATION" 581 that oral evidence is inadmissible to vary or contradict the terms of a written instrument ; '* and where a bond to convey land by a certain time was given and an action brought thereon, it has been held that oral evidence is not admissible to show that the conveyance is not to be made until the purchase money agreed to be paid is in fact paid.^* An assignment, as distinguished from an agreement to assign a chose in action, is not executory but is an executed transaction, and if under seal conclusively imports a consideration, as it is not within the provision of the Code of Civil Procedure which refers only to executory contracts.^' § 374. General Effect of Modification. — The general effect of the provisions referred to in the next preceding section is to place, in respect to consideration, all written contracts, whether under seal or not, on the same footing, so that any defense applicable to one is equally applicable to another.^* And it may be shown in defense to an action on a bond or other executory sealed instru- ment that there is in fact no consideration for the promise of the obligor.'^'' " The effect of the Revised Statutes, says Chancellor Walworth, " undoubtedly is to put the defense to actions upon bonds, and other sealed instruments, so far as relates to a partial or a total want of consideration, on the same footing as if the suit was brought upon a promissory note or other instrument not under seal, and which purported to have been founded upon a good or valuable consideration, except so far as relates to the form of was given in pursuance of a cove- 63. McCurtie v. Stevens, (Sup. nant under seal to give security. 1835) 13 Wend. 527; Russell v. Kin- This it was said was a good consid- ney, (Chan. Ct. 1843) 1 Sandf. Ch. eration, and the defendant could 34, 2 N. Y. Leg. Obs. 233. raise no question as to the consider- 64. McCurtie v. Stevens, (Sup. ation without going back to the 1835) 13 Wend. 527. sealed contract and impeaching the 65. Hull v. Hull, (Sup. 1916) 172 consideration on which that was App. Div. 287, 158 N. Y. S. 743. founded. "This," says Bronson, J., 66. Johnson v. Miln, (Sup. 1835) "they could not do at the common 14 Wend. 195, 199; Russell v. Rogers, law, and the statute only extends to (Sup. 1836) 15 Wend. 351, 353, 359. two' cases: first, where there is an 67. Campbell v. Cypress Hills 'action upon a sealed instrument;' Cemetery, (1869) 41 N. Y. 34; Wil- and second, 'where a set-off is son v. Baptist Educational Soc, founded upon any sealed instrument.' (Sup. 1851) 10 Barb. 308; In re 2 R S 406 § 77. This case is not James, (Sup. G. T. 1894) 78 Hun within the letter of the statute; it is 121, 125, 60 State Rep. 184, 28 N. not an 'action upon a sealed instru- Y. S. 992; Bradley v. McCutcheon, ment' It may, however, come within (Sup. App. T. 1916) 97 Misc. 412, the equity of the statute." 161 N. Y. S. 394. 5«2 NEW YORK LAW OF CONTEACTS [§ 374 pleading or of setting up such defense. ' ' ** And this renders unenforceable a voluntary bond not supported by an actual con- sideration executed by a husband payable to his wife.^' It was determined at an early date that a total failure of consideration is available in defense of an action on a sealed instrument.'"* And it was decided shortly after the first enactment that in an action on a contract under seal the defendant can recoup damages for fraudulent representation by the plaintiff whereby the defendant is induced to enter into the contract.'"^ But as a partial failure of consideration is not available as a defense in bar to an action on a simple contract,^^ and as the consideration for a promise under seal can be rebutted only to the same extent as the consideration for a promise not under seal, a partial failure of consideration is not made a full defense to an action on a sealed promise.'^ A court of equity in determining whether an executory agreement under seal to create a trust will be enforced will go behind the 68. Tallmadge v. Wallis, (Ct. Err. 1840) 25 Wend. 107, 113. 69. In re James, (Sup. G. T. 1894) 78 Hun 121. See supra, section 337, as to whether there is such a meri- torious consideration as will support an executory promise by a husband to his wife. 70. Case v. Boughton, (Sup. 1833) 11 Wend. 106; McCurtie v. Stevens, (Sup. 1835) 13 Wend. 527; Tall- madge V. Wallis, (Ct. Err. 1840) 25 Wend. 107; Wilson v. Baptist Edu- cational Soc, (Sup. 1851) 10 Barb. 308, 312. 71. Johnson v. Miln, (Sup. 1835) 14 Wend. 195, 198; Van Epps v. Harrison, (Sup. 1843) 5 Hill 63. In Van Epps v. Harrison, (Sup. 1843) 5 Hill 63, 66, Bronson, J., said : " The next question is whether this defense [fraud] can be set up in an action upon a sealed instrument, where .the evidence does not go to the whole consideration. The statute provides that the seal ' shall only be presumptive evidence of a sufficient consideration, which may be rebutted in the same manner, and to the same extent, as if such instrument were not sealed.' (2 R. S. 406, § 77.) The langiiage is broad enough to in- clude the case of a partial as well as a total want or failure of con- sideration; and I see no good reason why the defendant should not be allowed to recoup damages in an ac- tion upon a sealed as well as' upon an unsealed instrument. If the point has not been directly adjudged, it has often been assumed that the statute had placed both classes of contracts upon tlie same footing, and that in the one case as well as in the other the defendant might attack the con- sideration either in whole or in part. Case V. Boughton, 11 Wend. 106; Johnson v. Miln, 14 Wend. 195; tall- madge V. Wallis, 25 Wend. 107. It is true that the statute speaks of pleading, as well aa giving notice of this defense ( § 78 ) , and it cannot be pleaded where it does not go to the whole consideration. (Per Wal- worth, Chancellor, in Tallmadge v. Wallis.) But the words of the stat- ute will be satisfied by allowing the defendant to plead the defense where it amounts to a complete bar, and re- quiring him to give notice where it only goes in defalcation of damages." 73. See supra, section 355. 73. Tallmadge v. WaUis, (Ct. Err. 1840) 25 Wend. 107, 114. § 375] CONSIDERATION 5»3 seal and determine if the agreement is in fact a voluntary one, and for such reason unenforceable.'* In order to support the obligation a consideration other than that recited may be shown.'^ § 375. Effect as to Antecedent Contracts. — Soon after the pro- vision of the Revised Statutes went into effect (Jan. 1, 1830) the question arose as to its effect on antecedent instruments. It was considered that the statute only altered a rule of evidence and did not impair the contract; that in so far as the failure of con- sideration was made available as a defense, the statute gave to the obligor merely a new defense in law, the benefit of which was available only by way of a cross action or in another forum, and to this extent was applicable.'* On the other hand the view was taken that in so far as the statute permits the want of a consid- eration to be set up in defense, its effect was to impair the obliga- tion of the antecedent contract and it should not be construed as having such a retroactive effect. " So far," says Bronson, J., " as this statute goes only to the remedy of the contracting par- ties, there can be no very great evil in applying it to sealed obligations executed prior to the revision. But in making the application, care must be taken that we do not go beyond the form of the remedy, and interfere with the obligation of the con- tract. It is a familiar principle in jurisprudence, that a statute shall not have a retrospective effect as to destroy a vested right; and this principle of natural justice, so far as it relates to ' the obligation of contracts,' is recognized and enforced by the Con- stitution of the United States. This statute must, I think, receive a more restricted construction when applied to antecedent agree- ments under seal than it will require in relation to contracts entered into since the act was passed. Should it be construed to reach every possible question of consideration on sealed instru- ments made before the year 1830, it will, in some case, be brought into conflict with a principle which it cannot withstand. . . . The bond, . . . although it may have been given without consideration, was a valid obligation at the time it was executed; and the subse- quent statute must not be so construed as to annul the contract, either in whole or in part. There is nothing in the statute calling 74. Central Trust Co. v. Gaffney, bour, (Sup. 1920) 192 App. Div. 654, (Sup. 1913) 157 App. Div. 501, 142 183 N. Y. S. 163. N. Y. S. 902, affirmed 215 N. Y. 740, 76. McCurtie v. Stevens, (Sup. 109 N. E. 1069. 1835) 13 Wend. 527. 75. Hocking Valley E. Co. v. Bar- 984 NEW yORK LAW OF CONTRACTS [§§ 376, 377 for such a construction. If a retrospective effect was at all con- templated by the legislature, they certainly did not intend that this statute should be applied in such a manner as to impair the force of pre-existing agreements. . . . The defendants wished to make out that there was- in truth no pretence of consideration for the undertaking. . . . What would have been the consequence of admitting such evidence? If allowed to have the same influence that it would upon an instrument without seal, the effect would be to annul the contract. It would not only affect the remedy, but it would reach and overturn the right itself."''' § 376. Mortgage. — ^As the provision of the Kevised Statutes is in terms restricted to cases where an action is brought on the instrument or where the instrument is made the foundation of a set-off, it has been held that it did not enable a mortgagor to apply to a court of equity to cancel the mortgage on the ground of a want or failure of consideration,'^ On the other hand, though the want of a consideration cannot be shown to defeat a conveyance.'' a mortgage in our state is considered as in the nature of an execu- tory contract and within the spirit of the provision as brought into the Code of Civil Procedure, and it may be shown in defense to a suit to foreclose a mortgage, though there is a prima facie presumption that there is a sufficient consideration to support it, that there was in fact no consideration.^" § 377. Release. — As heretofore stated the part payment of ar. undisputed debt does not itself constitute a sufficient consideration for a discharge of or an agreement to discharge the unpaid balance.^' A release under seal, however, is fully effective at com- mon law to discharge an existing debt, as the seal conclusively imports a sufficient consideration and no proof of a consideration is required to support it.^^ And it is generally recognized that 77. Mann v. Eckford, (Sup. 1836) 567, affirming 105 App. Div. 193, 94 15 Wend. 502. N. Y. S. 767; Myers v. Grey, (Sup. 78. Calkins v. Long, (Sup. Sp. T. Sp. T. 1910) 122 N. Y. S. 1079, af- 1855) 22 Barb. 97. firmed 146 App. Div. 923, 131 N. Y. 79. See supra, section 234. S. 1130 mem. 80. Schlitz V. Koch, (Sup. 1910) 81. See supra, section 331. 138 App. Div. 535, 123 N. Y. S. 302; 82. Pratt v. Crocker, (Sup. 1819) Baird v. Baird, (Sup. G. T. 1894) 81 16 Johns. 270. In this case it is held Hun 300, 62 State Rep. 748, 30 N. Y. that a release given by a defendant S. 785, affirmed 145 N. Y. 659, 71 in a cause, unconditionally, for the State Rep. 312, 40 N. E. 222. See purpose of enabling the releasee to also Tovranda First Nat. Bank v. Rob- be a witness on the trial of the cause, inson, (1907) 188 N. Y. 45, 80 N. E. is, if fairly' obtained, a discharge of § 3t?i CONSIDERATION" 5»S our statutory modification of the common law rule as to the effect of a seal does not deprive a release under seal of its operative effect."' The provision of the Revised Statutes, though not in express terms restricted to executory contracts, is applicable only to cases, first, where an action is brought on a sealed instrument, and second, where a set-off is founded on such an instrument; where a release is relied on as a discharge of a prior obligation, no action can be said to be brought thereon or a. set-off founded thereon.*'' So far as consideration is concerned, it is still con- tlie liability of llie releasee to the defendant, although he was not sworn on the trial, or the release produced. 83. Gray v. Barton, (1873) 55i N. Y. 68, 71; Torry v. Black, (1874) 58 N. Y. 185, ISO; Dambmann v. Schulting, (1878) 75 N. Y. 55; Mc- Kenzie v. Harrison, (1890) 120' N. Y. 260, 265, 30 State Rep. 934, 24 N. E. 458; Stiebel V. Grosberg, (1911) 202 N. Y. 266, 95 N. E. 692, reversing ou other grounds 137 App. Div. 275, 121 N. Y. S. 923; Homans v. Tyng, (Sup. ISOO) 56 App. Div. 383, 67 N. Y. S. 792; Finch v. Simon, (Sup. 1901) 61 App. Div. 139, 32 Civ. Pro. 56, 70 N. Y. S. 361 ; Dorwin v. West- brook, (Sup. 1895) 86 Hun 363, 67 State Rep. 149, 33 N. Y. S. 449; Stearns v. Tappin, (Super. Ct. 1856) 12 Super. Ct. 274. See also Noble v. Kelly, (18G9) 40 N. Y. 415, 421, per Woodruff, J. 84. In Stearns v. T'appin, (Super. Ct. 1856) 12 Super. Ct. 294, 297, Oakley, Ch. J., in reference to the effect of releases since the enactment of the provision in the Revised Stat- utes, said : " Whatever may be the true construction of the provision in the Revised Statutes, which permits an inquiry into the consideration of a sealed instrument, it has assuredly never been, construed, nor do we think that it can reasonably be con- strued, as altering the rule of the common law, by which a release un- der seal operates, per se, as an extin- guishment of the debt to which it refers; and although liable to be avoided by proof that it was obtained by fraud or duress, is not open to contradiction by parol evidence. There is a wide distinction, as Mr. Justice Cowen, in delivering the judgment of the Court of Errors in MeCrca v. Purmort, 16 Wend. 474, has well shown, between a release and a receipt. The first, by its own oper- ation, extinguishes a pre-existing right, and therefore cannot be con- tradicted or explained by parol; the second has never the effect of de- stroying a subsisting right, but is merely evidence of a fact — the fact of payment — and therefore, like all other facts given in evidence, may be refuted or explained. But the construction of a release that has here been contended for would abol- ish this distinction. According to this construction, every release which, like that before us, is founded upon a merely nominal consideration would be void upon its face; and every release founded upon a pecu- niary consideration, less in amount than the debt it purports to dis- charge, would be void as to the bal- ance it admits to be unpaid. That this would be contrary not only to the understanding of the bar, but to the uniform practice in our courts of justice during the long period that has elapsed since the Revised Stat- utes have been in force, must be known to all who have any experi- ence in our profession. We doubt whether a single case has occurred in which a release, admitted in evi- dence as unquestionably valid, has been founded upon the actual and full satisfaction, of the debt to which it related. We have, therefore, no 58'6 NEW YORK LAW OF CONTRACTS [§ 378 elusive evidence of a sufficient consideration.*^ As regards the present form of the provision as found in the Code of Civil Pro- cedure, it relates only to " executory contracts." A release is in its nature an executed contract rather than an executory one, and therefore is not within the letter of the statute.** § 378. Seal Still Presumptive Evidence of Consideration. — The common law rule as to the effect of a seal is not entirely abrogated by our statutes. There is still a prima facie presumption of a con- sideration, the common law presumption being made a rebuttable one." This is true irrespective of any recital of a consideration.** As said by Mitchell, J. : " The law still expressly recognizes the seal as ' presumptive evidence of a sufficient consideration,' and calls on the defendant to rebut that presumption. The burden of that proof therefore falls on him. " *^ So in an action on a sealed instrument the plaintiff is not required in the first instance to diflBculty in holding that the release now in question, although it states only a nominal consideration, was operative and valid; and that its legal eflfeet was to extinguish the debt •and the note, as evidence of that debt, upon which this action is founded." 85. Finch v. Simon, (Sup. 1901) 61 App. Div. 139, 32 Civ. Pro. 56, 70 N. Y. S. 361; Dorwin v. West- brook, (Sup. G. T. 189-5) 86 Hun 363, 366, 67 State Rep. 149, 33 N. Y. S. 449. «6. Stiebel v. Grosberg, (1911) 202 N. Y. 266, 95 N. E. 692, reversing on other grounds 137 App. Div. 275, 121 N. Y. S. 923 ; Homans v. Tyng, ( Sup. 1900) 56 App. Div. 383, 67 N. Y. S. 792. 87. Best V. Thiel, (1879) 79 N. Y. 15; Durland v. Durland, (1897) 153 N. Y. 67, 75, 47 N. E. 42; Kam v. Benjamin, (Sup. 1896) 10 App. Div. 419, 423, 42 N. Y. S. 99; Rothschild V. Frank, (Sup. 1897) 14 App. Div. 399, 403, 43 N. Y. S. 951; Hazleton V. Webster, (Sup. 1897) 20 App. Div. 177, 46 N. Y. S. 922, affirmed 161 N. Y. 628 mem., 55 N. B. 1096; Koehler v. Reinheimer, (Sup. 1898) 26 App. Div. 1, 49 N. Y. S. 755; Mutual L. Ins. Co. v. Yates County Nat. Bank, (Sup. 1898) 35 App. Div. 218, 54 N. Y. S. 743; Von Schuck- mann v. Heinrich, (Sup. 1904) 93 App. Div. 278, 87 N. Y. S. 673, af- firmed 182 N. Y; 538 mem., 75 N. E. 1135; In re De Forest, (Sup. 1907) 119 App. Div. 782, 104 N. Y. S. 342, 39 Civ. Pro. 368, affirmed 189 N. Y. 544 mem., 82 N. E. 1125; Quacken- bush V. Mapes No. 1, (Sup. 1908) 123 App. Div. 242, 107 N. Y. S. 1047; Lessler v. De Loynes, (Sup. 1912) 150 App. Div. 868, 135 N. Y. S. 948, 153 App. Div. 903, 138 N. Y. S. 503; Childs V. Barnum, (Sup. G. T. 1851) 11 Barb. 14, affirming 3 Super. Ct. 58; Calkins v. Long, (Sup. Sp. T. 1855) 22 Barb. 97, 101; Van Am- burgh V. Kramer, (Sup. 1878) 16 Hun 205 ; Gein v. Little, (Sup. Tr. T. 1904) 43 Misc. 421, 89 N. Y. S. 488, affirmed 102 App. Div. 614 mem., 92 N. Y. S. 1125; Galvin v. O'Neill, (Sup. Sp. T. 1919) 108 Misc. 297, 177 N. Y. S. 543. 88. Lessler v. De Loynes, (Sup. 1912) 150 App. Div. 868, 873, 135 N. Y. S. 948, 153 App. Div. 903, 138 N. Y. S. 503. 89. Childs v. Barnum, (Sup. G. T. 1851) 11 Barb. 14, 16, affirming 3 Super. Ct. 58. § 378] CONSIDERATION 587 prove a sufficient consideration but may rest on the presumption arising from the seal, and the defendant, to prevent a recovery, must by affirmative evidence rebut the presumption arising from the presence of the seal.'" Nor is the plaintiff required to show or allege in his complaint that the obligation is in fact supported by a consideration." The seal of a corporation is fully as effective as the seal of an individual to raise this presumption of a sufficient consideration.'^ The fact that a promise under seal is by a hus- band to pay a sum of money to his wife is itself insufficient to rebut the presumption of a consideration.'' And where a promise to answer for the debt of another was under seal and also recited a nominal consideration of one dollar " paid," it has been held that proof merely that the dollar was not paid, without further proof that there was no agreement to pay it, was insufficient to rebut the presumption. " The defendant's right," says Mitchell, J., " depends on the law opening the proof as to the consideration of sealed instruments; and as the proof was opened to the defend- ant to show that there was no consideration, it allowed any con- sideration, whether that named in the instrument or any other, to be shown or implied. And it was incumbent on the defendant to prove the whole negative that he had assumed, viz., that there was no consideration; he could not limit the plaintiff to a past consideration. " " If the promise is made to one for the benefit of another the testimony of the promisee and the beneficiary that they gave no consideration for the promise is itself sufficient to rebut the presumption arising from the seal, and it then becomes their duty to show that there was some other consideration for the promise.'" In case of contracts of guaranty or suretyship or the like, a consideration does not as a general rule move to the guarantor or surety, but ordinarily moves from the creditor to the principal debtor. Therefore testimony of the guarantor or surety that he received no consideration for his promise is not sufficient, the promise being under seal, to rebut the presumption 90. Mutual L. Ins. Co. v. Yates 98. Muzzey v. Cable, (Sup. G. T. County Nat. Bank, (Sup. 1898) 35 1884) 19 Wkly. Dig. 142. App. Div. ai8, 54 N. Y. S. 743; Hurd 94. Childs v. Barnum, (Sup. G. T. V. Green, (Sup. 1879) 17 Hun 327. 1851) 11 Barb. 14, affirming 3 Super. 91. Clark v. Thorp, (Sviper. Ct. Sp. Ct. 58. T. 1858) 15 Super. Ct. &80. 9«. Anthony v. Harrison, (Sup. 92. Mutual L. Ins. Co. v. Yates G. T. 1878) 14 Hun 198. County Nat. Bank, (Sup. 1898) 35 App. Div. 218, 54 N. Y. S. 743. 588 XEW YORK LAW OF COXTRACTS [§ 379 of a sufficient consideration.^*' It is a general principle of agency that as between private parties the authority of an agent to enter into a contract under seal on behalf of his principal must itself be under seal to render the contract binding on the principal as a sealed contract ; " but if the authority is by parol the seal may be regarded as surplusage, when unnecessary, and the contract held binding on the principal as his parol contract.'* Still in such a case it is binding only as a parol contract, and the promisee or obligee cannot treat the seal as surplusage for the purpose of asserting the validity of the contract, and at the same time insist on it as importing a consideration.^^ § 379. Pleading Want of Consideration. — The Eevised Statutes, after stating that the seal shall be only presumptive evidence of a sufficient consideration which may be rebutted, etc., further provided that the defense ' ' shall not be made unless the defendant shall have pleaded the same, or shall have given notice thereof, at the time of pleading the general issue, or some other plea deny- ing the contract on which the action is brought." Under these provisions it was necessary, where the action was on the sealed instrument, in order to permit the defendant to show a want of consideration, to comply with the latter provision of the statute.^ And where an action was brought on a note which it appeared was given in pursuance of a covenant or agreement under seal to give security, and the defense to the note was want of con- sideration, the court was of the opinion, without, however, decid- ing the question, that it could not be shown that the covenant was without consideration unless it was pleaded.^ This provision as to pleading the want of consideration has been repealed and is not brought into the Code of Civil Procedure. Still, under the Code practice it seems that in an action on a sealed instrument where no consideration for the defendant's promise is alleged in the complaint, the want of consideration is in the nature of new 96. Rothschild v. Frank, (Sup. 153 App. Div. 223, 225, 137 N. Y. S. 1897) 14 App. Div. 399, 43 N. Y. S. 1017. 951. 99. Royal Indemnity Co. v. Dan- 97. Worrallv. Munn, (1851) 5 !if."^if "P' tPP; ^- T^^' ^''^ ^'='=' N Y 229 239- Peterlon v New ^'^"' '^^ ^- ^- ^- "''• York (1909) 194 NY 437 440 '• ^"^ "• ^''^'''^'' <^"P- '^^^^ ^' 7 at' t7 VVo Wend. 626; Tallmadge v.Wallis, (Ct. 87 N. E. 772. g^j._ jg^^j 25 Wend. 107. 96. Worrall v. Munn, (1851) 5 2. Fay v. Richards, (Sup. 1839) 21 N. Y. 229; Wood v. Wise, (Sup. 1912) Wend. 626. § 379] CONSIDERATION 589 matter and must be pleaded to be available in defense.^ " The agreement being under seal, ' ' says Ingraham, J., " a consideration was presumed, and while the parties were not precluded from showing that there was actually no consideration, the lack of con- sideration was an affirmative defense which must be pleaded by the party seeking to avoid the performance of the contract on that ground. " * It is likewise held, in an action on a note which imports a consideration, that the defense of a want of considera- tion must be set up in the answer and is not available under the general denial.^ This is in pursuance of the rule that a general denial puts in issue only the facts which the plaintiff is bound to prove to make out his cause of action. If it does not appear from the complaint that the undertaking sued on was under seal, it is not incumbent on the defendant to allege in his answer a want of consideration.' Still in such a case, where the instrument sued on is put in evidence and proves to be under seal, it is held that the prima facie presumption of a consideration then arises, and it is incumbent on the defendant to introduce evidence to rebut this prima facie case.' "Where the action was one to foreclose a mortgage given to secure a bond, an allegation in the answer " that there never was any valuable or other legal consideration " for the mortgage has been held a sufficient allegation of a want of consideration, as it is equivalent to an allegation that there was no consideration, which is an allegation of a fact and not a conclusion.* To raise the defense of a want of consideration the answer should contain an affirmative allegation that there was no consideration; an allega- tion by way of a denial of a recital in the instrument set out as an exhibit, or an unnecessary allegation in the complaint to the effect that it was based on a good and legal consideration, is not, it seems, suiScient.' 3. Mutual L. Ins. Co. v. Yates 1904) 43 Misc. 421, 89 N. Y. S. 488, County Nat. Bank, (Sup. 1898) 3.5 affirmed 1C2 App. Div. 614 mem., 82 App. Div. 218, 54 N. Y. S. 743; N. Y. S. 1125. Recknagel v. Steinway, (Sup. 1901) 7. Gein v. Little, (Sup. Tr. T. 58 App. Div. 352, 336, 69 N. Y. S. 1904) 43 Misc. 421, 89 N. Y. S. 488, 132; Howie V. Kasnowitz, (Sup. 1903) affirmed 102 App. Div. 614 mem., 92 83 App. Div. 295, 82 N. Y. S. 42. N. Y. S. 1125. 4. Howie V. Kasnowitz, (Sup. 1903) 8. Towanda First Nat. Bank v. Rob- 83 App Div. 295, 296, 82 N. Y. S. insan, (Sup. 1905) 105 App. Div. 193, 42. 94 N. Y. S. 767. affirmed 188 N. Y. 5. See supra, section 371. 45, 80 N. E. 567. 8. Gein v. Little, (Sup. Tr. T. 9. Recknagel v. Steinway, (Sup. 590 NEIW YORK LAW OF CONTRA.CTS [§ 380 Subscriptions § 380. In General. — It is recognized in all the cases tliat a sub- scription or promise to donate money toward the advancement of some public or quasi-public object, such as a church, college, or the like, must, as in case of any other executory contract, be sup- ported by a consideration to be enforceable." As said in a leading case, the public advantage arising from the carrying out of the object for which the subscription is made, however important in itself, is not alone sufficient to uphold a promise of this char- acter ; ^1 and it is held insufficient that the beneficiary may have incurred expenses or obligations on the faith of the subscriptions, if there was no request, express or implied, on the part of the subscriber that he should do so.*^ Also the fact that the sub- scription is on a condition does not render it enforceable because the happening of the condition is brought about by the efforts of the beneficiary, if there was no request, express or implied, to the 1901) 58 App. Div. 352, 69 N. Y. S. 132. 10. Hamilton College v. Stewaut, (1848) 1 N. Y. 581, on- prior appeal 2 Denio 403 ; Barnes v. Ferine, (1854) 12 N. Y. 18; Twenty-third St. Bap- tist Church V. Cornell, (1890) 117 N. Y. 601, 28 State Rep. 482, 28 N. E. 177, affirming 56 Super. Ct. 260, 18 State Rep. 878, 3 N. Y. S. 51 ; Hull v. Pearson, (Sup. 1899) 38 App. Div. 588, 56 N. Y. S. 518; Commercial Travelers' Home Ass'n v. McNamara, (Sup. 1904) 95 App. Div. 1, 88 N. Y. S. 443, reversing 42 Misc. 258, 86 N. Y. S. 608 ; Wilson v. Baptist Edu- cational Soc, (Sup. G. T. 1851) 10 Barb. 308. See also Eastern Plank Road Co. v. Vaughan, (1856) 14 N. Y. 546, affirming 20 Barb. 156. 11. Hamilton College v. Stewart, (1848) IN. Y. 581. 12. Hamilton College v. Stewart, (1848) 1 N. Y. 581, on prior appeal 2 Denio 403; Twenty-third St. Bap- tist Church V. Cornell, (1890) 117 N. Y. 601, 28 State Rep. 482, 28 N. E. 177, affirming 56 Super. Ct. 260, 18 State Rep. 878, 3 N. Y. S. 51. In Twenty-third St. Baptist Church V. Cornell, (1890) 117 N. Y. 601, 28 State Rep. 482, 28 N. E. 177, it ap- peared that the defendant's testator subscribed a certain amount for the alleged purpose of erecting a church edifice for the plaintiff. There was no undertaking on- the part of the church to erect the building or do any other act, and before any ex- penditures were made or work done on the building the subscriber died. It was held that the fact that after the subscriber's death expenditures were made in erecting the building did not furnish a consideration which would render the subscription en- forceable against the subscriber's es- tate. Finch, J., in this connection said : " The contention is that the churdi corporation erected its new edifice and incurred the large cost of its construction in reliance upon these subscriptions, and so in the end, if not in the beginning, a con- sideration arose to support the prom- ise. That may happen where the expenditure can be said to have pro- ceeded with the knowledge and assent of the subscribers; but here, before any expenditure was made, or any work was begun, Mrs. Weeks died. § 380] CONSIDERATION 59i beneficiary to perform the condition.^^ Thus it was held by the Court of Appeals in a leading case, which involved a subscrip- tion towards an endowment fund for Hamilton college, that the fact that the subscription was made subject to the condition that it should not be binding unless a certain amount was subscribed by other persons, did not constitute an implied request to the college authorities to endeavor to secure the additional subscrip- tions and thus raise a consideration for the promise on the theory that the condition of the offer was performed by the college." It has also been held that an implied request to the beneficiary of the subscription or promise on his part to apply the subscription towards the object of its incorporation, being merely a request or promise to perform a duty which the law would impose on the beneficiary, would not constitute a consideration,^^ as where the subscription is to found an endowment fund for a college, the income to be applied in paying the salary of its officers.^' And where the subscription was for the purpose of paying off a mort- gage on the property of a church, it was held that the fact that the trustees may have undertaken to apply the money subscribed to such purpose would not furnish the necessary consideration, nor would the fact that they did so apply some of the subscrip- tions which were paid in furnish the consideration necessary to render others enforceable." A part payment of the subscription does not itself impose any additional liability on the subscriber ; " Her gift was unexecuted at her death (Ct. Err. 1845) 2 Denio 403, on sec- and revoked by that event; and no ond appeal 1 N. Y. 581. " It can after action of the church corpora- hardly be' said," says Chancellor Wal- tion could change or affect the re- worth (2 Denio 416), "to be a con- sult." sideration to support a promise of a 13. Hamilton College v. iStewart, donor to give at a future time, that (1848) 1 N. y. 581; Twenty-third the donee agrees to receive and in- St. Baptist Church v. Cornell, ( 1890 ) vest the fund when paid and to apply 117 N. Y. 601, 28 State Rep. 482, 28 it to the payment of his debts gen- N. E. 177, affirming 56 Super. Ct. 260, erally, or any particular class of his 18 State Rep. 878, 3 N. Y. S. 51. debts; or to apply it to the payment 14. Hamilton College v. Stewart, of such sums as he may thereafter (1848) 1 N. Y. 581, on prior appeal agree to give to his servants for their 2 Denio 403. See also Presbyterian services." Church V. Cooper, (1889) 112 N. Y. 17. Presbyterian Church v. Cooper, 517, 21 State Rep. 503, 20 N. E. 352, (1889) 112 N. Y. 517, 21 State Rep. affirming 45 Hun 453, 10 State Rep. 503, 20 N. E. 352. 142 18. Hull V. Pearson, (Sup. 1899) 15. Hammond v. Sliepard, (Sup. G. 38 App. Div. 588, 56 N. Y. S. 518. T 1865) 29 How. Pr. 188, 40 How. See also Presbyterian Church v. pi- 452 Cooper, (1889) 112 N. Y. 517, 21 16. Stewart v. Hamilton College, State Rep. 503, 20 N. E. 352. 592 NEW YORK LAW OF CONTRACTS [§ 381 it may, however, it seems, be evidence that expenditures made by the beneficiary were at the request, express or implied, of the subscriber.^' Frequently subscriptions are subject to a condition precedent, and no liability attaches until the condition is performed ; ^" and though a subscription to a charitable or public enterprise may in the first instance be binding, it cannot be enforced if the enter- prise has been abandoned, as the law implies a condition to such a subscription that the enterprise be an existing one at the time payment is demanded.^^ Also if there is no obligation assumed by the beneficiary, or other consideration such as services or the like performed at the request of the subscriber, the latter may at any time before the performance of the condition on which his liability is to attach withdraw the offer evidenced by his subscription.^^ § 381. Acts of Beneficiary Constituting Consideration Gen- erally. — The tendency of the courts is to sustain a subscription if any consideration can be found for its support, the amount of the consideration being of no importance,^^ and as in other cases 19. Hull V. Pearson, (Sup. 18S9) 38 App. Div. 588, 56 N. Y. S. 518. 20. Sager v. Gonnermann, (County Ct. 1906) 50 Misc. 500, 100 N. Y. S. 406. 21. Commercial Travelers' Home Ass'n V. McNamara, (Sup. 1904) 95 App. Div. 1, 89 N. Y. .S. 443, revers- ing 42 Misc. 258, 86 N. Y. S. 608. 22 Dix V. Shaver, (Sup. G. T. 1878) 14 Hun 392; Sager v. Gonner- mann, (County Ct. 1906) 50 Misc. 500, 100 N. Y. S. 406. 23. Hamilton College v. Stewart, (1848) 1 N. Y. 581, 583. In Barnes v. Ferine, (1854) 12 N. Y. 18, Allen, J., said: "An at- tempt to reconcile all the cases whicli have been adjudged, touching the va- lidity of voluntary engagements to pay money for charitahle, educa- tional, religious or other public pur- poses, would be fruitless; for while circumstantial differences in the cases will explain and satisfactorily ac- count for some of the diversities in the decisions, it will be found that there is, to some extent, a want of harmony in the principles and rules applied as tests of validity to that class of undertakings. The general principle is recognized in every case, that all simple contracts executory, whether in writing or verbal, mu?t be founded upon a good considera- tion, and that the want of a legally adequate consideration, that is, a con- sideration recognized as sufficient in law, will vitiate every executory con- tract not under seal; still, the objec- tion of a want of consideration for promises like the one before us has not always been regarded with favor; and judges, considering defenses of that character as breaches of faith towards the public, and especially towards those engaged in the same enterprise, and" an unwarrantable dis- appointment of the reasonable expec- tations of -those interested, have been willing, nay apparently anxious, to discover a consideration which would uphold the undertaking as a valid contract ; and it is not unlikely that some of the cases in which subscrip- tions have been enforced at law have § 381] CONSIDERATION 59S the consideration need not be one beneficial to the subscriber.^* It is said that a subscription unenforceable for want of a considera- tion at the time it was made may be made binding by a consid- eration arising subsequently between the subscriber and the per- son for whose benefit it is made.^^ Therefore if the beneficiary perform at the request of the subscriber or agree to perform some act which in legal contemplation may be a detriment to it, this will furnish a sufficient consideration.^^ And it is not necessary that there be an express request on the part of the subscriber that the beneficiary perform such act. It is sufficient if the sub- scription is in such form that a request may be implied or inferred.^'' If the request or consideration does not appear on the face of the subscription, oral evidence is admissible to prove it, as the common law does not require that the consideration for a written promise appear on the face of the writing.^ And if been border cases, distinguished by slight circumstances from agreements held void for a want of considera- tion." 24. Barnes v. Ferine, (1854) 12 N. Y. 18. 35. Presbyterian Church v. Cooper. (1886) 112 N. Y. 517, 524, 21 State Eep. 503, 20 N. E. 352. See also Keuka College v. Ray, (Sup. 1'898) 41 App. Div. 200, 58 N. Y. S. 745, affirmed 167 N. Y. 96, 60 N. E. 325. 26. Hamilton College v. Stewart, (1848) 1 N. Y. 581; Barnes v. Ferine, (1854) 12 N. Y. 18, affirming 15 Barb. 249, which affirmed 9 Barb. 202; Syracuse First Baptist Soc. v. Robinson, (1860) 21 N. Y. 234; Keuka College v. Ray, (1901) 167 N. Y. 96, 60 N. E. 325, affirming 41 App. Div. 200, 58 N. Y. S. 745; Cen- tral Fresb. Church v. Thompson, (Sup. 1896) 8 App. Div. 565, 75 State Rep. 305, 40 N. Y. S. 912; Locke v. Tay- lor, (Sup. 1914) 161 App. Div. 44, 146 N. Y. S. 256; M'Auley v. Billen- ger, (Sup. 1«22) 20 Johns. 89; Re- formed Frotestant Dutch Church v. Brown, (Sup. G. T. 1859) 29 Barb. 335, 17 How. Fr. 28Y, affirmed 24 How. Fr. 76; Wayne, etc., Collegiate Institute v. Smith, (Sup. G. T. 1861) .36 Barb. 576; Wayne, etc., Collegiate Institute v. Greenwood, (Sup. G. T. 38 1863 ) 40 Barb. 72, reversed 41 N. Y. 620 mem; Hutchins v. Smith, (Sup. G. T. 1865) 46 Barb. 235; Bort v. Snell, ('Sup. 1886) 39 Hun 388; Mechanicville War Chest v. Eutter- field, (County Ct. 1920) 110 Misc. 257, 181- K. Y. S. 428; Levy v. West Side Constr. Co., (Sup. App. T. 1917) 162 N. Y. S. 661; Hammond v. Shep- ard, (Sup. G. T. 1&65) 29 How. Fr. 188, 40 How. Fr. 452. 27. Keuka College v. Ray, (1901) 167 N. Y. 96, 60 N. E. 325, affirming 41 App. Div. 200, 58 N. Y. S. 745; Central Fresb. Church v. Thompson, (Sup. 1896) 8 App. Div. 565, 75 State Rep. 305, 40 N. Y. 8. 912. 28. Barnes v. Ferine, (Sup. G. T. 1852) 15 Barb. 249, affirmed 12 N. Y. 18. See also Keuka College v. Ray. (190a) 167 N. Y. 96, 60 N. E. 325, affirming 41 App. Div. 200, 58 N. Y. S. 745. See supra, section 360 et seq., as to the pleading and proof of consideration generally. In Barnes v. Ferine, (1854) 12 N. Y. 18, affirming 15 Barb. 249, it appeared that the defendant, with others, subscribed to a paper by which he promised to pay a given amount towards the sum of five thou- sand dollars, to be expended in build- ing a new Presbyterian church in the place of the old one to be removed; 594 NKW YORK LAW OF CONTRACTS [§ 382 the ■wTitten contract to subscribe expressly states a consideration, an additional consideration, when necessary, may be shown to sup- port the promise.^' § 382. Application of Rule. — The consideration usually found to support the subscription is the incurring of financial obliga- tions at the express or implied request of the subscriber, such as the purchase of lands, ^^ the erection of buildings or their repair," or the employment of a minister.^^ The view was expressed in the Hamilton College case, where the subscription was for an endowment fund for the college, and was conditioned on subscrip- tions to a certain amount being made, that if it could have been construed as an implied request to the college authorities to secure the additional subscriptions, the services rendered in so doing would have furnished a sufficient consideration to support the and that he afterwards attended and took part in several meetings of the society, as well as of the individual subscribers to the building fund, at which a building committee was ap- pointed and resolutions were adopted imposing certain duties and obliga- tions on the trustees and building committee, involving labor and ex- pense and the necessity of incurring obligations in behalf of the corpora- tion, in furtherance of the design of removing the old building and erecting the new, and distinctly re- questing and directing the agents of the corporation to proceed and erect the new building after a proposed plan. It was held that the obliga- tions incurred at the request of the defendant constituted a sufficient con- sideration. 29. Keuka College v. Ray, (1901) 167 N. Y. 96, 60 N. E. 325, affirming 41 App. Div. 200, 58 N. Y. S. 745. This case involved a note which re- cited that it was in consideration of the founding of a college at a certain place, and evidence of the rendition of services at the request of the de- fendant in soliciting other subscrip- tions was held to have been properly admitted. 30. Central Presb. Church v. Thompson, (Sup. 1896) 8 App. Div. 565, 75 State Rep. 305, 40 N. Y. S. 912. 31. Barnes v. Perine, (18i54) 12 N. Y. 18, affirming 15 Barb. 249, which affirmed 9 Barb. 202; Syracuse First Baptist Soc. v. Robinson, (I860) 21 N. Y. 234; Presbyterian Soc. v. Beach, (1878) 74 N. Y. 72, reversing 8 Hun 644, which was decided on other grounds; Central Presb. Church V. Thompson, (Sup. 1896) 8 App. Div. 565, 75 iState Rep. 305, 40 N. Y. S. 912; M'Auley v. Billenger, (Sup. 1822) 20 Johns. 89; Wayne, etc.. Col- legiate Institute v. Smith, (Sup. G. T. 1861) 36 Barb. 576; Richmond- ville Union Seminary, etc., v. Brown- ell, (Sup. G. T. 1862) 37 Barb. 53b; Hutchins v. Smith, (Sup. G. T. 1865) 46 Barb. 235; Reformed Protestant Dutch Church v. Brown, (Sup. G. T 1859) 17 How. Pr. 287, 29 Barb. 335, affirmed 24 How. Pr. 76; M. E. Church First Soc. v. Rathbun, (Sup. G. T. 1877) 5 Wkly. Dig. 53. See also Horton v. Erie Preserving Co., (Sup. 1904) 90 App. Div. 255, 85 N. Y. S. 503, affirmed 181 N. Y. 535 mem., 73 N. E. 1125. 32. Whitestown First Religious Soc. V. Stone, (Sup. 1810) 7 Johns. 112. See also Dieffendorf v. Re- formed Calvinist Church, (Sup. 1822) 20 Johns. 12. § 382] CONSIDERATION 595 subscription ; ^' and tMs view has been adopted in later cases.'* To bring a case, however, within the principle of acts performed by the beneficiary at the express or implied request of the sub- scriber, the subscription must be in such form or the subsequent action of the subscriber must be such that a request on his part can be implied.^^ And it seems that such a request cannot be implied from the mere statement in the subscription paper of the object of the subscribers.^' And the fact that the subscription is 33. Hamilton College v. Stewart, (1848) 1 N. Y. 5S1, on prior appeal 2 Denio 403. 34. Roberts v. Cobb, (1886) 103 N. Y. 600, 4 State Rep. 290, 9 N. E. 500, 25 Wkly. Dig. 182, affirming 22 Wkly. Dig. 182; Keuka College v. Ray, (1901) 167 N. Y. 96, 60 N. E. 325, affirming 41 App. Div. 200, 58 N. Y. S. 745; Roberts v. Cobb,, (Sup. G. T. 1883) 31 Hun 150; Matter of Conger, (Surr. 1920) 113 Misc. 129, 184 N. Y. S. 74; Reformed Protes- tant Dutch Church v. Hardenbergh, (Sup. G. T. 1874) 48 How. Pr. 414. In Roberts v. Cobb, (1886) 103 N. Y. 600, 4 State Rep. 2«0, 9 N. E. 500, 25 Wkly. Dig. 182, it appeared that the pastor of a church on which there was a mortgage of $15,000 re- quested B., the defendant's testatrix, to make a contribution, to help pay oflF the mortgage; she promised to contribute $2500 if he would secure pledges for the balance. H- promised to make the effort; he did so and was successful in securing pledges for the amount required. B. there- upon gave him her promissory note, payable to the trustees of the church for $2500, which he delivered to the trustees. In an action on the note it was held that H. was to be re- garded as having acted as agent for the church, and his promise was that of the church; that it having per- formed the condition, her promise be- came obligatory, and the note wa^ based on a good consideration. In Keuka College v. Ray, (1901) 167 N. Y. 96, 60 N. E. 325, affirming 41 App. Div. 200, 58 N. Y. S. 745, the subscription was towards a fund for the founding of a college. The plaintiff was provisionally chartered as a college, and it was necessary to raise a certain sum of money to en- title it to a full charter. A large sum had been promised, but condi- tionally on the raising of a certain amount by the college from others. The defendant subscribed to the lat- ter fund and requested impliedly, it seems, the college authorities to con- tinue their efforts to raise the neces- sary amount. It was held that the service so rendered was a sufficient consideration for the defendant's sub- scription. 35. Presbyterian Church v. Cooper, (1889) 112 N. Y. 517, 21 State Rep. 503, 20 N. E. 352, affirming 45 Hun 453, 10 State Rep. 142, 27 Wkly. Dig. 154. 36. Twenty-third St. Baptist Church V. Cornell, (1890) 117 N. Y. 601, 28 State Rep. 482, 23 N. E. 177, affirm- ing 56 Super. Ct. 260, 18 State Rep. 878, 3 N. Y. S. 51; Hull v. Pearson, (Sup. 1899) 38 App. Div. 588, 56 N. Y. S. 518. In Twenty-third St. Baptist Church v. Cornell, (1890) 117 N. Y. 601, 28 State Rep. 482, 23 N. E. 177, it ap- peared that W., defendant's testatrix, with others, subscribed to a paper, by the terms of which they agreed to pay the sums severally set oppo- site their names, towards erecting a church edifice, on the condition that the aggregate of subscriptions should not be less than $50,000. Opposite W.'s name was the sum of $5000. There was no evidence that she re- quested the church corporation to build a new edifice, or that it prom- ised that it would, or that there was any endeavor to obtain subscribers by her wish or directions. Before any expenditures were made or work 596 NEW YORK LAW OF CONTRACTS [§382 conditional on other subscriptions to a larger amount being made does not itself import a request to the beneficiary to procure such other subscriptions, and thus enable its act in so doing to con- stitute a consideration for the subscriber's promise.^' If persons begun on the edifice W. died. In an action on the subscription it was held tliat it was merely an executory gift supported by no consideration, that on the death of W. the gift was revoked, and no after action of the church corporation in erecting the church could affect that result, nor could her executors bind the estate by any assent to the work of con- struction or convert the revoked promise into an enforceable liabilit)' against the estate; and, therefore, that the plaintiff could not recover. In Hull v. Pearson, (Sup. 1899) 38 App. Div. 588, 56 N. Y. S. 518, it appeared that the officers of a theo- logical seminary, in an appeal to the public for aid, stated that unless such aid was received the curtailment if not the closing of one of itsi German departments, which had been in , ex- istence for many years, was threat- ened. Annexed to this appeal was the following : " Subscription. We whose names are here subscribea promise to pay . . . the sum' set op- posite our names . . . for the work of the German department" of the seminary. The German department was continued after the defendant signed the subscription. It was held that this raised no presumption that the continuance was at the express or implied request of the subscriber. 37. Hamilton College v. Stewart, (1848) 1 N. Y. 581, on prior appaal 2 Denio 403; Presbyterian Church v. Cooper, (1889) 112 N. Y. 517, 21 State Rep. '508, 20 N. E. 352, affirm- ing 45 Hun 453, 10 State Rep. 142, 27 Wkly. Dig. 154; Twenty-third St. Baptist Church v. Cornell, (1890) 117 N. Y. 601, 28 State Rep. 482, 23 N. E. 177, affirming 56 Super. Ct. 260, 18 State Rep. 878, 3 N. Y. S. 51; Sager v. Gonnermann, (County Ct. 1906) 50 Misc. 500, 100 N. Y. S. 406. In Presbyterian Church v. Cooper, (1889) 112 N. Y. 517, 21 State Rep. 503, 20 N. E. 352, where the sub- scription was for the purpose of pay- ing off the mortgage debt of the church and conditioned on a certain amount being subscribed, Allen, J,, said : " It is urged that a consid- eration may be found in the efforts of the trustees of the plaintiff dur- ing the year, and the time and labor expended by them during that time, to secure S'ubscriptions in order to fulfil the condition upon which the liability of the subscribers depended. There is no doubt that labor and services, rendered by one party at the request of another, constitute a good consideration for a promise made by the latter to the former, based on the rendition of the service. But the plaintiff encounters the diffi- culty that there is no evidence, ex- pressi or implied, on the face of the subscription paper, nor any evidence outside of it, that the corporation or its trustees did or undertook to do anything upon the invitation or re- quest of the subscribers. Nor is there any evidence that the trustees of the plaintiff, as representatives of the corporation, in fact did anything in their corporate capacity, or other- wise than as individuals interested in promoting the general object in view. Leaving out of the subscrip- tion paper the affirmative statement of the consideration (which, for rea- sons stated, may be rejected), it stands as a naked promise of the subscribers to pay the several amounts subscribed by them for the purpose of paying the mortgage en the church property upon a condi- tion precedent limiting their liabil- ity. Neither the church nor the trus- tees promise to do anything, nor are they requested to do anything, nor can such a request be implied." § 383] CONSIDERATION 597 interested in the repair of a highway promise to pay to one of their number the sums severally subscribed by them to be expended for such repairs, this cannot be construed as a request to any other subscriber to undertake the repairs, and entitle him after having made such repairs to enforce the payment of the several subscribers.'* § 383. Mutual Promises of Subscribers as Consideration. — No rule can be extracted from the decision on the first appeal in the Hamilton College case (2 Denio 403), as to the effect of the mutual promises of the subscribers, for the reason that the several mem- bers of the court did not agree on the principles on which the case should be decided.'* The view, however, was taken by Chancellor Walworth, that where subscriptions are made by a number of persons the promise of one to subscribe may furnish a consideration for the promise of another subscriber ; *" and if the beneficiary is a party to the contract and the promise is made to him, he may enforce it though the sole consideration consist of the mutual promises of the subscribers, as it is not necessary that the consideration for a promise to be enforceable by the promisee move from him.^^ This is the view which prevails in a number of jurisdictions in this country.*^ It has not, however, met 38. Van Rensselaer v. Aikin, (1870) pose, also, the various subscriptions 44 N. Y. 126, reversing 44 Barb. 547. to the same paper and for the same 39. See Barnes v. Ferine, (1854) object, although in fact made at dif- 12 N. Y. 18, 23; Keuka College v. ferent times, may in legal contempla- Ray, (Sup. 1899) 41 App. Div. 200, tion be considered as having been 58 N. Y. S. 745. made simultaneously. The consid- 40. Stewart v. Hamilton College, eration of the promise, therefore, is (Ct. Err. 1845) 2 Denio 403, 414. not any consideration of benefit re- in this ease the chancellor said: eeived by each subscriber from the " Every member of society has an religious or literary corporation to interest in supporting the institu- which the amount of his subscription tions of religion and of learning in is made payable, nor is his promise the community where he resides. And founded upon any consideration of when he consents to become a sub- injury which the payee has sustained scriber with others to raise a fund or is to sustain or be put to for his for that purpose, the real considera- benefit. But the consideration of the tion for his promise is the promise " promise of each subscriber is the cor- which others have already made or responding promise which is made which he expects them to make, to by other subscribers. Mutual prom- contribute to the same object. In ises have always been, held sufficient other words, the mutual promises of as between the parties to sustain the the several subscribers to contribute promise to each." towards the fund to be raised for 41. Stewart v. Hamilton College, the specified object in which all feel (Ct. Err. 1845) 2 Denio 403, 417. an interest, is the real consideration 42. See SuUcripHons, 25 R. C. L. of the promise of each. For this pxir- p. 1400 et seq. NEW YORK LAW OF CONTRACTS [§ 383 the approval of our courts in the later cases, and soon after its announcement it was said to have been necessarily overruled by the Court of Appeals in the decision on the second appeal (1 N. Y. 581)," and in later cases has been expressly repudiated.''^ Thus where the subscription paper recited that the subscribers promise and agree to and with the trustees of a church to pay to said trustees the sums severally subscribed by them, for the pur- pose of paying off the mortgage debt on the church, and alsg recited as a consideration one dollar in hand paid, which was n'ot in fact paid, and " the agreement of each other in this contract contained," it was held that the promises of the subscribers were not a sufficient consideration the one for the other to enable the church to enforce the subscription/^ 43. See opinion of Johnson, J., in Barnes v. Ferine, (1854) 12 N. Y. 18, 30. 44. Presbyterian Church v. Cooper, (1889) 112 N. Y. 517, 21 State Rop. 503, 20 N. E. 352; Twenty-third St. Baptist Cliurch v. Cornell, (1890) 117 N. Y. 601, 28 State Rep. 482, 23 N. E. 177, affirming 56 Super. Ct. 260, 18 State Rep. 878, 3 N. Y. S. 51; iSager v. Gonnermann, (County Ot. 1906) 50 Misc. 500, 100 N. Y. S. 406. 45. Presbyterian Church v. Cooper, (1889) 112 N. Y. 517, 21 State Rep. 50-3, 20 N. E. 352, affirming 45 Hun 453, 10 State Rep. 142. In this case Allen, J., said : " It has sometimes been supposed that when several per- sons promise to contribute to a. com- mon object, desired by all, the prom- ise of each may be a good considera- tion for the promise of others, and this although the object in view is one in which the promisors have no pecuniary or legal interest, and the performance of the promise by one of the promisors would not in a legal gense be beneficial to the others. This seems to have been the view of the chancellor as expressed in Hamilton College V. Stewart when it was be- fore the Court of Errors (2 Den. 417), and dicta of judges will be found to the same eflfect in other cases. (Trustees, etc. v. Stetson, 5 Pick. 508 ; Watlcins v. Eames, 9 Cush. 537.) But the doctrine of the chan- cellor, as we understand, was over- ruled when the Hamilton College case came before this court (1 N. Y. 581), as have been also the dicta in the Massachusetts cases, by the court in that state, in the recent case of Cottage Street Methodist Episcopal Church V. Kendall (121 Mass. 528). The doctrine seems to us unsound in principle. It proceeds on the as- sumption that a stranger both to the consideration and the promise, and whose only relation to the transac- tion is that of donee of an executory gift, may sue to enforce the payment of the gratuity for the reason that there has been a breach of contract between the several promisors and a failure to carry out as between them- selves their mutual engagement. It is in no proper sense a case of mutual promises, as between the plaintiff and defendant. In the disposition of this case we must, therefore, reject the consideration recited in the sub- scription paper as ground for sup- _ porting the promise of the defend- ant's intestate, the money considera- tion, because it had no basis in fact, and the mutual promise between the subscribers because there is no priv- ity of contract between the plaintiff and the promisors." The question as to when a promise made for the benefit of a third person may be enforced by him, is discusped later. CHAPTEE X Illegality Summary of Section Headings General Matters (§§ 384-396) Contracts Violative of Statutes or Common Law (§§ 397-427) Contracts Detrimental to Public Service Generally (§§ 428- Contracts to Influence Legislative Action (§§ 432-435) Contracts to Influence Executive Officers (§§ 436-438) Traffixi in PuUic Offices (§§ 439-440) Puhlic Service Corporation (§§ 441-442) Contracts Detrimental to Administration of Justice Generally (§§ 443^48) Ousting Courts of Jurisdiction (§§ 449^56) Compounding Crimes (§§ 457-460) Champerty and Maintenance Generally (§§ 461-465) Sales and Conveyances of Land Claimed or Held Adversely (§§ 466^81) Purchase of Chose in Action by Attorney (§§ 482-488) Giving Inducement for Placing Claim with Attorney for Enforcement (§§ 489-492) Contracts Contemplating Frauds Generally (§§ 493-504) Conveyances and Transfers in Fraud of Creditors or the Like (§§ 505-508) Composition with Creditors (§§ 509-512) Stifling or Puffing Competition at Sales or Letting of Con- tracts (_§§ 513-520) Organization and Management of Corporation (§§ 521-526) Indemnity against Liability for Wrongful Act (§§ 527-529) Exemption from and Limitation of Liability for Negligence (§§ 530-542) Contracts in Restraint of Trade Generally (§§ 543-563) Monopolies (§§ 564-574) Restrictions on Alienation of Property (§§ 575-576) Restrictions on Use of Property (§§ 577-578) Gambling Contracts Generally (§§ 579-605) Lotteries (§§ 606-611) Contracts Affecting Marriage or Marriage Relation (§§ 612- 623) Civic and Parental Duties (§§ 624-625) Waiver of Rights (§§ 626-627) War as Affecting Legality of Contract (§§ 628-629) Immoral Contracts (§§ 630-632) Indirect Illegality (§§ 633-638) [599] 600 NEW YORK LAW OP CONTRACTS Contract Growing Out of Prior Illegal Contract or Trans- action (§§ 639-640) Enforcement of and Belief from Illegal Contracts Generally (§§ 641-655) Partial Illegality (§§ 656-658) Defense of Illegality Generally (§§ 659-664) General Matters 384. In General 385. Foreign Contracts 386. Public Policy Generally 387. Power of Legislature in Fixing Public Policy 388. Necessity for Actual Detriment to Public 389. Unlawful Act in Performance of Contract 390. Devices to Hide Illegality 391. Extrinsic Evidence to Prove Illegality 392. Presumption and Construction in Favor of Legality of Contract 393. EfEect of Seal 394. Particular Classes of Contracts 395. Miscellaneous Contracts Generally 396. Performance Dependent on Death; Post Obit Agreements Contracts Violative of Statutes or Cormmon Law 397. In General 398. Municipal Charter or Ordinance 399. Ignorance of Law 400. Foreign Law 401. Unconstitutional Statute 402. Effect of Change or Eepeal of Law 403. Application of Rule to Particular Statutes Generally 404. Revenue Statutes Generally 405. — Federal Stamp Acts 406. — ■ Stock Transfer Tax Generally 407. — Effect of Unstamped Executed Contract on Title to Stock 408. — Enforcement of Unstamped Executory Contract 409. Election Laws 410. Statutes of Descent and Distribution 411. Sunday Laws 412. Patent Right Notes 413. Statute Prohibiting Corruption of Agents Generally 414. — Transactions within Prohibition and Proof of Bribery of Agent 415. Statutes Regulating Insurance Business 416. Statutes Regulating Banking Business ILLEGALITY 601 § 417. Statutes Requiring License to Engage in Trade or Busi- ness Generally 418. — Application of Rule to Particular Business or Trade Generally 419. — Plumbers 420. — Practice of Medicine and Dentistry 421. — ■ Subsequent Acquisition of License; Remedying Defective Registration of Physician 422. — Pro6f of License 423. Statute Relating to Real Estate Agents 424. Conducting Business under Fictitious Name 425. Ultra Vires Acts of Corporations 426. Statute Prohibiting Purchase by Corporation of Its Stock 427. Statute Relating to Foreign Corporations Contracts Detrimental to Public Service Generally 428. In General 429. Obligations Exacted Colore Officii 430. Compensation of Officers for Performance of Duty 431. Assignment of Salary, Fees or Emoluments of Office Contracts to Influence Legislative Action 432. General Rule 433. Qualification of General Rule 434. Relation and Party Affiliations; Contingent Compensation 435. Proof of Character of Services Contemplated Contracts to Influence Executive Officers 436. In General 437. Matters Affecting Selection of Agent 438. Contingent Compensation Traffic in Public Offices 439. In General 440. Division of Pees between Officer and Deputy Public Service Corporation 441. In General 442. Location and Extension of Railroad or the Like Contracts Detrimental to the Administration of Justice Generally 443. In General 444. Influencing Judicial Action; Imposition on Court 445. Indemnification of Bail 446. Compensation of Witnesses; General Rule 447. — Compensation Contingent on Result 448. Agreements for Procurement of Evidence 602 N]i\V YORK LAW OF CONTRACTS Ousting Courts of Jurisdiction § 449. In General 450. Restriction to Particular Court 451. Limiting Time for Commencement of Action 452. Arbitration Agreements; Common Law Rule 453. — Condition Precedent to Right of Action 454. — Statutory Sanction of Arbitration Agreement 455. Agreement Not to Sue on Existing Claim . 456. Stipulations as to Conduct of Proceedings or Remedy Campounding Crimes 457. General Rule 458. Particular Matters Affecting Illegality of Agreement 459. Qualification of General Rule 460. Recovery of Money Paid or Property Transferred Champerty and Maintenance Generally 461. In General "462. Stipulation with Attorney against Settlement of Claim 463. Agreement for Part of Fruits of Litigation Generally 464. — Retainer of Attorney on Contingent Pee 465. Assignment of Chose in Action Sales and Conveyances of Lands Claimed or Held Adversely 466. In General 467. Exception as Regards State 468. General Operation of Statutes 469. Conveyances of Particular Rights and Interests 470. Mortgages 471. Judicial Sale; Devise; Assignment for Benefit of Creditors 472. Character of Possession Generally 473. — "Actual Possession " Required 474. — ■ Possession Required to Be Adverse 475. Necessity for Color of Title Generally 476. — Application of Rule 477. Good Faith of Adverse Claimant 478. Effect of Conveyance as against Adverse -Claimant Gen- erally 479. — Action by Grantor or by Grantee in Name of Grantor 480. — Effect of Subsequent Conveyance by Grantor to Adverse Claimant 481. Effect of Conveyance as between Parties or as against Stranger Purchase of Chose in Action by Attorney 482. In General 483. Express Statutory Exceptions 484. Operation of Statute Generally ILLEGALITY 603 § 485. Intent with Which Purchase Is Made Generally 486. — Purchase of Judgment or Claim against Decedent's Estate 487. — Proof of Intent 488. Effect of Purchase in Violation of Statute Giving Inducement for Placing Claim with Attorney for Enforcement 489. In General 490. Agreement by Attorney to Pay or Advance Expenses of Litigation; General Rule 491. — Qualification of General Rule 492. Division of Fees between Attorneys Contracts Contemplating Frauds Generally 493. In General 494. Contract for Secret Use of Influence 495. Contract Tending to Breach of Trust Generally 496. — Person Acting in Matter of Common Interest 497. — Attorneys 498. — Agents 499. "Wrongful Disclosure of Information 500. Fraud on Public Generally 501. — Sale of Deleterious or Misbranded Merchandise 502. — ' ' Bohemian Oats Contracts ' ' or the Like 503. Agreements in Fraud of Insolvency Laws 504. Agreements in Fraud of Federal Bankruptcy Laws Conveyances and Transfers in Fraud of Creditors or the Like 505. General Rule 506. Particular Matters Affecting Application of Rule 507. Parties Not in Pari Delicto; General Rule as to Granting Relief 508. — Application of Rule Composition with Creditors 509. Agreement for Secret Preference Generally 510. Agreement by Third Person Giving Preference 511. Relief against Preferred Creditor "Where Agreement Is Executed 512. Effect of Illegal Agreement on Composition Stifling or Puffing Competition at Sales or Letting of Contracts 513. General Rule as to Public Sales 514. — Qualification of General Rule ' 515. — Illustrative Examples of Qualification 604 NEW YORK LAW OF CONTRACTS § 516. Stifling Competition at Letting of Public Contracts 517. Leasing of Municipal Property at Auction 518. Effect of Illegal Combination on Sale or Contract Let 519. Restraint of Competition at Private Sales 520. Combination to Secure Private Contract Let on Competitive Biddings Organization and Management of Corporation 521. Organization 522. Subscriptions to Stock 523. Contracts Affecting Duties of Officers 524. Contracts Affecting Duties of Stockholders Generally 525. Traffic in Corporate Offices 526. Proxies Ind&mnity against Liability for Wrongful Act 527. In General 528. Want of Knowledge of Wrongful Character of Act 529. Indemnity against Past Wrongful Act Exemption from and Limitation of Liability for Negligence 530. In General 531. Liability of Master to Servant 532. Limitation of Liability of Telegraph and Telephone Com- panies Generally 533. — General Rule in Our State as to Limitation of Liability 534. — Qualification of General Rule; Gross Negligence 535. — Proof of Gross Negligence 536. — General Requisites and Construction of Contract 537. Limitation of Liability of Carrier Generally 538. — Carrier of Passengers 539. — Statutory. Provisions; Public Service Commission Law 540. — Essentials of and Construction of Contract with Carrier 541. — ■ Interstate Carriage Generally 542. Transactions Not within Federal Statute; Conflict of Laws Contracts in Restraint of Trade Generally 543. In General 544. General Classification of Valid Restraints 545. Reasons for Rule against General Restraints 546. Restraints Ancillary to Sale of Trade, Business or Pro- fessional Practice 547. Sale of Patent or Secret Process of Manufacture 548. Agreement by Employee Not to Compete 549. Restriction Ancillary to Sale of Property ILLEGALITY 605 § 550. Restriction Ancillary to Partnership and the Like 551. Agreement for Exclusive Use of Patent 552. Necessity that Restraint Be Ancillary to Other Contract 553. — Agreement for Removal or Prevention of Competi- tion 554. Tests as to Reasonableness of Restraint Generally 555. — Time Limit as Test 556. — Territorial Extent of Restriction as Test; Early View 557. — ■ Modern View as to Territorial Extent of Restriction 558. — Creation of Monopoly as Test 559. — Sherman Anti-trust Act 560. Consideration for Restriction 561. General Construction of Contracts in Restraint of Trade 562. Assignment of Restrictive Contract 563. Remedy by "Way of Injunction Monopolies 564. In General 565. Combinations and Agreements to Fix Prices Generally 566. Contract in Aid of Monopolistic Scheme 567. Contracts to Corner Market 568. Necessity for Undue Advance of Price 569. Partial Restraints on Trade 570. Price Fixing Agreement by Single Manufacturer 571. Labor Unions 572. Labor Union and Employers ' Association Agreements 573. Copyrighted Books and Patented Articles; Manufactures under Secret Process 574. Relief from and Enforcement of Agreement Restrictions on Alienation of Property 575. In General 576. Theatre Tickets Restrictions on Use of Property 577. Real Property 578. Personal Property Gamhling Contracts Generally 579. In General 580. Statutory Prohibitions Generally 581. Stock Jobbing Act 582. Foreign Contracts 583. Devices to Evade Prohibition 584. Stipulation for Forfeiture or Liquidated Damages 585. Races or Contests for Sweepstakes or Purses 586. Pool Selling 600 NEW YORK LAW OF CONTRACTS § 587. Speculative Purchases or Sales Generally 588. — Sales for Future Delivery 589. — Option Contracts ; Puts and -Calls 590. — Intent to Settle without Completion of Sale Generally 591. — Proof of Intention 592. Recovery of Money Lost Generally; Common Law Rule 593. — Statutory Liability of Winner Generally 594. — Persons Liable Generally 595. — Liability of Stakeholder ; Common Law Liability 596. — Statutory Liability of Stakeholder 597. — Consent of Loser to Payment over by Stakeholder 598. — General Nature of Statutory Liability 599. — Assignment of Right of Recovery 600. — "Wagers Made through Agents ; Who May Sue 601. — Limitation of Actions 602. — Form of Remedy and Pleadings 603. Money Borrowed for Gaming 604. Securities for Money Lost at Gaming Generally 605. Conveyances and Mortgages Given for Gambling Debts Lotteries 606. What Constitutes Lottery Generally 607. Chance as Affecting Distribution 608. Bonds for Money Borrowed with Prize Privileges; Deter- mination of Maturity by Lot 609. General Legality of Contracts 610. Foreign Lotteries and Foreign Contracts 611. Recovery of Money, etc., Paid for Lottery Tickets Contracts Affecting Marriage or Marriage Relation 612. In General 613. Marriage Brokerage Contracts Generally 614. — Enforcement of and Relief from Contract 615. Resumption of Marital Relations 616. Dissolution of Marriage; General Rule 617. — Application of General Rule 618. — Agreements as to Alimony 619. Separation Agreements; Continued or Immediate Separa- tion 620. — Future Separation 621. — Contract without Intervention of Trustee 622. — ■ Effect of Statute against Dissolution of Marriage by Contract 623. — Effect of Statute against Relief of Husband for Support of Wife Civic and Parental Duties 624. Civic Duties 625. Parental Duties ILLEGALITY 807 Waiver of Bights \ 626. General Rule 627. Exceptions to General Rule War as Affecting Legality of Contract 628. In General 629. Effect on Existing Contracts Immoral Contracts 630. In General 631. Sexual Immorality Generally 632. Past Cohabitation; Intercourse Incidental to Contract Indirect Illegality 633. In General 634. Obstruction of Highway 635. Participation by Seller in Illegal Purpose of Buyer 636. Services Rendered and Advances Made by Agents, etc. 637. Effect of Knowledge of Unlawful Purpose of Other Party Generally 638. — Application of Rule Contract Growing Out of Prior Illegal Contract or Transaction 639. In General 640. Application of General Rule Enforcement of and Belief from Illegal Contracts Generally 641. In General 642. Recovery on Implied Contract 643. Effect on Prior Contract 644. Relief in Equity; Judgment Recovered on Illegal Contract 645. Locus Poenitentiae 646. Persons Not in Pari Delicto ; General Rule 647. — Application of General Rule 648. Justice and Public Interest Advanced by Granting Relief 649. Effect of Illegality of Securities Taken 650. Securities for Performance of Illegal Contract 651. Rights of Assignees of Illegal Contracts; Negotiable Paper 652. Accounting between Partners and Joint Adventurers 653. Accounting by Agent; Agent a Participant in Illegal Transaction 654. — Agent Not a Participant in Illegal Transaction 655. Application of Payments 608 NEW YORK LAW OF CONTEACTS [§ 3.84 Partial Illegality § 656. Indivisible Contracts Generally 657. Divisible Contracts Generally 658. Provision in Restraint of Trade Defense of Illegality Generally 659. "Who May Raise Question 660. Necessity to Plead Defense Generally 661. — Where Complaint Shows Illegality 662. — Illegality Appearing from Plaintiff's Case 663. Denial of Relief by Court Sua Sponte; Raising Question on Appeal 664. SufSciency of Plea of Illegality General Matters § 384. In General. — From an early date the courts have refused to enforce contracts which they deemed contrary to public policy. The aid of the law in the enforcement of such contracts is not withdrawn from any consideration of the rights or equities of the parties, as between them,selves, but solely to prevent an infringe- ment of the public law or policy of the state.' The objection to a contract on this ground is not the same as the objectio% because of a want of consideration. There may be ample consideration and the contract still be illegal f and it was settled at an early date that a seal did not prevent an inquiry into the legality of the contract, though under the common law rule a seal conclusively imported a consideration.^ Contracts voidable on account of the fraud, actual or constructive, of one of the parties thereto are not illegal in the proper sense of the term. Such a contract is not void but voidable only at the option of the party defrauded, who may affirm it, and when so affirmed it may be enforced by either party.* Thus though all contracts made by a trustee or other fiduciary on behalf of the beneficiary, in which the fiduciary is personally interested, are voidable at the election of the bene- ficiary, they are not illegal.^ On the other hand, a contract between such a fiduciary and a third person, by which the* latter agrees 1. Sedgwick v. Stanton, (1856) 14 effect of a seal as importing a eon- N Y. 289 292. sideration. 2. Cliappel V. Brockway, (Sup. ■*• ^f i^P''^' ««f="on 142, as to the 1839) 21 Wend. 157. ^'^l''^ '^^^ °* ^JT^' „„„„, „, 5. Munson v. Magee, (1900) 161 3. See infra, section 393, and see ^_ y. 182, 55 N. E. 916, affirming 22 supra, section 378, as to tlie general App. Div. 333, 47 N. Y. S. 942. § 385>] ILLEGALITY 609 to compensate the former in consideration of his violation of his duty to his cestui que trust, is illegal.' An executory agreement, illegal as against public policy, is said to be a nullity,^ and being a nullity it is inoperative" for any and all purposes,* and cannot be validated by ratification.' A release is an executed contract and is not rendered inoperative because it is based on, or its con- sideration is, an illegal contract.^" So a conveyance is not rendered inoperative because the consideration therefor, or the object of the parties in making' the conveyance, may have been illegal in whole or in part.^^ A mortgage, however, is regarded as executory in its nature, and the defense of illegality may be interposed to its enforcement.^ § 385. Foreign Contracts. — If a contract is entered into in another state or foreign country and is there deemed illegal as contrary to the statutes or public policy of such country, it will not be enforced by our courts.^* Thus if a contract for the sale of a commodity to be resold' alf retail is illegal in the state where it was made, by reason of an attempt' to restrict the price of resales, it will not be enforced by our courts." The same has been hald true where an. insurance contract, which was sought to be enforced by the insurance company, had been entered into by an Ohio corporation in Pennsylvania without having complied with the laws of Pennsylvania so as to acquire the right to do business in that state, and was therefore unenforceable in the courts of Pennsylvania.-'^ Also if a contract is deemed contrary to the public policy of our state, our courts will not lend their 6. See infra, section 495. enforcement of and relief from illegal 7. Runt V. Herring, (Com. PI. G. contracts generally. T. 1892) 2 Misc. 105, 49 State Rep. 13. Swing v. Dayton, (Sup. 1908) 126, 21 N. Y. S. 244. 124 App. Div. 58, 108 N. Y. S. 155, 8. Runt V. Herring, (Com. PI. G. affirmed on opinion below 196 N. Y. T. 1892) 2 Misc. 106, 49 State Rap. 503, 89 N. E. 1113; Butterick Pub. 126, 21 N. Y. S. 244. Co. v. Mistrot-Munn Co., (Sup. 191.')) 9. Strauss Linotyping Co. v. 167 App. Div. 632, 153 N. Y. S. 61, Schwalbe, (Sup. 1913) 159 App. Div. affirmed on opinion below 217 N. Y. 347, 144 N. Y. S. 549. 678, 112 N. E. 1055.' iSee also Back- 10. Tallinger v. Mandeville, (Sup. man v. Jenks, (Sup. G. T. 1869) 55 1888) 48 Hun 152, 15 State Rep. 652, Barb. 468. affirmed 113 N. Y. 427, 22 State Rep. 14. Butterick Pub. Co. v. Mistrot- 708, 21 N. E. 125. Munn-Co., (Sup. 1915) 167 App. Div. 11. Holihan v. Holiban, (Sup. 1903) 332, 153 N. Y. S. 61, affirmed on 79 App. Div. 475, 80 N. Y. S. 44. opinion below 217 N. Y. 678, 112 12. Boyd v. Boyd, (Sup. 1909) 130 N. E. 1055. App. Div. 161, 114 N. Y. S. 361. See 15. Swing v. Dayton, (Sup. 1908) infra, section 641 et seq., as to the 124 App. Div. 58, 108 N. Y. S. 135, 39 610 NEW YORK LAW OF CONTRACTS [§ 385 aid to its enforcement even though it may have been valid where made." This is especially true where the object of the contract is to violate the laws of our state." "As a general rule," says Johnson, J., " no people are bound to enforce or hold valid in their courts of justice any contract which is injurious to their public rights, or offends their morals, or contravenes their policy, or violates a public law. ' ' '* Denio, J., also says : ' ' Should parties abroad conspire to do an act in this state which was for- bidden by its laws, a foreign contract, unobjectionable in its pro- visions, but made in furtherance of the general design, would be considered void here, when its connection with the illegal enter- prise was shown. ' ' ^' And it has been held that if the contract is to be performed in our state in violation of our laws, it will not be enforced by our courts though the plaintiff, a foreigner, was in fact ignorant of the law of our state the violation of which is involved.^" It has been held that, irrespective of whether a contract having for its object the creation of a monopoly is valid in the state where made, aid in its enforcement will not be given by the courts of our state.^' If, however, a contract is made and is to be performed without the state, and is valid by affirmed on opinion below 196 N. Y. 503, 89 N. E. 1113. 16. City Bank v. Perkins, (1861) 29 N. Y. 554, 570; Dearing v. Mo- Kinnon Dash, etc., Co., (1900) 165 N. Y. 78, 58 N. E. 773; Meacham v. Jamesto-wn, etc., R. Co., (1914) 211 N. Y. 346, 105 N. E. 653, reversing 151 App. Div. 941 mem., 136 N. Y. S. 1141; Falvey v. Woolner, (Sup. 1902) 71 App. Div. 331, 75 N. Y. S. 1108; San Remo Copper Min. Co. v. Mo- neuse, (Sup. Sp. T. 1911) 132 N. Y. S. 570, reversed on other grounds 149 App. Div. 26, 133 N. Y. S. 500. See also Sullivan v. Parkes, (Sup. 1902) 69 App. Div. 221, 230, 74 N. Y. B. 787. 17. Merchants' Bank v. Spalding, (1853) 9 N. Y. 53, 62, field- Notes 172; DeWitt v. Brisbane, (1858) 16 N. Y. 508. 18. City Bank v. Perkins, (1864) 29 N. Y. 554, 570. 19. Merchants' Bank v. Spalding, (1853) 9 N. Y. 53, 62, Seld. Notes 172. 20. Dewitt V. Brisbane, (1858) 16 N. Y. 508. In this case Harris, J., said (p; 514): "It was urged upon the argument that as the con- tract was made in a foreign country, and Viger, Dewitt & Co. were them- selves foreigners, they ought not, in the absence of proof of actual knowl- edge, to be held chargeable with such knowledge, and therefore the parties are not to be regarded as in pari delicto. This might have been true if the contract, being made in another country, was also to have been performed- there. But the con- tract was to be performed in this state, and in that case the parties must be presumed to know the laws of the state where they propose to carry their agreement into effect. There cannot be one rule of law for the citizen and another for the foreigner in reference to the same transaction." 21. Falvey V. Woolner, (Sup. 1902) 71 App. Div, 331, 75 N. Y. S. 1106. § 3861] IIXEGALITY 611 the laws of the place where made and to be performed, it will be upheld by the courts of our state, out of respect to the foreign law and on principles of comity by which courts are governed, if not contrary to the principles of morality or public policy, although the contract would be illegal by virtue of some statutory prohibition if made within our state.^^ Thus, contracts made and to be performed without this state, in regard to lotteries, if lawful in the state where made and to be performed, are not so plainly contrary to morality that our courts should refuse to give them effect.^' Consequently, if lotteries are legal in the state where the lottery is conducted and the tickets sold, an action may be main- tained in our courts to collect the prize won, though by our statute all lotteries and the sale of lottery tickets are forbidden.^* § 386. Public Policy Generally. — By the term " public policy " is intended that principle of law which holds that no citizen can lawfully do that which has a tendency to injure the public or which is against the public good.^ It is evidenced by the public acts of the legislature and the decisions of the courts.^' It has been said by Earl, J., that the term " public policy " in a juridical sense " does not mean simply sound policy, or good policy," but " it means the policy of a state established for the public weal, ' either by law, by courts or general consent. ' " " And contracts illegal at common law, as being contrary to public policy, are such as injuriously affect or subvert the public interest ; such contracts as by their terms or contemplated manner of performance must work some mischief affecting the body politic.^* As said in an early case: " The common law will not permit individuals to oblige themselves by a contract, where the thing to be done or omitted is injurious to the public. "^^ And as regards the mean- ing of the phrase " public policy " as applied to contracts, 22. Thatcher v. Morris, (1854) 11 C6. In re Lampson, (1900) 161 N. N. Y. 437, 438. Y. 511, 519, 56 N. E. 9; Falvey v. 2S. Kentucky v. Bassford, (Sup. Woolner, (Sup. 1902) 71 App. Div. 1844) 6 Hill 526; Thatcher v. Morris, 331, 337, 75 N. Y. S. 1106; Cahill v. (1854) 11 N. Y. 437. Oilman, (Sup. Tr. T. 1914) 84 Misc. 24. Thatcher v. Morris, (1854) 11 372, 377, 146 N. Y. S. 224. N. Y. 437. 27. Hollis v. Drew Theological 25.'moss' v. Cohen, (1899) 158 N. Seminary, (1884) 95 N. Y. 166, 172. Y. 240, 248, 53 N. E. 8. See alsu 28. Sedgwick v. Stanton, (1856) 14 Guggenheim v. Guggenheim, (Sup. N. Y. 289, 291. Sp. T 1917) 168 N. Y. S. 109, 212; 29. Chappel v. Brockway, (Sup. Duval V. Wellman, (€lty Ct. Sp. T. 1839) 21 Wend. 157, 158, per Bron- 1888) 15 State Rep. 384, 386. son, J. . ' 612 NEW YORK LAW OF CONTRACTS [§ 386 Werner, J., says : ' ' Lord Brougham defined public policy as * that principle of the law which holds that no subject can lawfully do that which has a tendency to be injurious to the public or against the public good, which may be termed the policy of the law, or public policy in relation to the administration of. the law.' In many of its aspects the term ' public policy ' is but another name for public sentiment, and as that is often transitory or shifting, it lacks the permanency upon which fixed principles of law are, or should be, based. There are, however, other phases of public policy which are as enduring and immutable as the law of gravity. One of them is that, as applied to the law 'of contracts, courts of justice will never recognize or uphold any transaction which in its object, operation, or tendency is calculated to be prejudicial to the public welfare."^" On the other hand it has been said that "it is primarily for the legislature to determine the policy of the state, and the courts are. usually reluctant to enter upon this kind of legislation. ' ' ^^ And warning has been given against the inclusion by the judiciary of new and doubtful cases within the interdicted class.^ In this connection Earl, J., says : " It is not always easy to determine when contracts . . . are against public policy. In condemning such contracts judges have acted upon what they deem sound public policy, and have undoubtedly, in some measure and in a remote sense, assumed legislative func- tions. It is difficult to define and limit the power thus to enforce public policy which is not found in the statute law, and it should be exercised only in clear cases, and generally within limits already defined by decisions of acknowledged authority, based upon rules of the common law. There is certainly no occasion for stretching the power so as to apply it to new or doubtful cases in a state where -the legislature is in session one-third of the year, and thus competent to indicate the public will as to any line of supposed public policy." ^^ " For a contract to be void as against public policy," says MuUan, J., " it should, I think, be quite 30. Veazey v. Allen, (1903) 173 N. 571, 579, 56 N. E. 69; F. F. Proctor y. 359, 368, 66 N. E. 103. Troy Properties Co. v. Dugan Store, 31. Maloney v. Nelson, (Sup. Sp. (Sup. 1920) 191- App. Div. 685, 181 T. 1896) 16 Misc. 474, 481, 39 N. Y. N. Y. S. 786; Kloberg v. Teller, (Sup. S. 930, per Beekman, J. Sp. T. 1918) 103 Misc. 641, 171 N. 32. Hollis V. Drew Theological Y. S. 947. Seminary, (1884) 95 N. Y. 166, 171; 33. Hollig v. Drew Theological •Converse V. Sharpe,.(1900) 161 N. Y. Seminary, (1884) 95 N. Y. 166, 171. § 38?] ILLEGALITY 613 clearly repugnant to the public conscience.'"* And on the issue as to whether a particular contract was illegal it has been held proper to refuse an instruction that any contract is against publig policy that ' ' contravenes any established interest of society. ' ' ^ § 387. Power of Legislature in Fixing Public Policy. — If a particular contract is expressly authorized by statute, the question of public policy does not enter into a consideration of its legality. If the power to contract has been granted by the legislature, although the courts may deem it unwise or dangerous to the public welfare, the remedy must be found in another department of the government and is not lodged in the judiciary.^' " It is," says Freedman, J., " for the law-making power of a state to define what public policy upon a given point shall be. " ^ " That an act may be against public policy," says Smith, J., "is no legal taint where expressly authorized by the legislature of the state. The argument could with much force be made to the legislature, but as against their authority it must be unavailing with the court. ' ' ^' Thus if the leasing of the property of one public service corporation, such as a railway company, to another competing com- pany, is authorized by statute, the courts have no power to declare such a transaction invalid as against public policy.^' In Converse v. Sharpe, (1900) 161 35. Lyon v. Mitchell, (1867) 36 N. Y. 571, 579, 56 N. E. 69, Gray, J., IST. Y. 235, 2 Trans. App. 47. says: "'Public policy' is often re- 36. Parfitt v. Kings County Gas, sorted to as a term to conjure with, etc., Co., (Sup. Sp. T. 1895) 12 and its vague use is, not infrequently. Misc. 278, 67 State Rep. 814, 33 N. relied upon to support claims, which, Y. S. 1111; EeiflF v. Western Union as in the present case, are not in ac- Tel. Co., (Super. Ct. Sp. T. 1883) 49 cord with the common, or moral. Super. Ct. 441; Hatch v. American sense. Judge Burrough, in Richard- Union Tel. Co., (Sup. Sp. T. 1881) 9 son v. Mellish (2 Bing. C. P. 229), Abb. N. Cas. 223, 232; Gere v. New speaking in reference to the claim York Cent. R. Co., (Sup. Sp. T. 1885) that the agreement there was illegal, 19 Abb. N. Cas. 193. because against public policy, pro- 37. Reiff v. Western Union Tel. tested 'against arguing too strongly Co., (Super. Ct. Sp. T. 1883) 49 upon public policy; it is a very un- Super. Ct. 441, 444. ruly horse, and- when once you gel 38. Parfitt v. Kings County Gas, astride of it you never know where etc., Co., (Sup. Sp. T. 1895) 12 Misc. it will carry you. It may lead you 278, 287, 67 State Rep. 814, 33 N. from the sound law.'" Y. S. 1111. 34. Kloberg v. Teller, (Sup. Sp. 39. Gere v. New York Cent. E. Co., T. 1918) 103 Misc. 641, 171 N. Y. S. (Sup. Sp. T. 1885) 19 Abb. N. Cas. 947 948 See also Ives v. Smith, 193. See also Reiff v. Western Union (Sup. Sp. T. 1888) 19 State Rep. Tel. Co., (Super. Ct. Sp. T. 1883) 49 556, 570, 3 N. Y. S. 645, affirmed 28 Super. Ct. 441. State Rep. 917 mem., 8 N. Y. S. 46. 614 NEW YORK LAW OF CONTRACTS [§§388,389 § 388. Necessity for Actual Detriment to Public.-— > The tend- ency of the contract to contravene the public interest, rather than its actual effect in the particular instance in question, is the criterion for determining its illegality.*" " In all cases where con- tracts are claimed to be void as against public policy," says Earl, C, " it matters not that any particular contract is free from any taint of actual fraud, oppression or corruption. The laws look to the general tendency of such contracts. The vice is in the very nature of the contract, and it is condemned as belonging to a class which the law will not tolerate."*^ § 389. Unlawful Act in Performance of Contract. — The mere fact that one of the parties to a contract is guilty of unlawful acts in its performance does not. render it illegal if such acts were not in the contemplation of the parties.^ As said by Stover, J. : " In order to invalidate the contract it should appear that the agreement itself contemplated illegal acts, or acts condemned as against good morals or public policy. It is not sufficient that acts were done which might be condemned, but the test is the intention of the parties, what acts were contemplated by them to be per- formed in carrying out the agreement. ' ' *' And it has been held, where at the time of making a contract for the rendition of services before a legislative body the parties. contemplated only legitimate services, that the fact that the employee, in the course of his employment, may have been guilty of improper solicitation of members of the legislature will not render- the contract of employ- ment illegal and preclude a recovery for the legitimate services contemplated." Also where, in the performance of a contract 40. Atcheson v. Mallon, (1870) .43 N. E. 1129; Ano v. Turner^ (Sup. N. Y. 147; Judd v. Harrington, G. T. 1888) 48 Hun 619 mem., 16 (1893) 139 N. Y. 105, 110, 54 State State Rep. 347, 1 N. Y. S. 228, af- Rep. 471, 34 N. E. 790; Veazey v. firmed 121 N. Y. 653 mem., 24 N. B. Allen, (1903) 173 N. Y. 359, 66 N. 1092; Appleton v. Warbasse, (Sup. E. 103; Bruce v. Lee, (Sup. 1809) Sp. T. 1915) 92 Misc. 42, 155 N. Y. S. 4 Johns. 410. 987. See also Dowley v. Schiflfer, 41. Richardson v. Crandall, (1872) (Com. PI. G. T. 1861) 36 State Rep. 48 N. Y. 348, 362. 869, 13 N. Y. S. 552. 42. Harris v. White, (1880) 81 43. Drake v. Lauer, (Sup. 1904) N. Y. 532; Dunham v. Hastings 93 App. Div. 86, 89, 86 N. Y. S. 986, Pavement Co., (Sup. 190O) 56 App Div. 244, 67 N. Y. S. 632, 57 App Div. 426, 68 N. Y. S. 221 ; Drake v Lauer, (Sup. 1904) 93 App. Div. 86, 86 N. Y. S. 986, 15 N. Y. Annot. Cas' 15 N. Y. Annot. Cas. 58. 44. Dunham v. Hastings Pavement Co., (Sup. 1900) 56 App. Div. 244, 67 N". Y. S. 632, 57 App. Div. 426, 68 N. Y. S. 221; Russell v. Burton, 58, affirmed 182 N. Y. 533 mem., 75 (Sup. G. T. 1867) 66 Barb. 539. §§ 390, 391] ILLEGALITY 615 for cutting timber, the plaintiff under a mistake cut timber on state lands, and the defendant thereafter acquired title from the state to the timber so cut, the plaintiff was allowed to recover for his services in cutting such timber." If, however, the unlawful acts were in the contemplation of the parties at the time of the making of the contract, this will render it illegal.'*'^ § 390. Devices to Hide Illegality. — The courts do not hesitate to look behind devices apparently legal on their face but intended to accomplish an illegal object." Thus as is shown later a contract to pay a secret consideration to a creditor to induce him to consent to the discharge of his debtor under the insolvency or bankruptcy statutes is illegal as a fraud on other creditors. And the courts will not uphold a transaction of this nature because it is put in the form of an agreement to purchase the claim of a creditor when the insolvent or bankrupt debtor receives his discharge.*^ § 391. Extrinsic Evidence to Prove Illegality. — The fact that a contract as embodied in the written evidence thereof is perfectly valid on its face does not preclude a party when sued thereon from showing the true nature of the contract, and its consequent illegality,^' and this is true though the contract is under seaU" " Parol evidence," says Seabury, J., " is always competent to show that the consideration for a written contract is illegal. If a different rule prevailed, parties to illegal contracts could make them enforceable ' by the simple device of putting them in writing, using such words as would conceal or omit the illegal objects intended by them to be accomplished. ' " '^ And as said by Mul- lett, J. : " There is no form of words, however artfully intro- 4.5. Ano V. Turner, (Sup. G. T. N. Y. S. 286; St. Hubert Guild v. 1888) 48 Hun 619 mem., 16 State Quinn, (Sup. App. T. 1909) 64 Misc. Rep. 347, 1 N. Y. S. 228, affirmed 336, 118 N. Y. S. 582; Judd v. Har- 121 N. Y. 653 mem., 24 N. E. 1092. rington, (Com. PI. G. T. 1892) 46 46. Satterlee v. Jones, (Super. Ct. State Rep. 925, 927, 19 N. Y. S. 408, 1854) 10 Super. Ct. 102, 116. affirmed 139 N. Y. 105, 54 State Rep. 47. Bell V. Leggett, (1852) 7 N. Y. 471, 34 N. E. 790. But see Hough v. 176. • State, (Sup. 1911) 145 App. Div. 48. Bell V. Leggett, (1852) 7 N. Y. 718, 130 N. Y. S. 407, reversing 68 176. See infra, section 509 et seq. Misc. 26, 124 N. Y. S. 878. 49. Gray v. Hook, (1851) 4 N. Y. 50. BufiFalo Press Club v. Greene, 449; Sirkin v. Fourteenth St. Store, (Super. Ct. Tr. T. 1893) 5 Misc. 501, (Sup 1908) 124 App. Div. 384, 392, 26 N. Y. S. 525, affirmed 86 Hun 20, 108 N. Y. S. 830; Buffalo Press Club 67 State Rep. 105, 33 N. Y. S. 286. V. Greene, (Super. Ct. Tr. T. 1893) 51. St. Hubert Guild v. Quinn, 5 Misc. 501 26 N. Y. S. 525, affirmed (Sup. App. T. 1909) 64 Misc. 336, 86 Hun 20, 67 State Rep. 105, 33 338, 118 N. Y. S. 582. 616 NEW YORK LAW OF CONTRACTS [§ 392 duced or omitted, which can prevent courts of law and equity from investigating the truth of the transaction, for ex turpi contractu -actio non oritur is a rule both in law and equity. ' " ^^ Where a written contract for services is attacked for illegality and is ambiguous as to the character of the services to be rendered, oral evidence is admissible to determine the intention of the parties in this respect.^^ This may be shown in a variety of ways, among others: (1) by the admission and declarations of the parties, (2) by their acts and proceedings under the contract, giving it a practical construction.^* § 392. Presumption and Construction in Favor of Legality of Contract. — The general question whether a particular contract is illegal as opposed to public policy is one for the determination of the court.^'^ If a contract is not of itself and on ils face illegal, the presumption is in favor of its legality. °* And it is said that it is not enough to vitiate the contract that a suspicion or prob- ability of an unlawful- intent arises from the contract itself.^^ " When an innocent construction may be fairly given to the acts of a party, we are not," says Wright, J., "to strain after a con- struction that shall impute a guilty violation of a statute. ' ' ^* And where the performance of the contract in a legal manner is entirely possible by its terms, there can be no presumption that the parties intended to violate the law/' 5«. Gray V. Hook, (1851) 4 N. Y. 17; Electric Fireproofing Co. v. 449, quoting Comyns on Cont. 30. See Smith, (Sup. 1906) 113 App. Div. Bell V. Leggett, (1852) 7 N. Y. 176. 615, 99 N. Y. S. 37; Richards v. 53. Brown v. Brown, (Sup. G. T. Ernst Weiner Co., (Sup. 1911) 145 1861) 34 Barb. 533. App. Div. 353, 129 N. Y. S. 951, 54. Brown v. Brown, (Sup. G. T. affirmed 207 N. Y. 59, 100 N. E. 1861) 34 Barb. 533. 592; Commoss v. Pearson, (Sup. 95. Cohen v. Berlin, etc., Envelope 1920) 190 App. Div. 699 180 Co., (1901) 166 N. Y. 292, 59 N. E. N. Y. S. 482; Brown v. Brown, 906, reversing 38 App. Div. 499, 56 (Sup. G. T. 1861) 34 Barb. 533; N. Y. S. 588. iSee also Judd. v. Har- Rei&ler v. Dempsey, ( Sup. Sp. T. rington, (Com. PI. G. T. 1802) 46 1918) 173 N. Y. S. 212; Bremsen v. State Rep. 925, 927, 19 N. Y. S. 400, Engler, (Super. Ct. 1883) 49 Super, affirmed 139 N. Y. 106, 54 State Rep. Ct. 172. See also' Northrup v. Min- 471, 34 N. E. 790. turn, (Sup. 1816) 13 Johns. 85, 56. Nelson v. Eaton, (1803) 26 N. 57. Cohen v. Berlin, etc.. Envelope Y. 410, 414, 16 Abb. Pr. 113; Loril- Co., (Sup. 1896) 9 App. Div. 425, lard v. Clyde, (1881) 86 N. Y. 384, 75 State Rep. 763, 41 N. Y. S. 345. 387; Cowdrey v. Carpenter, (App. 58. Buffalo City Bank v. Codd, 1869) 1 Abb. App. Dec. 445; L. D. (1862) 25 N. Y. 163, 168. Garrett Co. v. Morton, (Sup. 1901) 59. Eeisler v. Dempsey, (Sup. Sp. 65 App. Div. 366, 73 N. Y. S. 40, T. 1918) 173 N. Y. S. 212. reversing 35 Misc. 10, 71 N. Y. S. ILLEGALITY 617 Also the general rule in construing contracts, that a construc- tion consistent with the language employed is to be preferred which will render the contract valid, ut res magis valeat quam pereat, is applicable to the construction of a contract claimed to be illegal, and that construction should be given to it wliich will render it legal rather than illegal.'"' " The law will not," says Allen, J., " presume an agreement void as illegal or against public policy when it is capable of a construction which would make it con- sistent with the laws and valid. ' ' *^ And the statement of Coke (Coke on Lit. 42b) that " it is a general rule, that whensoever the words of a deed, or of the parties without deed, may have a doiible intendment, and the one standeth with law and right, and the other is wrongful and against law, the intendment that stand- eth with law shall be taken," has been quoted with approval and acted on.'^ Thus where a subscription to the stock of a corporation provided in general terms for its repurchase by the corporation at the option of the stockholder, it was held that it would be presumed that a lawful purchase was intended by the parties, that is, a purchase from surplus rather than in violation of the statute (see Penal Law, § 664; 39 McKinney's Cons. Laws, p. 239) prohibiting cor- porations from purchasing ctock except from surplus funds.^ And in case of option contracts or contracts for the future delivery of property the presumption is that the parties intend a bona fide transaction rather than an illegal gambling contract.^* Likewise where, in ease of a lease, it is expressly stipulated that the premises shall be used as a liquor saloon only, and though the place was within such a distance of a sehoolhouse that an ordinary liquor 60. Curtis V. Gokey, (1877) 68 N. 597; Standard Oil Co. v. Scofield, Y. 300; Bigelcw v. Benedict, (1877) (Sup. Sp. T. 1885) 16 Abb. N. Ca.s. 70 N. Y. 2C2; Ormes v. Dauchy, 372, 379. (1880) 82 N. Y. 4-:3; Lorillard v. 61. Curtis v. Gokey, (1877) 68 N. nivdR. (1881) 86 N. Y. 384, 387; Y. 300, 304. Shedlinsl-.y V. Budweicer Brewing Co., 62. Bigelcw v. Benedict, (1877) 70 (1900) 163 N. Y. 437, 439, 57 N. E. N. Y. 202, 205. 620; People v. Walcli, (1914) 211 €3. Richards v. Ernst Weiner Co., N. Y. 90, 100, 105 N. B. 136; Cohen (1912) 207 N. Y. 59, 100 N. E. 592, V. Berlin, etc., Envelope Co., (Sup. affirming 145 App. Div. 353, 129 N. 1896) 9 App. Div. 425, 75 State Rep. Y. S. 951. 763, 41 N. Y. S. 345; Export Lumber 64. Bigelow v. Benedict, (1877) 70 Co. V. South Brooklyn Sawmill Co., N. Y. 202, affirming 9 Hun 429. As (Sup. 1900) 54 App. Div. 518, 67 to gambling contracts generally see N. Y. S. 626; Brien v. Stone, (Sup. infra, section 579 et seq. 1903) 82 App. Div. 450, 81 N. Y. S. 618 NEW YORK LAW OF CONTRACTS [§§393,394 license could not be obtained, yet it was possible to secure a valid license by a transfer of an existing license, it was held that it would be presumed that it was the intention of the parties that a lawful business should be conducted and not en unlawful one which would render the lease illegal.^^ If has also been held that a provision in a contract, under which the compensation for train- ing race horses is in part fixed on a percentage of the prizes or purses won by the horses trained, is not to be construed as giving the employee any interest in the purses won but merely as a means of fixing the compensation, and therefore does not bring the con- tract within the prohibition (Membership Corporations Law, § 283; 34 McKinney's Cons. Laws, p. 141) * against other persons than the owners of the contesting horses having an interest in the purses contested for.^* § 393. Effect of Seal. — A seal cannot protect an illegal contract or prevent an inquiry into the legality of the consideration." It is therefore a good plea to an action on a bond that it was given to compound a crime.** § 394. Particular Classes of Contracts. — The cases in which the doctrine of public policy has been applied most commonly are in respect of contracts violative of statutory prohibitions,^ affecting injuriously the public service'"' or the administration of public justice,'^ encouraging litigation,'^ or involving civil injuries to and frauds on individuals ;'' puffing or suppressing competition at pub- lic sales or letting of contracts;'* contracts indemnifying Against liability for wrongful acts'^ or limiting liability for future negli- gence;'^ contracts unduly in restraint of trade" or tending to the creation of monopolies;'* also undue restraints on alienation of property;" restrictions on the use of property;*" gambling con- 65. Shedlinsky v. Budweiser Brew- tie illegality of contracts to com- ing Co., (1900) 163 N. Y. 437, 57 pound crimes see infra, section 457 N. E. 620, affirming 17 App. Div. 470, et seq. 45 N. Y. S. 174. 69. See infra, section 397 et seq. 66. Brien v. Stone, (Sup. 1903) 82 70. See infra, section 428 et seq. App. Div. 4.50, 81 N. Y. S. 597. 71. See infra, section 443 et seq. 67. Gray v. Hook, (1851) 4 N. Y. 72. See infra, section 461 et seq, 449; Steuben County v. Mathewspn, 73. See infra, section 493 et se; (Sup. 1843) 5 Hill 249; Buffalo Press 74. See infra, section 513 et seq. Club V. Greene, (Super. Ct. Tr. T. 75. See infra, section 527 et seq, 1893) 5 Misc. 50'1, 26 N. Y. S. 525, 76. See infra, section 530 el seq. > affirmed 86 Hun 20, 67 State Eep. 77. See infra, section 543 et se^*^ 105, 33 N. Y. S. 286. 78. See infra, section 564 et seq.\' 68. Steuben County v. Mathewson, 79. See infra, section 575 et seq. (Sup. 1843) 5 Hill 249. As regards 80. See infra, section 577 et seq. § 3»5i] ILLEGALITY 619 tracts ;^^ lotteries;*^ contracts in derogation or restraint of the marriage relation*' or civil and parental duties ;** waiver of rights ;'' trading with the enemy,*^ and immoral contracts.^ § 395. Miscellaneous Contracts Generally. — In the absence of any statutory prohibition, public policy does not prohibit the owner of a cemetery lot from mortgaging it,'^ and a statutory prohibition against a sale of such a lot on execution does not prevent it from being mortgaged and the mortgage foreclosed by a ■ strict fore- closure.*' And public policy does not forbid the loan of bills and notes issued by a municipality if the circulation of them is not prohibited by law.'" While courts of equity readily grant relief from contracts resigning^ or foregoing the right to redeem mort- gages or pledges, a restriction, at the time of a pledge as collateral security, of the general right to redeem is not necessarily contrary to public policy. And this has been extended to a restriction on the right to redeem from an assignment of a life insurance policy as collateral.'' An early statute of our state gave a bounty or prize for the best cloth manufactured in the several counties of the state, and the question arose as to the validity of a contract between competitors for a division of the prize in case it should be awarded to either of them. It was held that if the contract had been made prior to the manufacture of the cloth by the parties, the contract would have been illegal as against the policy of the act, which was to incite competition, but that as it was made after the manufacture and could have no influence on competition it was valid. '^ If money is stolen, or if property stolen is sold and converted into money, a loan of the money by the thief or by one who receives it with knowledge of the theft is not illegal so as to preclude the lender from enforcing the repayment of the loan.'' At the time paper money and gold coin were at a disparity, public policy did not prevent the sale of gold coin as a commodity and 81. See infra, section 579 et seq, 82. See infra, section 606 et seq. 8a. See infra, section 612 et seq, 84. See infra, section 624 et seq, 85. See infra, section 626 et seq. 86. See infra, section 628 et seq, 87. See infra, section 630 et seq. G. T. 1871) 4 Lans. 484, 11 Abb. Pr. N. S. 64. 90. Rockwell v. Charles, (Sup. 1842) 2 Hill 499. 91. Edington v. ^Etna L. Ins. Co., (Sup. G. T. 1878) 13 Hun 543, re- versed on other grounds 77 N. Y. 564. _ Lautz V. Buclcingham, (Sup. 92. Briggs v. Tillotson, (Sup. 1811) G T 1871) 4 Lans. 484, 11 Abb. Pr. 8 Johns. 304. n] g 04. 93. Warren v. Haight, (1875) 65 89. Lautz V. Buckingham, (Sup. N. Y. 171. G20 NEW YOEK LAW OF CONTRACTS [§ 395 payment therefor in currency at a discount from its face value.'^ In the examination of applicants for life insurance, the medical examiner is the agent of the insurance company in making the examination, taking down the answers of the insured to the ques- tions propounded, and reporting them to the company; and his knowledge thus acquired, his interpretation of the answers given, and his errors in recording them are the knowledge, interpretation, and errors of the company, which is estopped from taking advan- tage of what it thus knew and what it has thus done when it issued the policy and accepted the premiums.^ And it is held that public policy and the nature of things prohibit a stipulation between the insurer and the insured that the examiner shall in respect of these matters be considered the agent of the insured and not of the insurer.^* Public policy does not forbid the sale of the assets of a domestic unincorporated association and its absorption by a foreign corporation, especially where the probable result will be a reduction of administrative expenses, a more effective management, and a corresponding benefit to the public." In the absence of any statutory provision, public policy does not preclude a municipality, after competitive bidding for the pave- ment of its streets with different kinds of material, from selecting a patented pavement and contracting therefor with the lowest bidder, on any theory that competition is thereby unduly restricted.'^ The fact that a person or corporation may be engaged in conducting an illegal business does not render illegal contracts entered into not connected with or in aid of such illegal busi- ness.'^ Public policy does not forbid contracts for compensation 94. Cooke v. Davis, (1873) 53 N. Co., (1890) 123 N. Y. 6, 33 State Y. 318; Fowler v. New York Gold Rep. 216, 25 N. E. 309; Bernard v. Exch. Bank, (1876) 67 N. Y. 138, United L. Ins. Ass'n, (Sup. 1897) 146. See supra, section 269. 14 App. Div. 142, 43 N. Y. S. 527; 95. Grattan v. Metropolitan L. Hamilton v. Fidelity Mut. L. Ass'n, Ins. Co., (1883) 92 N. Y. 274; Stern- (Sup. 1898) 27 App. Div. 480, 50 aman v. Metropolitan L. Ins. Co., N. Y. S. 526. (1902) 170 N. Y. 13, 62 N. E. 763. 97. Francis v. Taylor, (Sup. Sp. T. 96. Sternaman v. Metropolitan L. 1900) 31 Misc. 187, 65 N. Y. S. 28, Ins. Co., (1902) 170 N. Y. 13, 62 affirmed 52 App- Div. 631 mem., 65 N. E. 763, reversing 49 App. Div. N. Y. S. 1133. 473, 63 N. Y. S. 674. See also O'Far- 98. Warren Bros. Co. v. New York, rell V. Metropolitan L. Ins. Co., (Sup. (1907) 190 N. Y. 297, 83 N. E. 59; 1897) 22 App. Div. 495, 48 N. Y. S. Union Paving Co. v. Board of Con- 199, on second appeal 44 App. Div. tract, etc., (Sup. Sp. T. 1911) 74 554, 60 N. Y. e. 945, affirmed 168 Misc. 646, 134 N. Y. S. 740. N. Y. 592 mem., 60 N. E. 1117. But 99. Bard v. Poole, (1855) 12 N. Y. see Allen v. German American Ins. 49i5. § 399] ILLEGALITY 621 to a person for becoming surety for another for the performance by the latter of a contract, and this rule includes a contract for compensation to one who becomes surety for another for the per- formance by the latter of a contract with the governor.^ No rule of public policy prohibits a loan under which the payment of the principal is to run indefinitely at the option of the borrower, and thus in the nature of a perpetual loan the repayment of which cannot be enforced, so long as the conditions on which the loan is made are observed bj' the borrower.^ § 396. Performance Dependent on Dearth; Post Obit Agree- ments. — The fact that a contract calling for the payment of money or the doing of some other act is not to be performed until after the death of the promisor or some other person does not render it illegal as an incentive to the commission of crime, that is, the murder of the person on whose death the performance is dependent, or a wager on the life of such person.' Thus it is well settled that one person may have an insurable interest in the life of another so as to uphold life insurance taken out by the former on the life of the latter,* but if he has no insurable interest in such third person's life our courts denounce such transactions as wagering contracts.' So a contract between the stockholders of a corporation under which they give to each other an option to purchase the stock respectively held by each in case one pre- deceases any of the others, is not illegal as a wager on the life of the parties.* Post dbit agreements or bonds are those given by a borrower by which he undertakes to pay on or after the death of 1. Samuels v. Fidelity, etc., Co., (Sup. 1899) 36 App. Div. 250, 55 (Sup. 1888) 49 Hun 122, 16 State N. Y. S. 292; Mutual L. Ins. Co. v. Rep. 917, 1 N. Y. S. 850, affirmed on Wager, (Sup. G. T. 1858) 27 Barb, opinion below 121 N. Y. 660, 24 N. 354; Grattan v. National L. Ins. Co., E. 1092. (Sup. 1878) 15 Hun 74; O'Rourke v. 2. Sehachne v. Chamber of Com- John Hancock Mut. L. Ins. Co., merce, (N. Y. Munic. Ct. 1918) 102 (Com. PI. G. T. 1894) 10 Misc. 40-5, Misc. 197, 168 N. Y. S. 791. 63 State Rep. 522, 31 N. Y. S. 130; 3. JScruggsr V. Cotterill, ( Sup. Miller v. Eagle L., etc., Ins. Co., 1902) 67 App. Div. 583, 73 N. Y. S. (Com. PI. 1854) 2 E. D. Smith 268. 882; Crawford v. Russell, (Sup. G. 5. Ruse v. Mutual Ben.. L. Ins. Co., T. 1872) 62 Barb. 92. (1861) 23 N. Y. 516, reversing 26 4. See for instance Goodwin v. Barb. 556. See infra, section 579 et Massachusetts Mut. L. Ins. Co., (1878) seq., as to gambling contracts 73 N. Y. 480; Geoffroy v. Gilbert, generally. (Sup. 1898) 5 App. Div. 98, 74 State 6. Scruggs v. Cotterill,, (Sup. Rep. 509, 38 N. Y. S. 643, affirmed 1902) 67 App. Div. 583, 73 N. Y. S. 154 N. Y. 741, 49 N. E. 1097; Reed 882. V. Provident Sav. L. Assur. Soc., 622 NEW YOEK LAW OP CONTRACTS [§ 397 a person from whom he has expectations in case of surviving him. These agreements are very similar in their character to contracts for the sale of expectancies, but are not per se illegal.' Where, however, advantage has been taken of the weakness, necessity or ignorance of another, or such extraordinary disparity exists between the sum advanced and the sum to be paid as clearly appears to be contrary to good conscience, it is said that the courts will declare such agreements fraudulent as being against the policy of the law.' " They partake," says Potter, J., " generally of the nature of a wager, and contain no principle by which the value of the chances may be calculated, so as to enable the court to ascertain whether they are reasonable or unconscionable. But when it is apparent from the intrinsic nature and subject of the bargain itself, that it is such as no man in his senses, not under delusion, would make on the one hand, and as no honest and fair man would accept, on the other, the agreement will be declared inequitable and unconscientious. If this does not appear from the contract itself, it must be proved ; and when proved, the court will still allow a recovery by the lender, and give him relief, by direct- ing judgment for so much money as shall be equal to the principal received by the borrower, and interest. ' ' ' Contracts Violative of Statutes or Common Law § 397. In General. — If a statute prohibits a particular class of contracts, this of course restricts the right of persons to contract in contravention of the statute,^" and contracts which are directly violative of or have for their object the violation of statutes enacted for the protection of the public are generally held illegal." This is especially true where the violation of the statute is made a crim- 7. Crawford v. Russell, (Sup. G. 1900) 54 App. Div. 33, 66 N. Y. S. T. 1872) 62 Barb. 92. 303, 8 N. Y. Annot. Cas. 190; Ehel 8. Crawford v. Russell, (Sup. G. v. Smith, (Sup. 1805) 3 Caines 187; T. 1872) 62 Barb. 92. Perkins v. Savage, (Sup. 1836) 15 9. Crawford v. Russell, (Sup. G. Wend. 412; Jackson v. Walker, (Sup. T. 1872) 62 Barb. 92, 95. 1843) 5 Hill 27; Chillicothe Bank v. 10. New York Cent., etc., R. Co. v. Dodge, (Sup. G. T. 1850) 8 Barb. Williams, (1910) 199 N. Y. 108, 92 233; Sanderson v. Goodrich, (Sup. N. E. 404, affirming 136 App. Div. G. T. 1866) 46 Barb. 616; Lowey v. 904 mem., 120 N. Y. S. 1137', which Granite State Provident Ass'n, (Com. affirmed 64 Misc. 15, 118 N. Y. S. PI. G. T. 1894) 8 Misc. 319, 59 State 785. Rep. 246, 28 N. Y. S. 560; Negley v. 11. Ormes v. Dauchy, (1880) 82 Devlin, (Super. Ct. Sp. T. 1872) 12 N. Y. 443; Accetta v. Jupa, (Sup. Abb. Pr. N. S. 210. § 3981] ILLEGALITY 623 inal offense ; ^^ it is ordinarily true whether the act prohibited by the statute is malum prohibitum or malum in se/' and it is immaterial that the statute violated is one of local application only." As said by Learned, P. J. : " It is a settled principle that one cannot recover compensation for doing an act to do which is forbidden by law and is a misdemeanor. The contrary rule would make an absurdity. It would permit one to hire another to com- mit a misdemeanor and would compel the payment of the contract price for doing what the law forbids. " ^^ It is not necessary that the statute expressly declare that the prohibited contract shall be void ; ^' and where a statute imposes a penalty for the doing of an act, though it is not expressly prohibited, the act is made unlawful and a contract in contravention of the statute is held illegal.^'' Our state courts also refuse to enforce contracts in con- travention of federal statutes.^* A prohibitory statute may, how- ever, itself point out the consequences of its violation, and if on a consideration of the whole statute it appears that the legislature intended to define such consequences, and to exclude any other penalty than such as is declared in the statute itself, no other will be enforced.^' § 398. Municipal Charter or Ordinance. — A provision in the charter of a municipality has the effect of a law and may render la. Accetta v. Jupa, (Sup. 1900) (Sup. 1846) 3 Denio 226; Swords v. 54 App. Div. 33, 66 N. Y. S. 303, 8 Owen, (Super. Ct. G. T. 1872) 34 N. Y. Annot. Cas. 190; Fox v. Dixon, Super. Ct. 277, 43 How. Pr. 176. (Sup. G. T. 1890) 34 State Rep. 710, 18. Graves v. Delaplaine, (Sup. 12 N. Y. S. 267. 1817) 14 Johns. 146 (charter-party 13. Pennington v. Townsend, ( Sup. in contravention of federal Noni-inter- 1831) 7 Wend. 276; Barton v. Port course Act); Cowing v. Altman, Jackson, etc., Plank Road Co., (Sup. (Sup. 1873) 1 Thomp. & C. 494 G. T. 1854) 17 Barb. 397; Parks v. (agreement for additional fees to Jacob Dold Packing Co., (Super. Ct. assignees in bankruptcy in eontra- G. T. 1894) 6 Misc. 570, 57 State vention of federal Bankruptcy Act) ; Rep, 788, 27 N. Y. S. 289. Parks v. Jacob Dold Packing Co., 14. Beman v. Tugnot, (Super. Ct. (Super. Ct. G. T. 1894) 6 Misc. 570, 1851) 7 Super. Ct, 153. 57 State Rep. 788, 27 N. Y. S. 289 15. Fox V. Dixon, (Sup. 6. T. (Interstate Commerce Act — services 1890) 34 State Rep. 710, 12 N. Y. S. to secure illegal rebate?) ; Best v. 267. Bauder, (Sup. Sp. T. 1865) 29 How. 16. Seving v. Dayton, (Sup. 1908) Pr. 489 (peddling without federal 124 App. Div. 58, 108 N. Y. S. 155, license). affirmed on opinion below 196 N. Y. 19. Pratt v. Short, (1880) 79 N. Y. .503 89 N E. 1113; Barton v. Port 437, 445; Mahar v. Harrington Park Jackson, etc., Plank Road Co., (Sup. Villa Sites, (1912) 204 N. Y. 231, 97 G. T. 1854) 17 Barb. 397. N. E. 587; People's Trust Co. v. 17. Hallet v. Novion, (Sup. 1817) Pabst, (Sup. 1906) 113 App. Div. 14 Johns. 273, 290; Griffith v. Wells, 375, 98 N. Y. S. 1045. 624 NEW YOEK LAW OF CONTRACTS [§ 399 illegal contracts in contravention thereof.^" So a valid city ordi- nance has the force of law, and a contract in violation thereof is illegal to the same extent as a contract in contravention of a statute.^i Thus it is held that as a contract between the owner of a theater and the owner of an adjoining building, not fireproof, to cut a door through the wall which separates the buildings, for an exit through the latter building from the theater, violates the building code of the city of New York, the owner of the latter building cannot maintain an action to recover the agreed com- pensation.^^ And the same has been held true as to a contract for the erection in a city of a brick building, the walls of which are of a less thickness than that required by a valid ordinance,^^ or for the construction of a roof of other than fireproof material in violation of an ordinance,^* or for the erection of an awning across the sidewalk in violation of an ordinance.^^ So where an ordinance requires in the letting of contracts for municipal work that the proposal of- the bidders shall contain the names of all persons interested and prohibits any secret agreement with any person not named to be interested in the contract, a secret agree- ment between two persons that they shall be equally interested as partners in a contract to be procured by one has been held illegal.^* § 399. Ignorance of Law. — It is a general maxim that ignorance of the law excuses no one, ignorantia juris non excusat, as every one is presumed to know the law, and therefore the fact that the 20. Bell V. Quin, (Super. Ct. 1848) firmed 47 Super. Ct. 555 mem., which 4 Super. Ct. 146; Best v. Bauder, is affirmed 94 N. Y. 643 mem., 18 (Sup. Sp. T. 186i5) 29 How. Pr. 489. Wkly. Dig. 337. ai. Burger v. Koelsch, ( Sup. 1894) 22. Hart v. City Theatres Co., (Sup. 77 Hun 44, 59 State Rep. 69, 28 App. T. 1911) 71 Misc. 427, 128 N. Y. N. Y. S. 460; New York Taxicab Co. S. 678. V. Hawk, (Sup. Sp. T. 1910) 68 Misc. 23. Burger v. Koelsch, (Sup. G. T. 555, 125 N. Y. S. 220 (ol-dinance re- 1894) 77 Hun 44, 59 State Rep. 69, stricting business to be done by taxi- 28 N. Y. 6. 460; Best v. Bauder, cabs specially licensed); Markowitz (Sup.. Sp. T. 1865) 29 How. Pr. 489. V. Arrow Constr. Co., (Sup. App. T. 24. Beman v. Tugnot, (Super. Ct. 1918) 102 Misc. 532, 169 N. Y. S. 1851) 7 Super. Ct. 153. 159; Brinkman v. Eisler, (City Ct. 25. Brinkman v. Eisler, (City Ct. Tr. T. 1889) 26 StateRep. 94, 7 N.Y. Tr. T. 1889) 26 State Rep. 94, 7 S. 193, affirmed 40 State Rep. 865, 16 N. Y. S. 193, affirmed 40 State Rep. N. Y. S. 154; Beman v. Tugnot, 865, 16 N. Y. S. 154. (Super. Ct. 1851) 7 Super. Ct. 153; 26. Kelly v. Devlin, (Super. Ct. Sp. Ferdon v. Cunningham, (Com. PI. G. T. 1879) 58 How. Pr. 487, affirmed 47 T. 1860) 20 How. Pr. 154 (ordinance Super. Ct. 555 mem., which is af- requiring public cabmen to be li- firmed 94 N. Y. 643 mem., 18 Wkly. censed) ; Kelly v. Devlin, (Super. Ct. Dig. 337. Sp. T. 1879) 58 How. Pr. 487, af- § 400] ILLEGALITY 625 parties to a contract were ignorant of the law will not prevent a contract in violation thereof from being declared illegal ; " and this includes ignorance of a city ordinance.^ Thus where a broker sued for commissions for procuring a person ready and willing to take a lease of premises to be used for a purpose prohibited by a city ordinance, the fact that he was ignorant of the existence of the ordinance does not prevent the contract of employment from being illegal and thus preclude a recovery for the services.^' § 400. Foreign Law. — A contract entered into in this state is not necessarily illegal because the object and purpose violates the laws of a foreign country.'" And the several states of our Union, as regards each other, are in the same position as a foreign country, and the fact that a contract entered into in one state may be intended to violate the laws of another state does not necessarily preclude its enforcement in the state where made or in a third state.'^ Thus a loan of money to promote a revolution in a foreign country is not illegal, provided it contemplates no act to be done in this country violative of the federal neutrality laws, which merely prohibit the organizing and fitting out with arms and ammunition of war expeditions into any foreign country with which we are at peace. To that extent only does the federal government see fit to interfere, and the money of our citizens may be contributed to aid struggles for independence by the peoples of any part of the world.'^ And in none of its aspects is it against public policy to open our courts to a subscriber to a fund to be used for such purpose to enable him to rescind his subscription after the project has been abandoned and to recover back the 27. Howe V. Carpenter, (Sup. G. T. corporation, in the course of liquida- 1869) 53 Barb. 382; Burger v. tion, on a contract to employ the Koelsch, (Sup. G. T. 1894) 77 Hun claimant as its agent to transact 44, 59 State Rep. 69, 28 N. Y. S. 460. business for the bank in New Jersey. 28. Markowitz v. Arrow Conctr. The bank had failed to comply with Co., (Sup. App. T. 1918) 102 Misc. the laws of New Jersey so as to en- 532, 169 N. Y. S. 159. title it to do business in the state, 29. Markowitz v. Arrow Const. and the transaction of the business Co., (Sup. App. T. 1918) 102 Misc. was made . a misdemeanor by such 532, 169 N. Y. S. 159. laws, and the claimant was fined on 30. Bailey v. Belmont, (Super. Ct. account of his doing so. It was held G. T. 1871) 10 Abb. Pr. N. S. 270. that the contract of employment was 31. City Bank v. Perkins, (1864) illegal and that therefore the claim- 29 N. Y. 554, 570. ant was not entitled to maintain an In People v. Mercantile Co-op. action for its breach. Bank, (Sup. 1905) 104 App. Div. 32. Bailey v. Belmont, (Super. Ct. 219, 93 N. Y. S. 521, a claim was G. T. 1871) 10 Abb. Pr. N. S. 270 interposed against a bank, a domestic (bonds of the Irish republic). 40 626 NEW YOEK LAW OF CONTRACTS [§§ 401,402 monsys subscribed.^* So where a contract for the loan of state bank notes was made by a bank in the state of its domicil to a bank in another state, it was held that the fact that the loan was made with the intent to put such notes in circulation in violation of the laws of the latter state was not ground for a refusal by the courts to enforce the repayment of the loan, even though the courts of the state the law of which was to be violated would not enforce it.^* § 401. Unconstitutional Statute. — An unconstitutional statute is void and cannot affect or control the rights or actions of indi- viduals, and therefore such a statute cannot have the eifect of rendering illegal contracts in contravention thereof, even though the statute has not by judicial decision been declared unconstitu- tional.'^ Thus if a statute prohibiting the sale in the original package of oleomargarine imported from another state is uncon- stitutional as an unlawful interference with interstate commerce, such a sale is not thereby rendered illegal.'* So the statute mak- ing it a misdemeanor for a real estate agent in cities of the first and second class to offer real property for sale without the written consent of the property owner, being unconstitutional, such an agent is not precluded from recovering his commission because his authority to negotiate the sale was not in writing." § 402. Effect of Change or Repeal of Law. — If a person con- tracts to do a thing which is lawful, and subsequently the thing to be done is prohibited by statute, this excuses further performance but does not render the contract illegal ab initio.'* If, however, after the enactment of the statute the parties continue in the per- 33. Bailey v. Belmont, (Super. Ct. 36. WSterbury v. Egan, (City Ct. G. T. 1871) 10 Abb. Pr. N. S. 270. G. T. 1893) 3 Misc. 355, 52 State 34. City Bank v. Perkins, (1864) Rep. 421, 23 N. Y. S. 115. 29 N. Y. 554, affirming 17 Super. Ct. 37. Frank L. Fisher Co. v. Woods, 420. (1907) 187 N. Y. 90, 79 N. E. 836, 35. Schnaier v. Navarre Hotel, etc., 19 N. Y. Annot. Cas. 384; Grossman Co., (1906) 182 N. Y. 83, 74 N. E. v. Caminez, (Sup. 1903) 79 App. Div. 561 (provision of the Law of 1896, 15, 79 N. Y. S. 900; Cody v. Demp- ch. 803, requiring each member of a sey, (Sup. 1903) 86 App. Div. 335, partnership engaging in the plumb- 13 N. Y. Annot. Cas. 322, 83 N. Y. S. ing business to be registered) ; Prank 899. L. Fisher Co. v. Woods, (1907) 187 38. Mount v. Waite, (Sup. 1811) 7 N. Y. 90, 79 N. E. 836, 19 N. Y. Johns. 434; Brick Presb. Church v. Annot. Cas. 384; Grossman v. Cami- New York, (Sup. 1826) 5 Cow. 538; nez, (Sup. 1903) 79 App. Div. • 15, Reisler v. Dempsey, (Sup. Sp. T. 79 N. Y. S. 900; Waterbury v. Egan, 1918) 173 N. Y. S. 212. (City Ct. G. T. 1893) 3 Misc. 355, 52 State Rep. 421, 23 N. Y. S. 115. § 4021] ILLEGALITY 627 f ormance of the contract, it is illegal in so far as the services in regard to such performance are concerned.^' Thus the further performance of a contract for the employment of an agent for the sale of the shares of a foreign building and loan association, entered into before the enactment of Laws 1890, ch. 146 (see Penal Law, § 663; 39 McKinney's Cons. Laws, p. 238), making it a mis- demeanor for any agent of such association to solicit subscrip- tions unless the association has complied with the requirements necessary to entitle it to do business in the state, is rendered illegal if the association does not acquire the right so to do business, and no compensation for services rendered in the sale of stock in viola- tion of the statute can be recovered." The view is taken in our state in some cases that if a person contracts to do an act prohibited by law, and thereafter the law prohibiting the act is repealed, the party so contracting cannot thereafter set up the original illegality of the contract as a defense to liability for failure to perform, as such repeal entirely removes from the contract the element of illegality." Thus where the parties entered into a stock jobbing contract in violation of an existing statute, which also declared contracts in violation thereof void, and thereafter the prohibitory statute was repealed, it was held that the defense of illegality could not be interposed to an action to enforce the contract.*^ It has also been held that the repeal of the act prohibiting the circulation of bank notes of a denomination less than five dollars repealed also the consequences of the act in respect of contracts entered into while it was in force, and therefore contracts made while the prohibitory act was in force became valid and enforceable.*^ And it has been held by the Court of Appeals that there is no such vested right in a statutory defense not founded on common law right, either legal or equitable, and for this reason the legislature could take away 39. Lowey v. Granite State Provi- Abb. Pr. 140, 24 How. Pr. 515, re- dent Ass'n, (Cotn. PI. G. T. 1894) versing 11 Abb. Pr. 93. See also 8 Misc. 319, 59 State Bep. 246, 28 Beilin v. Wein, (Sup. App. T. 1906) N. Y. S. 560. 51 Misc. 595, 101 N. Y. S. 38. 40. Lowey v. Granite State Provi- 42. Washburn v. Franklin, (Sup. dent Ass'n, (Com. PI. G. T. 1894) G. T. 1861) 35 Barb. 5.99, 13 Abb. Pr. 8 Misc. 319, 59 State Rep. 246, 28 140, 24 How. Pr. 515, reversing 11 N. Y. S. 560. Abb. Pr. 93. 41. Central Bank v. Empire Stone 43. Central Bank v. Empire Stone Dressing Co., (Sup. G. T. 1857) 26 Dressing Co., (Sup. G. T. 1857) 26 Barb. 23; Washburn v. Franklin, Barb. 23. (Sup. G. T. 1861) 35 Barb. 599, 13 628 NEW YORK LAW OF CONTRACTS [§ *03 the defense of usury as applied to contracts theretofore entered into." " The principle in all these cases is," says Ingraham, J., " that a cause of action or defense given by a statute founded on grounds of public policy conferred no vested right vrhich could not be taken away by a similar statute, and that a repeal of a law which gave such right of action or defense terminated all claim to such recovery or defense, although the contract was made previously. "*^ On the other hand, where a statute made it a mis- demeanor for unlicensed persons to practice medicine, and expressly provided that no person practicing medicine in viola- tion of the statute should recover any compensation for his serv- ices, and thereafter the statute was repealed, it was held that this did not entitle one who had theretofore practiced medicine in violation of the statute to recover for his services.^^ § 403. Application of Rule to Particular Statutes Generally. — In addition to the particular classes of statutes hereafter discussed, the rule that contracts in contravention of statutes are illegal has been applied where the contract was in violation of an early statute prohibiting directors of a plank road company from being concerned in any contract for the making or working of the road;^' of a statute (see Penal Law, § 1868; 39 McKinney's Cons. Laws, p. 644) prohibiting public officers from being interested in contracts which they are authorized to make ; ^^ of a statute (see Liquor Tax Law, § 26; 33 McKinney's Cons. Laws, p. 139) prohibit- ing, without the consent of the state, assignment or transfer by the licensee of the right to sell intoxicating liquors under his license ; *' 44. Curtis v. Leavitt, (1857) 15 ment to an officer of a claim for serv- N. Y. 9. ices rendered a municipality or quasi 45. Washburn v. Franklin, (Sup. municipality, though the contract for G. T. 1861 ) 35 Barb. 599, 601, 13 such services was made by the officer Abb. Pr. 140, 24 How. Pr. 515. See as agent of the corporation, where also Hoppock v. Stone, ( Sup. G. T. no duty in regard to passing on the 1867) 49 Barb. 524. validity of the claim is intrusted to 46. Bailey v. Mogg, (Sup. 1847) 4 such officer. People v. Saratoga Denio 60. County, (Sup. 1901) 66 App. Div. 47. Barton v. Port Jackson, etc., 117, 72 N. Y. S. 782, reversing 34 Plank Road Co., (Sup. G. T. 1854) Misc. 740, 70 N. Y. S. 1048, and 17 Barb. 397. modified on other grounds 170 N. Y. 48. Bell V. Quin, (Super. Ct. 1848) 93, 62 N. E. 1069. 4 Super. Ct. 146; People v. Schenec- 49. Sanderson v. Goodrich, (iSup. tady County, (Sup. 1915) 166 App. G. T. 1866) 46 Barb. 616; Mayer Div. 758, 151 N. Y. S. 1012, affirming Brewing Co. v. Mack, (Sup. App. T. 88 Misc. 226, 151 N. Y. S. 830. 1908) 59 Misc. 202, 110 N. Y. S. A statute of this character does not 245. necessarily render illegal an assign- § 40®] ILLEGALITY 629 of a statute (see Gen. Business Law, § 185; 19 McKinney's Cons. Laws, p. 124) limiting the fees chargeable by an employment agency and making a violation thereof a misdemeanor;^* of the bounty law enacted during the Civil war limiting the amount which Qould be paid to volunteers to fill the quota of any locality ; ^^ of the early statute against stock jobbing; ^^ of a statute against secret agreements for an interest in public contracts let on com- petitive biddings; 5' of a statute (Liquor Tax Law, § SOP; 33 McKinney's Cons. Laws, p. 173) making it unlawful for a licensed saloon keeper to permit a woman, not a member of his family, to serve customers;'* and of a statute (Penal Law, § 280; 39 McKinney's Cons. Laws, p. 100) prohibiting under a penalty a corporation from engaging in the practice of law.^ An original subscription to the stock of a corporation in violation of a statute prohibiting the receipt of subscriptions unless a certain percentage of the par value of the stock is paid in cash has been held illegal and unenforceable,^' and also a contract having for its object the violation of an early statute the policy of which prohibited dummy original subscriptions to the stock of a railroad company organized thereunder." Where a person in obtaining a contract for his services violated the statute (Penal Law, § 939; 39 McKinney's Cons. Laws, p. 339) making it a crime to obtain employment, etc., by means of forged letters of recommendation, etc., it was ^eld 50. Hapgood v. Barrett, (County employment of a woman to render Ct. 1907) 106 N. Y. S. 189, holding services in violation of the statute therefore that a note given for ex- is illegal and that therefore an action cessive fees is imenforceable. for its breach cannot be' maintained. This statute is not retrospective in 56. United States Title Guaranty its operation and does not invalidate Co. v. Brovra, (Sup. 1915) 166 App. prior contracts. Miller v. Myers, Div. 688, 152 N. Y. S. 470, aflBrming (Sup. Sp. T. 1912) 75 Misc. 297, 135 86 Misc. 287, 149 N. Y. S. 186, and N. Y. S. 73. affirmed 217 N. Y. 628 mem., Ill 51. Powers v. Shepherd, (Sup. G. N. E. 828. In this case, however, T. 1867) 49 Barb. 418, 35 How. Pr. relief is granted to a party to the 53, affirmed 48 N. Y. 540. contract in question on the ground 5Z. Staples v. Gould, (1854) 9 that the interest of the public is best N. Y. 520, 1 Seld. Notes 237, affirming advanced thereby. See infra, section 7 Super. Ct. 411. See infra, section 646. 5gj_ 58. Excelsior Grain Binder Co. v. 53. Woodworth v. Bennett, (1870) Stayner, (Sup. 1881) 25 Hun 91, 61 43 N. Y. 273. How. Pr. 456, affirming 58 How. Pr '54. Wilking v. Kichter, (Sup. App. 273. T. 1899) 25 Misc. 735, 55 N. Y. S. 57. Perkins v. Savage, (Sup. 1836) 582, holding that a contract for the 15 Wend. 412. 630 NEW yO'EIC LAW OF CONTRACTS [§ 404 that this rendered the contract illegal and precluded a recovery for the services rendered.^* § 404. Revenue Statutes Generally. — In many jurisdictions a distinction is made between statutes enacted for revenue purposes only and statutes enacted for the protection of the public, and contracts though violative of the former class of statutes have been held enforceable. The courts have refused to declare con- tracts illegal which were entered into in contravention of statutes enacted for revenue purposes only, unless the statute in question clearly shows that it was the intention of the legislature to render illegal contracts in violation of its provisions.^' And in our state there are cases which assume that a statute enacted for the pur- pose of revenue only does not necessarily render contracts in violation thereof illegal.*" On the other hand, it has been denied, that any distinction between the two classes of statute is justified. Thus in a case where a sale by a peddler in violation of the federal revenue statutes requiring peddlers to secure a federal license was held illegal and a recovery for the commodities sold denied, Parker, J., said: "It is insisted ... by the plaintiff's counsel that inasmuch as the act was passed merely for the pur- pose of revenue, and the penalty was annexed only to secure the payment of the license duty, the sale in question was not so in violation of the act as to render it void. Notwithstanding the ' courts appear occasionally to have strained a point ' in "favor of such a distinction, . . . the question, after all, I apprehend is, does the statute prohibit the sale without a license? If it does the circumstance that it is prohibited for revenue purposes is of no consequence, for in such case, as well as in every other, the sale in violation of the prohibition is illegal and void, and no 58. Morgan Munitions Supply Co. 59. See Contracts, 6 R. C. L. 704. V. Studebaker Corp., (Sup. 1917) 180 60. Griffith v. Wells, (Sup. 1846) App. Div. 530, 168 N. Y. S. 37, modi- 3 Denio 226, 227; Angell v. Von fying on other grounds lOO Misc. 408, Schaiek, (Sup. 1890) 56 Hun 247, 166 N. Y. S. 645. But in Kenny v. 256, 30 State Rep. 714, & N. Y. S. Union R. Co., (-Sup. 1915) 166 App. 568, reversed on other grounds 132 Div. 497, 152 N. Y. S. 117, it was N. Y. 187, 43 State Rep. 677, 30 N. E. held, where employment was obtained 3i95; Bell v. Quin, (Super. Ct. 1848) in violation of the statute, that the 4 Super. Ct. 146, 150. See infra, sec- relation of employer and employee tion 406, as to the effect of a violation was created so as to authorize an of the Tax Law imposing a stamp award under the Workmen's Compen- tax on the transfer of corporate sation Law for injuries received' by stock, the employee. § 404] ILLEGALITY 631 action can be maintained upon it. ' ' '^ And though the federal statute imposing duties on the importation of goods is a revenue statute only, a contract for the sale of foreign made goods which expressly contemplates that the seller shall invoice them below their value and thus perpetrate a fraud on the federal govern- ment will render the contract of sale illegal and preclude a recovery by the seller for the price.*^ It would be otherwise, however, if the seller was not a participant in the illegal attempt of the buyer to defraud the government.^ The mortgage tax law (see Tax Law, § 250 et seq. ; 59 McKinney's Cons. Laws, p. 361 et seq.) provides in section 258 as regards the effect of the failure to pay the tax, as follows : "No mortgage of real property shall be recorded by any county clerk or register, unless there shall be paid the tax imposed by and as in this article provided. No mortgage of real property which is subject to the taxes imposed by this article shall be released, discharged of record, or received in evidence in any action or proceeding, nor shall any assignment of or agreement extending any such mortgage be recorded unless the taxes imposed thereon by this article shall have been paid as provided in this article. No judgment or final order in any action or proceeding shall be made for the foreclosure or the enforcement of any mortgage which is subject to the tax imposed by this article or of any debt or obligation secured by any such mortgage, unless the taxes imposed by this article shall have been paid as provided in this article; and whenever it shall appear that any mortgage has been recorded or that any advance has been made on a prior advance mortgage or on a corporate trust mortgage without pay- ment of the tax imposed by this article there shall be paid in addition to the amount of the tax a sum equal to one per centum thereof for each month the tax remains unpaid, which sum shall be added to the tax and paid or collected therewith." This pro- vision does not render a mortgage on which the tax has not been paid illegal but merely unenforceable until the tax is paid. Though the mortgage cannot be recorded or enforced by a suit unless the tax is paid, the mortgagee may at any time after its 61 Best V. Bauder, (Sup. Sp. T. 63. Honegger v. Wettsteln, (1883) 1865') 29 How. Pr. 489, 492. 94 HT. Y. 252, 13 Abb. N. Cas. 393, 62 Honegger v. Wettstein, (1883) reversing on other grounds 47 Super. 94 N. Y. 252, 13 Abb. N. Cas. 393, Ct. 125, 11 Rep. 275. reversing on other grounds 47 Super. Ct. 125, 11 Rep. 275. 632 NEW YORK LAW OF CONTRACTS [§§ 405, 406 execution on payment of the tax have it recorded or enforce it by a suit for foreclosure." And it has been held in an action to foreclose a mortgage that it is not necessary to allege in the complaint that the tax has been paid.*^ § 405. Federal Stamp Acts. — The question has frequently arisen in our courts as to whether a failure to comply with the federal statutes requiring the stamping of contracts rendered them invalid or not. The Act of Congress of June 30, 1864, § 158, provided as follows: "That any person or persons who shall make, sign, or issue . . . any instrument, . . . without the same being duly stamped . . . with intent to evade the provisions of this act, shall, for every such ofEense, forfeit the sum of two hundred dollars, and such instrument . . . shall be deemed invalid and of no effect." Under this Act it was held that if an unstamped instrument was not made with intent to evade the provisions of the Act it was not invalid.^^ It was held otherwise, however, if the intent to evade the provisions of the Act existed.^^ And though a contrary view has also been taken,*^ it was further held that if the instrument was not stamped it was incumbent on the party claiming to enforce it to show the absence of such an intent.^' The federal government cannot prescribe what may not be evidence in a state court, and the provision that unstamped contracts, etc., shall not be admitted as evidence can have no effect on their admission as evidence in our state courts.™ § 406. Stock Transfer Tax Generally. — The Tax Law imposing a stamp tax on the transfer, etc., of corporate stock, which it is said ' ' is purely a revenue law, ' ' '^ attempts to secure a compliance with the statutes by various penalties for nonobserv- ance. The first is of a criminal nature and renders any person making a sale or transfer without paying the tax guilty of a mis- 64. Mutual L. Ins. Co. v. Nicholas, 48 Barb. 614; Hoppock v. Stone, (Sup. 1911) 144 App. Div. 9-5, 128 (Sup. G. T. 1867) 49 Barb. 524. N. Y. S. 1902. 68. New Haven, etc., Co. v. Quin- 65. Moore V. Lindsay, (Sup. Sp. T. tard, (Super. Ct. G. T. 1869) 31 1908) 61 Misc. 176, 114 N. Y. S. 684. Super. Ct. 89, 6 Abb. Pr. N. S. 128, 66. Beebe v. Hutton, (Sup. G. T. 37 How. Pr. 29. 1866) 47 Barb. 187. 69. Howe v. Carpenter, (Sup. G. T. 67. Howe V. Carpenter, (Sup. G. T. 1869) 53 Barb. 382. 1869) 53 Barb. 382; New Haven, 70. Gilbert v. Sage, (Sup. G. T. etc., Co. V. Quintard, (Super. Ct. G. 1871) 5 Lans. 287, affirmed 57 N. Y. T. 1869) 31 Super. Ct. 89, 6 Abb. Pr. 639 mem. N. S. 128, 37 How. Pr. 29. See also 71. Bean v. Flint, (1912) 204 N. Y. Myers v. Smith, (Sup. G. T. 1867) 153, 160, 97 N. E. 490. § 4061] ILLEJGALITY 633 demeanor. The second provides what is defined as a civil penalty and makes any person violating the provisions of the article sub- ject to a fine. Then, in addition to these direct punishments, it is expressly provided as regards the effect of a failure to pay the tax that' ' ' no transfer of stock made after June first, nineteen hundred and five, on vp^hich a tax is imposed by this article, and which tax is not paid at the time of such transfer, shall be made the basis of any action or legal proceedings, nor shall proof thereof be offered or received in evidence in any court in this state " (Tax Law, § 278; 59 McKinney's Cons. Laws, p. 405). The effect of this provision, in case of a sale of stock without stamp- ing the transfer as required by the statute, is to preclude the seller from recovering the agreed price if the defense is properly raised by the purchase ; ''^ and it has been held immaterial that the failure to pay the tax was inadvertent and not with an intent to evade the statute.'^ The effect of a failure to pay the tax at the time of the transfer cannot be removed by a subsequent payment or offer to pay.'* But it is held by the Court of Appeals that the prepayment of the tax is not made a condition precedent to the right of the seller to maintain an action for the price, and that the defense of a failure on the part of the sellen to comply 72. Sheridan V. Tucker, (Sup. 1910) In Bean v. Flint, (Sup. liftlO) 138 138 App. Div. 436, 122 N. Y. S. 800; App. Div. 846, 123 N. Y. S. 385, Sheridan V. Tucker, (Sup. 1911) 145 Miller, J., says in thia connection: App. Div. 145, 129 N. Y. S. 18; Phil- "It will be observed that the statute lips V. Grossman, (Sup. App. T. 1912) radically differs from those under 76 Misc. 497, 135 N. Y. S. 567. See which it has been held permissible also Hall V. Davis, (Sup, Tr. T. 1916) to validate the transfer by subse- 95 Misc. 315, 159 N. Y. S. 26. And quently affixing stamps. This stat- see Sheridan v. Tucker, (Sup. 1910) ute not only omits to provide for 138 App. Div. -436, 122 N. Y. S. 800, doing that, but distinctly provides holding in an action to recover the that the transfer shall not be made price of stock sold that an allegation the basis of any action or legal pro- in an answer that the plaintiff was ceedings unless the tax is paid 'at guilty of a misdemeanor for his fail- the time of such transfer.' The pay- ure to aflis the required stamps to ment of the tax might easily be the transfer should not be stricken evaded if a transfer could be ren- out as irrelevant and scandalous, dered valid by subsequently affixing but leaving undecided the question stamps, and so by language which whether the failure to comply with does not admit of construction the the statute is a defense to the action. legislature has provided as stated. 73. Sheridan v. Tucker, (Sup. 1911) We think, therefore, that the failure 145 App. Div. 145, 129 TJ. Y. S. 18. to pay the tax and affix stamps at 74 Bean v. Flint, (Sup. 1910) 138 the time of the transfer is fatal to App Div 846, 123 N. Y. S. 385; the plaintiff's right of recovery, pro- Sheridan v. Tucker, (Sup. 1911) 145 vided the question is before us. App. Div. 145, 129 N. Y. S. 18. 634 NEW YORK LAW OF CONTRACTS [§§ 407, 408 with the statute, to be available as a defense to an action by him for the price, must be pleaded by the buyer.'* And it has been held in a federal court that notes given by the buyer for the pur- chase price, though there was an unstamped transfer of the stock and a repledge of the stock as collateral security for the notes, are valid and enforceable^' The statute does not affect the right of a person to sue for a conversion of stock." § 407. Effect of Unstamped Executed Contract on Title to Stock. — The sale and transfer of stock may be effectual, it would seem, as between the parties to pass title to the buyer, though the tax is not paid.'* And where the plaintiff claimed that the transaction in question was a pledge of the stock as collateral security for a loan, and sued for a conversion of the pledge, it was held that the defendant could show that the transaction was a sale, though the stamp tax was not paid." On the other hand it has been held that if the defense is properly raised there can be no valid and effectual gift or even sale of stock, evidenced by a transfer of the certificate of the stock, which will be binding on the donor or seller or his estate, unless the tax is paid on the transfer.*" In this connection, in a case which involved an alleged gift of stock, Heaton, S., says : "No evidence of a gift or sale of stock, where the delivery of the certificate was made without the afiixing of the required stamps at the time of the delivery, can be received. This results in making such a sale or gift impossible, whenever the defense that no tax stamp was affixed at the time of delivery of the certificate of stock is properly pleaded.*^ § 408. — • — Enforcement of Unstamped Executory Contract. — As regards an executory contract of sale it is held by the Court of Appeals that the contract of sale is valid as between the 75. Bean V. Flint, (191'2) 204 N.y. 79. Hall v. Davis, (Sup. Tr. T. 153, 97 N. E. 490, affirming 138 App. 1916) 95 Misc. 315, 159 N. Y. S. 26. Div. 846, 123 N. Y. S. 385. 80. Matter of Ball, (Sup. 1914) 76. In re Wylly, (D. C, B. D. 161 App. Div. 79, 146 N. Y. S. 499, N. Y. 1913) 210 Fed. 954. 13 Mills 69 (gift); In re Raleigh, 77. Noble v. Haff, (Sup. App. T. (Surr. Ct. 191-1) 75 Misc. 55, 134 N. 1918) 172N. Y. S. 139. See also Hall Y. S. 684, 8 Mills 513; Dinnean v. v. Davis, (Sup. Tr. T. 1916) 95 Misc. Dinnean, (Sup. Sp. T. 1915) 90 Misc. 315, 159 N. Y. S. 26. 121, 123, 152 N. Y. S. 587. 78. Hall v. Davis, (Sup. Tr. T. 81. In re Raleigh, (Surr. Ct. 1911) 1916) 95 Misc. 315, 159 N. Y. S. 26. 75 Misc. 55, 57,. 134 N. Y. S. 684, 8 See also Amhrosius v. Ambrosius, Mills 513. (Sup. 19a5) 167 App. Div. 244, 152 N. Y. S. 562. 4081] IH.EXJALITY 636 parties though the agreement is unstamped.^ In this connection, Andrews, J., says: " The agreement was to take effect upon the happening of a contingency within the control of neither of the parties to the agreement. "We are inclined to think that such a contract is not an agreement to sell within the meaning of section 270 of the Tax Law; that that section contemplates an absolute and unconditional agreement. This question is, however, not material, for it involves simply the suggestion that the vendor may have committed a misdemeanor on may have subjected itself to a penalty. As between the vendor and the vendee the agree- ment is perfectly valid. ' ' *^ An action may be maintained by the seller thereof for the failure of the buyer to perform his agree- ment to purchase.'* And it is held that the seller may, in such a case, maintain an action to recover the agreed purchase price, as the vesting of title in the buyer at the election of the seller, on which the right to maintain such an action is predicated by a legal fiction, is not a " transfer " of the title within the meaning of the statute, so as to preclude the seller from resorting to such remedy.*' It is also held that though an executory agreement to 82. Phelps-Stokes Estates v. Nixon, (1917) 222 N. Y. 93, 118 N. E. 241, reversing on other grounds 165 App. Div. 373, 150 N. Y. S. 944. See also Wing V. Smith, (Sup. 1916) 173 App. Div. 57, 159 N. Y. S. 454. 83. Phelps-Stokes Estates v. Nixon, (1917) 222 N. Y. 93, 98, 118 N. E. 241. 84. Phelps-Stokes Estates v. Nixon, (1917) 222 N. Y. 93, 118 N. E. 241. But see Phillips v. Grossman, (Sup. App. T. 1912) 76 Misc. 497, 135 N. Y. S. 567, wherein there was an agree- ment to sell stock under which the stock was delivered in escrow, to be delivered to the buyer as instalment payments were made, and it was held that as the stamp tax was not paid and the stamps affixed to the agree- ment to sell, the seller could not re- cover unpaid instalments. 85. Phelps-Stokes Estates v. Nixon, (1917) 222 N. Y. 93, 118 N. E. 241, reversing 165 App. Div. 373, 150 N. Y. S. 944. In this case Andrews, J., says: "The theory that such an action as the present is based upon the transfer of title is a legal fiction. If the plaintiff succeeds in the recov- ery of the price of the stock, then when the judgment is paid he does hold it in trust for the defendant. The defendant has a right to demand the stock, and undoubtedly the plain- tiff must deliver it to him with the proper stamps attached. But sup- pose the plaintiff fails in his action, is there any change of title to the stock? Could the defendant have re- plevined it on the theory that the title had passed and that the plaintiff was retaining his property? We should be slow to hold that by virtue of his election to sue for the price without affixing a stamp to the cer- tificates, the plaintiff committed a misdemeanor. Nor can we see that the efficiency of the Tax Law will be impaired by such a holding as is here made. It is merely that the word ' transfer ' as used in section 278 was not intended to prevent an action for the recovery of the pur- chase price of stock where an execu- tory contract such as that in the 636 NEW YORK LAW OF CONTRACTS [§ 40& sell stock is not stamped, the buyer may maintain an action against the seller for its specific performance, the statute being complied ■with by the stamping of the actual transfer.*' § 409. Eleotion Laws. — In the absence of statute to the con- trary, public policy does not prohibit contributions to the expenses of political campaigns ; ^'' and a contract between a person chosen as an officer of a political party and another, under which the latter is to render services for the former in performing the duties devolving on the former as such officer, is not illegal, provided it is not made a cover for a violation of the penal laws relating to elections.** It has been held that public policy does not pre- clude, in the absence of a statutory prohibition, a candidate for a national office from hiring speakers to present to the public his views on political questions.*® On the other hand, contracts hav- ing for their object a violation of the laws which regulate elections and which have for their purpose the maintenance of the purity of elections are held illegal.'" Thus a contract by a candidate for office to subscribe to a campaign fund, the money so subscribed to be used for a purpose for which the election laws prohibit a candi- date from expending money, is held illegal and unenforceable against him.'^ And under the early statute prohibiting persons from contributing money to promote an election of any particular person or ticket,' excepting where the money was to be expended for certain specified purposes, a contract hy the defendant to pay the plaintiff a certain sum in consideration of his keeping open a log cabin on Broadway in New York city to promote the election of the Harrison presidential electors, an expenditure not author- present ease was broken by the ven- Larremore, J., said : " No authority dee. This interpretation of the act has been cited to show that it is an fully accomplishes its purpose." oflfense at common law for a candi- 86. Waddle v. Cabana. (1917) 220 date for a national office, who could N. y. 18, 27, 114 N. E. 1054, revers- not personally present his individual ing on other grounds 169 App. Div. views of national policy over a wide 968, 154 N. Y. S. 1149. area of constituency, to employ and 87. People v. Moss, (Sup. 1906) compenisate a per son, for that purpose." 113 App. Div. 329, 334, 99 N. Y. S. 90. Eoley v. Speir, (1885) 100 N. 138, 39 Civ. Pro. 207, 20 N. Y. Crim. Y. 552, 3 N. E. 477, affirming 11 Daly 75, affirmed 187 N. Y. 410, 80 N. E. 254, 16 Wkly. Dig. 171 ; Jackson v. 383, 20 N. Y. Crim. 569. Walker, (Sup. 1843) 5 Hill 27, af- 88. Smith v. Babcock, (Sup. 1896) firmed 7 Hill 387 mem. 3 App. Div. 6, 73 State Rep. 14, 37 91. Foley v. Speir, (1885) 100 N. N. Y. S. 965. Y. 552, 3 N. E. 477, affirming 11 Daly 89. Murphy v. English, (Sup. Sp. 254, 16 Wkly. Dig. 171. T. 1883) 64 How. Pr. 362, wherein § 410] IliLBGALITY 637 ized by the statute, was held illegal.*^ This, however, does not preclude one who is himself engaged in making speeches or giving lectures in favor of a candidate, from employing another person to render him personal services to enable him to pursue his object.'^ Nor, prior to the nomination of candidates, does it preclude a person from contracting for the rendition of his services in the general furtherance of the organization of a political party.'* § 410. Statutes of Descent and Distribution. — A person can- not by contract supersede or contravene the laws in respect to the management and devolution of property in case of his intestacy.'^ This, however, does not prevent one from contracting for acts to be performed by another after his death.'' Thus there is no legal objection to a person's contracting in his lifetime for his funeral, his coffin and his monument, and even for the solemni- zation of masses." A person may also make a valid contract for the preservation of his estate after his death, until the lawful authority is exercised by the appointment of an administrator,'* and he may give an option for the purchase of property owned by him, though the option is not to be and cannot be exercised until 92. Jackson V. Walker, (Sup. 1843) 5 Hill 27, affirmed 7 Hill 387 mem. 93. Hurley v. Van Wagner, (Sup. G. T. 1858) 28 Barb. 109. 94. Sizer v. Daniels, (Sup. G. T. 1873) 66 Barb. 426. 95. Eoss V. Hardin, (1879) 79 N. Y. 84, 91. 96. Gilman v. McArdle, (1885) 99 N. y. 451, 2 N. E. 464. In this case Eapallo, J., says (p. 460) : " Sup- pose a person should desire in his lifetime to provide for the writing of his biography, the publication of his literary works, the painting of his portrait, or the erection of a statue to hia memory after his death. He certainly can make a valid contract with any person to do either of those things, and pay for them, and al- though they may be personal to him- self and for the gratification of his own feelings and perhaps his vanity, and he cannot, in strictness, create a trust for the purpose, because there will be no beneficiary, as he will not live to enforce it, why should he not be at liberty in his lifetime to con- tract with some person of his confi- dence to procure them to be done, and as a consideration for such agree- ment, to pay him' the sum necessary to defray the expense. . . It cer- tainly must be in the power of a per- son to provide, either by will or con- tract, for matters of this description, and I can see no legal reason why he should be confined to a testamentary direction. It is only in respect to dispositions of property which are not to have any effect except upon the death of the owner and are revocable, that he is confined to a will. If they operate in presenti, they are valid as contracts, even though they are not to be carried into execution until after the death of the party making them, or may be contingent upon the survivorship of another." 97. Gilman v. McArdle, (1885) 9;) N. y. 451, 2 N. B. 464, reversing 49 Super. -Ct. 463, 12 Abb. N. Gas. 414. 65 How. Pr. 330. 98. Ross V. Hardin, (1879) 79 N. y. 84, affirming on other grounds 44 Super. Ct. 26. 638 Np-^^Y YORK LAW OF COISTTRACTS [§ 411 after his death.'' No rule of public policy prevents a person from making a contract affecting the disposition of his property- after his death ;i and an agreement, if based on a sufficient con- sideration, that one person shall bequeath to another a certain sum of money or certain property is valid, though the promised bequest cannot take effect until after the death of the promisor.^ And the statute (Decedent Estate Law, § 36; 13 McKinney's Cons. Laws, p. 105) providing that a will executed by an unmarried woman shall be deemed revoked by her subsequent marriage does not affect the legality of a contract by an unmarried woman to execute, in case of her marriage, another will disposing of her property in a certain manner.^ For the prevention of frauds our courts have adopted the general rule, where a contract to make a will is sought to be enforced against the estate of a decedent, that either the contract be in writing or clearly established.* § 411. Sunday Laws. — Contracts for work or labor or other services to be performed on Sunday in violation of the penal laws are illegal and unenforceable." Thus a contract for the services of an actress or opera singer in performances to be given on Sunday in violation of law (see Penal Law, § 2153; 39 McKinney's Cons. Laws, p. 743) is illegal,* and a contract for such services which provides for Sunday performances, the consideration being a lump sum per week, is indivisible and cannot be upheld in part.^ 99. Scruggs V. Cotterill, (Sup. 5. Merritt v. Earle, (1864) 29 N. 1902) 67 App. Div. 583, 73 N. Y. S. Y. 115, Il6a; Smith v. Wilcox, (Sup. 882. G. T. 1857) 25 Barb. 341, affirmed 24 1. Middleworth v. Ordway, (1908) N. Y. 353; Kiley v. Western Union 191 N. Y. 404, 84 N. E. 291, affirming Tel. Co., (Sup. 1886) 39 Hun 158, 117 App. Div. 913 mem., 102 N. Y. affirmed on other grounds 109 N. Y. S. 1143, which affirmed 49 Misc. 74, 231, 14 State Rep. 816, 16 N. E. 75; 98 N". Y. S. 10, 18 N. Y. Annot. Cas. McClanathan v. Friedel, (Sup. 1895) 102. 85 Hun 175, 65 State Rep. 626, 32 2. Oilman v. McArdle, (1885) 99 ^- "^- ^- ^^'^' fallen v. Thompson, N. Y. 451, 461, 2 N. E. 464; Kloberg '^up. App. T. 1905) 48 Misc. 642 V. Teller, (Sup. Sp. T. 1918) 103 ™^.™-' ^^ N. Y. S. 142; AlWa v. Misc 641 171 N Y S 947 Soiaretti, (Sup. Sp. T. 1911) 72 Misc. „ ' ' ,!,„'',„'„„, 496, 131 N. Y. S. 889; Bilordeaux v. 3. Kloherg v. Teller, (Sup. Sp. T. jj. Benclce Lithographic Co., (Coiq. 1918) 103 Misc. 641, 171 N. Y. S. 947. pj. jg^o) 16 Daly 78, 30 St^te Rep. 4. Hamlin v. Stevens, (1903) 177 656, 9 N. Y. S. 507. N. Y. 39, 69 N. E. 118; Rosseau v. G. Hallen v. Thompson, (Sup. App. Rouss, (1904) 180 N.Y. 116, 72 N. E. T. 1905)" 4S Misc. 642, 96 N. Y. S. 916; Roberge v. Bonner, (1906) 185 142; Albera v. Sciaretti, (Sup. Sp. T. N. Y. 265, 77 N. E. 1023; Holt v. 1911) 72 Misc. 496, 131 N. Y. S. 889. Tuite, (1907) 188 N. Y. 17, 80 N. E. 7. Albera v. Sciaretti, (Sup. Sp. T. 364. 1911) 72 Misc. 496, 131 N. Y. S. 889. § 411] ILLEGALITY 639 And where a contract made in our state for the services of an opera singer called for services to he rendered in performances on Sunday when required, and that in case no performances were had on Sunday this should not be considered lost time, it was held that the contract could not be construed as contemplating Sunday performances only in states where such performances were legal, as, since the contract was made in our state, it is to be presumed that it was to be performed within the state.^ At com- mon law the making of contracts on Sunday is not prohibited,' and this rule is not changed by the provisions (see Penal Law, §§ 2143, 2146; 39 McKinney's Cons. Laws, pp. 729, 736) pro- hibiting all " labor " on Sunday except works of necessity and charity, and " all trades, manufactures, agricultural or mechan- ical employments. ' ' " And under a statute prohibiting the expos- ing to sale on Sunday of wares, merchandise, etc., it was held that this did not prohibit all private sales, so as to prevent a recovery of the price of property so sold on Sunday.^^ " The Sunday laws," says Seabury, J., " are to be liberally construed; and acts done on that day which do not disturb or interfere with others, and are not contrary to the design sought to be accom- plished by such laws, are not illegal. " ^^ It also seems that even if entering into contracts on Sunday is prohibited, a contract so made will not be illegal in such a sense that validity cannot be given to it by ratification on a secular day ; and where a contract for the sale of land was in the first instance invalid because it was made on Sunday in another state in violation of its laws, and the conveyance was thereafter made on a secular day and a promise by the grantee to pay the consideration then made, it was held that this promise was enforceable." In case of a contract for the carriage of property by a common carrier, such as a carrier See infra, section 656 et seq., as to Eoessler, (Com. PI. 1855) 4 E. D. partial illegality generally. Smith. 234, 235. _ .,, r, ■ ii- /o o fn 10. McCormick v. Hazard, (Sup 8. Albera v. Sciaretti (Sup Sp. T. ^ 1911) 72 Misc. 496, 131 N. Y. 889. ^^^^ ' 9. Merritt v. Earle, (1864) 29 N. ii_ Eberle v. Mehrbach, (1874) 55 Y. 115, affirming 31 Barb. 38; Eberle jj. Y. 682; Botsford v. Every, (Sup V. Mebrbach, (1874) 55 N. Y. 682; Gt. T. 1865) 44 Barb. 618. Boynton v. Page, (Sup. 1835) 13 la. MeCormick v. Hazard, (Sup^ Wend. 425; Batsford v. Every, (Sup. App. T. 1912) 77 Misc. 190, 192, 136 G. T. 1865) 44 Barb. 618; McCormick N. Y. S. 91. V Hazard, (Sup. App. T. 1912) 77 13. Hamilton v. Gridley, (Sup. G. Misc. 190, 136 N. Y. S. 91; Miller v. T. 1868) 54 Barb. 542. 640 NEW YORK LAW OF CONTRACTS [§ 412 by vessel, the fact that the property is delivered on board the vessel on Sunday and the vessel sails on that day, as advertised, does not, it has been held, preclude a recovery against the carrier for a loss of the property, even assuming that the sailing of the vessel was a violation of the Sunday laws." And the fact that a servant is engaged in work on Sunday in violation of the Sunday laws does not preclude his recovery for personal injuries received by him on account of his master's neglect of duty.^^ § 412. Patent Right Notes. — The Act of 1877, ch. 65, requires that a negotiable instrument given for a patent right shall have the words " given for a patent right " written or printed on its face, and declares that it is subject in the hands of any purchaser to the same defenses as in the hands of the original owner (see Negotiable Instruments Law, § 330; 37 McKinney's Cons. Laws, p. 189) ; the act makes it a misdemeanor for any one to take, sell or transfer a note, etc., which is not so drawn, knowing that its consideration was the sale of a patent right (see Penal Law, § 1520; 39 McKinney's Cons. Laws, p. 545). This legislation is held constitutional by our courts as a lawful regulation of negotiable instruments and not an unlawful restraint on the rights of the patentee." It does not, however, render illegal, in the hands of a transferee with notice, a note not drawn as required by the statute, but merely subjects it to all defenses available 14. Merritt v. Earles, (1864) 29 Cooley Torts, 159. He may not be N. y. 115, affirming 31 Barb. 38. able to recover for services rendered 15. Solarz v. Manhattan R. Co., on the faith of the contract; but he (Super. Ct. Tr. T. 1894) 8 Misc. 656, is not for that reason to be physically 59 State Rep. 537, 29 N. Y. S. 1123, disabled. In other words, the defend- 31 Abb. N. Cas. 426, affirmed on ant, in order to escape from liability opinion below 11 Misc. 715, 32 N. Y for its negligence, cannot plead a S. 1149, which is affirmed 155 N. Y. violation of the Sunday law which it 645 mem., 49 N. E. 1104. In this invited. . . . The rule declared seems case MeAdam, J. (8 Misc. p. 657); to be in accord with the consensus of says: "The Penal Code (§§ 263, opinion on the subject, and the deci- 266) prohibits manual labor and sions of the Massachusetts courts to manufactures on the sabbath; yet it the contrary depend so much on the is clear that the violation of these peculiar legislation and customsi of penal provisions had nothing what- that commonwealth as to be regarded ever to do with the injury to the inapplicable to injuries received in plaintiff, for it would have happened this state." to him on any other day under simi- IG. Herdic v. Roessler, (1S88) 109 lar conditions. It was not the day, N. Y. 127, 14 State Rep. 819, 16 N. but the neglect of the defendant, E. 198. which caused the damage. A party A contrary conclusion was, how- violating the law is not on that ac- ever, reached in Ozan Lumber Co. v. count put at the mercy of others. Union County Nat. Bank, (8th Cir. § 413] . ILLEGALITY 641 against the original holder." And it does not take away from a bona fide purchaser the protection afforded him by the law mer- chant in case of commercial paper generally.-'* § 413. Statute Prohibiting Comiption of Agents Generally. — At common law the giving of gratuities to a servant or other agent to induce him to make purchases or contract for services on behalf of his employer does not render illegal the contract induced thereby and is not a defense in bar of an action against the employer for the goods sold or services rendered, but merely constitutes a ground for a rescission at the instance of the buyer or employer or a recovery for such damages as he may have suf- fered by reason of the fraud.^^ But under Laws 1905, ch. 136 (see Penal Laws, § 439; 39 McKinney's Cons. Laws, p. 157), which makes it a criminal offense to give an agent a gratuity, without the knowledge or consent of his prinieipal, to induce him to act in a matter intrusted to his charge, etc., it has been held by the Appellate Division of the First Department, that if a seller, with- out the knowledge or consent of the buyer, gives a gratuity to the buyer's purchasing agent to induce him to make a purchase on behalf of his principal, this will render the contract of sale so procured illegal, and the seller will not be permitted to recover any part of the price even though the buyer retains the goods which were delivered.^" This view is in later cases in the Appellate Term of the same department followed and held to include a contract for work and labor, etc., as well as goods sold, obtained by the bribery of the employer's agent, and a recovery for the 1906) 145 Fed. 344, 76 C. C. A. 218, 20. Sirkin v. Fourteenth St. Store, which involved a similar statute in (Sup. 1908) 124 App. Div. 384, 108 Arkansas, and the court cited deci- N. Y. S. 830, reversing 55 Misc. 288, sions in the several states taking 105 N. Y. S. 179, which aflBrmed 54 opposing views on the subject. And Misc. 135, 105 N. Y. S. 638. This see in this connection Bills and Notes, decision was rendered by a bare ma- 3 R. C. L. p. 913. jority of the court, Scott, J., dissent- 17. Paddock v. Coates, (County Ct. ing in a very able opinion, in which 1897) 19 Misc. 305, 78 State Rep. Paterson, P. J., concurred, and in 334 44 N. Y. S. 334. which the position is taken that the 18. Herdic v. Roessler, (1888) 109 contract of sale was not so connected N. Y. 127, 133, 14 State Rep. 819, 16 with the illegal contract for com- N. E. 198. See also Paddock v. Coates, pensation to the agent as to render it (County Ct. 1897) 19 Misc. 305, 78 illegal in the absence of any provi- State Rep. 334, 44 N. Y. S. 334. sion in the statute to such eflfeet. 19 Brewster v. Hatch, (€oni. PI. See also Standard Lumber Co. v. G T 1885 13 Daly 65, 18 Abb. N. Butler Ice Co., (3d Cir. 1906) 146 Cas. 205 reversing 1 City Ct. 375. Fed. 359, 76 C. C. A. 639. 41 042 NEW YORK LAW OF CONTRACTS [§ 413 services rendered under the contract denied,^'^ and has been fol- lowed in a memorandum decision by the Appellate Division of the Third Department.^^ If the purchase price for goods sold or the compensation for services rendered has been paid by the prin- cipal, he is not entitled to recover, in an action for money had and received, the amount so paid without any deduction for the actual value of the goods received and retained by him or the benefit of the services rendered, though the circumstances are such that the benefits so received cannot be returned, and to entitle him to recover in such an action he must show the amount he has paid over and above the reasonable value of the goods received and services rendered.^' 21. Bolotin V. Jefferson, (Sup. App. T. 1917) 98 Misc. 603, 163 N. Y. S. 59; General Tire Repair Co. V. Price, (Sup. App. T. 1909) 115 N. Y. S. 171 ( oonMnissions paid chauffeur). See also Mutual Coal Co. V. H. G. Realty Co., (Sup. App. T. 1911) 130 N. Y. S. 169. In Rosenwasser v. Amusement En- terprises, (Sup. App. T. 1914) 88 Misc. 57, 150 N. Y. S. 561, a case be- fore the Appellate Term of the First Department, an action was brought to recover the rent reserved in a lease and to enforce a collateral guaranty for its payment. The defendant set up the defense that his agent to nego- tiate the lease was bribed by the plaintiff. The court, after holding that the fact of bribery within the meaning of the statute was not estab- lished, said that admitting that it was established this would not pre- vent a recovery of the rent where the lessee continued in possession of the premises. 281. Merchants' Line v. Baltimore, etc., R. Co., (Sup. 1915) 170 App. Div. 942 mem., 154 N. Y. S. 1133, reversed on other grounds 222 N. Y. 344, 118 N. B. 788. 23. Sehank v. Schuchman, (1914) 212 N. Y. 352, 106 N. E. 127, affirm- ing 157 App. Div. 926, 142 N. Y. S. 573, which affirmed 80 Misc. 311, 141 N. Y. S. 242. See also, Hearn v. Schuchman, (Sup. 1912) 150 App. Div. 476, 135 N. Y. S. 52. In the Sehank case, supra (212 N. Y. 358), Cardozo, J., said: "The plaintiffs argue that the defendant was guilty of the crime denounced by section 439 of the Penal Law, and that if he were now suing for the price the court would refuse to help him. (Sirkin v. Fourteenth Street Store, 124 App. Div. 384.) That question is not here, and we do not attempt to pass upon it. The situ- ation which it supposes differs widely, however, from the one before us. If the defendant were suing the plaintiffs for the price, and the court were to deny him relief, its refusal would not rest upon the ground that it would be against good conscience for him to have the money. The basis of its refusal would rather be that because of his illegal acts the law would- leave him where it found him. (Oscanyan v. Arms Co., 103 U. S. 261 ; McMullen v. Hoffman, 174 U. S. 639.) In this case it finds him in a situation altogether different. He lias received the money, and- the plaintiffs are trying to take it away from him. The law may at times refuse to aid a, wrongdoer in getting that which good conscience permits him to receive; it will not for that reason aid another in taking away from him that which good conscience entitles him to retain." § 414] ILLEGALITY 643 § 414. Transactions within Prohibition and Proof of Bribery of Agent. — To bring a case within the rule announced in the above section it is necessary that the gratuity should have been given without the knowledge of the principal, even though the proposition for the gratuity was made to the agent without any intention that it should be communicated to the principal.^^ And the bribe must have been given to an agent or employee of the defendant intrusted with or connected with the negotiation of the transaction involved. Thus, where the plaintiff agreed to give one of defendant's employees a percentage on the moneys to be received under a contract with the defendant in considera- tion of such employee's promise to aid in securing the execution of the contract, and there is no evidence to indicate that the employee bribed by the plaintiff had anything to do with the making of the contract or that he influenced in any way the execution thereof, the plaintiff's right to recover on the contract is not forfeited.^ Also, where the payment was made to a lessee's agent under the belief that he was acting as a broker merely, this 24. Ballin v. Fourteentli St. Store, (Sup. 1908) 123 App. Div. 582, 108 N. Y. S. 26, modifying and affirming 54 Misc. 359, 105 N. Y. S. 1028, and affirmed 195 N. Y. 580 mem., 89 N. E. 1095. See also General Automo- bile Supply Co. V. Rockwell, (City Ct. Tr. T. 1916) 162 N. Y. S. 210. as. Merchants' Line v. Baltimore, etc., R. Co., (1918) 222 N. Y. 344, 118 N. E. 788, reversing 170 App. Dlv. 972, 154 N. Y. S. 1133. In this case Hiscock, Ch. J., said : " The reason for this reversal is found in the fact that there is no evidence to indicate that the employee bribed by plaintiff had a thing to do with, the making of the contract or that he influenced in any way the execution thereof. The contract was made by defendant through another official, who knew nothing of the corrupt arrangement made by the plaintiff with the unfaithful employee of the defendant, and there is no evidence to show that the latter had any com- inunication with the former or that he in any manner even attempted to secure the contract for plaintiff. So far as the present evidence discloses, the plaintiff's representatives were lacking in sagacity as well as good morals, and were thereby led into an attempt to corrupt the wrong man. The only result of their unlawful methods seems to have been that they unnecessarily gave up to a pretender a part of the proceeds which they were entitled to receive from defend- ant, and did not gain a thing, even in an unlawful way, by so doing. There is no case which holds that under such circumstances the present con- tract should be held void. The un- lawful acts of the plaintiff have not in any manner entered into, affected, or tainted it, and in that respect the case differs fundamentally from the cases above cited, and especially from the case of Sirkin v. Fourteenth Street Store (124 App. Div. 384) greatly relied upon by the defendant. In that case the plaintiff reached and bribed the man who made the con- tract under which he was seeking to recover." 644 NEW YORK LAW OF CONTRACTS [§415 was held not to affect the right of the lessor to enforce the lease and collateral guaranty for payment of the rent.^^ To enable a principal to defend against a claim for goods sold or services rendered on the ground that the contract therefor was secured through the bribing of his agent, the proof of such bribery must be clear.^^ As said by Guy, J., the rule permitting the buyer to defend on the ground that the seller was guilty of bribing his agent, ' ' being so harsh in its effect, and the danger being so obvious that it may be resorted to for dishonest purposes, it is necessary that it should be applied with great caution, and only where there is a clear preponderance of evidence establishing the seller's criminality." ^^ A finding as one of fact by the trial court, that no bribe was given, will not ordinarily be disturbed by a reviewing court.^' Admissions by the plaintiff that a bribe was given are not as a matter of law insufficient to prove such fact,™ and where the plaintiff without qualification admitted in writing that he had paid commissions to the defendant's agent, this was held more than to counterbalance a denial by the plaintiff that he had given them.'^ § 415. Statutes Regulating Insurance Business. — Statutes enacted for the protection of the public, regulating the manner in which the business of insurance companies is to be transacted, have frequently been held to render illegal contracts in contra- vention thereof .^^ This has been held true as regards a note taken by a mutual fire insurance company in violation of a statute pro- hibiting such companies from taking notes for more than five times the amount of the cash premium.^ So it would seem that the Laws of 1902, ch. 690, as amended by Laws of 1906, ch. 326, 26. Rosenwasser v. Amusement En- 29. Rosenberg v. Jefferson, (Sup. terprises, (Sup. App. T. 1914) 88 App. T. 1917) 98 Misc. 616, 163 N. Y. Misc. 57, 150 N. Y. S. 561. S. 157.. 27. Mutual Coal Co. y. H. G. 30. Bolotin v. Jefferson, (Sup. App. Realty Co., (Sup. App. T. 1911) 130 T. 1917) 98 Misc. 603, 163 N. Y. S. N. Y. S. 169, reversing judgment of 59 (admissions of the plaintiff proven the lower court on the ground that by two disinterested witnesses). the evidence, which consisted of the 31. General Tjre Repair Co. v. uncorroborated testimony of the Price, (Sup. App. T. 1909) 115 N. Y. buyer's agent that he had accepted S. 171. bribes, was not under the circum- 32. Otis v. Harrison, (Sup. G. T. stances sufficient to sustain a finding 1862) 36 Barb. 210; Akers v. Mu- of the jury that a bribe was given. tual L. Ins. Co., (Sup. Sp. T. 1908) 28. Mutual Coal Co. v. H. G. 59 Misc. 273, 112 N. Y. S. 254. Realty Co., (Sup. App. T. 1911) 130 33. Otis v. Harrison, (Sup. G. T. N. Y. S. 169, 171. 1862) 36 Barb. 210. § 415] ILLEGALITY 646 prohibiting domestic insurance companies from making contracts for the employment of agents, etc., for a longer period than one year (see Insurance Law, § 98; 27 McKinney's Cons. Laws, p. 169), and making a violation of the prohibition by the company or its officers a misdemeanor (see Insurance Law, § 53; 27 McKin- ney's Cons. Laws, p. 72), renders illegal and unenforceable a con- tract of employment in violation of the statute.** On the other hand, as statutes regulating the securities on which the funds, of such companies may be loaned are intended to secure the protec- tion of such funds in the interest of creditors and policy holders, they do not, unless the intention of the legislature to the contrary is clearly expressed, invalidate securities not of the standard required by the statute.^ In speaking of such a statute Landon, J., said : ' ' The manifest intent of these provisions is to add to the pro- tection of policy holders in insurance companies by requiring the companies to invest the moneys intrusted to their care in securities of unquestionable soundness, certainly not to withdraw such pro- tection and bestow such moneys upon borrowers by invalidating the investment whenever the security should prove to be below the prescribed standard. ' ' ^^ Thus where a statute prohibited loans on real estate unless the property was unencumbered and the loan did not exceed fifty per cent of the value of the property, it was held that a mortgage was not invalid because the property was already encumbered or the margin of value was less than that specified.*^ Where the capital of an insurance company has become so impaired as to render it insolvent under the Insurance Law and impose on the directors the duty either to repair its capital or to liquidate the company as provided by the statutes, this does not necessarily render illegal a contract for the sale of a majority 34. Akers v. Mutual L. Ins. Co., when relief will be granted a party (Sup. Sp. T. 1908) 112 N. Y. S. 254. not in pari delicto. The parties to a contract contra- 35. Washington L. Ins. Co. v. vening the statute are not to he re- Clason, (1900) 162 N. Y. 305, 56 garded, it has been held, as in pari N. E. 755, affirming 16 App. Div. 434, delicto, the insurance company being 45 N. Y. S. 27. But see Life, etc., considered the one against whom the Ins. Co. v. Mechanic F. Ins. Co., statute is directed, and consequently (Sup. 1831) 7 Wend. 31. the employee, though he cannot en- 36. Washington L. Ins. Co. v. force the contract, may recover the Clason, (1900) 162 N. Y. 305, 308, reasonable value of the services ren- 56 N. E. 755. dered. Akers v. Mutual L. Ins. Co., 37. Washington L. Ins. Co. v. (Sup Sp. T. 1908) 59 Misc. 273, 112 Clason, (1900) 162 N. Y. 305, 56 N. N. Y. S. 254. E. 755, affirming 16 App. Div. 434, See infra, sections 646-647, as to 45 K P. S. 27. 646 NEW YORK LAW OF CONTRACTS [§416 or all of its stock to a third person, on the ground that such a sale necessarily implies an intent and arrangement that the pur- chaser is to resort to unlawful means to liquidate the company and thus perpetrate a fraud on the policy holders.^* The provision of the Insurance Law, § 97 (27 McKinney's Cons. Laws, p. 163), limiting the expenditures of domestic insurance companies, and prohibiting them from paying to an agent more than a certain percentage of the premiums received on new business, has been held not to affect contracts entered into before its enactment and having a long period to run, as if construed to be retroactive it would be unconstitutional as impairing the obligation of such prior contracts.® § 416. Statutes Regula/ting' Banking Business. — Statutes restricting the right to engage in the banking business without legislative sanction have been held to render illegal and unenforce- able contracts entered into in conducting such business without the required authority." Thus where a corporation illegally engaged in the banking business and made a loan by way of discounting the borrower's note, a recovery by it on the note was denied." This, however, did not prevent a recovery for the money loaned where the action was not based on the note, but on the implied contract to repay the money loaned ; *^ and where a statute creat- ing a savings bank, without general banking powers, denied it the right to discount commercial paper and restricted its powers as to the securities in which its funds were to be invested, it was held that as the main object of the statute was to secure the funds of the depositors against loss by insecure and hazardous invest- ments, it could enforce repayment of a loan made by way of dis- counting commercial paper, though it could not maintain an action on the discounted note.^' Contracts having for their object a 38. L. D. Garrett Co. v. Morton, 41. New York State Loan, etc., Co. (Sup. 1901) 65 App. Div. 366, 73 N, v. Helmer, (1879) 77 N. Y. 64, affirm- Y. S. 40, reversing 35 Misc. 10, 71 ing 12 Hun 35; Utica Ins. Co. v. N. Y. S. 17. Scott, (Sup. 1821) 19 Johns. 1. 39. Boswell v. Security Mut. L. 42. Utica Ins. Co. v. Scott, (Sup. Ins. Co., (1908) 193 N. P. 465, 86 1821) 19 Johns. 1; Utica Ins. Co. v. N. E. 532, modifying and affirming Kip, (Sup. 1827) 8 Cow. 20; Utica 119 App. Div. 723, 104 N. Y. S. 130. Ins. Co. v..Bloodgood, (Sup. 1830) 4 40. New York State Loan, etc., Wend. 652. See also Utica Ins. Co. Co. V. Helmer, (1879) 77 N. Y, 64, v. Cadwell, (Siup. 1829) 3 Wend, affirming 12 Hun 35; Utica Ins. Co. 296. V. Caldwell, (Sup. 1829) 3 Wend. 43. Pratt v. Short, (1880) 79 N. Y. 296; Pennington v. Towns«nd, (Sup. 437. 1831) 7 Wend. 276. § 416] ILLEGALITY 647 violation of the early statutes prohibiting the circulation as money of bank notes under a certain denomination were held illegal and unenforceable,^* also contracts which expressly provided for the issuance by the banking corporation of its notes payable on time in violation of the early statutes restraining under a penalty such corporation from doing so, and the notes so issued have been held unenforceable ; *^ but where the note was issued for money loaned to the bank, a recovery for the money loaned, independent of the note, has been permitted.*^ Statutes prohibiting banks from mak- ing loans in excess of a certain amount to any one person or to officers of the bank, except under certain conditions, are intended for the protection of the bank and its depositors, and have been held not to render illegal and unenforceable notes or other obliga- tions given for the repayment of loans made in violation of the statutes ; *' a fortiori, where such a loan has been made, substituted notes given for the purpose of taking up the prior objectionable paper are valid and enforceable,** and this latter has been held true though the substituted paper was given in anticipation of an inspection of the bank by the state banking department.*' This is also the view taken by the federal Supreme Court as to the enforcement of obligations given for the repayment of loans made or securities taken by national banks in violation of the federal banking acts,"" and our courts of course follow, as is their duty, the decisions of the federal court in the construction of such statutes.^^ A pledge to a national bank of shares of its stock as security for a loan, though prohibited by the National Banking Act, is binding on the stockholder ; ^2 this, however, does not enable 44. Merchants' Bank v. Spalding, 1045, affirmed 190 N. Y. 534, 83 N. (1853) 9 N. Y. S3, Seld. Notes 172, E. 1130. affirming 12 Barb. 302. 48. Seneca County Bank v. Neass, 45. Tracy v. Talmage, (1856) K (Sup- 1848) 5 Denio 329, affirmed 3 N. Y. 162, modifying 18 Barb. 456, ^\Y-^^^- r. ^ t, ^ xt 9 How. P;. 530, 12 N. Y. Leg. Obs. , *»• S^^^^^f County Bank ^ Neass 302; Curtis v. Leavitt, (1857) 15 (S^P- Iff) ^ Demo 329, affirmed 3 w Y 9 ^- ^- **^- 50. Union Nat. Bank v. Matthews, 46. Oneida Bank v. Ontario Bank, (i878) 98 U. S. 621, 25 U. S. (L. ed.) (1860) 21 N. Y. 490. See infra, sec- jgg tlons 641 et seq., as to the enforce- gj_ D^ncomb v. New York, etc., R. ment of and relief from illegal con- ^^^ (1881) 84 N. Y. 190; Slade v. tracts generally. Squier, (Sup. 1909) 133 App. Div. 47. DCinn v. O'Connor, (Sup. 1898) 666, 118 N. Y. S. 278. 25 App. Div. 73, 49 N. Y. S. 270; 5Z. Xenia First Nat. Bank v. People's Trust Co. v. Pabst, (Sup. Stewart, (1882) 107 U. S. 676, 2 S. 1906) 113 App. Div. 375, 98 N. Y. S. Ct. 778, 27 U. S. (L. ed.) 502. 648 NEW YOEK LAW OF CONTRACTS [§ 417 a national bank by the adoption of a by-law to create an equitable lien on its stock for any indebtedness owing to it by a stockholder, which can be enforced against a purchaser of the stock though the stock certificate recites that it is not transferable on the books of the bank until all indebtedness by the stockholder to the bank has been paid.^' § 417. Statutes Requiring License to Engage in Trade or Busi- ness Generally. — Statutes requiring a license as a condition pre- cedent to engaging in a particular trade, business, or profession, if enacted not as a revenue measure but to protect the public from imposition or injury, are considered as rendering illegal con- tracts for the sale of commodities or for the rendition of services by unlicensed persons, and preclude a recovery for the goods sold or the services rendered.^* As said by Bronson, C. J. : " When a license to carry on a particular trade is required for the sole purpose of raising revenue, and the statute only inflicts a penalty by way of securing payment of the license money, it may be that a sale without a license would be valid. . . . But if the statute looks beyond the question of revenue, and has in view the protec- tion of the public health or morals, or the prevention of frauds by the seller, then, though there be nothing but a penalty, a con- tract which infringes the statute cannot be supported. " ^^ To entitle the defendant to raise the defense that the plaintiff was not licensed to transact or carry on the business or trade involved, the view has been taken that the defense must be pleaded,^ and it has also been held that to entitle a defendant to raise the defense that the plaintiff was not licensed as required by the federal internal revenue act the defense must be pleaded;" the better view, however, is that, as the transaction of the business or trade 53. Buffalo German Ins. Co. v. previous appeal 162 N. Y. 163, 56 Buffalo Third Nat. Bank, (1900) 162 N. E. 521. N. Y. 163, 56 N. E. 521, reversing 29 54. Johnston v. Dahlgren, (1901) Aipp. Div. 137, 51 N. Y. S. 667, apply- 166 N. Y. 354, 59 N. E. 987, affirming ing Stouth Bend First Nat. Bank v. 48 App. Div. 537, 62 N. Y. S. 1115; Lanier, (1871) 11 Wlall. 369, 20 U. S. Griffith v. Wells, (Sup. 1846) 3 Denio (L. ed.) 172; Bullard v. National 226. Eagle Bank, (1874) 18 Wall. 589, 21 55. Griffith v. Wells, (Sup. 1846) 3 TJ. S. (L. ed.) 923. Denio 226. This view was approved by the fed- 56. Margolys v. Goldstein, (Sup. eral Supreme Court. Buffalo Third App. T. 1005) 96 N. Y. S. 185. Nat. Bank v. Buffalo German Ins. 57. Gilbert v. Sage, (Sup. G. T. Co., (1904) 193 U. S. 581, 24 S. Ct. 1871) 5 Lans. 287, affirmed 57 N. Y. 524, 48 U. S. (L. ed.) 801, affirming 639 mem. See infra, section 660 171 N. Y. 670, 64 N. E. 1119, on et seq., as to the necessity to plead § 418] ILLEGALITY 649 without a license is unlawful, a compliance with the statute is a condition precedent to a recovery for goods sold or services ren- dered, and must be alleged in the complaint ; ^^ and it has been held that the defense is available though it was not raised on the trial.'' Where the contract or transaction is governed by the laws of another state in which it was performed, and the laws of that state as construed by its courts preclude a recovery for services rendered by persons conducting the particular calling in that state without a license, a recovery will not be allowed by the courts of our state in case the action is brought therein.** § 418. Application of Rule to Particular Business or Trade Generally. — It has been settled from an early date that the statutes prohibiting the sale of intoxicating liquors by unlicensed persons were not intended merely as a revenue measure but to protect the public against the consequences which might be expected from allowing all persons at their pleasure to engage in such traffic, and that, therefore, a sale of such liquors by an unlicensed person is an illegal transaction, and no action to recover the price can be maintained.^^ The same principle has been applied illegality of contract as a defense generally- 58. Schnaier v. Grigsby, (Sup. 1909) 132 App. Div. 854, 117 N. Y. S. 455, affirnofid on opinion belo^ per Scott, J. 189 N. Y. 577, 93 N. E. 1125, also affirming 61 Misc. 325, 326, 113 N. Y. S. 548, which reversed 59 Misc. 595, 112 N. Y. S. 505; Gottes- man v. Barer, (Sup. App. T. 1915) 89 Misc. 440, 152 N. Y. S. 128; Preiser v. Solomon, (Sup. App. T. 1918) 170 N. Y. S. 307. In the Schnaier case, supra, Scott, J., said: "Whatever doubt there may have been upon the subject in the past seems now to be set at rest by the Court of Appeals in the very recent case of Wood & Selick v. Ball, 190 ]Sr. Y. 217. In that case the court had under consideration section 15 of the General Corporation Law, which provides that no foreign stock corporation, other than a moneyed corporation, shall do business in the state without having first procured from the secretary of state a certain certificate. It was held that the pro- curing of such certificate was a con- dition precedent to the right to do business, and must, therefore, be alleged in the complaint and proven as part of the plaintiff's case. The statute now under consideration for- bids any person (which includes a corporation) to engage in the plumb- ing business unless he or it shall have first registered. Thus registration is made a condition precedent to the right to engage in the business, and as such must be pleaded and proven as a part of the plaintiff's affirmative case, and the absence of such an alle- gation renders the complaint de- murrable." 59. Preiser v. Solomon, (Sup. App. T. 1918) 170 N. Y. S. 307. eO. Angell V. Van Schaick, (1892) 132 N. Y. 187, 43 State Rep. 677, 30 N. E. 395, reversing 56 Hun 247, 30 State Rep. 714, 9 N. Y. S. 568. As to the enforcement in this state of a contract illegal under the laws of another state by which it was gov- erned, see supra, section 385. 61. Griffith V. Wells, (Sup. 1846) 650 NEW YORK LAW OF CONTRACTS [§ 418 where services have been rendered in certain trades and business, which the statutes, for the protection of the public, prohibited unlicensed persons from engaging in, such as a statute (see Gen. Business Law, § 172; 19 McKinney's Cons. Laws, p. 115) requir- ing employment agencies to be licensed and to be conducted sub- ject to certain restrietions,^^ or a statute (see Insurance Law, § 138a; 27 McKinney's Cons. Laws, p. 258) prohibiting under a penalty unlicensed persons from conducting the business of a public adjuster of insurance losses.^' Also in case of an ordinance of the city of New York prohibiting a person from performing services as a public eartman without a license from the city, and making its violation a misdemeanor, a recovery for services ren- dered by an unlicensed eartman has been denied.** The same Is true as regards a violation of a statute (see Gen. Business Law, § 70; 19 McKinney's Cons. Laws, p. 59) prohibiting persons from engaging in the detective business without being licensed, and making a violation of the statute a misdemeanor ; *' but it is held that one does not engage in such ' ' business ' ' by undertaking to investigate a single matter, and for that reason is not precluded •from recovering for his services.^^ It has also been held that a sale by a peddler who has not taken out the license required by a federal internal revenue act is illegal, and therefore no recovery can be had by him for the price of the goods sold.*' The Kevised Statutes, ch. 27, title 1 (1 Rev. Stat. 528), imposing certain taxes or duties on sales of certain goods and merchandise by auctioneers, provides for the appointment of auctioneers, requires a bond to be filed by them for the faithful performance of their duties, regu- lates the manner of sale, and imposes a penalty on auctioneers violating the provisions of the statute (see Gen. Business Law, § 21 et seq.; 19 McKinney's Cons. Laws, p. 37 et seq.). Under 3 Denio 226; Smith v. Joyce, (Sup. 65. Fox v. Smith, (Sup. 1908) 123 G. T. 1851) 12 Barb. 21, 24; Turck App. Div. 369, 108 N. Y. S. 181, re- V. Richmond, (Sup. G. T. 1851) 13 versed on other grounds 197 N. Y. Barb. 533. 527, % N. E. 1158. 62. Meyers v. Walton, (Sup. App. 66. Fox v. Smith, (1909) 197 N. Y. T. 1912) 76 Misc. 510, 135 N. Y. S. 527 mem., 90 N. E. 1158, reversing 574. 133 App. Div. 369', 108 N. Y. S. 181, 63. Stake v. Roth, (Sup. App. T. on the dissenting opinion of Clarke, J. 1915) 91 Misc. 45, 154 N. Y. S. 213, 67. Best v. Bauder (Sup. Sp. T. affirmed 171 App. Div. 914 mem., 155 1865) 29 How. Pr. 489. See supra, N. Y. S. 1149. section 404 et seq., as to the legality 64. Ferdon v. Cunningham, (Com. of contracts in violation of revenue PI. Gen. T. 1860) 20 How. Pr. 154. statutes generally. § 419] ILLEGALITY 651 this statute it was held that the fact that an auctioneer had not complied with the provisions of the statute did not invalidate the sale and prevent him from recovering from the buyer the purchase price, as the only effect of his neglect or omission is to subject him to the penalties he incurs thereby.^' But it is held that he cannot recover for the services rendered; this is one of the penalties which he incurs for acting as an auctioneer in violation of the statute.** § 419. Plumbers.— The statute (Gen. City Law, § 45; 20 McKinney's Cons. Laws, p. 37) providing that it shall not be law- ful for any person to engage in or carry on the trade, business or calling of a master plumber in any city without being licensed or registered as required by the statute, was enacted for the pro- tection of the public health and is a constitutional police regula- tion,'" and it is well settled that no recovery for services rendered by one who engages in the plumbing business without being licensed or registered is, as a general rule, to be allowed." Where 68. Bogart v. O'Regan, (Com. PI. 1852) 1 E. D. Smith 590. See also Miller v. Burke, (Com. PI. 1875) 6 Daly 171, 181, per Larrimore, J. 69. Preiser v. Solomon, (Sup. App. T. 1918) 170 N. Y. S. 307. 70. People v. Warden, (1895) 144 N. Y. 529, 64 State Rep. 51, 39 N. E. 686, affirming 81 Hun 434, 63 State Hep. 283, 30 N. Y. S. 1095. 71. Johnston v. Dahlgren, (1901) 166 N. Y. 354, 59 N. E. 987, affirming 48 App. Div. 537, 62 N. Y. S. 1115; Johnston v. Dahlgren, (Sup. 1898) 31 App. Div. 204, 52 N. Y. S. 555; Sehnaier v. Navarre Hotel, etc., Co., (Sup. 1903) 82 App. Div. 25, 81 N. Y. S. 633, affirmed as to this but re- versed on other grounds 182 N. Y. 83, 74 N. E. 561; Sehnaier v. Grigsby, (Sup. 1909) 1-32 App. Div. 854, 117 N. Y. S. 455, affirmed on opinion be- low of Scott, J., 199 N. Y. 577, 93 N. E. 1125; Wexler v. Rust, (Sup. 1911) 144 App. Div. 296, 128 N. Y. S. 977 ; Bloom v. Saberski, ( Com. PI. G. T. 1894) 8 Misc. 311, 59 State Rep. 277, 28 N. Y. S. 731; Lanzer v. Unterberg, (City Ct. G. T. 1894) 9 Misc. 210, 60 State Rep. 839, 29 N. Y. iS. 683 ; Sehnaier v. Grigsby, ( Stip. App. T. 1908) 61 Misc. 325, 113 N. Y. S. 548, affirmed 132 App. Div. 854, 117 N. Y. S. 455, which is affirmed 199 N. Y. 577, 93 N. E. 1125; Gottes- man v. Barer, (Sup. App. T. 1915) 89 Misc. 440, 152 N. Y. S. 128; Israel V. Wilson, (Sup. App. T. 1912) 134 N. Y. S. 536. In Wexler V. Rust, (Sup. 1911) 144 App. Div. 296, 128 N. Y. S. 977, it is held that where one not a duly licensed pliimber pursues that busi- ness he cannot recover on a contract made by him exclusively for plumb- ing work, although he sublets' the contract to plumbers who are duly licensed, and that, therefore, the sub- contractor cannot, under such cir- cumstances, enforce a, mechanic's lien for the work done. If the work is done during the period of grace given by chapter. 66 of the Laws of 1893 to secure the required certificate or registration, the prohibition is not violated and a recovery for the services may be had. Schieck v. Herzog, (Com. PI. G. T. 1894) 7 Misc. 546, 58 State Rep. 50, 27 N. Y. S. 988. See also Margolys V. Goldstein, (Sup. App. T. 1905) 96 N. Y. S. 185. 652 NiEW YORK LAW OF CONTRACTS [§ 419 a partnership desired to engage in the plumbing business, the Law of 1896, eh. 803, required each partner to be registered. This was held, however, unconstitutional as an unreasonable restriction on the right to engage in such business, as the public would be fully protected by requiring a member in direct charge of the plumbing work of the firm to be registered, and it was consequently held that where the member of the firm having charge of such work was registered the firm was not precluded from recovering for ser\dces renderedJ^ But this does not permit a partnership to engage in the plumbing business where no member of the firm is a registered plumber, though the firm employs a registered plumber as a manager to have general charge of the business and supervise the actual doing of the plumbing work, and no recovery can be had for services rendered by such a firm.''' The Laws of So if the work done is not plumb- ing work but such as carpenters, painters, etc., do, the plaintiflf is not precluded from recovering therefor though he is also conducting a plumb- ing business without being licensed. Black V. Popper, (Sup. App- T. 1897) 20 Misc. 707 mem., 45 N. Y. S. 927. And where an unlicensed plumber is engaged to do both plumbing work and other work not of tliis character, and the contract is divisible, he may recover for the other work though he could not recover for the plumbing work. Johnston v. Dahlgren, (Sup. 1898) 31 App. Div. 204, 52 N. Y. S. 555, on second appeal 48 App. Div. 537, 62 N. Y. S. 1115, which is af- firmed 166 N. Y. 354, 59 N. E. 987. But it would be otherwise if the contract for the several kinds of work was entire. Gottesman v. Barer, (Sup. App. T. 1915) 89 Misc. 440, 152 N. Y. iS. 128. See infra, section 656 et seq., as regards the effect of partial illegality of contracts generally. 72. Schnaier v. Navarre Hotel, etc., Co., (1905) 182 N. Y. 83, 74 N. E. 561, reversing 82 App. Div. 25, 81 N. Y. S. 633. 73. Bronold v. Engler, (1909) 194 N. Y. 323, 87 N. E. 427, affirming 121 App. Div. 123, 105 N. Y. S. 508. In this case the court said: "It is not the manager but the plaintiffs who are the responsible h^ads of the busi- ness; not he, but they, are liable for defective work or improper plumb- ing. They, not he, have the continu- ous power to determine what jour- neymen plumbers shall be employed to do the work and how it shall be done, and he himself inight be at any time discharged. His connection with the work depends on the continuing pleasure of the plaintiffs. We do not say that any one not a master plumber, making a contract which provides to some extent for plumbing work, would fall within the inhibi- tion of the statute. A builder might contract to erect and complete a house or other structure including the plumbing work for a gross sum, and for that purpose he would have the right to employ a licensed master plumber to do the plumbing work. He would in such case in no fair sense be conducting the ' trade, busi- ness or calling ' of a master plumber. It would be the mere incident of a larger work. In this case, however, the trade of a master plumber is the very business or trade which the plaintiffs hold themselves out as pur- suing, and therefore falls within the inhibition of the statute." § 419] ILLEGALITY 653 1915, eh. 467 (see Gen. City Law, § 45a; 20 MeKinney's Cons. Laws, p. 39), expressly requires that a corporation engaging in the plumbing business shall have a certain number of its stock- holders and officers registered plumbers. Prior to this act, a corporation could not as a general rule lawfully engage in such business, and therefore could not recover for services rendered where it unlawfully did engage therein.^^ The building code of the city of New York, however, which was considered as having the full sanction of law as regards the licensing of master plumbers, provided for the conducting of the plumbing business by a cor- poration if certain of its officers were registered as plumbers, and this it was held permitted a corporation doing a plumbing busi- ness in New York city to recover for services rendered, provided it complied with the requirements of the building code of the city.'^ It has been suggested by the Court of Appeals that a general contractor, though not a licensed plumber, may take a contract for general construction of a building or the like, though a part of the work to be done is plumbing, provided he lets such work to be done by a licensed plumber, as in such a case he would in no fair sense be conducting " the trade, business or calling " of a master plumber,'" and it has been so held in the Appellate 74. Sclinaier v. Grigsby, (Sup. registration involves the holding of 1909) 132 App. Div. 854, 117 N. Y. a certificate of competency, which S. 455, afiirmed on opinion below per could not well be given to a corpora- Scott, J., 199 N. Y. 577, 93 N. E. tion. Being forbidden to engage in 1125, also affirming 61 Misc. 325, 113 the business, a corporation cannot N. Y. S. 548, which reversed 59 Misc. recover for worlc done in violation of 595, 112 N. Y. S. 505. See also the statute." Bro'nold v. Engler, (Sup. 1907) 121 75, William Messer Co. v. Roth- App Div. 123, 124, 125, 105 N. Y. S. stein, (Sup. 190S) 129 App. Div. 215, 508. 113 N. Y. S. 772, affirmed 198 N. Y. In the Schnaier case, supra (132 532, 92 N. E. 1107, on the ground App. Div. i856), Scott, J., said: "A that the defense of illegality was not corporation is not specified by name raised in the trial court. in the statute, but within the mean- In the later case of Schnaier v. ing of registration acts the word Grigsby, (iSup. 1909) 132 App. Div. 'person' includes a corporation. 854, 117 K Y. S. 455, referred to in (People V. Woodbury Dermatological the preceding note, the effect of the" Institute 192 N. Y. 454.) .It ap- building code of the city was not pears, therefore, that under the stat- considered, because its provisions ute a corporation cannot lawfully were neither pleaded nor proven, and engage in or carry on the trade, busi- being an ordinance merely judicial nesa or calling of employing or master notice of it could not be taken, plumber in the city of New York, 76. Bronold v. Engler, (1909) 194 because it cannot be registered, since N. Y. 323, 325, 87 N. B. 427. 654 NEW YORiK LAW OF CONTRACTS [§ 420 Division." This does not, however, permit unlicensed persons to engage in the business, though they sublet the work to licensed plumbersJ* § 420. Practice of Medicine and Dentistry. — The early statutes (1 E. L. 219, 2 Rev. Stat. 222) regulating the practice of medicine prohibited the practice thereof by any one not licensed as required by the statute, and in addition to imposing a penalty for violating the statute for a fee or reward, expressly provided that a person practicing medicine in violation of the statute should be disqualified from or incapable of collecting any debt incurred by or arising from such practice, and of course no recovery for services rendered by an unlicensed physician could be had.'* In 1844 the statutes requiring persons practicing medicine to be licensed were repealed, and until the later statutes again imposed restric- tions, unlicensed physicians were permitted to practice and to recover for their servicec.^" Restrictions on the right to practice medicine have been reimposed by later statutes (see Pub. Health Law, §§ 161, 174; 44 McKinney's Cons. Laws, pp. 102, 114). These laws make it a misdemeanor to practice medicine without the required license, but do not contain the express provision against a recovery for services rendered by an unlicensed physician. The same effect, however, is given to them as was given to the early statutes, and an unlicensed physician is denied the right to recover for services rendered ;*i and this has been held true where a 77. Putnam v. Siravo, (Sup. 1910) 54 App. Div. 33, 66 N. Y. S. 303, 8 140 App. Div. 194, 124 N. Y. S. 1105. N. Y. Annot. Cas. 190; Ottaway v. 78. Wexler v. Rust, (Sup. 1911) Lowden, (Sup. 1900) 55 App. Div. 144 App. Div. 296, 128 N. Y. S. 977. 410, 66 N. Y. S. 952, 8 N. Y. Annot. 79. Timmerman v. Morrison, (Sup. Cas. 301, reversed on other grounds 1817) 14 Johns. 369; Smith v. Tracy, 172 N. Y. 129, 64 N. E. 812, 11 N. Y. (Super. Ct. 1829) 2 Super. Ct. 465. Annot. Cas. 412; Fox v. Dixon, (Sup. See Finch V. Gridley, (Sup. 1841) 25 G. T. 1990) 5i8 Hun 605 mem., 34 Wend. 469. State Rep. 710, 12 N. Y. S. 267; In People V. Judges of C. P., (Sup. Haberlin v. Englehardt, (Sup. App. 1830) 4 Wend. 200, it was held that T. 1916) 94 Misc. 154, 157 N. Y. S. while an unlicensed physician could 839; Engel v. Gerstenfeld, (Sup. not recover, a licensed physician App. T. 1917) 102 Misc. 97, 168 N. ■ could recover for services rendered by Y. S. 434, reversed on other grounds his apprentice student. 184 App. Div. 953, 171 N. Y. S. 1084 80. White v. Carroll, (1870) 42 mem. N. Y. 161; Bronson v. Hoffman, In Haberlin v. Englehardt, (Sup. (Sup. 1876) 7 Hun 674. See also App. T. 1916) 94 Misc. 154, 157 Bailey V. Mogg, (Sup. 1847) 4 Denio N. Y. S. 839, the action was one to 60. recover for medical services ren- 81. Accetta v. Zupa, (Sup. 1900) dered by the plaintiff, a physician § 420] ILLEGALITY 635 physician had been licensed to practice medicine in the state by the Regents of the State University, but had failed to file in the county, as required by the statute, his license to practice.'^ The same effect is given to a statute (see Gen. Health Law, § 203; 44 McKinney's Cons. Laws, p. 130) prohibiting under a penalty persons from practicing dentistry without being duly licensed, and an unlicensed dentist is denied the right to recover for his serv- ices.*' Where a person practicing medicine in violation of the statute, in addition to his services, furnished his patient with medicines, he was precluded from a recovery not only for his services but also for the medicines.** As said by Savage, C. J. : " Where the same person officiates as physician and apothecary, he ... is incapable of suing for services rendered or medicines furnished as a physician. ... If unlicensed pretenders to skill in diseases can recover, as in this case, the statute may become a dead letter ; the country will be filled with mere quacks, peddling their nostrums, and deceiving and destroying the ignorant and credulous, the very mischief which the statute is intended to pre- duly commissioned as a first lieuten- ant in the Medical Reserve Corps of the United States Army, appointed by the President of the United States pursuant to an act of Congress desig- nated as the Act of April 23, 1908, eh. 150. It was admitted that the plaintiff was never registered to prac- tice medicine in this state nor au- thorized so to practice under the Public Health Law of this state. It was held that as plaintiff's duties as a medical officer do not begin, unless promoted to the Medical Corps, until calkd into active duty, he was not serving the United States Army, and therefore was not within the saving clau'se of the Public Health Law, § 173 (44 McKinney's Cons. Laws, p. 113), which provides that the statute shall not be construed to affect commissioned medical officers serving in the United States Army, etc., and that a judgment in his favor should be reversed and the complaint dismissed. In Engel v. Gerstenfeld, (Sup. App. T. 1917) 184 App. Div. 953, 171 N. Y. S. 1084 mem., reversing 102 Misc. 97, 168 N. Y. S. 434, it is held that a person engaged in removing the growth of hair from the face by the use of an electric needle is not prac- ticing medicine, and therefore the fact that she has no license to prac- tice medicine does not affect her right to recover for services rendered. 8a. Accetta v. Zupa, (Sup. 1900) 54 App. Div. 33, 66 N. Y. S. 303, 8 N. Y. Annot. Cas. 190. 83. O'Beirne v. Carey, (Sup. App. T. 1914) 150 N. Y. S. 666. If an office employee or servant of a licensed dentist, without the sanc- tion or Icnowledge of his employer and in his absence, unlawfully prac- tices dentistry on callers, this does not render the dentist liable to such persons for money paid to such em- ployee. Yankowitz v. Arkin, (Sup. App. T. 1917) 163 N. Y. S. 266, re- versing 157 N. Y. S. 996. 84. Alcott V. Barber, (Sup. 1828) 1 Wend. 526; Smith v. Tracey, (Su- per. Ct. 1829) 2 Super. Ct. 465. See also Timmerman v. Morrison, (Sup. 1817) 14 Johns. 369. 6S6 NEW YORK LAW OF CONTRACTS [§ 421 vent." *^ And this was held true though the medicines furnished were patent or proprietary medicines.^^ " The patent," says Oak- ley, J., in this connection, " confers no additional right on him, but precludes others from selling or using them. The state law, by the construction given to it by the Supreme Court, prohibits him from ' peddling his nostrums ' in the character of a physician, and inducing people to buy and use them, in consequence of their reliance on his pretended skill. Such practices the law of the state has declared to be dangerous to the public health, and if the patent in question had authorized him, in express terms, to vend his medicines in the manner in which he has done it in this case, I should have no hesitation in holding that the patent would be inoperative against the provisions of the law."^^ A corporation engaged in giving a course of physical exercises to build up the general- health of persons is not, it has been held, engaged in the practice of medicine, so as to preclude a recovery by it for serv- ices rendered.'* § 421. Subsequent Acquisition of License; Remedying Defective Registrsution of Physician. — ilf a person conducts a trade or business without being licensed as required by statute, the fact that he subsequently acquires such a license will not vali- date his prior transactions and permit him to recover for services rendered or goods sold while he was conducting his trade or busi- ness in violation of law,*' and a promise, made after the license was granted, to pay for the services theretofore rendered has been held not to be enforceable.'" Under section 148 of the Public Health Law of 1893, ch. 661, however (see Pub. Health Law, § 169; 44 McKinney's Cons. Laws, p. 107), which provides in effect that where a person engaging in the practice of medicine has failed through some error, misunderstanding or unintentional omission duly to register, although eligible to do so, he may receive from the regents a certificate of the facts which may be registered 85. Laverty v. Burr, (Sup. 1828) 89. Gottesman v. Barer, (Sup. 1 Wrad. 529. App. T. 1915) S9 Misc. 440, 152 N. 86. Smith v. Tracy, (Super. Ct. Y. S. 128; Stake v. Roth, (Sup. App. 1829) 2 Super. Ct. 465. See also T. 1915) 91 Misc. 45, 154 N. Y. S. Thompson v. Staats, (Sup. 1836) 15 213^ affirmed 171 App. Div. 914 mem., Wend. 395. 155 N. Y. S. 1149. 87. Smith v. Tracy, (Super. Ct. 90. Stake v. Roth, (Sup. App. T. Ii829) 2 Super. Ct. 465, 468. 1915) 91 Misc. 45, 154 N. Y. S. 213, 88. Samuel v. Hams, (Sup. 1919) affirmed 171 App. Div. 914 mem., 155 187 App. Div. 783, 176 N. Y. S. 378. N. Y. S. 1149. § 422] ILLEGALITY 657 and which " shall make valid the previous imperfect registration " when the required certificate of facts is obtained and duly reg- istered, this is held to have a retroactive effect and to give life to the imperfect registration from the date of its filing, freeing him from any liability from prosecution for the unlawful practice of medicine, and enabling him, as well, to recover for services there- tofore rendered." As regards the effect to be given ,to the phrase " shall make valid the previous imperfect registration," Parker, C. J., said: " This phrase, as it seems to us, when considered in connection with the general scheme of the statute, and the fact that all of the applicant's proofs must go to show that he was entitled to be registered at the time of his imperfect registra- tion, means that which was once imperfect and invalid shall become perfect and valid as of the beginning. ' ' ^^ § 422. Proof of License. — In criminal prosecutions or actions to recover penalties for transacting a particular business or calling without the license required by statute, the burden or onus is cast on the defendant to show that he was licensed ; '' but where a defendant seeks to escape liability for goods purchased or services rendered on the ground that the plaintiff was transact- ing the business or calling in which the goods were sold or serv- ices rendered by him without a license, according to the view taken in the earlier cases, the prima facie presumption is that the plaintiff was duly licensed, and the defendant is required to show, at least prima facie, that the plaintiff was in fact not licensed, though this calls for the proof of a negative.^ As said by Cowen, J.: " "Where the question does not arise directly on indictment or action for violating a statute which requires a license, but comes in collaterally as here, the books are very strong 91. Ottaway V. Lowden, (1902) 172 1840) 24 Wend. 15; Smith v. Joyce, N. Y. 129, 64 N. E. 812, 11 N. Y. (Sup. G. T. 1851) 12 Bart. 21. Annot. Cas. 412, reversing 55 App. In Kane v. Johnston, (Super. Ct. Div. 410, 66 N. Y. S. 952, 8 N. Y. 1862) 22 Super. Ct. 154, it is held Annot. Cas. 301. See also New York that no damages can be recovered for V. Bigelow, (Com. PI. G. T. 1895) 13 injury to the illegal business of sell- Miso. 42, 68 State Rep. 163, 34 N. Y. ing liquor without a license, and that S 92. where a lessee sues for an injury to nn /vii T J n nno \ i 'TO his leasehold estate caused by the de- 92. Ottaway V. Lowden, (1902) 172 ... „* „ v.,„-i/Hr,™ fVioronr. ■NT V TOO TiR RA -NT TT R19 UN V struction of a building thereon N. Y 129, 136 64 N. E. 812, 11 N. Y. ^^^^^^^ ^^^ defendant's negligence, Annot. Las. 41.!. ^^^ ^^^^^^ ^^ damages injury to the 93. Smith v. Joyce, (Sup. G. T. liquor business carried on by him on 1851 ) 12 Barb. 21. g^ph premises, he must show that he 94. Macpherson v. Cheadell, (Sup. was licensed to conduct such business. 42 658 NEW YORK LAW OF CONTRACTS [§ 422 that you cannot question the fact of there being a license until you show by negative proof that there was none. ' ' ^' Thus where a person sought to defend an action for services by one who attended him as a physician, on the ground that the plaintiff had not been duly licensed, it was held that the plaintiff was not called on in the first instance to prove that he was licensed until the defendant had shown by negative proof that he was not licensed.'^ In an early case, where the defendant made default, the plaintiff was held entitled to recover for the sale of intoxicating liquors, though he gave no evidence of a license authorizing him to sell liquors." And it has been said that the same would be true where the defense to an action by an auctioneer for his services is that he was not licensed to transact such business.'* In the later cases, however, the view is taken that as the transacting of the business or trade in question is made unlawful, the fact that the person was duly licensed is a condition precedent to his right to recover for goods sold or services rendered, and he must therefore allege in his complaint the fact that he was so licensed.** And if this is so it would seem to follow that he must prove such fact. Thus, where a master plumber sued for services rendered, and the defense was raised that he was not licensed and registered so as to entitle him to engage in such trade,^ it has been held in a number of the recent cases that to entitle him to recover it is his duty to pro- duce evidence that he had complied with the statute.^ It has also been held that to entitle a physician or dentist to recover for serv- ices rendered he must show that he was duly licensed to practice his profession.' And this has been held true though the judgment 95. Macpherson v. Cheadell, (Sup. 1909) 132 App. Div. 854, 117 N. Y. 1840) 24 Wend. 15, 25. S. 455, affirmed on opinion below, per 96. Macpherson v. Cheadell, (Sup. gcott, J., 199 N. Y. 577, 93 N. E. 1840) 24 Wend. 15; Thompson v. ii25; Lanzer v. Unterberg, (City Ct. Sayre (Sup. 1845) 1 Denio 175 See ^ rp. 1894) 9 Misc. 210, 60 State also Accetta ■/. Zupa, (Sup. 1900) 54 „ o,n on -kt tr o aoo /-i i.i App. Div. 33, 66 N Y. S. 303, 8 N. Y. ^''P- ^^\ ^9 N Y. S 683 ; Gottes- AnnotCas. 190. ™^" ^- ^'''"' '^"^P- ^PP- ^- ^^^^^ 97. Smith V. Joyce, (Sup. C. T. «» ^isc. 440, 152 N. Y. S. 128; Per- 1851) 12 Barb. 21. litch v. Simon, (Sup. App. T. 1914) 98. See Miller v.' Burke, (Com. PI. ^^^ ^- Y- S. 695. See also Bloom v. 1875) 6 Daly 171, 181, per Larre- Saberski, (Com. PI. G. T. 1894) jnoje^ J. fi Misc. 311, 59 State Rep. 277, 28 99. See supra, section 417. -^^^ ^- ^- '^^^■ 1. See supra, section 419. 3. O'Beirne v. Carey, (Sup. App. 2. Schnaier v. Grigsby, (Gup. T. 1914) 150 N. Y. S. 666; Preiser § 423] ILLEGALITY 659 was by default.* "Where the statute requires the licenses of phj'sicians to be recorded in a special book kept for such purpose, proof that no license authorizing the plaintiff to practice was to be found in such book has been considered prima facie proof at least that he had not been licensed.^ § 423. Statute Relatinif to Real Estate Agents. — The Laws of 1901, ch. 128, subsequently repealed by Laws 1906, ch. 516, made it a misdemeanor for a real estate agent in a city of the first or second class to offer real property for sale without the written consent of the owner; and the decisions in the lower courts as to the constitutionality of this statute were conflicting. Assum- ing that the statute was constitutional, it would seem that a con- tract to pay a commission to such an agent for procuring a pur- chaser would be illegal unless his authority to offer the property for sale was in writing, and no recovery could be had for com- missions.^ On the other hand, the view was taken in the Second Department, that though the courts will not aid in the enforce- ment of a contract for the doing of a particular thing prohibited by statute, yet when a contract not unlawful in itself has been executed, and the parties have enjoyed the benefits of the con- tract, the mere fact that one of the parties has violated a penal law in the approach to the contract will not prevent a court from enforcing payment, and that, therefore, where a purchaser is procured and a sale to such purchaser is made by the owner, the agent may recover his commissions.'' It was later settled by the Court of Appeals that the statute was unconstitutional, and V.Solomon, (Sup. App. T. 1918) 170 "The provision of the Penal Code N. Y. S. 307. * does not attempt to make it unlawful 4. O'Beirne v. Oarey, (Sup. App. T. to enter into a contract of brokerage; 1914) 150 N. Y. S. 666. it does not attempt to make such a 5. Accetta v. Zupa, (Sup. 1900) contract unlawful. It simply pro- 5t App. Div. 33, 66 N. Y. S. 303, 8 vides that if any person shall offer N. Y. Annot. Cas. 190. to sell real estate' in cities of the 6. Whiteley v. Terry, (Sup. 1903) first and second class without having 83 App. Div. 197, 83 N. Y. S. 89, written authority to do so, this act affirming 39 Mi&c. 93, 78 N. Y. S. 911. shall constitute a misdemeanor, but 7. Cody V. Dempsey, (Sup. 1903) this cannot justify outlawing the 86 App. Div. 335, 13 N. Y. Annot. man who has acted in the premise? Cas. 322, 83 N. Y. S. 899; Haynes v. and who has, under generally recog- Abramson, (Sup. App. T. 1906) 97 nized principles of law, earned a com- N. Y. S. 371. mission for his services in bringing In the Cody case, supra (86 App. the parties together in a contract for Div. 340), Woodward, J., said: the sale or exchange of premises." 660 NEW YORK LAW OF CONTRACTS [§ 424 therefore in no way affected the agent's right to recover his commissions.' § 424. Conducting Business tinder Fictitious Name. — The Penal Law, § 440 (39 McKinney's Cons. Laws, p. 159), which was derived from section 363b of the Penal Code as amended by Laws 1900, ch. 216, § 1, makes it a misdemeanor for any person or per- sons to carry on or transact business under any assumed name or under any designation, name, or style, corporate or otherwise, other than the real name or names of the individual or individuals conducting or transacting such business, unless he or they file a certificate as specified. Section 924 (39 McKinney's Cons. Laws, p. 329), which is derived from section 363 of the Penal Code, makes it a misdemeanor to use a fictitious copartnership name. The question has arisen in a number of cases as to the effect of these provisions on contracts entered into by a person or persons conducting business in violation of the statute. That the statute does not have the effect of invalidating executed contracts entered into by a person conducting business in violation of the statute seems to be established. As said by Gray, J., in this connection: " If we might assume that the violation by F. of the statute dis- abled him from enforcing the performance of any executory .con- tract, that was not this case. This was an executed agreement, and it is inconceivable that in such a case the statute should have any operation. It is a highly penal one and deserves a strict construction. ... It was a measure intended to be in the interests of the commercial community and had its foundation in public policy. It simply made it a misdemeanor to do what was therein specified, and that is all. To extend its operation as far as the plaintiffs would have it would be to give a construction to it which would permit of its injurious operation upon persons whose deal- ings with the guilty party have been in good faith. Such a con- struction would be foreign to the purpose of the enactment, con- trary to public policy, and without support in legal principles.'" Thus if, in case of a sale on credit to the person transacting the 8. Frank L. Fisher Cb. v. Woods, Y. S. 38. See supra, section 401, as (1907) 187 N. Y. 90, 79 N. E. 836, to the effect of an unconstitutional 19 N. Y. Annot. Cas. 384, reversing law to render a contract violative 110 App. Div. 890 mem., 96 N. Y. S. thereof illegal. 1125. See also Grossman v. Cami- 9. 'Sinnott v. German-American nez, (Sup. 1903) 79 App. Div. 15, 79 Bank, (1900) 164 N. Y. 386, 391, 58 N. Y. iS. 900; Beilin v. Wein, (Sup. N. E. 28S. App. T. 19061 51 Misc. 595, 101 N. § 424] ILLEGALITY 661 business, the contract has been executed by a delivery, it has been held that it is not affected by the statute, and the seller is not entitled, as against a subsequent purchaser in good faith, to recover the property sold, though the purchase price has not been paid.^" It is also held that if a credit is extended by the person conducting the business in violation of the statute, as for goods sold or the like, payment may be enforced.^^ He may also recover as assignee of a chose in action though the assignment was to him in the partnership name,^^ and on a policy insuring the property used in the business against loss by fire.'^ The view has also been taken that though a sale by a person conducting his business under a fictitious partnership name is wholly executory, he may neverthe- less maintain an action for the failure of the purchaser to carry out the contract.-'* But as the transaction of business by an indi- vidual under a fictitious firm name is an illegal act, unless brought within some exception to the general prohibition, a contract for the\sale of the right to use such a name in violation of the statute is illegal and no recovery can be had for the agreed compensation." 10. Sinnott v. German-American Bank, (1900i) 164 N. Y. 386, 58- N. E. 286, affirming 33 App. Div. 641 mem., 54 N. Y. S. 1110. 11. Gay V. Seibold, (1884) 97 N. Y. 472; Kennedy v. Budd, (Sup. 1896) 5 App. Div. 140, 39 N. Y. 8. 81; Tay- lor V. Bell, etc., Soap Co., (Sup. 1897-) 18 App. Div. 175, 45 N. Y. S. 939; Vandegrift v. Berton, (Sup. 1903) 83 App. Div. 548, 82 N. Y. S. 153; Donlon v. English, (Sup. G. T. 1895) 8« Hun 67, 2 N. Y. Annot. Cas. 299, 69 State Rep. 260, 35 N. Y. S. 82; Doyle v. Shuttleworth, (Sup. Sp. T. 1903) 41 Misc. 42, 83 N. Y. S. 609; Barron v. Yost, (Com. PI. 1891) 16 Daly 441, 35 State Rep. 380, 12 N. Y. S. 455. See also Castle v. Gra- ham, (Sup. 1903) 87 App. Div. 97, 84 N. Y. S. 120, affirmed 1-80 N. Y. 553 mem., 73 N. E. 1120. B.ut see O'Toole V. Garvin, (Sup. G. T. 1874) 1 Hun 92, 3 Thomp. & C. 118; Swords v. Owen, (Super. Ct. G. T. 1872) 34 Super. Ot. 277, 43 How. Pr. 176; Lane v. Arnold, (Com. PL 1882) 11 Daly 293, 13 Abb. N. Cas. 73, re- versed on other grounds 99 N. Y. 648. 13. Black v. New York L. Ins. Co., (Sup. App. T. 1911) 70 Misc. 532, 127 N. Y. S. 409. 13. Loeb V. Firemen's Ins. Co., (Sup. 1903) 78 App. Div. 113, 79 2Sr. Y. S. 510, 12 N. Y. Annot. Cas. 343, affirming 38 Misc. 107, 77 N. Y. S. 106. 14. MoArdle V. Thames Iron Works, (Sup. 1904) 96 App. Div. 139, 89 N. Y. S. 485. In this case Houghton, J., said : " la some of the reported cases there can be found expressions of doubt as to the appli- cation of the rule in respect to ex- ecutory contracts, or arguments by way of illustration that the case under consideration involves an ex- ecuted rather than an executory con- tract; but none of the later eases go to the extent of holding that it does not apply to an executory contract. Upon reason and authority we think the plaintiff can maintain his action notwithstanding his use of a ficti- tious firm name in entering into the contract." 15. Jenner v. Shope, (1912) 205 N. Y. 66, 98- N. E. 325, affirming 140 App. Div. 911, 125 N. Y. S. 1151, which reversed in dissenting opinion 662 NEW YORK LAW OF CONTRACTS [§ 425 And a person conducting business under a fictitious name in viola- tion of the statute has been denied the right to recover damages for a libel injurious to the business.^^ § 425. Ultra Vires Acts of Corporations. — A contract to which a corporation is a party is properly said to be ultra vires when it is not within its corporate power ; " and that such a contract, so long as it is executory, cannot be enforced either by '* or against " the corporation, is the accepted doctrine of our courts. But it is quite another question whether such a contract is so tainted with corruption that the party dealing with the corporation, or even the corporation itself, will be denied all relief where the con- tract has been executed in part. It has been said that if corpora- tions " are permitted to usurp powers not granted, it is done at the expense of the public. Sound public policy, therefore, demands that they should be kept strictly within their chartered limits, and every contract made by them which exceeds those limits, like all other contracts in contravention of public policy, is illegal and void. ' ' ^° Still, while such contracts may in a certain sense be said to be made in violation of law (see Gen. Corp. Law, § 10; 22 McKinney's Cons. Laws, p. 49), it is the well recognized modern rule in our state that they do not come within the general rule which denies all aid to either party to a contract made in viola- tion of law.^i " Public policy," says Landon, J., "in cases of of Bijur, J., 67 Misc. 159, 161, 121 Co., (Super. Ct. 1&81) 9 Abb. N. Cas. N. Y. S. 599. 430, 433, per Spies, J. 16. Williams v. New York Herald 21. Tracy v. Talmage, (1856) 14 Co., (Sup. 1914) 165 App. Div. 529, N. Y. 162; De Groff v. American 150 N. Y. S. 838. Linen Thread Co., (1860) 21 N. Y. 17. Leslie v. Lorillard, (1888) 110 124; Whitney Arms Co. v. Barlow, N. Y. 519, -18 State Rep. 520, 1« N. (1875) 63 N. Y. 62; Rider L. Raft E. 363; Jemison v. Citizens' Sav. Co. v. Roach, (1884) 97 N. Y. 378; Bank, (1890) 122 N.Y. 135, 33 State Diamond Match Co. v. Roeber, Rep. 335, 25 N. E. 264. (1887) 106 N. Y. 473, 11 State Rep. 18. Nassau Bank v. Jones, (1884) 47, 13 N. E. 419; Commercial Bank 95 N. Y. 115, affirming 49 Super. Ct. v. Pfeiffer, 108 N. Y. 242, 13 State 498; New York Firemen Ins. Co. v. Rep. 506, 15 N. E. 311; Lesilie v. Ely, (Sup. 1824) 2 Cow. 678. Lorillard, (1888) 110 N. Y. 519, 18 19. Talmadge v. Pell, (1852) 7 N. State Rep. 520, 18 N. E. 363; Lin- Y. 328; Tracy V. Talmage, (1856) 14 kauf v. Lombard, (1893) 137 N. Y. N. Y. 162, modifying 18 Barb. 456, 9 417, 51 State Rep. 63, 33 N. E. 472; How. Pr. 530, 12 N. Y. Leg. Obs. 302; Seymour v. Spring Forest Cemetery Jemison v. Citizens' Sav. Bank, Ass'n, (1895) 144 N. Y. 333, 63 State (1890) 122 N. Y. 135, 33 State Rep. Rep. 672, 39 N. E. 365; Washington 335, 25 N. E. 264. L, Ins. Co. v. Clason, (1900) 162 20. Hatch V. Western Union Tel. N. Y. 305, 56 N. E. 755, affirming 16 425] ILLEGALITY 663 ultra vires, in the absence of positive restriction or inherent vice, does not tempt to dishonesty or reward it, but looks at the situa- tion in all its phases and exacts the justice which the final situa- tion requires, viewed in the light of all the causes leading to it and the consequences to follow from it. " ^^ In a still more recent case Martin, J., says: " It is now well settled that a corporation cannot avail itself of the defense of ultra vires when the contract has been, in good faith, fully performed by the" other party, and the corporation has had the benefit of the performance and of the contract. As has been said, corporations, like natural persons, have power and capacity to do wrong. They may, in their con- tracts and dealings, break over the restraints imposed upon them by their charters; and when they do so their exemption from liability cannot be claimed on the mere ground that they have no attributes nor facilities which render it possible for them thus to act. While they have no right to violate their charters, yet they have capacity to do so, and are bound by their acts where a repudiation of them would result in manifest wrong to innocent parties, and especially where the offender alleges its own wrong App. Div. 434, 45. N. Y. S. 27 ; Bath Gaslight Co. v. Claffy, (1896) 151 N. Y. 24, 45 N. E. 390; Vought v. Eastern Bldg., etc., Ass'n, (■1902) 172 N. Y. 50'8, 65 N. E. 496, revers- ing 61 App. Div. 614, 70 N. Y. S. 1150; Wormser v. Metropolitan St. R. Co., (1906) 184 N. Y. 83, 76 N. E. 1036, affirming 98 App. Div. 29, 90 N. Y. S. 714; Holm v. Glaus Lipsius Brewing Co., (Sup. 1897) 21 App. Div. 204, 47 N. Y. S. 518; Usher v. New York Cent., etc., R. Co., (Sup. 1902) 76 App. Div. 422, 78 N. Y. S. 508, affirmed 179 N. Y. 544, 71 N. E. 1141; Mason v. Stand- ard Distilling, etc., Co., (Sup. 1903) 85 App. Div. 520, 13 N. Y. Annot. Cas. 264, 83 N. Y. S. 343; Bowers v. Ocean Ace, etc., Corp., (Sup, 1906) 110 App. Div. 691, 97 N. Y. S. 485, affirmed 187 N. Y. 561, 80 N. E. 1105; Davidson v. Cannabis Mfg. Co., (Sup. 1906) 113 App. Div. 664, 99 N. Y. S. 1018; Treadjvell v. United Verde Copper Co., (Sup. 1909) 134 App. Div. 394, 119 N. Y. S. 112; Gould V. Oneonta, (Sup. G. T. 1875) 3 Hun 401, 6 Thomp. & C. 43, affirmed 71 N. Y. 298; Arnot v. Erie R. Co., (Sup. G. T. 1875) 5 Hun 608, affirmed 67 N. Y. 315; Tona- wanda Valley, etc., R. Co. v. New York, etc., R. Co., (Sup. G. T. 1886) 42 Hun 496, 4 State Rep. 744; Watts-Campbell Co. v. Yuengling, (Sup. G. T. 1889) 51 Hun 302, 21 State Rep. 186, 3 N. Y. S. «69, af- firmed 125 N. Y. 1, 34 State Rep. 255, 25 N. B. 1060; Cunningham v. Masaena Springs, etc., R. Co., (Sup. G. T. 1»92) 63 Hun 439, 44 State Rep. 723, 18 N. Y. S. 600, affirmed 138 N. Y. 614, 33 N. B. 1082; Gause V. Commonwealth Trust Co., ( Sup. Sp. T. 1904) 44 Misc. 46, 89 N. Y. S. 723, reversed on other grounds lOO App. Div. 427, 91 N. Y. S. 847; Hyde v. Equitable L. Assur. 'Soc, (Sup. Sp. T. 1908) 61 Misc. 518, 116 N. Y. S. 219; Schurr v. New York, etc.. Suburban Invest. Co., (Com. PI. G. T. 1892) 45 State Rep. 645, 18 N. Y. S. 454. 22. Washington L. Ins. Co. v. Cla- son, (1900) 162 N. Y. 305, 309, 56 N. E. 755. eu NEW YORK LAW OF CONTRACTS [§ 426 to avoid a just responsibility. It may be that while a contract remains unexecuted upon both sides a corporation is not estopped to say in its defense that it had not the power to make the con- tract sought to be enforced, yet when it becomes executed by the other party, it is estopped from asserting its own wrong and can- not be excused from payment upon the plea that the contract was beyond its power. " ^' i Thus in . an early case, where a contract for the sale of securities to a banking corporation was valid except for the fact that it stipulated for payment to be made by the issuance of its notes payable on time, in violation of restraining acts relating to such corporations, it was held that if the contract had been executed on the part of the seller by a delivery of the securities, he could recover the reasonable value of the securities delivered though he could not recover on the notes given." So where a contract by a town for a sale of railroad stock to which it had subscribed was unenforceable because it was not a sale for cash, and was repudiated by the town, the buyer was permitted to recover the payments he had made thereon.^* But under the Labor Law, § 3 (30 McKinney's Cons. Laws, p. 16), which in effect pro- hibits a municipal corporation from contracting for a greater length of service by any of its employees than eight hours, it was held that a contract by a city to pay for. services rendered over the eight hours was beyond its power and imposed no liability on it though the services were rendered.^ § 426. Statute Prohibiting Purchase by Corporation of Its Stock.— Where a statute (see Penal Law, § 664; 39 McKinney's Cons. Laws, p. 239) makes it a misdemeanor for any officer of a corporation to apply any of its funds, except surplus profits, to the purchase of shares of its own stock, this prohibits a corpora- tion from purchasing its stock only out of other than its surplus profits, and a contract to purchase out of its surplus is valid.^' But a contract by a corporation to purchase its own shares with its funds other than surplus profits is certainly unenforceable if 23. Vought V. Eastern Bldg., etc., 86. Burns v. New York, (Sup. Ass'n, (1902) 172 N. Y. 508, 517, 66, 1907) 121 App. Div. 180, 105 N. Y. N. E. 496. S. 605. 24. Tracy v. Talmage, (1856) 14 27. Richards v. Ernst Wiener Co., N. Y. 162, modifying 18 Barb. 496, (1912) 207 N. Y. 59, 100 N. E. 592, 9 How. Pr. 530, 12 N. Y. Leg. Obs. affirming 145 App. Div. 353, 129' N. 302. Y. S. 951; Van Slochem v. Villard, 2i5. Gould V. Oneonta, (1877) 71 (1913) 207 N. Y. 587, 591, 101 N. N. Y. 298, affirming 3 Hun 401, 6 E. 467. Thomp. & 0. 43. § 427] ILLEGALITY 665 not in the strict sense illegal,^' and it is immaterial that the con- tract is by way of an option given a stockholder to require the corporation to repurchase his stock incorporated in an original subscription to the stock of the corporation.^' But it seems that a corporation may accept a conditional subscription to its stock, under which no title is to pass to the subscriber until the subscrip- tion is paid, with the privilege to the subscriber to reclaim the amount paid in case he desires to withdraw from the transaction.'" A contract by a corporation in general terms to purchase its shares will be construed, unless the contrary intent is apparent, as one to purchase with its surplus funds only,^ and where an action is brought against the corporation on such a contract, the burden is on it to show in defense a want of surplus profits with which to make the purchase.'^ § 427. Statute Relating to Foreign Corporations. — The Gen- eral Corporation Law, § 15 (22 McKinney's Cons. Laws, p. 96) provides that ' ' no foreign stock corporation other than a moneyed corporation, shall do business in this state without having first 28. Haule v. Con&mners' Park Brewing Co., (Sup. 1912) 150 App. Div. 582, 135 N. Y. S. 900; In re Tichenor-Grand Co., (D. C. S. D. N. Y. 1913) 203 Fed. 720; In re Fech- heimer Fisliel Co., (2d Cir. 1914) 212 Fed. 357, 129 C. C. A. 33. 29. In re Tichenor-Grand Co., (D. C. S. D. N. Y. 1913) 203 Fed. 720, 721, wherein Hand, D. J., said: "Now, section 664 of the Penal Law (Consol. Laws 1909, ch. 40) forbids the purchase of stock, except out of surplus, and so aims at just this evil. It is quite clear that this would have made illegal H.'s right of resale, had it not been incorporated into the original purchase, and I do not un- derstand that he claims the contrary. What he does say is that, since he reserved the option when he bought the stock, the statute does not apply. If one considers the evil at which the statute wag directed, I think it appears plainly enough that this makes a difference only in case the stock is not treated as issued to the buyer until the time for the election has passed. If he is entered upon the books as a stockholder, and if his shares figure as a part of the share capital actually issued, cer- tainly all the evils which the statute means to forbid will arise from allow- ing him thereafter secretly to deplete the treasury of the company, as would arise if he had reserved! no right to do so. Creditors have no means of knowing what part of the shareholders have reserved this right, and how many may dip into the cor- porate treasury, or, as in this case, come in to share with them in in- solvency. From the reason of the thing, therefore, the fa,ct should make no difference." 30. Hyman v. New York Urban Real Estate Co., (Sup. App. T. 1913) 79 Misc. 439, 140 N. Y. S. 138, 29 N. Y. Crim. 139. See also Richards V. Ernst Wiener Co., (1912) 207 N. Y. 59, 100 N. E. 592. 31. Richards v. Ernst Wiener Co., (1912) 207 N. Y. 59, 100 N. E. 592, affirming 145 App. Div. 353, 129 N. Y. S. 951. 32. Richards v. Ernst Wiener Co., (1912) 207 N. Y. 59, 100 N. B. 592, affirming 145 App. Div. 353, 129 N. Y. S. 951. 666 NEW YORK LAW OF CONTRACTS [§ 427 procured from the secretary of state a certificate that it has com- plied with all the requirements of law to authorize it to do busi- ness in this state. ... No foreign stock corporation doing busi- ness in this state shall maintain any action in this state upon any contract made by it in this state, unless prior to the making of such contract it shall have procured such certificate." While a compliance with this provision is a condition precedent to the right of the foreign corporation to sue on a contract made in this state/' and though it has been said by Vann, J., that a failure to comply with the statute renders the contract unlawful,^* it is now settled by a later decision in the Court of Appeals that the only effect of such failure is that stated in the statute, viz., that no action can be maintained on the contract by the corpora- tion, and it does not invalidate the contract.*^ For this reason it 33. Wood V. Ball, (1907) 190 N. Y. 217, 83 N. E. 21, affirming 114 App. Div. 743, 100 N. Y. S. 119; Welsbach Co. V. Norwicli Gas, etc., Co., (Sup. 1904) 96 App. Div. 52, 89 N. Y. S. 284, affirmed 180 N. Y. 533 mem., 72 N. E. 1152; Bradford Co. v. Dunn, (Sup. 1919) 188 App. Div. 454, 176 N. Y. S. 834; Meyers v. Spangenberg. etc., Co., (Sup. App. T. 1909) 65 Misc. 475, 120 N. Y. S. 174. See also Bean v. Flint, (1912) 204 N. Y. 153, 159, 97 N. E. 490. 34. Wood V. Ball, (1907) 190 N. Y. 217, 83 N. E. 21. 35. Mahar v. Harrington Park Villa Sites, (1912) 204 N. Y. 231, 97 N. E. 587, reversing 146 App. Div. 756, 131 N. Y. S. 514, which reversed as to this 71 Misc. 430, 128 N. Y. 6. 620. See also J. R. Alsing Co. v. New England Quartz, etc., Co., (Sup. 1901 ) -66 App. Div. 473, 73 N. Y. S. 347, affirmed 174 N. Y. 536 mem., 66 N. E. 11.10. In the Mahar case, supra, Bartlett, J., said (204 N. Y. 234): "The theory upon which the complaint has been upheld by the Appellate Divi- sion is that the contract therein mentioned was void because made by a foreign stoclt corporation other than a moneyed corporation doing business in the state of New York in violation of the provision of section 15 of the General Corporation Law (Laws of 1909, ch. 28); and hence that there was a failure of consider- ation for the payment of the five hun- dred dollars by the plaintiff, and an action lies to recover back the money. It is assumed in the prevailing opin- ion that this court held in the case of Wood & Stelick V. Ball (190 N. Y. 217) that noncompliance with the re- quirements of that section has the eflfect of rendering any contracts made by such a corporation in this state absolutely void. Such is not my understanding of the purport of that decision. The only proposition de- cided in that case was ' that compli- ance with section 15 of the General Corporation Law should be alleged and proved by a foreign corporation such as the plaintiff, in order to es- tablish a cause of action in the courts of this state' (p. 225). It is true that Judge Vann in the course of the opinion said that no such corporation could lawfully make contracts in this state without obtaining the required certificate in advance, and that he also spoke of contracts made by a corporation which had not obtained the certificate as ' unlawful,' and said that in the absence of the certificate a foreign stock corporation could not carry on business here ' except in vio- lation of law.' None of these expres- § 428] ILLEGALITY 667 is held that the other party to an executory contract for the sale of land by a foreign corporation which failed to comply with the statute cannot maintain an action to recover back a part payment thereon,'* and it is also held that where the corporation is itself sued on the contract it may set up a counterclaim growing out of the transaction on which it is sued.'^ The statute making it a mis- demeanor for a person to act as agent for a certain class of foreign corporations unless the corporation has complied with the require- ments necessary to entitle it to do business in this state (see Penal Law, § 663; 39 McKinney's Cons. Laws, p. 238) renders contracts for the employment of agents in contravention of the statute illegaL'* Contracts Detrimental to Public Service Generally § 428. In General. — It is universally recognized that contracts which tend to pervert the legislative or executive powers of the government are contrary to public policy.^' " Every citizen," says MuUett, J., " owes to his government and all of its officers, while executing their official duties, truth and fidelity. All the actions of the government and its officers are based upon certain facts, assumed or proved, and falsehood and deception in refer- sions, however, necessarily imports thus prescribed in the section itself, that a contract thus made is abso- No doubt the legislature could have lutely void. The only penalty which gone further and declared all con- the General Corporation Law itself tracts to be void which were made prescribes for a disregard of the pro- by a foreign stock corporation doing visions of this section is a disability business in this state without having to sue upon such a contract in the obtained the certificate; but it has courts of New York. 'No foreign not done so." stock corporation doing business in 36. Mahar v. Harrington Park this state shall maintain any action Villa Sites, (Sup. 1912) 204 N. Y. in this state upon any contract made 231, 97 N. E. 587, reversing 146 App. by it in this state, unless prior to Div. 756, 131 N. Y. S. 514, which the making of such contract it shall modified 71 Misc. 430, 128 Tf. Y. S. have procured such certificate.' (Cons. 620. Laws, ch. 23, § 15.) This prohibition 37. J.' R. Alsing Co. v. New Eng- would be effective to prevent the ap- land Quartz, etc., Co., (Slip. 1901) 66 pellant from suing the respondent App. Div. 473, 73 N. Y. S. 347, af- upon the contract alleged in the com- firmed 174 N. Y. 536 mem., 66 N. E. plaint; but in my opinion it is not 1110. operative to wholly invalidate the 38. Lowey v. Granite State Provi- contract. I think that the penalty dent Ass'n, (Com. PI. G. T. 1894) 8 imposed upon a foreign stock corpora- Misc. 319, 59 State Rep. 246, 28 N. tion for doing business in New York Y. S. 560. without the certificate of authority 39. Gray v. Hook, (1851) 4 N. Y. required by section 15 of the General 449. Corporation Law is limited to that 668 NEW YORK LAW OF CONTRACTS [§ 428 ence to these facts are moral wrongs, injurious to the whole state whose government it is, and therefore against public policy. The strength, durability and prosperity of our political institutions depend entirely on the intelligence, integrity and faithful sup- port of the people. No citizen can, therefore, legally stipulate to embarrass the operations of government by diminishing its means to execute its powers."^" The courts therefore do not hesitate to denounce as illegal contracts the object or direct tendency of which is to induce public officers to violate their official duties.*^ Thus an agreement between police officers under which one of them, if dismissed for a neglect of his duties, is to receive a certain amount from a common fund contributed by them, is illegal and unenforceable as violative of public policy .^^ A deputy tax com- missioner holds a quasi-judicial office, and it is against public policy to enforce a contract to pay him a commission as a broker for procuring a purchaser of lands where the contract is the result of activities on his part ex colore officii. Thus in a recent case it appeared that the plaintiff, a deputy tax commissioner in the borough of Brooklyn, had reported that certain property within his district should be assessed at a certain value, and, pending objections by the property owner against the assessnjent, inter- viewed possible purchasers of the property, and after such inter- views suggested a reduction in the assessment, which was made. Immediately thereafter he made a contract with the landowner for compensation for procuring a purchaser of the land at a price agreed on, and did procure such a purchaser, but the landowner refused to complete the sale. It was held that public policy for- bade the enforcement of the contract for the plaintiff's employ- ment." Commissioners of highways of a town or the like, in 40. Gray v. Hook, (1851) 4 N. Y. v. BOolridge, (Sup. 1807) 2 Johm 449, 456. 193; Wheeler v. Bailey, (Sup. 1816) 41. Devlin v. Brady, (1867) 36 13 Johns. 366; Webber v. Blunt, N. Y. 531, 2 Trans. App. 271; Mc- (Sup. 1838) 19 Wend. 188; Webb Cormick v. McCarton, (Sup. 1904) v. Albertsom, (Sup. G. T. 1848) 95 App. Div. 426, 88 N. Y. S. 722, 4 Barb. 51; Ball v. Pratt, (Sup. G. affirming 91 App. Div. 613, 86 N. Y. T. 1862) 36 Barb. 402; Perkins v. S. 1140. mem.; Coflfey v. Burke, (Sup. Proud, (Sup. G. T. 1862) 62 Barb. 1909) 132 App. Div. 128, 116 N. Y. 420; Weaver v. Whitney, (Chan. Ct. S. 514, motion to dismiss appeal de- 1823) Hopk. 11, 21. nied 196 N. Y. 563, 90 N. E. 1157; iZ. McCormiek v. MdCarton, (Sup. Moorehead v. Realty Associates, 1904) 95 App. Div. 426, 88 N. Y. S. (Sup. 1915) 166 App. Div. 782, 152 722, affirming 91 App. Div. 613, 86 N. Y. S. 342, affirmed 220 N. Y. N. Y. S. 1140 mem. 640 mem., 115 N. E. 1044; Goodale 43. Moorhead v. Realty Associates, § 429] ILLEGALITY 669 determining whether or not to order the laying out of a high- way, should determine the question whether the public good requires this to be done, uninfluenced by offers by interested indi- viduals to bear the expense which may be cast on the town, and it has consequently been held that an agreement by such indi- viduals to relieve the town from any expense that may be cast on it in the matter is against public policy and unenforceable.** The legislature may expressly authorize county officers or the like, in determining whether they will undertake certain public improve- ments, to take into consideration donations by individuals, and under such circumstances agreements to make donations are not against public policy.*^ The taking by an ofSeer of a municipal or quasi-municipal corporation of an assignment of a claim against the municipality is not prohibited by public policy where such officer is not intrusted with any duty in passing on the validity or extent of the claim.*' § 429. Obligations Exacted Colore Officii. — .Under the common as well as an express provision in an early statute of our state (see 2 Eev. Stat. p. 286, § 59), all bonds, obligations, etc., taken by an officer by color of his office are invalid," and while our statute does not apply to federal officers, the common law rule does, and invalidates securities taken by them colore officii,** The object of this rule is to guard against official oppression on the (Sup. 1915) 166 App. Div. 782, 152 TTie fact that the statute was a, N. Y. S. 342, affirmed 220 N. Y. 640 mere announcement of the common mem. 115 N. E. 1044. law rule is evidently the reason for 44. Webb V. Albertson, (Sup. G. T. its subsequent repeal, without the 1848) 4 Barb. 51. enaqtment of any equivalent pro- 45. Marsh v. Chamberlain, (Sup. vision. G. T. 1870) 2 Lans. 287. 48. Richardson v. Crandall, (1872) 46. People v. Saratoga County, 48 N. Y. 348, affirming 47 Barb. 335, (Sup. 1901) 66 App. Div. 117, 72 N. which reversed 30 How. Pr. 134. Y. 6. 782, reversing 34 Misc. 740, 70 " We are reminded," says Earl, C. N. Y. S. 1048, and modified on other (48 N. Y. 362), "on the part of the grounds 170 N. Y. 93, 62 N. E. 1069. appellant, that there is no law of the 47. Winter v. Kinney, (1848) 1 United States prohibiting the taking K. Y. 365, 4 How. Pr. 442; Richard- of this pledge, and that our statute, son v Crandall, (1872) 48 N. Y. 348, as to securities taken colore officii affirming 47 Barb. 335, which re- (2 R. S. 386, § 59), is not applicable versed 30 How. Pr. 134; Cook v. to officers of the United States. This Freudenthal, (1860) 80 N. Y. 202, is undoubtedly true, but the statute 14 Hun 542; Love v. Palmer, (Sup. of pur state mostly, if not to its full 1810) 7 Johns. 159, 160; Webber v. extent, embodies principles of the Blunt (Sup 1838) 19 Wend 188; common law, and it is important in People V. Meighan, (Sup. 1841) 1 this case only as indicating what the Hill 298. PuWi<= Po"'=3' ^^■" 670 NEW YORK LAW OF CONTRACTS [§ 429 one side and a lax performance of duty to the injury of individuals on the other." The phrase ' ' color of office " as so used refers to an act unlawfully done, the legal right to take the security being a mere color or pretense.^" "While it has been said that the idea of corruption or evil intent is involved in the exaction of securi- ties colore offieii,^! it is not necessary, in order to condemn a security as so taken, to show that it was taken with an evil or corrupt motive on the part of the officer. An officer will not be permitted to exact a security before he will perform a plain duty or where it tends to a lax performance of duty, though there is no actual corrupt motive.^^ It has been settled from an early date that where a person is in custody, and the officer, instead of tak- ing the obligation for his release specifically prescribed by statute, takes one at his own volition, more or less onerous to the prisoner, he asserts, by virtue of his office, an illegal claim of right or authority to take it, and hence the security is invalid.^' The statute does not invalidate securities taken by an officer which are valid at common law and not prohibited by any statutory provision.'"^ This rule, therefore, does not render illegal or invalid all contracts with a public officer, in no way the result of oppres- sion, merely because no express statutory sanction is found there- for.^^ Thus a covenant entered into by a third person on receiv- ing property levied on by a sheriff, to deliver it up or pay the 49. Winter v. Kinney, (1848) 1 N. implies that the act is unlawful and y. 365, 4 How. Pr. 442. unauthorized, and that the legal right ■50. Cornell v. Dakin, (1868) 38 N. to take it is a mere color or pretense." y. 253, 266, 7 Trans. App. 82; Grif- 51. Burrall v. Acker, (Ct. Err. fiths V. Hardenbergh, (1869) 41 N. Y. 1840) 23 Wend. 606, 608. 464; Burrall v. Acker, (Ct. Err. 58. Richardson v. Crandall, (1872) 1840) 23 Wend. 606; Murtagh v. 48 N. Y. 348, affirming 47 Barb. 335, Conner, (Sup. G. T. 1878) 15 Hun which reversed 30 How. Pr. 134. See 488, 491. also Cook v. Freudenthal,. (1880) 80 In Burrall v. Acker, (Ct. Err. 1840) N. Y. 202, affirming 14 Hun 542. 23 Wend. 606, 608, Chancellor Wal- 53. Winter v. Kinney, (1848) 1 worth says : " The words ' color of N. Y. 365, 4 How. Pr. 442. office' necessarily imply an illegal 54. Burrall v. Acker, (Ct. Err. claim of right or authority to take 1840) 23 Wend. 606. the security, or to do the act in 55. Dole v. Bull, (Sup. 1801) 2 question, by virtue of his office, which Johns. Cas. 239; Burrall v. Acker, claim is a mere color or pretense on (Ct. Err. 1840) 23 Wend. 606; the part of the officer. . . Taking Sternberg v. Provoost, (Sup. G. T. a security by a public officer virtute 1851) 13 Barb. 365; Turner v. Had- officii implies that the act is lawful den, (Sup. G. T. 1871) 62 Barb. 480; either by the common law or by the Murtagh v. Conner, (Sup. G, T. authority of some statute. But tak- 1878) 15 Hun 488. ing it by color of his office necessarily 429] ILLEGALITY 671 debt, was held valid, though there was no express sanction in any statute for the taking of such a security.^' So the taking of indem- nity by a sheriff against liability for an act performed by him in good faith is not illegal merely because there is no statute sanctioning it/' Also, to bring a transaction within the prohibi- tion the officer must be acting in his official capacity; a security taken by an officer^ as the agent of a third person is not affected.'* Where an officer wrongfully exacts a security by color of his office the parties are not regarded as in pari delicto and the illegality of the transaction does not preclude the granting of relief to the other party. The prohibition is aimed at the officer and not at the person who yields to his exactions, and where the former receives a pledge as security relief may be granted the latter and a recovery of the property allowed.^' Se. Cornell v. Dakin, (1868) 38 N. Y. 253, 7 Trans. App. 82; Bur- rail V. Acker, (Ct. Err. 1840) 23 Wend. 60«. In Burrall v. Acker, supra, Chan- cellor Walworth, says: "As the sheriff has no right to dispose of the properly to a third person, except by public auction and in the form pre- scribed by law, any agreement with such person that the property shall be absolutely his upon paying the amount of the execution would be illegal and contrary to the rights, of the .defendant in the execution ; and an agreement which would place the property absolutely beyond the reach of the sheriff, before a sale thereof at public auction, would be equally illegal and contrary to the duty of the sheriff in reference to the plain- tiff's rights. But there is nothing in the agreement declared on in this case which did, even by implication, deprive the sheriff of the power to take the property and sell it to satisfy the execution ; or for the pur- pose of returning it to the defendant in the execution if the latter should think proper to pay the debt without a sale. In this respect the agree- ment, though under seal, is the same in its legal effect upon the right of the sheriff to reclaim the property as a mere receipt in similar terms with- out a seal." 57. Griffiths v. Hardenbergh, ( 1869) 41 N. Y. 464; Given v. Driggs, (Sup. 1803) 1 Caines 450, 460; Doty v. Wilson, (Sup. 1817) 14 Johns. 378, 381. 58. Harp v. Osgood, (Sup. 1842) 2 Hill 216. 59. Richardson v. Crandall, ( 1872 ) 48 N. Y. 348, affirming 47 Barb. 335, which reversed 30 How. Pr. 134. " No case has been cited," says Earl, C, in this case (48 N. Y. 363), "in which it has been held that where an officer receives securities or money colore officii, the parties are in pari delicto; and none, I apprehend, can be found. On the contrary, there are cases to be found in the books where money extorted by public officers colore officii has been permitted to be recovered by the parties paying, as money had and received. In Winter V. Kinney [1 N. Y. 365], where the question was under consideration, it was not intimated that the defendant could hold the money paid him, be- cause the parties were in pari delicto. The oppressor and oppressed are never upon a footing of equality. Both the statute and the common law prohibition are aimed at the pub- lic officer, and are intended to regu- 672 NEW YORK LAW OP CONTRACTS [§ 430 § 430. Compensation of Officers for Performance of Duty. — A public officer may make a special agreement for services, which he is neither required by law to perform nor for which the law fixes a fee.*" On the other hand, public policy forbids a public officer to exact, in consideration of the performance of duties imposed on him by law, compensation in addition to that allowed by law, and any executory contract to pay an officer additional compensation is unenforceable.^^ This is especially true under the statute (see Code Civ. Proc. §§ 3280, 3282), which expressly forbids any officer to whom a fee or other compensation is allowed by law, for any service, to charge or receive a greater fee or reward than is so allowed, and makes a violation of the provision a misdemeanor.^^ ' ' When, ' ' says Chancellor Sandf ord, in an early case, " the emoluments of public officers are stated and determined by law, and paid in a manner prescribed by law, the rewards of those officers for all their services are the rewards thus given by their country. All other compensations direct or indirect are illegal, not only as corrupt but also as transgressing both the legal amount and the legal manner of compensation. The laws which define and limit the emoluments of those officers virtually prohibit all other compensation for their official services, and any rewards beyond those prescribed are illegal. " ^ It is held that an assignee late his conduct. He is the one, and 164 N. Y. 171, 58 N. E. 53, reversing not the person yielding to his exac- 28 App. Div. 622 mem., 51 N. Y. S. tion, who is at common law liable to 1139. be indicted for extortion. The law 63. Weaver v. Whitney, (Chan. Ct. points out the offender, and in such 1823) Hopk. 11, 25. The chancellor a case the parties are not in pari also says in this case: "The idea delicto." that an officer employed by the pub- 60. Murtaugh v. Conner, (Sup. lie for the performance of a public 1878) 15 Hun 488; Maguin v. Rosen- trust, and paid by his country for thai, (Com. PI. G. T. 1882) 62 How. his services, may talce additional and Pr. 504. private compensations for the dis- 61. Hatch v. Mann, (Ct. Err. 1835) charge of his official duties, is wholly 15 Wend. 44; Satterlee v. Jones, inadmissible. A distinction between (Super. Ct. 1854) 10 Super. Ct. 102, bribes for doing a duty, and bribes 116; Downs V. McGlynn, (Com. PI. for violating a duty, may exist in 1858) 2 Hilt. 14, 6 Abb. Pr. 241; casuistry; and a bribe which has pro- McCarthy V. Bonynge, (Com. PI. duced a violation of duty may, when 1884) 12 Daly 356, affirmed on opin- viewed in connection with its effect, ion below 101 N. Y. 668; Weaver v. be more criminal than a bribe not Whitney, (Chan. Ct. 1823) Hopk. followed by such a result. But the 11, 21; Brady v. Kingsland, (Com. idea now suggested, that bribes for PI. G. T. 1884) 5 Civ. Pro. 413, 67 doing a duty are lawful, is a con- How. Pr. 168. ception which never yet found a place 62. Carpenter v. Taylor, (1900) in any code of law or in any system § 431] ILLEGALITY 673 for the benefit of creditors is an officer within the meaning of the rule, and an agreement by the assignor made after the assign- ment to pay him in addition to. his legal fees a percentage of any surplus of the property assigned after the payment of the claims of his creditors, in consideration of the assignee's performance of his duties in the administration of the trust, is against public policy." And at an early date a contract to pay additional com- pensation to a naval officer for the performance of his duties in affording protection to American shipping was held illegal.^' The fact that an officer makes extraordinary efforts or uses greater diligence in the performance of a duty imposed on him than he would ordinarily be required to exercise does not entitle him to contract for additional compensation.^^ Thus it is held that as the rate of compensation at which an official stenographer is bound to furnish, with reasonable diligence, copies of his stenographic notes of testimony, etc., is fixed by statute, a contract to pay a greater rate for furnishing copies more expeditiously than would otherwise be done cannot be upheld." § 431. Assignment of Salary, Fees or Emoluments of Office. — In accordance with the view taken by the English courts it is settled in our state that public policy forbids, as a general rule, a public officer from assigning his salary before it becomes due and payable.^^ " The public service," says Johnson, J., " is pro- of morals. . . . The necessary ten- 68. Bliss v. Lawrence, (1874) 58 deney of sxich rewards is to debauch; N. Y. 442, 48 How. Pr. 21 (wherein and the faitliful discharge of a pub- an assignment of his unearned salary lie trust cannot be expected from him by a clerk of a federal court was held who will accept a bribe to do his against public policy, and the earlier (Juty." English cases exhaustively reviewed 64. Carpenter v. Taylor, (1900) and approved, and cases in other 164 N. Y. 171, 58 N. E. 53, reversing jurisdictions in this country distin- 28 App. Div. 622 mem., 51 N. Y. S. guished or disapproved) ; In re 1139 Worthington, (1894) 141 N. Y. 9, 11, es! Weaver v. Whitney, (Chan. 56 State Rep. 561, 35 N. E. 929; Ct 1823) Hopk. 11, 21. Walker v. New York, (Sup. Sp. T. 68. Carpenter v. Taylor, (1900) 1911) 72 Misc. 97, 129 N. Y. S. 1059; 164 N Y 171 58 N E. 53, reversing Mercantile Finance Co. v. Welsh, 28 App. I)iv.'622 mem., 51 N. Y. S. (Sup. App. T. 1905) 91 N. Y. S. 723; 1139; Hatch V. Mann, (Sup. 1835) 15 Billings v. O'Brien, (Com. PI. G. T. Wend. 44, reversing 9 Wend. 262; 1873) 4 Daly 556, 14 Abb. Pr. N. S. McCarthy v. Bonynge, (Com. PI. 238, 45 How. Pr. 392 (assignment of 1884) 12 Daly 356, affirmed on opin- unearned salary by customs officer), ion below 101 N. Y. 668. See also 'Columbian Inst. v. Cregan, 67. McCarthy v. Bonynge, (Com. (City Ct. 1886) 11 Civ. Pro. 87, 3 PI. 1884) 12 Daly 356, affirmed on State Eep. 287. opinion below 101 N. Y. 668. 43 674 NEW YORK LAW OF CONTRACTS [§431 tected by "protecting those engaged in performing public duties; and this, not upon the ground of their private interest, but upon that of the necessity of securing the efficiency of the public serv- ice, by seeing to it that the funds provided for its maintenance should be received by those who are to perform the work, at such periods as the law has appointed for their payment. . . . The contrary rule would permit the public service to be undermined by the assignment to strangers of all the funds appropriated to salaries. ... If such assignments are allowed, then the assignees, by notice to the government, would on ordinary principles be entitled to receive pay directly and to take the place of their assignors in respect to the emoluments, leaving the duties as a barren charge to be borne by the assignors. . . . We do not under- stand that the English decisions really rest on any grounds peculiar to that country, although sometimes expressed in terms which we might not select to express our views of the true foundation of the doctrine in question. The substance of it all is the necessity of maintaining the efficiency of the public service by seeing to it that public salaries really go to those who perform the public service. To this extent, we think, the public policy of every country must go to secure the end in view. ' ' *' There is no reason why the same rule should not apply to the assignment of fees yet to be earned, and it has been expressly so held by the Court of Appeals in a case involving an assignment by a sheriff of his unearned fees. In this case the court says, per FoUett, C. J., after reference to the rule theretofore applied in the case of salaries: " The reasons here given for holding the unearned salaries of public officers to be unassignable apply with greater force to fees payable upon the due performance of public duties which cannot be discharged by any other officer. " ™ In a lower court, however, a distinction was made between salary and fees, as fees are earned only when the services are performed and are payable only for acts actually done, and therefore do not offer the same inducement to the neglect of official duties, and an assignment of fees before 69. Bliss V. Lawrence, (1874) 58 In re Worthington, (1894) 141 N. Y. N. Y. 442, 445. 9, 11, 56 State Rep. 561, 35 N. B. 70. Bowery Nat. Bank v. Wilson, 929; Bowery Bank v. Gerety, (Sup. (1890) 122 N. Y. 478, 34 State Rep. 1895) 91 Hun 539, 70 State Rep. 829, 43, 25 N. E. 855, reversing 16 State 36 N. Y. S. 254, affirming 153 N. Y. Rep. 34, 1 N. Y. S. 473. See also 411, 47 N. E. 793. § 431] ILLEGALITY 675 they were earned has been held not to be against public policy.'^ An assignment by an executor or administrator of his commis- sions before they have been fixed by the court and become payable is also held contrary to public policy, as when the hope of com- pensation is gone a strong incentive to diligence and zeal is want- ing and the temptation to be content with a lax and perfunctory administration of the trust becomes more persuasive;'^ but it has been held that this does not prevent an executor from agree- ing to waive his rights to his legal fees and commissions.'^ No rule of public policy forbids the assignment of the unearned com- pensation to be paid by a municipal or quasi-municipal corpora- tion under an ordinary contract for work, etc.'^ The view has been taken in a lower court that public policy does not forbid a public officer from assigning his salary or fees after the services have been performed and the remuneration has become due and payable ; '^ it has also been held that even before his salary has •been earned he may enter into a valid contract as to its disposi- tion after he himself shall receive the same.'^ Thus, a provision in articles of partnership that " all salaries, perquisites and earn- ings received by either partner from any office or employment is the property of the firm, and shall be accounted for and paid into the funds of the firm as soon as received, in the same manner as though it was received from the debtors of the firm, ' ' has been upheld." On the other hand it has been held that an agreement 71. People V. Dayton, (Sup. 1874) versed by the Court of Appeals (122 50 How. Pr. 143, affirmed on other N. Y. 478) as shown, supra, on the grounds 3 Wkly. Dig. 341 (distin- ground that the ease Involved an as- guishing on this ground Bliss v. signment of unearned fees, and in the Lawrence, supra, and sustaining an opinion of that court there is' dictum assignment of the unearned fees of a which goes far to denounce an as- justice of the peace as a. town officer). signment of unearned fees. See also Stewart v. Glentworth, T16. Thurston v. Fairman, (Sup. (•Chan. Ct. 1842) 1 N. Y. Leg. Obs. 1877) 9 Hun 584. 217. 77. Thurston v. Fairman, (Sup. 72. In re Worthlngton, (1894) 141 1877) 9 Hun 584. In this case the N. Y. 9, 5'6 State Rep. 561, 35 N. E. court says: " In the case of an as- 929. signment of a salary unearned and- 73. In re Hopkins, (Sup. 1884) 32 to become due, the officer has antiei- Hun 618, affirmed 98 N. Y. 636 mem.; pated his compensation; hence the In re Williams, (Surr. Ct. 1918) 170 inducement to faithfulness in his N. Y. S. 80. public duties is greatly impaired and 74. Field v. New York, (1852) 6 enfeebled. . . . But the ease in hand N. Y. 179. 19 not that of an assignment of an 75. Bowery Nat. Bank v. Wilson, unearned salary, when all control (Sup. G. T. 1888) 16 State Rep. 34, over the expected funds, even to their 1 N. Y. S. 473. This case was re- reception in the first instance, is 676 NEW YORK LAW OF CONTRACTS [§ 432 by a city employee, a fireman, to collect and pay over to another his unearned salary is in effect an assignment and prohibited by public policy.''* Contracts to Influence Legislative Action § 432. General Rule. — The question as to the validity of lobby- ing contracts, that is, contracts for services in inducing legis- lative bodies to enact public or private laws, has frequently been before our courts. It is well recognized that contracts of this char- acter tend to lead to secret, improper and corrupt tampering with legislative action, and as a general rule they are held against pub- lic policy and unenforceable;" and this includes contracts for lobbying services before the legislative body of a municipal or quasi-municipal corporation,*" and is especially true where the services to be rendered are in the personal solicitation of individual members of the legislative body.*^ This has also been held true passed over to another. . . . The agreement did not take away from the parties the right to receive their salaries at such periods as the law appointed for their payment. Its effect was not to impair their obli- gations as public officers, or to pre- sent inducements to inefficiency or unfaithfulness in the performance of their public duties. All incentive to efficiency and fidelity in the public service remained unimpaired by their personal stipulations in regard to the disposition of the funds when re- ceived. Wer are therefore of the opin- ion that no principle of public policy is involved in the clause of the agreement here considered, which should relieve the parties from its performance." 78. Mercantile Finance Co. v. Welsh, (Sup. App. T. 190:5) 91 N. Y. S. 723. 79. Mills v. Mills, (1869) 40 N. Y. 543, aifirming 36 Barb. 474; Veazey V. Allen, (1903) 173 N. Y. 359, 66 N. E. 103, affirming 61 App. Div. 119, 70 N. Y. S. 457 ; Metz v. Woodward- Brown Realty Co., (Sup. 1918) 182 App. Div. 60, 169 N. Y. S. 299; Har- ris V. Roof, (Sup. G. T. 1851) 10 Barb. 489; Rose v. Truax, (Sup. G. T. 1855) 21 Barb. 361; Brown v. Brown, (Sup. G. T. 1861) 34 Barb. 533; Harris v. Simonson, (Sup. 6. T. 1882) 28 Hun 318; Gary v. West- ern Union Tel. Co., (Sup. G. T. 1888) 47 Hun 610, 15 State Rep. 204, 20 Abb. N. Cas. 333; McKee v. Cheney, (Sup. Sp. T. 1876) 52 How. Pr. 144; Wall v. Charlick, (Super. Ct. Sp. T. 18a0) 8 N. Y. Leg. Obs. 230; Hillyer v. Travers, (Com. PI. 1838) 1 Law Rep. 146. See also Bank v. State, (Sup. G. T. 1882) 26 Hun 581, 16 Abb. N. Cas. 446, affirmed 93 N. Y. 633' mem. 80. Dunham -v. Hastings Pavement Co., (Sup. 1900) 56 App. Div. 244, 07 N. Y. S. 632, 57 App. Div. 426, 68 N. Y. S. 221, on. later appeal 118 App. Div. 127, 103 N. Y. S. 480, affirmed 189 N. Y. 500, 81 N. E. 1163; Mil- bank v. Jones, (Super. Ct. 18«S) 57 Super. Ct. 135, affirmed as to this but reversed on other grounds 12r7 N. Y. 370, 38 State Rep. 9.10, 28 N. E. 31 ; Wilbur V. New York Electric Constr. Co., (Super. Ct. 1891) 58 Super. Ct. 539, 35 State Rep. 81, 12 N. Y. S. 456. See also Gordon v. Doktor, (Sup. App. T. 19131) 81 Misc.' 214, 142 N. Y. S. 4818. 81. Sedgwick V. Stanton, (1856) 14 i 432] ILLEGALITY 677 as to a contract for services indirectly influencing the action of a municipal legislative body by stirring up the public to demand certain action on the part of such body.'^ Thus where the plaintiff, not shown to be a professional man, whose calling it was to address legislative committees, agreed in consideration of an execu- tory contract for compensation that he would " give all the aid in his power, and spend such reasonable time as may be neces- sary, and generally use his utmost influence and exertions to procure " the passage of a bill before the legislature granting a street railway franchise, the compensation being contingent on the law being enacted, it was held that the contract was against public policy.*' A contract has also been held illegal which con- templated that the plaintiff should procure a legislative investiga- tion by Congress of the corporation commonly known as the "Whisky Trust, and having procured such investigation should push it to the utmost extent, and keep the defendant fully advised of its progress; and that for the purpose of obtaining pecuniary advantage from such investigation which it was thought would, and which did, result in the depreciation in the market of the stock of the corporation attacked, the defendant should speculate in its stock, the plaintiff to share in the profits of such specula- tion.** In eases of this character, "it is not necessary," says Hunt, C. J., " to adjudge that the parties stipulated for corrupt action, or that they intended that secret and improper resorts should be had. It is enough that the contract tends directly to those results. It furnishes a temptation to the plaintiff to resort to corrupt means or improper devices to influence legislative action. It tends to subject the legislature to influences destructive of its character and fatal to public confidence in its action." *° The rigor of this statement has, however, been considerably relaxed in N. Y. 289, 294, per TildeB, J.; Harris 169 N. Y. S. 299 (secret contract for V. Koof, (Sup. G. T. 1851) 10 Barb. services in stirring up the public to 489 ; Gary v. Western Union Tel. Co., demand a public park, so as to enable (Sup. G. T. 1888) 47 Hun 610, 15 the employer to sell land to the mu- State Rep. 204, 20 Abb. N. Gas. 333; nicipality for such purpose). Wilbur V. New York Electric -Constr. 83. Mills v. Mills, (1869) 40 N. Y. Co., (Super. Ct. 1»91) 58 Super. Ct. 643, affirming 36 Barb. 474. 539, 35 State Rep. 81, 12 N. Y. S. 84. Veazey v. Allen, (1903) 173 456; McKee v. Cheney, (Sup. Sp. T. N. Y. 359, 66 N. E. 103, affirming 61 1S76) 52 How. Pr. 144. App. Div. 119, 70 N. Y. S. 457. 88. Metz V. Woodward-Brown Realty 85. Mills v. Mills, ( 1869 ) 40 N. Y. Co., (Sup. 1918) 182 App. Div. 60, 543, 546. ,678 NEW YORK LAW OF CONTRACTS [§ 433 the later cases.^' If the contract is entire and contemplates both proper services and also improper services, this will taint the whole contract with illegality, and no recovery for the legitimate services can be had.*'' § 433. Qualification of General Rule. — The foregoing general rule does not prohibit the open employment of persons to appear before a legislative committee or before the legislature itself to advocate or to oppose a measure in which an individual has a personal interest.'^ ' ' A contract, " it is said, ' ' for procuring papers, for furnishing information or memoranda, for producing evidence, for making arguments, before the legislature or a com- mittee of that body, in regard to matters of legislative cognizance properly before them, is legal and valid."*' And one who has a claim against the state may employ competent persons to aid him in properly presenting such claim to the legislature and in sup- porting it with the necessary proofs and arguments.'" " Persons may no doubt be employed," says Selden, J., "to conduct an application to the legislature, as well as to conduct a suit at law; and may contract for and receive pay for their services in prepar- ing documents, collecting evidence, making statements of facts, 86. Ohesebrough V. Conover, (1893) Conover, (1893) 140 N. Y. 382, 55 140 N. Y. 382, 55 State Rep. 728, 35 State Rep. 728, 35 N. E. 633, affirm- N. E. 633; Dunham v. Hastings ing 50 State Rep. 463, 21 N. Y. S. Pavement Co., (Sup. 1900) 56 Apn. 566; Dunham v. Hastings Pavement Div. 244, 67 N. Y. iSl 632, 57 App. Co., (Sup. 1900) 56 App. Div. 244, Div. 426, 68 N. Y. S. 221. See next 67 N. Y. S. 632, 57 App. Div. 426, following section. 68 N. Y. S. 221; Barker v. Cairo, 87. Dunham v. Hastings Pavement etc., R. Co., (Sup. G. T. 1874) 3 Co., (Sup. 1900) 56 App. Div. 244, Thomp. & C. 328; Brown v. Brown, 67 N. Y. S. 632, 57 App. Div. 426, (Sup. G. T. 1861) 34 Barb. 533; 68 N. Y. S. 221; Metz v. Woodward- Mills v. Mills, (Sup. G. T. 1862) 36 Brown Realty Co., (Sup. 1918) 182 Barb. 474; Russell v. Burton, (Sup. App. Div. 60, 169 N. Y. S. 299; G. T. 1867) 66 Barb. 539; Winter- Rose V. Truax, (Sup. G. T. 1855) 21 mute v. Cooke, (Sup. G. T. 1876) 7 Barb. 361; Brown v. Brown, (Sup. Hun 476, reversed on other grounds G. T. 1861) 34 Barb. 533. 73 N. Y. 107; Eisenstein v. Maiden See infra section 656 et seq., as to Lane Safe Deposit Co., (Sup. App. T. the eflfect of partial illegality gen- 1909) 113 N. Y. S. 967. erally. 89. Brown v. Brown, (Sup. G. T. 88. Sedgwick v. Stanton, (1856) 1861) 34 Barb. 533. 14 N. Y. 289, 294 (per Selden, J.); 90. Sedgwick v. Stanton, (1856) Lyon V. Mitchell, (1867) 36 N. Y. 235, 14 N. Y. 289, 293 (per Selden, J.) ; 241; Bohm v. Goldstein, (1873) 53 Bohm v. Goldstein, (1873) 53 N. Y. N. Y. 634; Milbank v. Jones, (1891) 634; Brown v. Brown, (Sup. G. T. 127 N. Y. 370, 38 State Rep. 910, 28 1861) 34 Barb. 533; Russell v. Bur- N. E. 31, reversing on other grounds ton, (Sup. G. T. 1867) 66 Barb. 539. 57 Super. Ct. 135; Chesebrough v. § 433] ILLEGALITY 679 or preparing and making oral or written arguments, provided all these are used, or designed to be used, before the legislature itself or some committee thereof as a body. ' ' '^ And as said by Earl, J. : " It must be the right of every citizen who is interested in any proposed legislation to employ an agent for compensation payable to him, to draft his bill and explain it to any committee or to any member of a committee, or of the legislature, fairly and openly, and ask to have it introduced; and contracts which do not pro- vide for more, and services which do not go farther, in our judg- ment, violate no principle of law or rule of public policy. " '^ A person who holds an exclusive privilege or franchise granted by the state or municipality may in parting with a portion of the privilege enter into a valid agreement to use his influence to pre- vent the grant of another franchise which may infringe his exclu- sive franchise and impair the portion of the privilege which he himself grants. Thus in an early case where the plaintiff held an exclusive ferry franchise granted by the city of New York between certain points, and in consideration of the agreement of the defendant to pay him a certain annual sum during the life of his exclusive franchise, consented to the grant by the munic- ipality of a second franchise to the defendant, which except for such consent would have been an infringement of his exclusive franchise, and also agreed to use his influence to prevent the city from granting any other franchise which would infringe his exclusive franchise, it was held that this latter did not render illegal the contract between the plaintiff and the defendant.'^ If at the time the contract is entered into the parties contemplate only proper and legitimate services in advocating legislative action, the fact that the employee may, in the course of his services, have overstepped the line between legitimate and illegitimate services, will not, it seems, render the contract illegal and prevent a recovery for the proper and legitimate services, as illegal acts in the per- formance of a contract otherwise legal do not render the contract illegal."* 91. Sedgwick v. Stanton, (1856) Co., (Sup. 1900) 56 App. Div. 244, 14 N. Y. 289, 294. 67 N. Y. S. 632, 57 App. Div. 426, 92. Chesebrough v. Conover, (1893) 68 N. Y. S. 221; Russell v. Burton 140 N. Y. 382, 387, 55 State Rep. (Sup. G. T. 1867) 66 Barb. 539. See 728, 35 N. E. 633. also Drake v. Lauer, (Sup. 1904) 93 93. Costar v. Brush, (Sup. 1841) App. Div. 86, 86 N. Y. S. 986, af- 25 Wend. 628. firmed 15 N. Y. Annot. Cas. 58, 182 94. Dunham v. Hastings Pavement N. Y. 533 mem., 75 N. B. 1129 680 NEW YORK LAW OF CONTRACTS [§§ 434,435 § 434. Relation and Party Affiliations; Contingent Compensa- tion. — The fact that the person employed belongs to the political party in power does not itself render a contract for his employ- ment illegal. As said by Hunt, J.: " It is allowable, and not unusual, to employ counsel thus to appear before the governor of the state, when he has under consideration the propriety of giving his sanction to a bill which has passed both branches of the legis- lature. "Will it be insisted that no advocate can be legally employed thus to appear, unless he is of doubtful reputation, op personally offensive to the legislature or governor, or unless he belongs to a different political party? I apprehend not. An advocate of high personal character would naturally and most properly be employed in the discharge of such duties, and one who was likely, by his personal qualities or his political position, to be acceptable to the body before which he was to appear. The possession of such qualifications, and the knowledge of and reference to it, would form no objection to the employment. For an honest purpose, avowed to the body before which the appearance is made, and by the use of just argument and sound reasoning, this is lawful.'"' It is also held that the fact that the compensation is made con- tingent on success in securing the desired legislative action does not itself render the contract illegal.'^ § 435. Proof of Character of Services Contemplated. — Though the contract on its face calls for only proper services, it cannot be made a cloak for the rendition of illegitimate lobbying services,'' and the admission of oral evidence to show that improper serv- ices were contemplated does not violate the general rule prohibit- ing the admission of such evidence to vary, etc., written contracts.'* The fact that improper services were in fact rendered is evi- dence that the parties contemplated services of this character.'' It has been said that to warrant a recovery the evidence should See supra, section 389, as to the 68 N. Y. S. 221; Chard v. Ryan- general effect of an unlawful act in Parker Constr. Co., (Sup. 1918) 182 the performance of a contract. App. Div. 455, 169 N. Y. S. 622; 95. Lyon v. Mitchell, (1867) 36 Brown v. Brown, (Sup. G. T. 1861) N. Y. 235, 241. 34 Barb. 533. 96. Dunham v. Hastings Pavement 98. Brown v. Brown, (Sup. G. T. Co., (Sup. 1900) 56 App. Div. 244, 1861) 34 Barb. 533. 67 N. Y. S. 632, 57 App. Div. 426, 68 99. Dunham v. Hastings Pavement N. Y. S. 221. Co., (Sup. 1900) 56 App. Div. 244, 97. Dunham v. Hastings Pavement 67 N. Y. S. 632, 57 App. Div. 426, Co., (Sup. 1900) 56 App. Div. 244, 68 N. Y. S. 221; Brown v. Brown, 67 N. Y. S. 632, 57 App. Div, 426, (Sup. G. T. 1861) 34 Barb. 533. § 436] ILLEGALITY 681 establish the fact with reason-able clearnesa tlhat the services alleged to have been performed were such as the law will sanction in aiding and promoting legislative action ;^ still in the absence of any proof as to the character of the services rendered or which the parties contemplated should be rendered, it seems that the presumption is that only legitimate services were contemplated.^ Where the evidence is conflicting as to the character of the serv- ices contemplated the question whether or not improper services were contemplated is ordinarily for the determination of the jury or the court sitting as a trier of the facts.^ Contracts to Influence Executive Officers § 436. In General. — If the parties to a contract under which one is employed to negotiate a transaction with executive officers of the government contemplate the use of corrupt or sinister measures to influence the officer intrusted with the matter involved, leading to acts of favoritism and unfairness, the courts do not hesitate to denounce the contract as in violation of public policy.* And a contract made between a contracting firm, which contem- plated submitting competitive bids for canal contracts to be let by the state of New York, and a person who for some years had been engaged at Albany in, as he expressed it, protecting cor- porations against " strike " legislation, by which the contracting 1. Harris v. Simonson, (Sup. G. 1904) 93 App. Div. 86, 86 N. Y. S. T. 1882) 28 Hun 318. 986, 15 N. Y. Arniot. Gas. 58, affirmed 2. Bohm V. Goldstein, (1873) 53 182 N. Y. 533, 75 N. E. 1129; Mc- N. Y. 634; Barker v. Cairo, etc., R. Galium v. Corn Products Co., (Sup. Co., (Sup. G. T. 1874) 3 Thomp. & 1909) 131 App. Biv. 617, 116 N. Y. C. 328; Brown v. Brown, (Sup. G. S. 118; Chard v. Ryan-Parker T. 1861) 34, Barb. 533; Russell v. Constr. Co., (Sup. 1918) 182 App Burton, (Sup. G. T. 1867) 66 Barb. Div. 455, 169 N. Y. S. 622; Myers v. 539. See also Bremsen v. Engler, Dean, (Com. PI. G. T. 1894) 9 Misc. (Super. Ct. 1883) 49 Super. Ct. 172. 183, 185, 60 St. Rep. 644, 29 N. Y. 3. Chesebrough v. Conover, (1893) S. 578'; Pease v. Walsh, (Super. Ct. 140 N. Y. 382, 55 State Rep. 728, Sp. T. 1876) 39 Super. Ct. 514, 49 affirming 35 N. E. 633, 50 State Rep. How. Pr. 269; Wilbur v. New York 463, 21 N. Y. S. 566; Dunham v. Electric Constr. Co., (Super. Ct. Hastings Paveihent Co., (Sup. 1900) 1891) 58 Super. Ct. 539, 35 State 56 App. Div. 244, 67 N. Y. S. 632, Rep. 81, 12 N. Y. S. 456; Bigelow 57 App. Div. 426, 68 N. Y. S. 221; r. Law, (City a. Brook. 1857) 5 Brown v. Brown, (Sup. G. T. 1861) Abb. Pr. 455. See also Gary v. 34 Barb. 533. Western Union Tel. Co., (Sup. G. T. 4. Devlin v. Brady, (1867) 36 N. 1888) 47 Hun 610, 15 State Rep. 204, Y. 531, 2 Trans. App. 271, affirming 20 Abb. N. Gas. 333. 32 Barb. 518; Drake v. Lauer, (Sup. 6«2 NEW YORK LAW OP CONTRACTS [§ 436 firm agreed to pay to such person one-third of the profits which it might realize on all canal contracts secured by it, in consid- eration for which such person agreed, by means of his political and social relations and influence with the officers of the state of New York, to obtain for the contracting firm information, not open to other bidders, from the office of the state engineer and surveyor, in regard to the estimates of the probable cost of the work included within the contracts, and otherwise to render assist- ance to the firm in obtaining contracts and favoritism from state officers during the performance of the work, has been held void as against public policy.' This, however, does not entirely prohibit the employment of agents to negotiate transactions with public officers,^ and a contract for the employment of an agent to negotiate sales or the like to or with the state or federal govern- ment is not necessarily against public policy.' The same is true as to the employment of agents to present claims against the state or federal government before executive or administrative officers or boards.* " J"o insist," says Bacon, J., " that a party having such a claim before a public body, whose action is necessary and should be an informed and intelligent action, shall employ no agent, furnish no documents, engage no counsel, or, if he does, stipulate for no remuneration whatever, is to hold a rule far more stringent than any principle of public morality requires, and much beyond what any adjudicated case has yet sanctioned. It is restricting the right of the applicant for justice unreasonably, and depriving Mm of aid which, properly employed, may be essential to his success, and it is casting an imputation upon bodies charged not less to protect the interests of the public than to confirm the citizen in his established right, which I should 5. Drake V. Lauer, (Sup. 1904) 93 (Sup. 1919) 187 App. Div. 774, 175 App. Div. 86, 86 N. Y. S. 986, 15 N. Y. S. 881, reversing 105 Misc. N. Y. Annot. Cas. 58, affirmed 182 584, 173 N. Y. S. 772,; Howland v. N. Y. 533 mem., 75 N. E. 1129. Coffin, (Sup. G. T. 1866) 47 Barb. 6. Barker v. Cairo, etc., R. Co., 663, 32 How. Pr. 300; Swift v. Aa- (Sup. 1874) 3 Thomp. & C. 328. pell, (Sup. Tr. T. 1903) 40 Misc. 7. Lyon v. Mitchell, (1867) 36 N. 453, 82 N. Y. S. 659; Bigelow v. Y. 235, 2 Trans. App. 47, disapprov- Law, (City Ct. Brook. 1857) 5 Abb. ing Providence Tool Co. v. Norris, Pr. 455. (1865) 2 Wall. 45, 17 U. S. (L. ed.) 8. Sedgwick v. Stanton, (1856) 14 868; Southard v. Boyd, (1872) 51 N. Y. 289, affirming 18 Barb. 473. N. Y. 177; Cummins v. Barkalow, See also Lawson v. Baehman, (1880) (App. 1868) 4 Keyes 514, 1 Abb. 81 N. Y. 616, reversing on other App. Dec. 479; Beck v. Bauman, grounds 44 Super. Ct. 396. § 437] ILLEGALITY 683 hesitate to sanction. ' ' ' And in a well considered case in which an agent was employed on a commission to sell vessels to the federal government, and the contract was upheld, Hunt, J., said : " Personal solicitation of the President, the governor, or the heads of department for favors or for clemency, is not the lawful subject of a contract. . . . But a different principle prevails where property is offered for sale to the government, and where a bargain is sought to be made with them, and where there is no concealment of the agency; it then becomes a matter of traffic. . . . The present case was one of bargain and sale simply. No fraud upon the government is imputed, no suggestion is made of pecuniary influence to be used, no intended corruption is sug- gested. The case to be decided is free from the existence of any of these elements. ' ' ^^ Also in a recent case a contract for serv- ices in negotiating contracts with the federal government for the furnishing of military equipment for use in the World War has been upheld.^^ Likewise a contract with an attorney for services in procuring a pardon or commutation of sentence is not illegal if it does not contemplate the use of improper means to influence the action of the governor. And it has been held that it will be presumed that the employment of an attorney to do " what he can " to obtain a pardon or commutation of sentence contem- plates only such legal and proper acts as the law allows an attor- ney to agree to perform.^^ § 437. Matters Affecting Selection of Agent. — As in case of services to be rendered in advocating measures before a legislative body, the fact that the employment of the particular agent may have been influenced on account of his acquaintance with the officer or officers intrusted with the matter involved, and his party affiliations, does not itself render his employment illegal.^' And 9. Sedgwick v. Stanton, (Sup. G. made by a person who is not an at- T. 1854) 18 Barb. 473, 481. torney; such a contract would be 10. Lyon v. Mitchell, (1867) 36 objectionable, because it would ap- N. y. 235, 241, 2 Trans. App. 47. pear on its face that the means to 11. Beck V. Beairman, (Sup. 1919) be employed were influence or per- 187 App. Div. 774, 175 N. Y. S. 881, sonal solicitation, or some others reversing 106 Misc. 584, 173 N. Y. S. equally objectionable, while in this 772. ease the employment is to perform 12. Bremsen v. Engler, (Super. services in the line of the employee's Ct. 1883) 49 Super. Ct. 172. In this profession, which for any other object case Ingraham, J., says: "I think would be unobjectionable." that a distinction should be made 13. Lyon v. Mitchell, (1867) 36 between an employment of this kind N. Y. 235, 2 Trans. App. 47; South- and a contract to procure a pardon ard v. Boyd, (1872) 51 N. Y. 177. 684 NEW YORK LAW OF CONTRACTS [§ 438 where the defendant, after a failure on his part to charter his vessel to the federal government, employed the plaintiffs, who were related to one of the government's agents, to effect a charter, which was accomplished by them, it was held that the relation- ship of the plaintiffs to the government agent and the probable influence they could exert in consequence did not necessarily render the contract of employment illegal.^* In this connection Hunt, J., says: " I know of no principle upon which a seller should be compelled to employ an agent, who would be looked upon with suspicion and distrust by the party to whom he wished to sell. In a time of revolution, when the Southern Confederacy, against which the arms or vessels were to be used, had friends at the North, would it be a legal objection to an agent desiring to sell munitions of war, that his loyalty to the government was undoubted? I cannot think so. . . . An agent of the same political party with the executive or the heads of departments, having acquaintances and a reputation which would enable him to make an advantageous presentation of his merchandise, may, in my opinion, be lawfully employed to make such sale, and with reference to those qualifications. ' ' ^^ § 438. Cfontingent Compensatian. — According to the view taken in our state the mere fact that the compensation for the services is fixed on a commission basis and in such a sense con- tingent, does not itself stamp the contract as illegal." This has been held true where a contract for services in presenting and prosecuting a claim to public lands before the commissioners of the land office provided for compensation by way of a convey- ance of a half interest in the land." And our courts have expressly refused to follow decisions of the Federal Supreme Court denounc- ing as illegal contracts for contingent compensation for negotiating with federal officers sales to the federal government,^' as the See also McKee v. Cheney, (Sup. S. 881, reversing 10-5 Misc. 584, 173 Sp. T. 1876) 52 How. Pr. 144. N. Y. S. 772; Rowland v. Coffin, 14. Southard v. Boyd, (1872) 51 (Sup. G. T. 1866) 47 Barb. 653, 32 N. Y. 177. How. Pr. 300; Swift v. Aspell, (Sup. 15. Lyon v. Mitchell, (1867) 36 Tr. T. 1903) 40 Misc. 453, 82 N. Y. N. Y. 235, 241. S. 659. 16. Sedgwick v. Stanton, (1856) 17. Sedgwick v. Stanton, (1856) 14 N. Y. 289; Lyon v. Mitchell, 14 N. Y. 289. (1867) 36 N. Y. 235, 2 Trans. App. 18. Lyon v. Mitchell, (1867) 36 47; Southard v. Boyd, (1872) 51 N. Y. 235, 2 Trans. App. 47; Beck N. Y. 177; Beck v. Bauman, (Sup. v. Bauman, (Sup. 1919) 187 App. 1919) 187 App. Div. 774, 175 N. Y. Div. 774, 175 N. Y. S. 881, reversing § 439] ILLEGALITY 685 legality of such a contract does not present a federal question ; " and an agreement for a commission of ten per cent on the sale of vessels to the federal government has been upheld.^" Traffic in Public Offices § 439. In General. — Traffic in public offices has, from an early- date, been considered as against public policy, and contracts of this character are denounced as illegal,^^ and this is especially true under the statute (see Penal Law, § 1832; 39 McKinney's Cons. Laws, p. 629) making it a misdemeanor for anyone to give, offer or receive any gratuity or reward in consideration of an appointment to a public office, clerkship, deputation, etc.^^ Thus a contract the consideration for which is the withdrawal of the promisee's candidacy for an appointive public office and the exer- cise of his influence to secure the appointment of the promisor to such office is illegal and unenforceable.^ And the same view is taken as to a contract by a sheriff to appoint a person a deputy, and such a contract is held unenforceable though there was a sufficient consideration therefor. " It is the duty, ' ' says Learned, P. J., " of the officer having a power of appointment to make the best appointment in his power according to his judgment at the time when he makes the appointment. The public have a right to demand this. And it is against public policy that he should be deprived of the exercise of his best judgment by a contract previ- ously made. . . . Whatever may be the practice, appointments 105 ilisc. 584, 173 N. Y. S. 772; Barb. 398; Tappan v. Brown, (Sup. Swift V. Aspell, (Sup. Tr. T. 1903) 1832) 9 Wend. 175; Robinson v. 40 Misc. 453, 82 N. Y. S. 659. Kalbfleisch, (Sup. 1874) 2 Hun 683, As to the view taken by the fed- 5 Thomp. & C. 212; Hager v. Catlin, era! Supreme Court as to the legality (Sup. G. T. 1879) 18 Hun 448. See of contracts of this class see Hazel- also Becker v. Ten Eyck, (Chan. Ct. ton V. Sheckells, (1906) 202 U. S. 1836) 6 Paige 68. 71, 26 S. Ct. 567, 50 U. S. (L. ed.) 22. Deyoe v. Woodworth, (1895) 939; Providence Tool Co. v. Norris, 144 N. Y. 448, 63 State Rep. 731, (1865) 2 Wall. 45, 17 U. S. (L. ed.) 39 N. E. 375, affirming 70 Hun 599, 868. ■ 24 N. Y. S. 373, which followed the 19. Beck V. Bauman, (Sup. 1919) companion case of Deyoe v. Ewen, 53 187 App. Div. 774, 175 N. Y. S. 881, State Rep. 610, 24 N. Y. S. 372, 70 reversing 105 Misc. 584, 173 N. Y. S. Hun 545; Tappan v. Brown, (Sup. 772. 1832) 9 Wend. 175. 20. Lyon v. Mitchell, (1867) 36 23. Gray v. Hook, (1851) 4 N. Y. N. Y. 235, 2 Trans. App. 47. 449, reversing on other grounds 6 21. Gray v. Hook, (1851) 4 N. Y. Barb. 398. 449, reversing on other grounds 6 686 NEW YORK LAW OF CONTRACTS [§ 440 are in theory made for the public good. That is the reason why the appointee may not purchase his office. In a similar way, though not to the same extent, the public good would be injured if a promise to make an appointment were held to be legally binding, so as to control the exercise of that judgment which the appointing officer ought to exercise when he makes the appoint- ment The right of appointment is not the property of the appointing officer. And he has no right to barter it or to dispose of it. It is merely a political power intrusted to him, to be exercised, not to be sold."^* In a well considered case illus- trative of the above principle it appeared that the plaintiff, a candidate for appointment to a public office, entered into a con- tract for the appointment of the defendant as his deputy and for an equal division of the fees and emoluments of the office, in consideration of the latter 's withdrawal of his candidacy for such office and the use of his influence to secure the former's appoint- ment. After his appointment the plaintiff appointed the defend- ant his deputy and subsequently executed to him a note for his share of the fees of the office. This note the defendant tHans- f erred. The plaintiff's right to the office being attacked by his predecessor on the ground that his appointment was invalid, the plaintiff and the defendant entered into a contract under which the defendant agreed to pay one-half the cost of defending the action attacking the plaintiff's right to the office, in which the consideration for the defendant's promise was stated to be one dollar in hand paid and the payment by the plaintiff of the note theretofore given, but also recognized that the liability of the defendant to contribute to the cost of the defense was based on his interest in the fees of the office by virtue of the earlier con- tract. It was held that the second contract was not an independent one, but was tainted with the illegality of the earlier contract and therefore unenforceable.^^ § 440. Division of Fees between Officer and Deputy. — A eon- tract between an officer and his deputy that the latter shall receive as his compensation a part of the fees of the office. Which belong to the sheriff, . is sustained.^* But a contract between an officer 24. Hager v. Catlin, (Sup. G. T. 1 Hill 21; Becker v. Ten Eyck, 1879) 18 Hun 448. (Chan. Ct. 1836) 6 Paige 68 (agree- aS. Gray v. Hook, (1851) 4 N. Y. ment between sheriff and his deputy 449, reversing 6 Barb. 398. for a division of the fees belonging 26. Mott V. Robbins, (Sup. 1841) to the sheriff as keeper of the county § 440] ILLEGALITY 687 and his deputy, in consideration of the appointment of the latter, that the principal shall receive a part of the fees earned by and payable to the deputy is illegal as a purchase of the appoint- ment.^' And where a person received an appointment to a public oiBce which entitled him by statute to a certain percentage of the fees of the office, and in consideration of his appointment agreed to perform the duties of his office for a fixed salary, relinquish- ing to his principal all his right to the percentage of the fees, the agreement was held illegal as a purchase of the deputyship, though it was uncertain whether the percentage of the fees would be greater than the fixed salary ; ^' and on account of the illegality of the agreement for the appointment of the deputy, he has been denied any recovery against the principal for any percentage of the fees.^^ So an agreement between a sheriff and his deputy for a division of the fees earned and received by the deputy, not belonging to the sheriff, such as are received by the deputy in criminal or civil proceedings for services which are not performed necessarily by the sheriff as such, but which may be performed by any peace officer, is contrary to public policy and the statute prohibiting the purchase of appointments to office, and a bond given to the sheriff to secure its payment in accordance with the agreement is unenforceable.'" jail); Stewart v. Glentworth, (Chan. understood and intended by both, par- Ot. 1842) 1 N. Y. Leg. Obs. 217. ties; and to permit the plaintiff to 27. Deyoe v. Woodworth, (1895) recover the statute compensation 144 N. Y. 448, 63 State Rep. 731, 39 would be only disaffirming a part of N. E. 375, affirming 70 Hun 599, 24 the illegal agreement, and confirming N. Y. S. 373, which followed the the residue. It would be confirming companion case of Deyoe v. Ewen, the defendant's part of it, to wit, the 70 Hun 545, 53 State Rep. 610, 24 appointment, and disaffirming the N. Y. S. 372; Tappan v. Brown, plaintiff's, to wit, that part which (Sup. 1832) 9 Wend. 175. secured the reward for the office. I 28. Tappan v. Brown, (Sup. 1832) do not say that one part was the 9 Wend. 175. See also Becker v. consideration for the other, techni- Ten Eyck, (Chan. Ct. 1836) 6 Paige cally speaking, but»the whole was one gg 73 entire arrangement, and if one part 29. Tappan v. Brown, (Sup. 1832) is void the whole must be. The par- 9 Wend. 175, wherein Nelson, J., ties are therefore in pari delicto, and said: "It is equally clear to me that the law will help neither." the appointment of the plaintiff to 30. Deyoe v. Woodworth, (1895) the office of deputy is so connected 144 N. Y. 448, 63 State Rep. 731, 39 and interwoven with this corrupt N. E. 375, affirming 70 Hun 599, 24 agreement that it is impossible for N. Y. S. 373; Deyoe v. Ewen, (Sup. the court, upon any sound construe- G. T. 1893) 70 Hun 545, 53 State tion, to separate them. The one was Rep. 610, 24 N. Y. S. 372. the consequence of the other, and so 688 NEW YORK LAW OF CONTRACTS [§ 441 Public Service Corporation § 441. In General. — Contracts the object or direct tendency of which is to prevent public service corporations from performing the duties owing by them to the public have frequently been held illegal. Thus public policy requires that common carriers furnish service to all without unjust discrimination, and a contract under which a carrier agrees to give an unjustified rebate from its general charge is ill^al at common law,'^ and a fortiori this is true as to a contract which has for its object the acquisition from, an interstate carrier of a rebate in violation of the Interstate Com- merce Act.^^ It is held against public policy to permit a telephone company to contract for the exclusion of any other telephone service from the premises of its customers. And for this reason a contract between the proprietor of a hotel and a telephone company under which the company was given the exclusive privi- lege of furnishing telephone service to the patrons of the hotel was held illegal. " If a telephone company," says Bartlett, J., in this connection, " may contract for the exclusion of any other telephone service from the premises of its customers, it may thus deprive all those customers of telephone communication with every person who takes telephone service from rival concerns, and thus prevent just what all telephone franchises are designed to pro- mote — that is, the availability to every member of the community who desires it and can afford to pay for it of the most extensive telephone service attainable. In return for the franchise which a telephone corporation receives from the state, including as it does the privilege of occupying highways and the right to exercise the power of eminent domain, it undertakes to furnish each customer with telephone service to as many other customers as it can obtain at the rates which the law permits it to charge ; and the law implies an obligation on its part to do nothing to lessen the facilities of the public to procure a more widely extended service. "While it may, of course, adopt every proper expedient to enlarge its own business, this does not include the right to pursue a policy of exclusion which is distinctly injurious to the public by restricting 31. Root V. Long Island R. Co., the rebate provided for was not (1889) 114 N. Y. 300, 23 State unjust. Rep. 226, 21 N. E. 40'3, affirming 1 32. Parks v. Jacob Bold Packing State Rep. 503. In this case the Co., (Super. Ct. G. T. 1894) 6 Misc. rule stated above was recognized, 570, 57 State Rep. 788, 27 N. Y. S. but the contract was upheld because 289. § 441] ILLEGALITY 689 their circle of communication by telephone. It matters not that the customer may be willing' to agree to exclude others or that the contract to do so is supported by a sufficient consideration as between the parties. The evil in such an agreement is its antag- onism to the interests of the public. " *' It is also held that a contract by which a railroad company attempts to give a tele- graph company the exclusive right to use its right of way for a telegraph line is against public policy.^* In accordance with the view taken in England, it is held in our state that public policy does not forbid a carrier from establishing for the convenience of incoming passengers and for his own profit on his car, vessel or station grounds, an agency for the delivery of baggage or the transportation of passengers by cab or the like, and excluding all other persons from entering to solicit or receive orders from pas- sengers in competition with the agency established,'^ and conse- quently a contract conferring exclusive privileges of this character is not opposed to public policy. Contracts between railway com- panies for the exchange of traffic and the material advancement of their interests in this respect are not necessarily illegal,'* and public policy does not forbid connecting railways from entering into traffic agreements for the mutual exchange of traffic, division of through fares and rates, and the advancement of the interests of the parties.'' The same is held true as to similar agreements between telephone companies operating in contiguous territories.'* A contract by which a public service corporation attempts to exact 33. Central New York Telephone, 151 N. Y. 674, 46 N. E. 1145. See etc., Co. V. Averill, (1910) 199 N. Y. also Alexandria Bay Steam Boat Co. 128, 92 N. E. 206, reversing as to this v. New York Cent., etc., R. Co., (Sup. 129 App. Div. 752, 114 N. Y. S. 99, 1897) 18 App. Div. 527, 45 N. Y. S. which reversed 58 Misc. 59, 110 1091. N. Y. S. 273, 55 Misc. 346, 105 36. Tonawanda Valley, etc., R. Co. N. Y. S. 378. V. New York, etc., R. Co., ( Sup. G. T. 34. See Central New York Tele- 1886) 42 Hun 496, 4 State Rep. 744. phone, etc., Co. v. Averill, (1910) 199 See also Metropolitan Trust Co. v. N. Y. 128, 92 N. E. 206 (referring to New York, etc., R. Co., (Sup. G. T. and applying cases in other jurisdic- 1887) 45 Hun 84, 9 State Rep. 415. tions). 37. Brooklyn El. R. Co. v. Brook- 35. Barney v. Oyster Bay, etc., Co., lyn, etc., R. Co., (Sup. 1897) 23 App. (1876) 67 N. Y. 301; New York Div. 29, 48 N. Y. S. 665; Hartford, Cent., etc., R. Co. v. Flynn, (Sup. G. etc., R. Co. v. New York, etc., R. Co., T. 1893) 74 Hun 124, 56 State Rep. (Super. Ct. 1865) 26 Super. Ct. 411. .375, 26 N. Y. S. 859; Brown v. New 38. Wayne-Monroe Telephone Co. York Cent., etc., R. Co., (Sup. G. T. v. Ontario Telephone Co., (Sup. Sp. 1894) 75- Hun 355, 56 State Rep. T. 1908) 60 Misc. 435, 112 N. Y. S. 748, 27 N. Y. S. 69, appeal dismissed 424. 44 690 NEW YORK LAW OF CONTRACTS [§§ 442,443 a greater compensation than that authorized by its charter is, it would seem, invalid and unenforceable.'' § 442. Location and Extension of Railroad or the Like. — On the theory that the object of the legislature in authorizing the promotion of railway and turnpike companies and the like is to benefit the public generally by providing for roads so located as to be most convenient and beneficial to the public, it is considered against public policy to permit such companies to enter into con- tracts having for their object the adoption of a particular location or terminus without regard to the public interest.'"' ' ' Public policy," says Smith, J., in this connection, " requires that in locating a railroad, as well as a turnpike or a plankroad, between given terminal points, the route most advantageous to the public should be adopted. But if the courts should uphold agreements by persons not proposing to take stock to pay a bonus in case one of the several rival routes is selected, the interests not only of the public but of the stockholders might be greatly prejudiced."" So as a general rule an agreement by a railway company not to extend its road into the territory of a rival company is against public policy, as this may deprive the public of needed trans- portation facilities.*^ Contracts Detrimental to the Administration of Justice Generally § 443. In General. — The courts do not hesitate to denounce as illegal contracts which have a direct tendency to subvert the administration of public justice. Thus, a mere colorable transfer of a chose in action for the purpose of ostensibly disconnecting the real party in interest and of enabling the assignee, as the party in interest, to sue in his own name has been considered a fraud on the court and against public policy, and unless there is something in the relation of the parties to take the case out 39. But see Buffalo Merchants' De- Shaven, (Sup. G. T. 1878) 14 Hun livery Co. v. Frontier Telephone Co., 392. (Sup. Sp. T. 1908) 112 N. Y. S. 862. 41. Dix v. Shaven, (Sup. G. T. 40. Ft. Edward, etc., Plank-Road ''I' * ^^ ?""'''; ''t n Co. V. Payne, (1857) 15 N. Y. 583, ^ t ^^^'^^°'%^^''^- ^"^J-^T, n., T, 1. L^ r. ^j. J. York, etc., R. Co., (Super. Ct. 1865) reversing 17 Barb. 567; Butternuts, 26 Super. Ct. 411. But see Ives v. etc., Turnpike Co. v. North, (Sup. gmith, (Sup. Sp. T. 1888) 19 State 1841) 1 Hill 518; Macedon, etc., Rep. 556, 571, 3 N. Y. S. 645, af- Plank Road Co. v. Snediker, (Sup. firmed 28 State Rep. 917 mem., 8 N. G. T. 1854) 18 Barb. 317; Dix v. Y. S. 46. § 444] ILLEGALITY 691 of the general rule denying relief to parties to illegal contracts, the contract between the parties based on the assignment will not be enforced nor restoration awarded the assignor.*' Where the payee of a note transfers it with a guaranty of its payment, the fact that the object of an agreement by which there is effected a substitution of guarantors, the rule in force at the time dis- qualifying a witness on account of interest, is to render the released guarantor a competent witness to defeat the defense of payment to the latter interposed by the maker of the note, does not render the contract of guaranty by the new guarantor illegal ;** it would be otherwise, however, if, with the knowledge of the guarantee, the released guarantor was by a secret agreement to be liable to indemnify the new guarantor, as this would operate as a fraud on the court, removing merely the ostensible disqualifica- tion of the original guarantor.*^ A contract to reimburse a per- json, a nonresident, against whom an action by a third person is contemplated, for all expenses he may be put to in the defense of such action if he is successful in his defense, to induce him to allow himself to be sued in this state, does not. violate public policy, as tending to encourage unnecessary litigation.** An agreement fcetween state game protectors to pool their information and proceedings against persons for violations of the game laws and to divide the share of the penalties to which they may be entitled in case of successful prosecutions has been held not to be against public policy." The insertion in a contract of a pro- vision that one of the parties will not defend any suit instituted against him to enjoin him from violating the contract does not render the contract illegal.''^ § 444. Influencingf Judicial Action; Imposition on Court. — A contract is not necessarily illegal because it contemplates action on the part of one of the parties thereto to influence the judicial action of a court, provided there is nothing objectionable in the character of the influence to be brought to bear on the court or 43. Anonymous, (Super. Ct. Sp. T. 1892) 29 Abb. N. Cas. 66, 47 State 1856) 16 Abb. Pr. 423. Rep. 242, 19 N. Y. S. 734. See also 44. Small v. Mott, (Sup. 1839) 22 Hyams v. M'cManus, N. Y. Daily Wend. 403, affirming 20 Wend. 212. 'Reg. Dec. 11, 1884. 45 Thallhimer v. Brinckerhoff, 47. Overton v. Williams, (Sup. (Ct. Err. 1824) 3 Cow. 623; Small 1910) 139 App. Div. 177, 123 N. Y. S. V. Mott, (Sup. 1839) 22 Wend. 403, 758. 407 48. Eeisler v. Dempsey, (Sup. Sp. 46. Bundy v. Newton, (Sup. G. T. T. 1918) 173 N. Y. S. 212. 692 NEW YORK LAW OF CONTRACTS [§ 444 in the nature of the judicial act.^' Thus a contract which has for its object the inducing of an accomplice to testify in favor of the state is not rendered illegal by a promise on the part of the prosecuting attorney to ask the court, openly and in accordance with the well known practice in the criminal courts, to enter a nolle prosequi to the indictment against the witness.^" Likewise in the sale of a junior mortgage covering only a part of the land subject to an older mortgage, an agreement by the assignor to indemnify the assignee for any loss in case the court, in the fore- closure of the older mortgage, fails to order that the land not embraced in the junior mortgage be first sold, is not opposed to public policj\^^ Nor is such an agreement invalid as a wager on the result of litigation.^^ On the other hand, agreements the tendency of which is to impose on the court and improperly sway it in its decision are against public policy. And in proceedings in which a receiver is appointed, a secret agreement the tendency of which is to impose on the court and secure extravagant allow- ances for the expenses and services of the receiver's attorney is against public policy.^' Thus two proceedings were pending to wind up a partnership, the one first instituted being a proceeding in the state courts in which a receiver had been appointed, the other a bankruptcy proceeding in which the firm had been adjudged a bankrupt. In consideration of a dismissal of the bankruptcy proceedings, the attorneys entered into a secret agree- ment under which the attorney for the petitioners in the bank- ruptcy proceedings was to receive eighty per cent of the allowances made in the receivership proceedings for attorney fees, to be dis- tributed among the petitioners in the bankruptcy proceedings and their attorney. The entire work for which the fees were to be allowed was to be done by the attorney for the receivers, and the application to the court for the allowance was to be delayed until the most favorable moment for securing a large allowance. It was held that the tendency of this agreement was to impose on the 49. Nickelson v. Wilson, (1875) 1869) 1 Abb. App. Dec. 445, revers- 60 N. Y. 362; Cowdrey v. Carpenter, ing 24 Super. Ct. 429, 19 Abb. Pr. (App. 1869) 1 Abb. App. Dec. 445; 373. Gray V. Brown, (Super. Ct. 1862) 23 52. OowdTey v. Carpenter, (Sup. Super. Ct. 67. 1869) 1 Abb. App. Dee. 445, revers- 50. Nickelson v. Wilson, (1875) 60 ing 24 Super. Ct. 429, 19 Abb. Pr. N. Y. 362, reversing 1 Hun 615. 4 373. Tbomp. & C. 105. 53. Fried v. Danziger, (Sup. 1907) 51. Cowdrey v. Carpenter, (App. 120 App. Div. 604, 105 N, Y. S. 44. § 44S] ILLEGALITY 693 court and secure an extravagant allowance and was therefore against public policy, and that consequently the attorney for the receiver would not be compelled to account to the other for any part of the fees allowed to him by the court." § 445. Lideinnification. of Bail.— In England the view was taken at quite an early date that, as the object of the law in requiring a surety on a recognizance is to put on him a personal inducement to secure the appearance of the accused to answer the criminal charge and to require him to exercise care, at the peril of pecuniary loss, to see that the accused does appear; and as his obtaining indemnity from the accused removes the inducement for his personal vigilance and deprives the state of the security for the due appearance of the accused, a contract for such indemnity is contrary to public policy ; ^^ but if the agreement to indemnify was given by a third person it was upheld. In our state the view is taken that an agreement on the part of the accused to indemnify his bail is not necessarily illegal, as our system of bail in criminal cases, recognizing as it does the right of the accused to give cash bail, does away with any idea of a reliance on the exercise of care on the part of the surety to secure the appearance of the accused.^^ In this connection Parker, C. J., says: "It is true that in some othei: jurisdictions, as is pointed out in the very careful opinion of the Appellate Division, it has been suggested, if not decided, that it is against public policy to allow bail to become indemnified, the reason given being that the object for which the bail is required is to assure the appearance of the pris- oner to answer the charge against him, and that necessarily the bail had a direct pecuniary interest in preventing the escape of the prisoner, which he would not have were he fully indemnified. That is not the public policy of this state ; for the giving of bail in criminal cases is regulated by statute, and the legislature has, by its provisions, provided that a personally responsible surety may be altogether omitted if the accused prefers to make a deposit of money; he may have his choice either to give a bond with 54. Fried v. Banziger, (Sup. 1907) See also Harp v. Osgood, (Sup. 1842) 120 App. Div. 604, 105 N. Y. S. 44. 2 Hill 216. 55. Herman V. Jeuchner, (1885) 15 A similar view was expressed by Q. B. D. 561. the court in a prior action involving 56. Moloney v. Nelson, (1889) 158 the same transaction, though the N". Y. 351, 53 N. E. 31, affirming 12 question was not there decided. See App. Div. 545, 42 N. Y. S. 418, which Moloney v. Nelson, (1894) 144 N. Y. affirmed 16 Misc. 474, 39 N. Y. S. 930. 182, 63 State Rep. 86. 39 N. E. 82. 694 NEW YORIC LAW OP CONTRACTS '.S 446 siireties or make a deposit of money. It is the loss of the money deposited, or the assurance that the sureties will be obliged to pay the amount of the bail, that is relied upon to secure the presence of the accused. It, therefore, cannot be said to be a part of the public policy of this state to insist upon personal liability of sureties, for there need not be such personal liability in any case if the accused make a deposit of money in lieu of bail, as provided by the statute. ' ' *' And if a person accepts money to become bail for an accused, and thereafter, having signed the bond, refuses to justify, the money may be recovered back.^ § 446. Compensation of Witnesses; General Rule. — The authorities are not in accord as to the validity of an agreement for special compensation to a witness. There is nothing illegal, it would seem, in an agreement to compensate a witness for attend- ing, prior to the trial, conferences with the attorney of a party .^' It has been expressly held by the Court of Appeals that an agree- ment to give testimony in return for a reward, if supported by a consideration, is not necessarily illegal as having a tendency to induce the commission of perjury, where the witness simply con- sents to make a full disclosure of the truth, and has no induce- ment to bring about any special result."* This is especially true as to agreements for the compensation of expert witnesses,*^ and in the absence of an express agreement such a witness may recover the reasonable value of services, proper and necessary to inform himself as to the facts and to qualify him to testify intelligently.*^ On the other hand the broad rule has been laid down in several cases that it would be contrary to a sound public policy to recog- nize and enforce an agreement to recompense a person beyond the legal fees for giving his testimony.^^ " Where a witness," says 57. Moloney v. Nelson, (1889) 158 61. Hough v. State, ('Sup. 1911) N. Y. 351, 355, 53 N. E. 31. 145 App. Div. 718, 130 N. Y. S. 407. 58. Fitch V. Vanderveer, (Sup. G2. Brown v. Travelers' L., etc., G. T. 1878) 6 Wkly. Dig. 243. Ins. Co., (Sup. 1898) 26 Aipp. Div. 59. Clifford v. Hughes, (Sup. 1910) 544, 50 N. Y. S. 729. 139 App. Div. 730, 124 N. Y. S. 478. 63. Cowleis v. Eochester Folding 60. Niclcelson v. Wilson, (1875) 60 Box Co., (1904) 179 N. Y. 87, 92, 71 N. Y. 362, reversing 1 Hun 615, 4 N. E. 468, affirming 81 App. Div. 414, Thomp. & C. 105, in which case the 80 N. Y. S. 811; Clifford v. Hughes, consideration to support the agree- (Sup. 1910) 139 App. Div. 730, 124 ment in question was a waiver by N. Y. S. 478 See also Lyon v. Hus- the promisee of his right to refuse sey, (Sup. 6. T. 1894) 82 Hun 15, 63 to testify to ma.tters tending to in- State Rep. 531, 31 N. Y. S. 281. criminate himself. § 447] ILLEGALITY 696 Burr, J., " who is not interested in the result of the controversy resides within this state, and is amenable to process therein, an agreement to compensate him in an amount in excess of the legal fees for attending as a witness and testifying only as to facts within his knowledge is contrary to public policy and void. ' ' ** An agreement for special compensation, to be enforceable, must of course be supported by a consideration, and the mere perform- ance by a witness under subpoena of his duty to give his testimony will not constitute a consideration for a promise to pay him a special consideration therefor.*' § 447. Compensation Contingent on Result. — An agree- ment to pay a witness for testifying, on condition that his testi- mony will lead to a result favorable to the party calling him, is undoubtedly illegal.** " The evil of such an agreement," says Rapallo, J., in distinguishing it from an agreement where the compensation is not made contingent, " consists in the condition, which holds out to the witness the temptation of falsifying his testimony so as to produce the result upon which his compensation is to depend. ' ' *' An agreement by a witness to testify in con- sideration of an interest in the judgment sought to be recovered renders the compensation contingent in its nature and therefore illegal ; ** and where the plaintiff had made successive assignments of patent rights taken out in his name, and the latter assignment has been recorded first, an agreement by the first assignee to retransfer to him an interest in the patents in consideration of his testifying in a suit to establish the priority of the first assign- ment has been held illegal.*" Likewise an agreement for the com- pensation of an expert witness contingent on his testimony or the 64. Clifford V. Hughes, (Sup. 1910) (Sup. App. T. 1904) 14 N. Y. Annot. 139 App. Div. 730, 731, 124 N. Y. S. Oas. 360, 86 N. Y. S. 267. 478. 67. Nickelson v. WUson, (1875) 60 65. Oowles V. Rochester Folding N. Y. 362, 370. Box Co., (Sup. 1903) 81 App. Div. 68. Oowles v. Rochester Folding 414, 420, 80 N. Y. S. 811. See supra, Box Co., (Sup. 1903) 81 App. Div. section 325 et seq., as to when the 414, 80 N. Y. S. 811, affirmed 179 performance of one's legal duty is N". Y. 87, 71 N. E. 468; Laffin v. a consideration. Billington, (Sup. App. T. 1904) 14 66. Nickelson v. Wilson, (1875) 60 N. Y. Annot. Cas. 360, 86 N. Y. S. N. Y. 362, 370; Oowles v. Rochester 267. Folding Box Co., (Sup. 1903) 81 App. 69. Oowles v. Rochester Folding Div. 414, 80 X. Y. S. 811, affirmed Box Co., (Sup. 1903) 81 App. Div. 179 N. Y. 87, 71 N. E. 468; PoUak 414, 80 N. Y. 8. 811, affirmed 179 V. Gregory, '(Super, a. 1861) 22 N. Y. 87, 71 N. E. 468. Super. Ct. 116; Laffin v. Billington, 696 NEW YORK LAW OF CONTRACTS [§ 448 result of the litigation being favorable to the promisor is illegal.'" Thus where an attack on the constitutionality of the eighty cent gas statute is made, and the value of the plant of the gas company is brought in issue, an agreement for the compensation of an expert witness for the state as to such value, contingent on his placing a lower valuation on the plant than that placed by the gas company's expert, would be illegal.'^ A statement in good faith by an expert, based on partial data, that his valuation of a gas plant will .be less than that testified to by opposing witnesses, is insufficient to prove that his right to compensation was subject to the condition that his testimony should place such lower value on the plant, and his right to recover the agreed compensation is not affected by the further fact that after a more complete examination he is unable to testify to such- lower valuation.'^ If the contract is illegal and is entire, no recovery can be had thereon even for the expenses incurred by the witness.'' § 448. Agreements for Procurement of Evidence. — The prin- ciples announced in the foregoing paragraph apply equally to agreements to procure evidence consisting of the testimony of third persons. If the compensation for doing so, to be made to one not interested in the litigation, is contingent on the decision in the litigation being favorable to the promisor, an inducement to the subornation of perjury is offered and the agreement is held, as a general rule, against public policy.'* " The recognition 70. Hough. V. State, (Sup. 1911) the contract of employment was not, 145 App. Div. 718, 130 N. Y. S. 407; however, raised or considered. Laffin V. Billington, (Slip. App. T. 71. Hough v. State, (Sup. 1911) 1904) 86 N. Y. S. 267; Pollak v. 145 App. Div. 718, 130 N. Y. S. 407, Gregory, (Super. Ct. 1861) 22 Super. affirming as to this but reversing on Ct. 116. other groundis 68 Misc. 26, 124 In Rosewater v. Glen Telephone ^- ^- ®- ^'^^- I" t^i* case, however, Co., (Sup. 1903) 81 App. Div. ** ^^^ ^^^^ ^^^^ t'le evidence was in- 275, 80 N. Y. S. 880, a claim for sufficient to show that the right of compensation for services by an ex- ^\. Z'T"^ t° compensation waa . . , . aij •/ i subject to such condition, pert m making an affidavit for use -.o xi i, cj. j. ,r, -.r.-.-.x f ., 1. ,j i, , .,, 72. Hough V. State, (Sup. 1911) m a suit was upheld, though the em- j^g j^^^ ^j^ ^jg j3(j ^^ ^ g ^^^^ ployment ^va8 on condition tiiat the reversing on other grounds 68 Misc. affidavit should be of use to the de- 26 124 N Y S 878 fendant in the suit or, in other words, 73. Hough v. State, (Sup. 1911) favorable to the latter's contention 145 App. Div. 718, 130 N. Y. S. 407, in such suit. The affidavit as drawn reversing 68 Misc. 26, 124 N. Y. S. was favorable to the defendant's con- 878; Pollak v. Gregory, (Super. Ot. tention and as stated by the coUrt 1861) 22 Super. Ot. 116. drawn in good faith. The validity of 74. Matter of New York, (Sup § 448] ILLEGALITY 697 of contracts of this character," says Van Brunt, P. J., " would be the introduction of all sorts of fraud and deception in proceed- ings before courts of justice, in order that parties might receive compensation out of the results of their successful manufacture of proofs to be presented to the court, thus holding out a premium upon subornation. The mere statement of the proposition seems to show that such a contract could never be recognized in any court of justice. ' ' '^ Where, however, the person agreeing to pro- cure the evidence was himself directly interested in the litigation, and the contingent result would be detrimental to such interest which was just in its character, and the evidence to be produced was chiefly of a documentary character, the agreement has been upheld. For example, a claim to a mortgage was made by one A., under a trust deed executed by the mortgagee, and the latter instituted a suit to set aside the deed. In this action a receiver was appointed with authority to receive payment of the mortgage. The plaintiff, without any request on the part of the mortgagor, paid the mortgage debt and received from the receiver a satis- faction of the mortgage which he claimed entitled him to enforce the mortgage. Thereafter a suit was instituted to foreclose the mortgage, making the mortgagor and a junior mortgagee parties. They claimed in this suit that the payment by the plaintiff oper- ated as a satisfaction of the mortgage, and agreed with the plain- tiff that if he would produce the evidence necessary to support the defense they would pay him, if the defense was successful, the amount paid by him to the receiver. It was held that under the circumstances the agreement was not illegal, Andrews, J., saying: " In this case Hill [the plaintiff] was not a stranger in interest to the subject of the litigation. His antecedent relation to the mortgage made it just that he should be indemnified, for the money advanced by him, in case his payment should be avail- able to Brown in the foreclosure action. The mere fact that the 1911) 144 App.Div. 107, 128 N.Y.S. (1831) 7 Bing. 369, says: "We 999; Lyon v. Hussey, (Sup. G. T. fully assent to the decision in that 1894) 82 Hum 15, 63 State Bep. 531, case. An agreement by a stranger 31 N. Y. 8. 281. to furnish evidence to substantiate a 75. Lyon v. Hussey, (Sup. 1894) claim or defense, for a compensation 82 Hun 15, 63 State Eep. 531, 31 depending upon the success of his N". Y. S. 281. efforts, is dangerous in its tendency. See a;lso Wellington v. Kelly as furnishing an inducement for per- (1881) 84 N. Y. 543, 548, wherein jury and the subornation of wit- Andrews, J., citing with approval nesees." the English case of Stanley v. Jones, 698 NEW YORK LAW OF CONTRACTS [§ 449 agreement might furnish a temptation to Hill to prevaricate or furnish false testimony does not, we think, stamp the agreement as illegal per se, and no illegal or improper intent on the part of any of the parties is disclosed by the evidence. " '« An agree- ment to pay a reward for the apprehension and conviction of persons guilty of crimes is also upheld. " The interest of the state," says Bosworth, C. J., " to convict persons guilty of crimes is the reason of the rule which authorizes a reward for information that will establish their guilt. If it so happen that the person earning the reward becomes necessarily a witness, that result is accidental, and the objection goes to his credit and not to his competency."" Ousting Courts of Jurisdiction § 449. In General. — It is a well recognized rule of the common law that public policy requires that the courts shall be left open to individuals for the redress of their wrongs, and as a general rule provisions attempting to oust the courts of their jurisdiction are held unenforceable.'^' "It is familiar learning," says Pryor, J., " that the courts will not tolerate an agreement to oust them of jurisdiction. ' ' ''^ And it has been held that a provision in the constitution and by-laws of a voluntary association, consisting of grand and subordinate lodges, such as the Independent Order of Odd Fellows, whereby the grand lodge is attempted to be con- stituted a quasi- judicial tribunal to decree a forfeiture of the property of the members of the subordinate lodges, in case of future infractions of the rules of the association, is against public policy, and the courts will not lend their aid to the enforcement of orders of forfeiture made without any specific submission of the matters in dispute to the tribunal thus attempted to be cre- ated.*" It is also held that a court will not permit itself to be ousted of the right to consider competent evidence by a provision in a contract that it shall not be put in evidence in any action 76. Wellington v. Kelly, (1881) 84 v. Herring, (Com. PI. G. T. 1892) 2 N. y. 543. Misc. 105, 49 i&tate Rep. 126, 21 77. Pollak V. Gregory, (Super. Ct. N. Y. S. 244. 1861) 22 Super. Ot. 116, 122. 79. Runt v. Herring, (^Oom. PI. 78. Austin V. Searing, (1857) 16 G. T. 1892) 2 Misc. 105, 107, 49 State N. Y. 112, 116; Gitler v. Russian Rep. 126, 21 N. Y. S. 244. Co., (Stop. 1908) 124 App. Div. 273, 80. Austin v. Searing, (1857) 16 108 N. Y. S. 793, affirming as to this N. Y. 112, 116. 55 Misc. 553, 106 N. Y. S. 886; Runt § 449] ILLEGALITY 699 between the parties.*^ A provision in a contract seeking to oust the courts of jurisdiction of an action for its enforcement goes merely to the remedy for its enforcement and is independent of the liabilities assumed by the parties, and therefore does not, according to the better view, render the contract illegal as a whole and so prevent a party thereto from enforcing claims based thereon. The extent to which the courts ordinarily carry the rule denouncing provisions of this character is simply that they will not enforce a specific performance of it, or permit it to operate as a defense if it is pleaded as an answer to an action on the contract.*^ On the other hand, irrespective of whether an agree- ment to exonerate a person from liability for injuries caused by his own negligence is against public policy,*' it has been held that as an agreement by a servant in case of injury " not to institute or appear as a witness in any suit or proceedings " against the master, nor to " countenance or authorize any person to sue or appear and give testimony in any suit claiming damages for injuries, ' ' is against public policy ; ** and where in consideration of employment and one dollar, a servant so agreed, and also agreed not to hold the master liable for any injuries that he, the servant, might receive during the employment, it was held that as the contract for the exoneration of the master was entire the illegal agreement rendered it invalid as a whole.*^ According to the bet- ter view the provision in a Lloyd's insurance policy, in effect, that in the event of litigation on the policy no action or other proceeding shall be begun by the insured against the underwriters, the principal insurers, until recovery has been had against their attorneys in fact, through whom the contract was made and who became personally liable, and the amount of the loss thus fixed, 81. Leake, etc., Orphan House v. Civ. Pro. 377. And see generally the Hoyle, (Sup. Sp. T. 1913) 79 Misc. cases cited throughout this subdi- 301, 139 N. Y. S. 1098, holding that vision in which, without any discus- a provision in a lease that it shall sion of the question, the courts have not be admisisible as evidence in any permitted an action on the contract action between the parties is inef- to be maintained ignoring mereily the fectual to render the lease inadmissi- illegal provision. ble in an action involving rights 83. See infra, section 530 et seq. based thereon. 84. Runt v. Herring, (Com. PI. 82. Leiter v. Beecher, (Sup. 1896) G. T. 1892) 2 Misc. 105, 49 State 2 App- Div. 577, 580, 3 N. Y. Annot. Kep. 126, 21 N. Y. S. 244. Oas. 116, 74 State Rep. 410, 37 85. Runt v. Herring, (Com. Pi N. Y. S. 1114; Knorrv. Bates, (Com. G. T. 1892) 2 Misc. 105, 49 State PI. Sp. T. 1895) 12 Misc. 395, 67 Rep. 126, 21 N. Y. S. 244. State Rep. 592, 33 N". Y. S. 691, 24 700 NEW YORJC LAW OF CONTRACTS [§449 is held a valid condition precedent to the right to maintain an action against the individual underwriters, and not an illegal attempt to oust the courts of jurisdiction.*^ And where in. an insurance policy the insurers bound themselves severally for a certain amount or proportion of the total insurance, a provision that only one of the insurers should be sued to establish their liability for a loss has been upheld and the right of the insured to maintain an original action against more than one of the insur- ers denied.*' An agreement by parties to abide the result or settle their disputes in accordance with the decision of the court in an action between other persons is not subject to the objection that it is an illegal attempt to oust the courts of jurisdiction.** Parties may bind themselves by agreement not to sue for a limited time for the enforcement of their contract or other rights, and accord- ing to one line of authorities which has been followed in our state, such an agreement may be set up in defense to an action brought in breach of the agreement.*' Thus it has been held that where eotenants contract as to the manner in which the common estate shall be managed for a certain time, and agree not to partition 8G. Ketclmm v. Belding, (Sup. 1901 ) 58 App. Div. 295, 68 N. Y. S. 1099, affirming 32 Misc. 506, 66 N. Y. S. 307, which reversed on ques- tion of pleading 31 Misc. 498, 64 N. Y. S. 550. In Knorr v. Bates, ( Com. PI. Sp. T. 1895) 12 Misc. 395, 67 State Rep. 592, 33 N. Y. S. 691, 24 Civ. Pro. 377, affirmed 14 Misc. 501, 70 State Rep. 686, 35 N. Y. 8. 1060, a contrary view as to the validity of such an agreement is taken, based on the as- sumption that the agents were in fact in no wise liable on the contract. This assumption, however, was false as shown in the later case of Leiter V. Beecher, (Sup. 1896) 2 App. Div. 577, 3 N. Y. Annot. Cas. 116, 74 State Rep. 410, 37 N. Y. S. 1114 (see also McLean v. Tobin, (Sup. App. T. 1908) 58 Misc. 528, 109 N. Y. S'. 926), and therefore the entire foun- dation for the decision is destroyed. See infra, section 453, as to con- ditions precedent to rights of action not regarded as attempts to oust the courts of jurisdiction. 87. New Jersey, etc., Concentrat- ing Works V. Ackermann, (Sup. 1896) 6 App. Div. 540, 39 N. Y. S. 585, reversing 15 Misc. 605, 73 State Rep. 114, 37 N. Y. S. 489. 88. New Jersey, etc.. Concentrating Works V. Ackermann, (Sup. 1896)' 6 App. Div. 540, 543, 39 N. Y. S. 585. 89. Brown v. . Coddington, (Sup. G. T. 1893) 72 Hun 147, 55 State Rep. 515, 25 N. Y. S. 649, approving the view taken by the Michigan court in Robinson v. Godfrey, (Sup. 1852) 2 Mich. 408, and Morgan v. Butterfield, (SUp. 1855) 3 Mich. 615, and disapproving the view expressed in- Chandler v. Herrick, (Sup. 1821) 19 Johns. 129, and Winnans v. Hus- ton, (Sup. 1831) 6 Wend. 471, to the eifect that an agreement not to sue ia an independent agreement for which an' action for its 'breach may be brought, but which cannot be set up in bar of an action brought be- fore the lapse of the time fixed. § 450] ILLEGALITY 701 during the existence of the contract, such agreement is a defense to a suit brought by one of such cotenants for a partition.^" § 450. Restriction to Particular Court. — A contract which attempts to exclude a party from suing in the courts of our states, in case of a future controversy, so as to compel him to resort to the courts of a foreign country, is against public policy,*^ and it would seem that a provision requiring an action thereon to be brought in a particular court violates the general rule prohibiting contracts ousting the courts of jurisdiction.^^ Thus it has been held that a provision in a contract which attempts to limit a person to bringing any action thereon in the Supreme Court is invalid and does not deprive him of the right to bring his action in the municipal court of the city of New York,'* and a provision in an insurance policy that any action thereon in the state shall be brought " in courts sitting in the city of Buffalo and there tried," has been held ineffectual to deprive the insured of the right to bring an action thereon in a court of a justice of the peace in another place. ** This is also the view taken by the federal Supreme Court as to the validity of a provision by which it is sought to restrict the right of a party to a contract to sue thereon in the federal courts, or to remove to a federal court an action brought in a state court,'^ and an agreement to sue only in the 90. Brown v. Ooddington, (Sup. jurisdiction." Referring to this G. T. 1893) 72 Hun 147, 55 State clause, the court said: "This in- Rep. 515, 25 N. Y. S. 649. volves the proposition that the 91. Gitler v. Russian Co., (Sup. parties to the contract could, by 1908) 124 App. Div. 273, 108 N. Y. 8. agreement between themselves, law- 793, affirming as to this 55 Misc. 553, fully and effectually oust certain 106 N. Y. S. 886. courts of their statutory furisdiotion. 92. McLean v. Tobin, (Sup. App. Such a proposition is wholly untcna- T. 1908) 58 Misc. 528, 109 N. Y. S. We (Home Ins. Co. v. Morse, 87 U. S. 926; Darling V. Protective Assur. Co., 445), and the clause relied upon (County Ct. rOll) 71 Misc. 113, 127 must be held to be wholly inoperative K Y. iS. 486. See also Benson v. and invalid." Eastern: Bldg., c'tc., Ass'n, (1903) 93. McLean v. Tobin, (Sup. App. 174 N. Y. 83, 66 N. E. 627, reversing T. 1908) 58 Misc. 528^ 109 N. Y. S. 67 App. Div. 319, 74 N. Y. S. 506; 926. Meacham v. Jamestown, etc., R. Cto., 94. Darling v. Protective Assur. (1914) 211 N. Y. 346, 352, 105 N. E. Soc, (County Ct. 1911) 71 Misc. 113, 653 (per Oardozo, J.). 127 N. Y. S. 486. In- Hancock Leather Co. v. Ayrault, 95. Home Ins. Co. v. Morse, (1874) N. Y. L. J. Dec. 14, 1904, Scott, J., 20 Wall. 445, 22 U. S. (L. ed.) 365; at Special Term, considered a case Doyle v. Oontlnental Ins. Co., (1876) where an insurance policy provided 94 U. S. 535, 24 U. S. (L. ed.) 148; that the action should be brought Barron v. Burnside, (1887) 121 U. S. "in the highest court of original 186, 7 S. a. 931, 30 D. S, (L. ed.) 702 NEW YORK LAW OF CONTRACTS [§ 451 federal Circuit Court has been held against public policy and ineffectual to deprive a party of the right to sue in a state court.'^ On the other hand the view has been taken that no rule of pub- lic policy precludes the parties from contracting as to the county in which an action brought therein can be tried/' and where an action in the Supreme Court, which is the same court throughout the state, was brought in another county than that so specified, the defendant has been permitted by answer to set up the limitation as a defense to the action.'* The Court of Appeals, however, in a fairly recent case, in which CuUen, J., expresses as his opinion that a contract which attempts to restrict the right of a party to sue thereon in a particular court is not effectual to oust other courts of jurisdiction, holds that a provision, if valid, specifying the county in which an action brought in the Supreme Court shall be tried, does not affect the jurisdiction of the court in ease the action is commenced in another county, and cannot be set up as a defense in bar of the action, but can be made available only by a motion for a change of venue.'* § 451. Limitiugf Time for Commencement of Action. — ^Accord- ing to the view taken in our state it is well settled, as a general rule, that the parties to a contract may provide for a shorter limi- tation for an action thereon than that fixed by the general law. Such an agreement is not expressly or impliedly prohibited by the general statute of limitations and is consistent with the policy on which such statute is founded, and where a reasonable time for the institution of an action is given the agreement is not subject to the objection that it is an illegal attempt to oust the courts of jurisdiction.^ Stipulations of this character have been very 915. See Sanford v. Commercial N. Y. Annot. CaiS. 14, 62 State Eep. Travelers' Mut. Ace. Ass'n, (Sup. 566, 30 N. Y. S. 668. G. T. 1896) 86 Hun 380, 382, 67 State 99. Benson v. Eastern Bldg., etc.. Rep. 225, 33 N, Y. S. 512. Ass'n, (1903) 174 N Y. 83, 66 N. E. 96. Mutual Reserve Fiind L. Ass'n 627, reversing 67 App. Biv. 319, 74 V. Cleveland Woolen Mills, (6th Cir. N. Y. S. 506. 1897) 82 Fed. 508, 54 U. 8. App. 1. Ames v. New York Union Ins. 290, 27 C. C. A. 212. Oo., (1856) 14 N. Y. 253; Ripley v. 97. Greve v. Aetna Live Stock Ins. Aetna Ins. Co, (1864) 30 N. Y. 136; Co., (Sup. O. T. 1894) 81 Hun 28, 1 Roach v. New York Ins. Co., (1864) N. Y. Annot. Caa. 14, 62 State Eep. 30 N. Y. 546; New York v. Hamil- 566, 30 N. Y. S. 668. ton F. Ins. Co., (1868) 39 N. Y. 45, 98. Greve v. Aetna Live Stock Ins. 6 Trans. App. 244; Wilkinson v. Co., (Sup. G. T. 1894) 81 Hun 28, 1 Worcester First Nat. F. Ins. Co., § 451] ILLEGALITY 703 frequently inserted in insurance policies, and in this connection Mullen, J., says : "I am unable to perceive any good reason why parties to a contract may not agree that an action for a breach of it shall be brought within the period shorter than that fixed for bringing an action, or that the right of action shall be deemed abandoned. So far from interfering with, it more effectually secures the end sought to be attained by the statute of limita- tions."^ And in a later case Danforth, J., says: " That such a condition is valid cannot now be questioned." ^ The Code of Civil Procedure, section 414, states that the provisions of the chap- ter relating to the limitation of actions " apply, and constitute the only rules of limitation applicable, to a civil action or special proceeding, except in one of the following cases: 1. A case where ... a shorter limitation is prescribed by the written con- tract of the parties." This is an express recognition of the right of the parties to require, by an express provision in the contract, that any action thereon must be brought within a shorter period than that fixed by the general provisions of the Code.^ The gen- eral rule is subject to the qualification that the time specified for bringing the action must be reasonable under all the circumstances of the case,^ and while a provision in an insurance policy limiting to six months the time for bringing an action on the policy is generally upheld,' it has been held that such a provision is void as unreasonable when attempted to be applied to a case in which the insurer delayed its final determination as to whether to pay (1878) 72 N. Y. 499, affinning 9 2. Ripley v. Aetna In®. Co., (1864) Hua 522; Arthur v. Homestead F. 30 K Y. 136, 163. Ins. Co., (1879) 78 N. Y. 462; In re 3. Arthur v. Homestead F. Ins. Co., New York, etc., R. Co., (1885) 98 (1879) 78 N. Y. 462, 466. N. Y. 447, 453; New Jersey, etc., Con- 4. Sullivan v. Prudential Ins. Co., centrating Works v. Ackermann, (1902) 172 N. Y. 482, 65 N. E. 268. (Sup. 1896) 6 App. Div. 540, 39 5. Magner v. Mutual L. Ass'n, K". Y. S. 585, affirming 15 Misc. 605, (Sup. 1897) 17 App. Div. 13, 44 73 .SItate Rep. 114, 37 N. Y. S. 489; N. Y. S. 862, affirmed 162 N. Y. 657 People T. American Steam Boiler Ins. mem., 57 N. E. 1116. Co (Sup 1896) 10 App. Div. 9, 75 6. Sullivan v. Prudential Ins. Co., State Rep. 1028, 41 N. Y. S. 631; (1902) 172 N. Y. 482, 65 N. E. 268, People v American Steam Boiler Ins. reversing on other grounds 63 App. Co., (Sup. G. T. 1895) 89 Hun 456, 69 Div. 280, 71 N". Y. S. 525; Ryer v. State Rep. 721, 35 N. Y. S. 322; Prudential Ins. Co., (Sup. 1903) 85 O'Brien v. Mechanics', etc., F. Ins. App. Div. 7, 82 N. Y. S. 971; Sweet- Go., (Super. Ot. 1873) 36 Super. Ct. ser v. Metropolitan L. Ins. Co., (Com. 110, 14 Abb. Pr. N. S. 314, 45 How. PI. G. T. 1894) 8 Misc. 251, 59 State Pr.'453, reversed on other grounds Rep. 249, 28 N. Y. S. 543. 56 N. Y. 42. 704 NEW YORK LAW OF CONTRACTS [§ 452 the claim until three days before the expiration of the six months/ The view is also taken that provisions of this character are not favored by the court and are to be strictly construed.* § 452. Arbitration Agreements; Common Law Eule. — ^An agreement to submit to arbitration controversies which may arise between the parties, in so far as an attempt is made to preclude the parties from resorting to the courts for the settlement of such disputes, is, under the common law rule, regarded as unenforce- able for reasons of public policy as an attempt to oust the courts of jurisdiction,' and a submission of an existing controversy to arbitration was revocable by either party at any time before the award was made,^" leaving, however, in case of a revocation with- out just cause, the party doing so liable to the other party in damages for a breach of his contract express or implied not to revoke the submission.^^ As said by Martin, J.: " It is well settled by a long line of both American and English authorities, that a general covenant or agreement that any differences that 7. Magner v. Mutual L. Ass*!!, (iSuip. 1897) 17 App. Div. 13, 44 N. Y. S. 862, affirmed 162 N. Y. 657 mem., 57 N. E. 1116. 8. Jaeksoni v. Metropolitan L. Ins. Co., (Sup. Tr. T. 1910) 69 Misc. 265, 126 N. Y. SL 680, affirmed 144 App. Div. 912 mem., 128 N. Y. S. 1127. 9. Haggart v. Morgan, (1851) 5 N. Y. 422; Hurst v. Litchfieild, (1868) 39 N. Y. 377, 7 Trams. App. 179; Delaware, etc.. Canal Co. v. Pennsylvania lOoal Co., (1872) 50 N. Y. 250; Seward v. Rochester, (1888) 109 N. Y. 164, 15 State Rep. 193, 16 N. E. 348; Sanford v. Com- mercial Travelers' Mut. Ace. Ass'n, (1895) 147 N. Y. 326, 2 N. Y. Annot. Gas. 285, 69 State Rep. 689, 41 N. E. 694, affirming 86 Hun 380, 67 State Rep. 225, 33 N. Y. iS. 512; Thomas W. Finucane Co. v. Board of Educa- tion, (1907) 190 N. Y. 76, 82 N. E. 737, reversing on other grounds 115 App. Div. 920 mem., 101 N. Y. S. 1121; National 'Contracting Co. v. Hudson River Water Power Oo., (1908) 192 N. Y. 209, 84 N. E. 965, on prior appeal 170 N. Y. 439, 63 N. E. 450; Meacham v. Jamestown, etc., R. Co., (1914) 211 N. Y. 346, 105 N. E. 653, reversing 151 App. Div. 941 mem., 36 N. Y. S. 1141; Keefe v. National Aoc. Soc, (Siup. 1896) 4 App. Div. 392, 38 N. Y. S. 854; St. Regis Paper Co. v. Santa Caara Lumber Co., (Sup. 1905) 105 App. Div. 341, 353, 93 N. Y. S. H46, affirtming on opinion 'below 42 Misc. 102, 85 N. Y. S. 1034, and approved as to this but reversed on other grounds 186 N. Y. 89, 78 N. E. 701; Baldwin v. Fraternal Aoc. Ass'n, (Sup. ,Sp. T. 1897) 21 Misc. 124, 46 N. Y. S. 1016; Sutro v. Balk, (Sup. App. T. 1915) 151 N. Y. S. 764; Gay V. Lathrop, (Sup. G. T. 1887) 6 State Rep. 603. See also Greason v. Keteltas, (1858) 17 N. Y. 491, 496. 10. Austin V. Searing, (1857) 16 N. Y. 112, 116, 123; Greason v. Keteltas, (1858) 17 N. Y.- 491, 496; People v. Nash, (1888) 111 N. Y. 310, 19 State Rep. 75, 18 N. E. 630, 16 Civ. Pro. 83; Thomas W. Finucane Co. V. Board of Edoication, ( 1907 ) 190 N. Y. 76, 82 N. E. 737, revers- ing on other grotmds 115 App. Div. 920 mem., 101 N. Y. S. 1121. 11. People V. Nash, (1888) 111 N. Y. 310, 19 State Rep. 75, 18 N. E. 630, 16 Civ. Pro. 83. S 453] ILLEGALITY 705 may subsequently arise in the performance of a contract, or under an executory agreement, shall be submitted to the decision of arbitrators or referees, will not oust a court of law or equity of jurisdiction, and that judicial powers in regard to the property and rights of parties cannot by such an agreement be conferred upon others to the exclusion of the jurisdiction of the courts. ' ' ^^ And it is held by the Court of Appeals that judicial comity does not require our courts to give effect to such a contract, though its validity is recognized in the state where it was made and where it was to be performed.^' It consequently has been held that -a provision in a building or construction contract that all disputes or controversies arising under the contract shall be adjusted by the supervising architect or engineer and his decision shall be final is not binding, being against the policy of the common law, and that, though such a question arises, an action may be main- tained on the contract by the contractor, without any offer to sub- mit the matter for adjustment.^* The same view is taken at com- mon law as regards a stipulation in articles of partnership for the submission to arbitration of all controversies arising between the parties.^^ § 453. — ' — Condition Precedent to Eight of Action. — It was said some time ago by Allen, J., that the tendency of the more modern decisions is to narrow rather than to enlarge the opera- tion and effect of earlier decisions limiting the power of contract- ing parties to provide a tribunal for the adjustment of possible differences without a resort to courts of law,i' and the rule has been adopted that where by the same agreement which creates a liability and gives a right it is made a condition precedent to a right of action thereon that certain facts shall be determined 12. Sanford v. Commercial Trav- As to the validity of provisions elers' Mui. Ace. Ass^n, (Sup. G. T. making 'the certificate of the archi- 1895) 86 Hun 380, 391, 67 State Eep. teot or engineer as to the perform- 225 33 N. Y. S. 512. ance of the contract or the quantity 13. Meacham v. Jamestown, etc., of the work done a condition pre- E. iCo., (1914) 211 N. Y. 346, 105 cedent to the right to recover the N. B. 653 reversing 151 App. Div. agreed compensation, see the foUow- 941 mem.,' 36 N. Y. S. 1141. ing section. X4 Hurst V. Litchfield, (1868) 39 15. Hurst v. Litchfield, (1868) 39 N. Y. 377, 7 Trans. App. 179; N. Y. 377, 379, 7 Trans. App. 179. Meacham v. Jamestown, etc., E. Co., 16. Delaware, etc., Canal Co. v. (1914) 211 N. Y. 346, 105 N. E. 653, Pennsylvania Coal Co., (1872) 50 reversing 15l' App. Div. 941 mem., N. Y. 250, 259. 136 N. Y. S. 1141. 45 706 NEW YORK LAW OF CONTRACTS [§ 453 or amounts and values ascertained by so-called arbitrators or appraisers in case the parties cannot agree thereon, effect will be given thereto and a party be denied the right to sue without com- plying with such condition precedent or showing a valid excuse for his failure to do so." In distinguishing a general provision for arbitration from one within the above qualification, Allen, J., says : " In one class the parties undertake by an independent covenant or agreement to provide for an adjustment and settlement of all disputes and differences by arbitration, to the exclusion of the courts, and in the other they merely, by the same agreement which creates the liability and gives the right, qualify the right by pro- viding that before a right of action shall accrue certain facts shall be determined or amounts and values ascertained, and this is made a condition precedent either in terms or by necessary implica- tion. This case is within the latter class, and the condition being lawful, the courts have never hesitated to give full effect to it. ' ' ^' And in a more recent case Werner, J., says: " The question presented by this demurrer is whether the clause in the contract above referred to comes within the rule which nullifies contracts ousting the courts of their jurisdiction, or within another and equally well-established rule, that parties may covenant that no right of action shall accrue until a third person has performed specific acts or determined certain differences between them. The line of demarcation between the two classes of cases is clear and distinct. The difficulty, if any, lies in the application of particular facts to a clearly defined rule. ' ' ^' Thus in case of building con- tracts or the like a provision is frequently inserted requiring a certificate of the architect or engineer as to the general perform- ance of the contract or the quantity, etc., of the work done, as a condition precedent to the right of the contractor to recover the agreed compensation or an instalment thereof. There is nothing opposed to public policy in such a stipulation, and it is well settled 17. Delaware, etc., Canal Co. v. 650. See also Seward v. Rochester, Pennsylvania Coal Co., (1872) 50 (1888) 109 N. Y. 164, 168, 15 State N. Y. 250; Byron v. Low, (1888) 109 Rep. 193, 16 N. E. 848. N. Y. 291, 14 State Rep. 823, 16 N. E. 18. Delaware, etc., Canal Co. v. 45; National Contracting Co. v. Pennsylvania Coal Co., (1872) 50 Hudson River Water Power Co., N. Y. 250, 266. (1902) 170 N. Y. 439, 63 N. E. 450, 19. National Contracting Co. v. on second appeal 192 N. Y. 209, 84 Hudson River Water Power Co., N. E. 965; WyckoflFv. Woarms, (Sup. (1902) 170 N. Y. 439, 442, 63 N. E. 1907) 118 App. Div. 699, 103 N. Y. S. 450. § 454] ILLEGALITY 707 that the contractor must procure such a certificate or show a valid excuse for not doing so to entitle him to recover on the contract.^" And the right of the parties to make it a condition precedent to the right to recover for extra work, that the question shall be first submitted for decision to a third person as to whether the work for which such compensation is claimed is in fact extra work, and its value, is upheld.^^ The same principle is applied in case of sales, leases or the like, where provision is made for the ascertain- ment by a third person or persons of the amount to be paid,^^ and to a provision in an insurance policy that in case of a dispute as to the amount of loss it shall be fixed by persons appointed by the parties.^ This qualification does not permit the parties under the guise of a condition precedent to a right of action on the con- tract to require that all questions of liability under the contract be submitted to arbitration.^ § 454. Statutory Sanction of Arbitration Agreement. — The recent Arbitration Law, section 2 (3a McKinney's Cons. Laws, p. 8), expressly provides that " a provision in a written con- tract to settle by arbitration a controversy thereafter arising between the parties to the contract . . . shall be valid, enforce- 20. McMahon v. New York, etc., R. 23. Silver v. Western Assur. Ck)., Co., (1859) 20 N. Y. 463; Byron v. (1900) 164 N. Y. 381, 58 N. E. 284, Low, (1888) 109 N. Y. 291, 14 State reversing on other grounds 33 App. Rep. 823, 16 N. E. 45; Sweet v. Mor- Div. 450, 54 N. Y. S. 27; Williams rison, (1889) 116 N. Y. 19, 32, 26 v. German Ins. Co., (Sup. 1904) 90 State R^. 445, 22 N. E. 276; O'Brien App. Div. 413, 86 N. Y. S. 98, 14 V. New York, (1893) 139 N. Y. 543, N". Y. Annot. Cas. 330. See Dela- 55 State Rep. 596, 35 N. E 323; ware, etc., Canal Co. v. Pennsyl- National Contracting Oo. v. Hudson vania Coal Co., (1872) SON. Y. 250, River Water Power Co., (1902) 170 267, referring with approval to the N. Y. 439, 63 N. E. 450, reversing English case of Scott v. Avery, (1856) 67 App. dW. 620 mem., 73 N. Y. S. 5 H. L. Gas. 811. 1142, 1143, which affirmed 34 Misc. 24. National Contracting Cb. V. 652 70 N Y. S. 585, on second ap- Hudson River Water Power Co., peai 192 N. Y. 209, 84 N. E. 965; (1908) 192 N. Y. 209, 84 N. E. 965, Wyckoff V. Woarms, (Soip. 1907) 118 on prior appeal 170 N. Y. 439, 63 App Div 699 103 N. Y. S. 650; Gay N. E. 450; Meacham v. Jamestown, V. Lathrop, (S-up. G. T. 1887) 6 State etc., R. Co., (1914) 211 N. Y. 346, E^p 603 105 N. E. 653, reversing 151 App. 21. Wyckoff v. Woarms, (Sup. Div. 941, 136 N. Y. S. 1141; Keeffe 1907) 118 Add. Div. 699, 103 N. Y. S. v. National Ace. Soc., (Sup. 1896) 650. 4 App. Div. 392, 38 N. Y. S. 854; 22 Delaware, etc., Canal Co. v. Baldwin v. Fraternal Ace. Ass'n, Pennsylvania Coal Co., (1872) 60 (Sup. Sp. T. 1897) 21 Misc. 124, 46 N. Y. 250 (provision for fixing carnal N. Y. S. 1016. tolls by third persona). 708 NEW YORK LAW OF CONTRACTS [§ 454 able and irrevocable, save upon such grounds as exist in law or equity for the revocation of every contract." Further provision is made for the specific enforcement of the agreement, with power in the courts to review the award. The constitutionality of this legislation is upheld.^" It is not unconstitutional as infringing the jurisdiction conferred on the Supreme Court by the constitution,^* or as depriving a person of his constitutional right to trial b.y jury, a right which may be waived.^' Nor, as applied to an exist- ing contract, is it unconstitutional as impairing the obligation of such contract, as the effect of such legislation is to strengthen rather than impair the obligation.^^ Consequently in so far as it is applicable, it changes the common law rule as to the validity and enforceability of agreements to submit future controversies to arbitration and to abstain from resort to the courts for the settle- ment of such disputes.^ It has been decided by the Court of Appeals that the statute is to be given a retroactive effect so as to include existing contracts provided no action was pending on the contract at the time of its enactment,^" but, as applied to an existing contract, it does not affect the right to continue an action in violation of the agreement for arbitration, commenced before the enactment of the statute.^^ The statute has no operation unless there is in fact an agreement for arbitration. " This act," says Woodward, J., " is intended to compel a specific performance of contracts for arbitration, not to create new contracts, or to impose conditions which the parties themselves have not agreed upon. ' ' ^^ And if the making of the agreement for arbitration is denied by the defendant in proceedings for its specific enforcement this 25. Berkovitz v. Arbib, ( 1921 ) 230 29. Berkovitz v. Arbib, ( 1921 ) 230 N. Y. 261, 130 N. E. 288. See also N. Y. 261, 130 N. E. 288; Matter of In re General SUlk Importing Co., Palmer, (Sup. 1921) 195 App. Div. (Soip. 1921) 198 App. Div. 16, 189 523, 525, 186 N. Y. S. 369; In re N. Y. S. 391; Matter of Shima, (Sop. General Silk Importing Co., (Sup. Sp. T. 1920) 113 Misc. 612, 186 1921) 198 App. Div. 16, 189 N. Y. S. N. Y. S. 154. 391. 26. Berkovitz v. Arbib, ( 1921 ) 230 30. Berkovitz v. Arbib, ( 1921 ) 230 N. Y. 261, 130 N. E. 288. N. Y. 261, 130 N. E. 288, reversing 27. Berkovitz v. Arbib, (1921) 230 ^^^ ^PP" '^^''- ^^S, 183 N. Y. S. 304. N. Y. 261, 130 N. E. 288. See also ,, ^^l ^"''°^'*^ ^- ^''^^^' '^^^l) 230 Matter of Yeannakopoulos, (Sup. f./A n-''o,f " ''^.l/.^v "I 1921 ) 195 App. Div. 261, 186 N. Y. S. Jg ^^^- ^'^- ''^^ "'^^■' ^«* ^- ^- ^■ ^^^" 32. Matter of Amalgamated Aes'n 28. Berkovitz v. Arbib, (1921) 230 (Sup. 1921) 196 App. Div 206 188 N. Y. 261, 130 N. E. 288. N. Y. S. 353. § 454]. ILLEGALITY 709 issue is to be first tried summarily as provided by section 3 of the statute.'^ In case of a contract for tbe sale of silk between a member of the Silk Association of America and one not a member, a provision printed on the face of the contract that " sales are governed by raw silk rule adopted by the Silk Association of America," is not to be construed as an agreement between the parties to submit to arbitration a subsequent controversy as to the construction and performance of the contract which can be enforced under the Arbitration Law.'* And the same is held true as to a provision in a contract between a labor union and a street railway company by which the company agrees to treat with the officers of the union on all grievances which may arise.'^ So in case of an agreement between a labor union and a street rail- way company for submitting to arbitration the question of wages, after the period covered by the contract, in case the parties are at a certain time before the expiration of the period unable to agree, the agreement for arbitration, even if the union has a stand- ing to enforce it, can only be enforced in accordance with the terms of the agreement, and no relief can be granted where the time specified for arbitration has not arrived, and this is especially true where the members of the union have gone on a strike instead of performing the agreement on their part.'^ It is held that a distinction exists between agreements to submit an existing dis- pute to arbitration under the provision of the Code of Civil Pro- cedure which provides (section 2366) that " two or more persons may, by an instrument in writing, duly acknowledged or proved, and certified, in like manner, as a deed to be recorded, submit to the arbitration . . . any question existing between them at the time of the submission, ' ' etc., and the provision in the Arbitration Law for the arbitration of future disputes, and that a contract containing a stipulation for the submission of future disputes need not be acknowledged, etc., as required by the Code in case of a submission of an existing disputed 33 Matter of Palmer, (Sup. 1921) 36. Matter of Amalgamated Ass'n, 195 App. Div. 523, 186 N. Y. S. 369. (Sup. 1921) 193 App. Div. 206, 188 34. In re General Silk Wporting N. Y. S. 353. Co (Sup 1921) 198 App. Div. 16, 37. Matter of Yeannakopoulos, 189 N. Y. S. 391. (Sup. 1921) 195 App. Div. 261, 186 35 Matter of Amalgamated Ass'n, N. Y. S. 457; Matter of Shinia, (Sup. (Sup 1921) 196 App. Div. 206, 188 Sp. T. 1920) 113 Misc. 612, 186 N. Y. S. 353. N. Y. S. 154. 710 NEW YORK LAW OF CONTRACTS [§§455,456 § 455. Agreement Not to Sue on Existing Claim. — In case of an existing claim on which, a cause of action has accrued, the parties may undoubtedly, for a sufficient consideration, release the same or agree to forbear to sue thereon for any specified time, and consequently may, it has been held, agree not to resort to the courts of the state for the enforcement of such a demand. Thus it has been held that a judgment creditor may by contract bind himself not to resort to any of the courts of our state to enforce the judgment.^' In this- connection, Scott, J., says: " The promise to forbear to prosecute a particular claim upon which one has a right to sue is universally held to be a sufficient con- sideration to support a contract, . . . and it certainly could not be held to be a sufficient consideration if it was itself invalid and unenforceable. "We are of the opinion, therefore, that a valid contract may be made to refrain from pursuing a particular remedy to enforce an existing claim, since public policy is in no way concerned with the option which every man has to sue or for- bear to sue. . . . The agreement in the present case goes no further than this. The cause of action to enforce the judgment was the plaintiffs'. They could dd with it as they saw fit to the extent of releasing it wholly on the one hand, or of prosecuting every legal method for its collection on the other. Whatever course they saw fit to adopt was no matter of public concern and affects no ques- tion of public policy, and if they saw fit to make an agreement, otherwise valid, that they would forbear to pursue their remedy by action in the courts of this state, there is no public policy which renders that agreement invalid."" § 456. Stipulations as to Conduct of Proceedings or Remedy. — Persons by their stipulations may in many ways make the law for any legal proceeding to which they are parties, which not only binds them but which the courts are bound to enforce.*" " They 38. Oitler v. Russian Co., (Sup. 414. See also Leiter v. Beecher, 1908) 124 App. Div. 273, 108 N. Y. S. (Sup. 1896) 2 App. Div. 577, 581, 3 793, reversing 55 Misc. 553, 106 N. Y. N. Y. Annot. Cas. 116, 74 State Rep. S. 886. 410, 37 N. Y. S. 1114; Gitler v. Rus- 39. Gitler v. Russian, Co., (Slip. sian Co., (Sup. 1908) 124 App. Div. 1908) 124 App. Div. 273, 276, 108 273, 108 N. Y. S. 793; Fish v. Dela- N. Y. S. 793. ware, etc., R. Co., (Sup. 1913) 158 40. In re New York, etc., R. Co., App. Div. 92, 95, 143 N. Y. S. 365; (1885) 98 N. Y. 447, affirming 33 Gray v. Bowen, (Super. Ct. 1862) 23 Hun 639; Hine v. New York El. R. Super. Ct. 67. Co., (1896) 149 N. Y. 154, 43 N. E. § 456] ILLEGALITY 711 may stipulate away," says Earl, J., " statutory and even con- stitutional rights. They may stipulate for shorter limitations of time for bringing actions for the breach of contracts than are prescribed by the statutes, such limitations being frequently found in insurance policies. They may stipulate that the decision of a court shall be final, and thus waive the right of appeal ; and all such stipulations not unreasonable, not against good morals or sound public policy, have been and will be enforced; and gen- erally, all stipidations made by parties for the government of their conduct or the control of their rights, in the trial of a cause or the conduct of a litigation, are enforced by the courts. ... So it is not true that parties cannot enter into stipulations which in some sense will bind and control the action of the courts. They do not literally control the power of the courts except as such power is in all cases circumscribed by the necessity which obliges every court to apply the proper rules of law to the facts of every case, and to exercise its powers according to established principles. ' ' ^^ Thus in a contract for the sale of land to a rail- road company the parties may provide for the valuation of the land as in proceedings under the General Railroad Law by com- missioners named by the parties, with the reservation of the right of appeal to the court from the award of the commissioners so named, and on such appeal the court has no authority without the consent of the parties to appoint new commissioners." They may by agreement limit the scope of judicial inquiry in a pending action, which not only binds them but which the courts are bound to enforce." It is also held in our state that a stipulation not to exercise the right to appeal is valid." Likewise it seems that the parties to a contract may by express stipulation bind themselves as to the conclusiveness of particular evidence of the breach of the contract by one of them. Thus where a contract for the employment of a street car conductor required him to register 41. In re New York, etc., E. Co., 1908) 124 App. Div. 273, 276, 108 (1885) 98 N. Y. 447, 453. N". Y. S. 793. Aa T XT „ v„..i, „+« -p Hn 44. Townsend v. Masterson, eitc., ^t!;, nfxT^ Z^' ^ ^'^ stone Dressing Co., (1857) 15 N. Y. (1885) 98 N. Y. 447, affirming 33 ^^^ ^^^ ^^J ^^^^^^^ ^ 3^^^^^^^ Hun 639. (1883) 93 N. Y. 589; Gitler v. Rus- 43. Hong Kong, etc., Banking Corp. sian -Co., (Sup. 1908) 124 App. Div. V. Cooper, (1889) 114 N. Y. 388, 23 273, 276, 108 N. Y. S. 793; Gray v. State Eep. 787, 21 N. E. 994. S«e Bowen, (Super. Ot. 1862) 23 Super, abo Gitler v. Enssian Co., (Sup. Ct. 67, 76. 712 NEW YORK LAW OF CONTRACTS [■§ 457 every passenger, and stipulated as to the damages reeoverable by the company for his failure to do so, which were to be deducted from his wages, and further provided that a report by detectives in the employ of the company of a violation of the requirement as to registration should be conclusive on the conductor, the latter provision was held valid and binding on him, and his denial, in an action to recover for wages deducted for such violation, in the face of a report and testimony of a detective that he had violated the requirement, could not in any way avail him* This right to stipulate does not apply in its full force to proceedings which may thereafter be brought to enforce contracts in case of future controversies as to the rights of the parties.*' Thus it is held that a stipulation in a contract, such as a policy of insurance, that any action brought thereon, whether referable without the con- sent of the parties or not, shall at the request of the insurance company be referred to a referee to be appointed by the court, is against public policy as an illegal attempt to restrict the juris- diction of the court." Compounding Crimes § 457. General Rule. — It is deemed a matter of public policy involving the welfare of society that persons should not by motives of pecuniary interest be permitted to interfere with, impede, or prevent prosecutions for felony or other offense of a public nature. And from an early date (see Penal- Law, § 570 j 39 McKinney's Cons. Laws, p. 209), the compounding of crimes has been itself made a criminal offense the punishment for which varies accord- ing to the nature of the crime compounded. Both at common law and under this statute an agreement to compound, stifle, or suppress a prosecution for a crime or evidence thereof is illegal; and though there may be other consideration to support the con- tract, the taint of the illegal agreement infects the whole transac- tion, and if the contract is executory no action can be maintained 45. Gallagier v. Christopher, etc., 326, 2 N. Y. Annot. Cas. 285, 69 St. R. Co., (Com. PI. 1888) 14 Daly State Rep. 689, 41 N. E. 694. 366, 13 State Rep. 80. See also 47. Sanford v. Commercial Trav- Birdsall v. Twenty-Third St. R. Co., elers' Mut. Ace. Ass'n, (Sup. G. T. (Com. PL 1880) 8 Daly 419. 1895) 86 Hun 380, 67 State Rep. 225, 46. Sanford v. Commeroial Trav- 33 N. Y. S. 512, affirmed 147 N. Y. elers' Mut. Ace. Ass'n, (Sup. G. T. 326, 2 N. Y. Annot. Cas. 285, 69 State 1895) 86 Hun 380, 67 State Rep. 225, Rep. 689, 41 N. E. 694. 33 N. Y. S. 512, affirmed 147 N. Y. § 457] ILLEGALITY 713 to enforce it or to recover damages for its breach.*' "An agree- ment," says Rapallo, J., " to cripple, stifle, or embarrass a prosecution for a criminal offense, by destroying or withholding evidence, suppressing facts, or other acts of that character, is against public policy, and void. In such cases the parties take the responsibility of interfering with, and by secret or indirect means frustrating, the administration of justice. ' ' *' The rule extends to the compounding of any offense of a public nature, whether a felony or a misdemeanor, and includes the crime of obtaining money or other property by false pretenses.^" And a promise not to disclose evidence of a crime to the public authorities cannot furnish a valid consideration for a promise by another.^* It is immaterial that the contract, such as a bond, is under seal and imports a consideration,^^ as it is well settled that a seal does not preclude an investigation as to the legality of the contract. ^^ Where money is deposited with a third person in pursuance of 48. Xickelson v. Wilson, (1875) 60 N. Y. 362, affirming as to this but reversing on other grounds 1 Hixn 615, 4 Thomp. & C. 105; Collins v. Lane, (1880) 80 N". Y. 627; Haynes V. Eiudd, (1880) 83 JT. Y. 251, revers- ing on other grounds 17 Hun 477; Haynes v. Uudd, (1880) 102 N. Y. 372, reversing on other grounds 30 Hun 237; Strauss Linotyping Co. v. Schwalbe, (Sup. 1913) 159 App. Div. 347. 144 2Sr. Y. .S. 549 ; Oaitskill Nat. Bank v. Lasher, (Sup. 1915) 165 App. Div. 548, 151 N. Y. S. 191, 32 N. Y. Orim. 459, affirmed 221 N. Y. 551 mem., 116 N. E. 1039; Doucet v. Massachusetts Bonding, etc., Co., (Sup. 1917) 180 App. Div. 599, 167 N. Y. S. 892; Steuhen County Bank v. Mathewson, (Sup. 1843) 5 Hill 249; Porter v. Havens, (Sup. G. T. 1862) 37 Barb. 343; Conderman v. Treneh- ard, (Sup. G. T. 1870) 58 Barb. 165, 40 How. Pr. 71, 3 Lans. 108; Bet- tinger v. Bridenbecker, (Sup. G. T. 1865) 63 Barb. 395; Howk v. Eekert, 2 Hun 113, (Sup. 1874) 4 Thomp. & C. 300; English v. Eumsey, (Slip. G. T. 1884) 32 Hun 486; Buffalo Press Club v. Greene, ('Siup. Gt. T. 1895) 86 Hun 20, 67 State Eep. 105, 33 N. Y. S. 286, affirming 5 Misc. 501, 26 N. Y. S. 525; Eno v. Sage, (Sup. Sp. T. 1913) 83 Misc. 389, 144 N. Y. S. 1062. 49. Nickelson v. Wilson, (1875) 60 N. Y. 362, 369. "Compounding a criminal offense is not," says Mullin, P. J., "the only thing that renders a contract void. An agreement not to give evidence, or to stifle a prosecu- tion, is just as corrupt as an agree- ment to compound a felony or other- wise; assuming that the word 'com- pound ' does not embrace all the acts which may be resorted to to prevent, embarrass, or terminate a prosecu- tion, in which sense it seems some- times to be used." Conderman v. Trenchard, (Sup. G. T. 1870) 58 Barb. 165, 172, 40 How. Pr. 71, 3 Lans. 108. 50. Conderman v. Trenchard, ( Sup. G. T. 1870) 58 Barb. 165, 173, 40 How. Pr. 71, 3 Lans. 108. 51. Gordon v. Doktor, (Sup. App. T. 1913) 81 Misc. 214, 142 N. Y. S. 488. 52. Steuben County Bank v. M'athewson, (Sup. 1843) 5 Hill 249. As to the effect of a seal as import- ing a consideration, see supra, sec- tion 378. 53. See supra, section 393. 714 NEW YORK LAW OF CONTEACTS [§ 458 a contract to compound a crime, to be paid over to the plaintiff after a certain time on condition that the illegal agreement be performed by him, his right to recover the money so deposited is necessarily based on the illegal agreement and proof of its per- formance, and therefore the courts will not aid him in its recovery.^* § 458. Particular Matters Affecting Illegality of Agreement. — The vice of agreements of this class lies in the corrupt intent, and it is immaterial that as a matter of fact the criminal prosecution is not prevented ; ^ it is also immaterial that the illegal agreement does not appear on the face of the contract sought to be enforced, which itself recites a valid consideration.^^ If the agreement is for the stifling of a pending prosecution it is illegal irrespective of whether the crime was in fact committed or not ; ^'' but if a criminal prosecution is not pending the view has been taken that to render the contract illegal as one for the compounding of a crime, it is necessary to allege and prove that a crime was in fact committed,^* though it does not seem to be necessary to show that the person for whose immunity the contract was entered into was guilty of the crime.*' It has also been held that the fact that a criminal prosecution is barred by the statute of limitations does not prevent the contract from being illegal ; ^ this fact is evidence, however, in support of the claim that there was no agreement to stifle a prosecution for the crime.*^ Where the agreement is for the suppression of a pending prosecution it is not necessary, in order to render the contract illegal, that the promisee agree not to commence new proceedings against the accused.*^ It is imma- 54. Bettinger v. Bridenbecker, 61. Hakes v. Roberts, (Sup. G. T. (Sup. G. T. 1865) 63 Barb. 395; Eng- 1881) 13 Wkly. Dig. 394. lish v. Rumsey, (Sup. G. T. 1884) 62. Oonderman v. Trenohard, (Sup. 32 Hun 486. G. T. 1870) 58 Barb. 165, 40 How. 55. Porter v. Havens, (Sup. G. T. Pr. 71, 3 Lans. 108. "It is almost 1862) 37 Barb. 343. of daily occurrence,'' says Mullin, 56. Buffalo Ptcss Club v. Greene, P. J., in this case, "that persons in- (Sup. G. T. 1895) 86 Hun 20, 67 stituting criminal proceedings agree State Rep. 105, 33 N". Y. S. 286. to abandon them upon being paid a 57. Steuben Cbunty Bank v. Math- consideration; and that contract is ewson, (Sup. 1843) 5 Hill 249, 252. deemed to be perfectly just and fair, 58. Steuben County Bank v. Math- because it is not agreed not to insti- ewson, (Sup. 1843) 5 Hill 249. tute any new or other prosecution. 59. Howk V. Eckert, (Sup. 1874) 4 The only way to put an end to a Thomp. & C. 300. practice so corrupt and oppressive is 60. Hakes v. Roberts, (Sup. G. T. to declare all such contracts to dis- 1881) 13 Wkly. Dig. 394. continue criminal prosecutions that § 459] ILLEGALITY 715 terial which party was the instigator or moving spirit in the negotiations leading up to the agreement.*' If a crime has heen in fact committed it is not necessary, to render illegal an agree- ment to stifle a prosecution therefor, that the promisee have actual knowledge that it has been committed; it is sufficient if he has notice and reasonable ground for believing so.^* If the contract of a thief or embezzler for the repayment of the property or moneys stolen is based in part on a promise not to prosecute the thief for the felony, a surety thereon cannot be held liable,*^ and this ii true though the surety at the time he became such was ignorant of the illegal agreement to compound the offense.'* § 459. Qualification of General Rule. — From an early date our statutes (see Code of Crim. Proc. § 663) have expressly authorized the compounding, by leave of court, of certain misdemeanors for which the injured party has a remedy by civil action, and under our statute directed against the compounding of crimes, as well as at common law, the mere fact. that a claim against a person arises out of his criminal act does not render a contract for resti- tution, either by the criminal or a third person, illegal if there is no agreement by the party to whom the restitution is to be made, to refrain from a criminal prosecution or to suppress evidence that would tend to prove the crime." This is true notwithstanding a criminal prosecution was then pending.** " There is no principle of law," says Titus, C. J., " that prevents a person, deprived of his property by the wrongful or felonious act of another, main- are pending, and all agreements not Earl v. Clute, (App. 1864) 1 Keyes to institute a criminal prosecution, as 36, 2 Abb. App. Dec. 1 ; National immoral and illegal." Bank v. Oox, (Sup. 1900) 47 App. 63. Porter v. Havens, (Sup. G. T. Div. 53, 62 N". Y. S. 314; Howell v. 1862) 37 Barb. 343. Earp, (Sup. G. T. 1880) 21 Hun 393; 64. Steuben County Bank v. Math- Kissock v. House, (Soip. G. T. 1880) ewson, (Siup. 1843) 5 Hill 249. 23 Hun 35; Hatch v. Collins, (Sup. 65. Buffalo Press Club v. Greene, G. T. 1884) 34 Hun 314; Smith v. (Sup. G. T. 1895) 86 Hun 20, 67 Crego, (Sup. G. T. 1889) 54 Hun 22, State Eep. 105, 33 JT. Y. S. 286, 26 State Bep. 64, 7 N. Y. S. 86; Buf- affirming 5 Misc. 501, 26 N. Y. S. 525. falo Press Club v. Greene, (Sup. G. T. 66. Buffalo Press Club v. Greene, 1895) 86 Hun. 20, 67 State Eep. 105, (Sup. G. T. 1895) 86 Hun 20, 67 33 N". Y. S. 286, affirming 5 Misc. 501, State Eep. 105, 33 N. Y. S. 286, affirm- 26 K Y. S. 525; Brown v. Webster, ing 5 Misc. 501, 26 N. Y. S. 525. (Super. Ct. 1838) 1 Law Eep. 71. 67. Cohoes v. Cropsey, (1874) 55 68. Sm:ith v. Crego, (Sup. G. T. N. Y. 685; Barrett v. Weber, (1890) 1889) 54 Hun 22, 26 Stat« Eep. 64, 125 N. Y. 18, 34 State Eep. 358, 25 7 N. Y. S. 86; Buffalo Press Wub v. N. E 1068, affirming 1 Silv. Sup. CT. Greene, (Sup. G. T. 1895) 86 Hun 20, 173, 23 State Eep. 3, 6 N.Y. S. 434; 67 iState Eep. 105, 33 K Y. S. 286. ' 716 NEW YORK LAW OF CONTRACTS [§ 459 taining an action in a court of law to recover the value of the prop- erty, or from taking such security as is necessary to insure full indemnity to the injured party. This, of course, must be accom- panied with the fact that there is no promise or understanding that the injured party will abstain from prosecution for the crim- inal offense. ' ' *' And where a bond and mortgage were given to make restitution for property stolen, and it was claimed that they were given to compound the crime, O'Brien, J., said: " In order to avoid the bond and mortgage on the ground that they were given to compound a felony, it was necessary to show that there was some agreement or promise on the part of the mortgagee to forbear prosecution for the crime, or to suppress evidence that would tend to prove it. ' ' '" The fact that a party is induced to enter into the contract by the expectation or hope that a crim- inal prosecution will be less likely to take place is not sufficient to render it illegal.'^ On the other hand, to bring a contract within the general prohibition it is not necessary that a promise not to prosecute be made in so many words ; it is sufficient if the acts and conduct of the parties show that such was their tacit understanding.'^^ "If it is apparent," says Mullen, P. J., " that such was the intention of the parties, and the agreement was such as to carry out the intent, it is enough. ... If it were necessary to prove an express agreement to compound the crime, impunity could always be secured, and the suppression and defeat of crim- inal prosecutions would be made a source of profit. ' ' '^ And the mere disavowal by the party to whom the restitution is to be made, of any intention on his part to stifle or suppress the criminal prosecution, cannot be made a cover for a tacit understanding to suppress it.'* It is held that an agreement with one under 69. Buffalo Press Club v. Greene, N. E. 1039; Loomis v. Cline, (Soip. (Super. Ct. Tr. T. 1893) 5 Misc. 501, G. T. 1848) 4 Barb. 453; Porter v. 504, 26 N. Y. S. 525. Havens, (Sup. G. T. 1862) 37 Barb. 70. Barrett v. Weber, (1890) 125 343; Conderman v. Trenehard, (Sup. N. Y. 18, 25, 34 State Rep. 358, 25 G. T. 1870) 58 Barb. 165, 40 How. N. E. 1068. Pr. 71, 3 Lans. 108. See also Eno v. 71. Hatch v. Collins, (Sup. G. T. Sage, (SUp. Sp. T. 1913) 83 Misc. 1884) 34 Hun 314; Smith v. Orego, 389, 394, 144 N. Y. S'. 1062. (iSiup. G. T. 1889) 54 Hun 22, 26, 26 73. Conderman v. Trenehard, (Sup. State Rep. 64, 7 N. Y. S. 86. G. T. 1870) 58 Barb. 165, 170, 40 72. iCatskill Nat. Bank v. Lasher, How. Pr. 71, 3 Lans. 108. (Sup. 1915) 165 App. Div. 548, 32 74. Loomis v. Oline, (Sup. G. 1. N. Y. Crim. 459, 151 N. Y. S. 191, 1848) 4 Barb. 453. 'affirmed 221 N. Y. 551 mem., 116 § 460] ILLEGALITY 717 indictment jointly with another, in order to obtain his testimony against his accomplice, to lay all the facts before the court and to leave it to the free exercise of the discretionary power vested in the court by law with regard to the entry of a nolle prosequi, is not in itself wrongful, and is not rendered illegal even by a stipulation on the part of a prosecutor to exert such legitimate influence as his position gives him in favor of the extension of mercy to the guilty party .'^ If the written agreement on its face expressly provides for the compounding of a crime, oral evidence that there was in fact no agreement or understanding to put an end to the prosecution or suppress evidence of the crime is not admissible.'* § 460. Recovery of Money Paid or Property Transferred. — If the contract is executed in whole or in part by the payment of. money or the transfer of property, the general rule that the courts will not aid either party to an illegal contract applies, and no action can be maintained to recover the money paid or to set aside the transfer or conveyance of the property, the parties being regarded as in pari delicto." And where the payee of a negotiable note given to compound a felony transferred the note to a bona fide holder, and the maker was compelled to pay it to such holder, he has been denied the right to recover the amount so paid from the payee.™ This principle is not affected by the fact that the criminal statute is directed only against the party who receives the money." Threats of a criminal prosecution against a child or husband may constitute duress and entitle 75. Nickelson V. Wilson, (1875) 60 Haynes v. Eudd, (1886) 102 N. Y. N. Y. 362, reversing 1 Hun 615, 4 372, 2 State Rep. 45, 7 N. E. 287, re- Thomp. & C. 105. versing 30 Hun 237. 76. Porter v. Havens, (Sup. G. T. 79. Daimouth v. Bennett, (Sup. G. 1862) 37 Barb. 343; Bettinger v. T. 1853) 15 Barb. 541, wherein Grip- Bridenbecker, (Sup. G. T. 1865) 63 pen, P. J., said: "The offense of Barb. 395. compounding a crime created by stat- 77. Collins v. Lane, (1880) 80 ute is undoubtedly confined to the N. Y. 627; Haynes v. Rudd, (1880) party receiving the money or prop- 83 N. Y. 251; Boucet v. Massachu- erty, and does not extend to the setts Bonding, etc., Co., (Sup. 1917) party paying it. This position of the 180 App. Div. 599, 167 N. Y. S. 892; plaintiff's counsel, however, falls far Daimouth v. Bennett, (Sup. G. T. short of reaching the whole difficulty 1853) 15 Barb. 541; Eno v. Sage, in his case. Another important prir- (Sup. St). T. 1913) 83 Misc. 389, 144 ciple is involved, which to my mind N Y S 1062. i^ * conclusive answer to this action. 78 Haynes v. Rudd, (1880) 83 The contract made between the par- N". Y. 251 revei-sing 17 Hun 477; ties, and the payment of the money 718 NEW YORK LAW OF CONTRACTS [§ 461 the parent or wife to be relieved from a contract coerced thereby.*" And where a negotiable note or a mortgage was given by a third person to make restitution for money embezzled or the like, under an agreement not to prosecute for the crime, relief has been granted by way of cancellation.'^ It has been expressly held by the Court of Appeals, where parents gave their note in settle- ment of a claim for moneys embezzled by their son, for the purpose of compounding the crime, though underi threats of prosecution against the son, and the father was compelled to pay the note to a bona fide holder, that this does not entitle him to relief on the ground that he acted under duress and therefore was not in pari delicto.*^ " We cannot agree," says Miller, J., in this connection, " with the doctrine that if the plaintiff was influenced by the duress of the defendant, and at the same time both parties intended the compounding of a felony, that they were not in pari delicto. It is enough that the vice of compound- ing a felony was a part of the contract, operating upon the minds of both parties, and thus placing them upon an equality. ' ' *^ Still the mere fact that a parent is induced to pay money to stifle a prosecution against his son will not, on the theory that the parties are not in pari delicto, authorize the parent to recover the money so paid.** Champerty and Maintenance Generally § 461. In General. — iThe common law generic offense of main- tenance, of which champerty is a species, consists in the maintain- ing or assisting by a stranger of either party to a suit, with under it, was immoral and illegal. tion of funds embezzled by her son, The statute above cited declares the coerced by threats of a criminal prose- party receiving the money under such cution; Loomis v. Cline, (Sup. G. T. circumstances a criminal. The com- 1848) 4 Barb. 453; Strang v. Peter- mon law declares all contracts to do son, (Sup. Gr. T. 1890) 56 Hun 418; acts that are indictable or punish- 31 State Rep. 462, 10 N. Y. S. 139. able criminally to be illegal and 82. Haynes v. Eudd, (App. 1886) void." 102 N. Y. 372, reversing 2 State Eep. 80. See supra, section 119 et seq. 45, 7 N. E. 287, 30 Hun- 237. 81. S'ehoener v. Lissauer, (1887) 83. Haynes v. Rudd, (1886) 102 107 N. Y. Ill (reversing on other N. Y. 372, 377, 2 State Eep. 45, 7 grounds 36 Hun 100, and distinguish- N. E. 287. ingHaynesv. Eudd, (1880) 102 N Y. 84. Haynes v. Eudd, (1886) 102 372, 2 State Eep. 45, 7 N. E. 287. N. Y. 372, 2 State Eep. 45, 7 N. E. cited infra), in which case a mother 287; Daimouth v. Bennett, (Sup. G. gave a piortgage to secure the restitu- T. 1853) 15 Barb. 541. § 461] ILLEGALITY 719 money or otherwise, to prosecute or defend.^^ Champerty con- sists in the unlawful maintenance of a suit in consideration of some bargain to have a part of the thing in dispute. The gist of this offense, therefore, consists in the mode of compensation, irrespective of the particular manner in which the suit is to be maintained.^' Common barratry, also a common law offense and recognized as such in our statutes (see Penal Law, § 320 et seq. ; '39 McKinney's Cons. Laws, p. 116), consists in the practice of exciting groundless judicial proceedings. The English doctrine of maintenance arose from causes peculiar to the state of society in which it was established, and is con- sidered as having had its foundation in the existence of a class of nobles, who, by their great power and influence, could over- awe the courts and pervert the course of justice, and in so far as it included the giving of aid in the prosecution or defense of suits, had at quite an early date fallen in a measure into desuetude.^ And it was early decided that it was not main- tenance to loan moneys to a poor man to enable him to defend an action,** or for the nominal plaintiff in an action of eject- ment instituted for the benefit of another to take a bond of indemnity against liability for costs.*' "While in some of the early decisions in our state, especially during the time the pro- visions of the Eevised Laws were in force, contracts have been denounced as illegal as involving maintenance and champerty,'* it is now recognized that except in so far as the offense of champerty and maintenance is embodied in our statutes, it is inapplicable to our conditions and substantially obsolete, and a contract is not to be regarded as illegal as violative of common law rules relating to such offense unless brought within some statutory prohibition.'^ As said by Selden, J., after a careful 85. Sedgwick V. Stanton, (1856) 14 91. Sedgwick v. Stanton, (1856) 14 X. Y. 289, 295. N. Y. 289, 296; Fowler v. Callan, 86. Sedgwick V. Stanton, (1856) 14 (1886) 102 N". Y. 395, 397, 1 State N". Y. 289, 294. Eep. 1, 7 N. E. 169, 9 Civ. Pro. 384; 87. Sedgwick V. Stanton, (1856) 14 Irwin v. Curie, (1902) 171 K Y. N. Y. 289, 297. 409, 411, 64 N. E. 161; In re Fitz- 88. Ferine v. Dunn, (Chan. Ct. simons, (1903) 174 N. Y. 15, 21, 33 1818) 3 Johns. Ch. 508. Civ. Pro. 336, 66 N. E. 554; Browne 89 Campbell v. Jones, (Smp. 1830) v. West, (Sup. 1896) 9 App. Div. 135, 4 Wend. 306. 137, 75 State Eep. 604, 41 N. Y. S. 90. Burt V. Place, (Sup. 1826) 6 146; Peck v. Briggs, (Sup. 1846) 3 Cow. 431; Best V. Strong, ('Sup. 1829) Denio 107, 109; Voorheea v. Dorr, 2 Wend. 319. (Sup. G. T. 1868) 51 Barb. 580, 586; 720 NEW YORK LAW OF CONTKACTS [§ 462 review of our legislation on this subject, as to the effect of the repeal of the provisions of the Revised Laws (1 R. L. 172) : " Notwithstanding the truth of what is urged by Chancellor Walworth in Small v. Mott (22 Wend. 403), that these, being offenses at common law, were not necessarily abrogated by the repeal of the statute (1 E. L. 172), which was in the main simply declaratory, I still think, in view of the manifest tendency of modern judicial opinion, as well as of the plain scope and intent of our legislation on the subject, that not a vestige of the law of maintenance, including that of champerty, now remains in this state, except what is contained in the Revised Statutes. ' ' '^ And it has been held that though a contract would have been illegal at common law, under which the plaintiff agreed to permit an action to be brought in his name as assignee of a claim in con- sideration of an agreed compensation and indemnification against costs which he might be made to pay if the action was unsuccess- ful, it is not illegal under our statutes.'^ A number of trans- actions regarded as champertous are prohibited by our statutes. Transactions falling within this condemnation are (1) the sale of lands held adversely,'* (2) the buying of demands by an attorney on which to bring an action,'^ (3) the giving of induce- ments for placing claims with an attorney for the purpose of bringing an action thereon,'* and (4) under a very early statute, soon repealed, contracts for a part of the subject matter of a cause of action in consideration of aid in its enforcement.''' § 462. Stipulation with Attorney against Settlement of Claim. — The lien given attorneys on the cause of action does not pre- vent the client from making a bona fide settlement of the dispute without the consent of the attorney, and where such a settle- ment is made the lien is transferred to the proceeds of the settlement.'^ Nor does the fact that the attorney's retainer is ZogWum V. Parker, _(Sup. G. T. 93. Voorhees v. Dorr, (Sup. G. T. 1873) 66 Barb. 341, 344; Bundy v. 1868) 51 Ba'rb. 580. Newton, (Sup. G. T. 1892) 29 Abb. 94. s«e supra, section 466 et seq. N. Cas. 66, 47 State Rep. 242, 19 or o^„ :„L„ +• ^00 4. „ -- „ ~«, a , rr.-u ITU- °5- °*s infra, section 482 et seq. N. Y. S. 734. See also Thallhimer v. „/. o, • r ^. ^n^ ^ Brinckerhoff, (tt. Err. 1824) 3 Cow. ^^- ^^^ •"•^••^' ^^''^'°'' ^^^ «* »^9- 623-644. But see Small v. Mott, (Ct ^''^ See mfra, section 463. Err. 1839) 22 Wend. 403, opinion 98. Lee v. Vacuum Oil C3o., (1891) below 20 Wend. 2121 126 N. Y. 579, 38 State Rep. 662, 27 92. Sedgwick V. Stanton, (1856) 14 N. E. 1018; Perl v. New York Cent., N. Y. 289, 301. etc., E. Co., (1897) 152 N. Y. 521. § 462] ILLEGALITY 721 on a percentage basis deprive the client of his right to settle the dispute.*' As the policy of the law is in favor of the com- promise and settlement of disputes and in discouragement of litigation, an agreement by a client with his attorney not to compromise or settle the claim without the consent of the attor- ney is held to be against public policy and may be repudiated by the client. In this connection Hiscock, J., says: "This court, so far as I am aware, has never yet decided the naked proposition now urged upon us, that an attorney in furtherance of his contract for a contingent compensation may reserve a veto power upon the right of his client to make in good faith an honest settlement of his claim, and I think it would be unwise and opposed to sound public policy to so decide now. In the first place, a decision upholding such a contract would confer upon one person occupying a position of trust toward another unusual power over the latter in the control and management of his own property, for we must not forget that the attorney has only a lien upon the client's cause of action which still remains the property of the latter. It is not too much to assume that such power would at times be the source of abuse as between the two parties. But more important than any such personal and private considerations is the one of public concern that such contracts would prove added obstacles to that quieting of disputes and to that adjustment and settlement of litigation which always has been and always should be favored by the acts of legislatures, the decisions of courts, and the expressions of public opinion. For, in my judgment, there is no need of long argument to demonstrate that such contracts would prove such obstacles."^ The invalidity of such a stipulation, however, does not render the contract of retainer illegal so as to preclude the attorney from recovering compensation for the services rendered.^ And where the retainer was on a contingent fee and the client in violation of his agreement compromised the claim without the consent of the attorney, it was held that the provision fixing the 46 N". E. 849, 4 N". Y. Annot. Gas. 288, 126 N. Y. 579, 38 State Kep. 662, 27 26 Civ. Pro. 279; Fischer-Hansen v. N. E. 1018. Brooklyn Heights R. Co., (1903) 173 1. In re Snyder, (1907) 190 N". Y. NT. Y. 492, 66 N. E. 395, 33 Civ. Pro. 66, 70, 82 N". E. 742. 326; Syme v. Terry, etc., Co., (Sup. 2. In re Snyder, (1907) 190 N. Y. 1908) i25 App. Div. 610, 110 N". Y. S. 66, 82 N. E. 742; Syme v. Terry, etc., 25. Co., (Sup. 1908) 125 App. Div. 610, 99. Lee v. Vacuum Oil Co., (1891) 110 N. Y. S. 25. 46 722 NEW YORK LAW OF CONTRACTS t§ 463 attorney's fee on a percentage basis fell with the repudiation of the agreement not to settle, and that the attorney was entitled to recover the reasonable value of his services and was not restricted to the stipulated percentage of the amount for which the settle- ment was made.' " The clause in the contract," says Hiscock, J., " fixing the value of the services at a certain percentage of the recovery was connected with the provision that the attorneys should have a voice in any settlement and in determining the amount of any recovery by that process. The two clauses were manifestly part of a single plan. Therefore, when the client takes advantage of the invalidity of one clause and repudiates it, the other one cannot stand alone but must fall with it, and the result of this again is to permit the attorneys to recover for the services which they have actually rendered according to their real value and independent of the origiitial provision in the contract upon this subject."* § 463. Agreement for Part of Fruitsi of Litigation Gener- ally. — The Eevised Laws (1 E. L. 172) contained the provision " that no officer or other person shall take upon him any busi- ness that is or may be in suit in any court, for to have part of the thing in plea or demand; and no person, upon any such agreement, shall give up his right to another; and every such conveyance or agreement shall be void; and every person who shall maintain any plea or suit, in any court, for lands, tenements or other things, for to have part or profit thereof, shall be punished by fine or imprisonment." And a contract in viola- tion of this provision while it was in force was considered illegal and unenforceable.^ This provision was, however, declaratory of the common law, and like the common law rule did not include cases where the person agreeing to aid in the prosecution of a claim had an interest in its enforcement or was related by affinity or consanguinity to the suitor,* and it was held that the husband of one who by possibility might be heir to the suitor of the land in dispute, could maintain the action of the suitor on an 3. In re Snyder, (1907) 190 N. Y. 6. Wickham v. Oonklin, (Sup. 66, 82 N. E. 742, reversing 119 App. 1811) 8 Johns. 220; Thallhimer v. Div. 277, 104 N. Y. S. 571. Brinckerhoff, (Ct. Err. 1824) 3 Oow. 4. In re Snyder, (1907) 190 N. Y. 623; Gilleland v. Failing, (Sup. 66, 7.5, 82 N. E. 742. 1848) 5 Denio 308. 5. Best V. Strong, (Sup. 1829) 2 Wend. 319. § 464] ILLEGALITY 723 agreement to have a part of the land in consideration of his doing so.' The above provision of the Revised Laws was repealed with the enactment of the Revised Statutes, and the effect of this repeal is held to abrogate the common law rule denouncing as champertous agreements for a share of the fruits of litigation in consideration of aid in the enforcement of a claim in the courts or before the legislature or executive officers of the state.* And a contract between a layman and one having what was deemed a good cause of action, under which the former agreed to bear the expenses of a suit for its enforcement and indemnify the latter against costs, etc., in consideration of a percentage of the amount recovered, has been upheld.^ Such an agreement, says Cullen, J., is not to be " regarded as against public policy as leading to or promoting strife and litigation. ' ' ^^ And where the plaintiff was east in the action instituted under such an agreement and compelled to pay the costs, his right to reimburse- ment has been enforced.-'^ § 464. Retainer of Attorney on Contingent Pee. — Our present statutes expressly recognize as valid agreements between an attorney and his client for contingent fees, that is, for com- pensation by way of a percentage of the fruits of the litigation. In this connection it is provided (see Judiciary Law, § 474; 29 McKinney's Cons. Laws, p. 218) that " the compensation of an attorney or counselor for his services is governed by agreement, express or implied, which is not restrained by law," with limita- tions as to any contract between a guardian and an attorney for contingent fees in actions on claims belonging to an infant.-'^ And while in some of the earlier cases retainers on a contingent 7. Gilleland v. Failing, (Sup. 1848) N. Y. S. 146. But see Lyon v. Hussey, 5 Denio 308. Sup. Sp. T. 1894) 31 N. Y. S. 281, 63 8. Sedgwick v. Stanton, (1856) 14 State Rep. 531 (opinion by O'Brien, N. Y. 289, affirming 18 Barb. 473; J., at special term ), affirmed on other Browne v. West, (Sup. 1896) 9 App. grounds, 82 Hun 15. I>iv. 135, 75 State Rep. 604, 41 10. Browne v. West, (Sup. 1896) N. Y. S. 146; Grapel v. Hodges, (Sup. 9 App. Div. 135, 138, 75 State Rep. G. T. 1888) 49 Hun 107, 17 State 604, 41 N. Y. S. 146. Rep. 83, 1 N. Y. S. 823, affirmed 112 11. Browne v. West, (Sup. 1896) K Y. 419, 21 State Rep. 845, 20 N. E. 9 App. Div. 135, 75 State Rep. 604, 542. But see Small v. Mott, (Ct. 41 N. Y. S. 146. Err. 1839) 22 Wend. 403, 406, per 12. This provision, except the limi- Chaneellor Walworth, opinion below, tation, is taken from lOode Civ. Proc. 20 Wend. 212. § 66, which was originally a part of 9. Browne v. West, (Sup. 1896) 9 section 303 of the Code of Procedure. App. Div. 135, 75 State Rep. 604, 41 724 NEW YORK LAW OF CONTRACTS [§ 464 fee basis have been denounced/' it is now well established that as a general rule public policy does not preclude the ordinary agreements by attorneys for contingent fees.^* " It has been decided," says Hiscock, J., " so often and so fully that attorneys may undertake litigation for a compensation contingent upon their successful efforts that it is unnecessary to refer to the decisions upon that point. "^° The fact that the subject matter of the litigation is real estate does not bring an agreement with an attorney for an interest in the land recovered within the prohibition against the conveyance or sales of lands held adversely.^* An agreement by an attorney to collect, on a con- tingent fee, claims which arise out of gambling transactions for- bidden by the penal laws, is held, on account of the nature of the claim to be enforced, against public policy." And a court 13. Berrien v. McLane, (Chan. Ct. 1840) Hoff. Oh. 421; In re Bleakley, (Chan. Ct. 1835) 5 Paige 311; Mer- ritt V. Lambert, (Ohan. Ct. 1843) 10 Paige 352, affirmed Wallis v. Lou- bat, (Ot. Err. 1845) 2 Denio 607; Sat- terlee v. Frazer, (S^per. Ct. 1848) 4 Super. Ct. 141. 14. Raoney v. Second Ave. R. Co., (1858) 18 N. Y. 368, 373; Fowler v. Callan, (1886) 102 N. Y. 395, 1 State Rep. 1, 7 N. E. 169, 9 Civ. Pro. 384; In re Fitzsimons, (1903) 174 N. Y. 15, 21, 33 Civ. Pro. 336, 66 N. E. 554; Ransom v. Cutting, (1907) 188 N. Y. 447, 81 N. E. 324, 20 N. Y. Annot. C^s. 177, 'afBrming 38 Civ. Pro. 396, 112 App. Div. 150, 18 N. Y. Annot. Cas. 238, 98 N. Y. S. 282; In re Snyder, (1907) 190 N. Y. 66, 70, 82 N. E. 742; Eitch v. Gardenier, (App. 1866) 2 Keyes 516, 2 Abb. App. Deo. 153; Badger v. Celler, (Sup. 1899) 41 App. Div. 599, 58 N. Y. S. 653; Serwer v. Serwer, (Sup. 1904) 91 App. Div. 538, 86 N. Y. ®. 838; Morehouse v. Brooklyn Heights R. Co., (Sup. 1908) 123 App. Div. 680, 108 N. Y. S. 152, affirmed 195 N. Y. 537 mem., 88 N. E. 1126; Weeks v. Guttell, (Sup. 1908) 125 App. Div. 402, 109 N. Y. S. 977, affirmed 193 N. Y. 681 mem., 87 N. E. 1129; Syme V. Terry, etc., Co., (Sup. 1908) 125 App. Div. 610, 110 N. Y. S. 25; In re Friedman, (Sup. 1910) 136 App. Div. 750, 121 N. Y. S. 426, affirmed 199 N. Y. 537, 92 N. E. 1085; Murray v. Waring Hat Mfg. Cto., (Sup. 1911) 142 App. Div. 514, 127 N. Y. S. 78; Hansom v. Ransom, (Sup. 1911) 147 App. Div. 835, 133 N. Y. S. 173, 2 Civ. Pl-o. N. S. 96; Benedict v. Stu- art, (Sup. G. T. 1856) 23 Barb. 420; Zogbaum v. Parker, (Sup. G. T. 1873) 66 Barb. 341; iChester v. Jumel, (Sup. G. T. 1889) 2 Silv. Sup. 159, 24 State Hep. 214, 5 N. Y. S. 809, affirming as to this 125 N. Y. 237, 35 State Rep. 4, 26 N. E. 297; Fried- man V. Mindlin, (City Ot. Sj). T. 1915) 91 Misc. 473, 155 N. Y. S. 295; Dennin v. Powers, (Sup. Sp. T. 1916 96 Misc. 252, 160 N. Y. S. 636; Ogden V. Des Arts, (Super. Ct. 1855) 11 Super. Ct. 275; Fogerty v. Jordan, (Super, a. 1864) 25 Super. Ct. 319. 15. In re Snvder, ( 1907 ) 190 N. Y. 66, 70, 82 N. B. 742. 16. Chester v. Jumel, (Sup. G. T. 1889) 2 Silv. Sup. 159, 24 State Rep. 214, 5 JSr. Y. S. 809, affirmed as to this 125 N. Y. 237, 26 N. E. 297. See infra, section 466 et seq. as to the validity of conveyances, etc., of lands held adversely. 17. Delahunty v. Canfield, (Sup. 1907) 118 App. Div. 883, 94 N. Y. S. §§ 465,466] ILLEGALITY 725 of equity should not hesitate to refuse to enforce specific per- formance of the contract where it appears to be an inequitable one.^* The question whether the agreement of the attorney to pay or advance the necessary expenses of the litigation brings it within the prohibition of the penal law against the giving of an inducement for his retainer is discussed later." § 465. Assignment of Chose in Action. — It is universally con- ceded that the rule of the common law which prohibited the assignment of choses m action was a branch of the law of maintenance.^" In this connection, Coke says: " Nothing in action, entry or re-entry, could be granted over, for so, under color thereof, pretended titles might be granted to great men whereby right might be trodden down and the weak oppressed." (Coke Litt. 114-a.) And Buller; J., says in Masters v. Miller, (1791) 4 T. E. 320, 340: " It is laid down in our old books that for avoiding maintenance a chose in action cannot be assigned." Our legislature has, however, manifested the same hostility to the law of maintenance as so applied as in other instances, and from quite an early date has expressly authorized the assignment of any claim or demand with certain specific exceptions. (See Code Civ. Proc. § 1910.) ^i Sales and Conveyances of Lands Claimed or Held Adversely § 466. In General. — An early statute which was carried into the Eevised Statutes and from there into the present Penal Law provides that a person " who takes a conveyance of any lands 815. In this ca.se Sioott, J., says: ing more than the employment of an " The statutes of this state have attorney to collect the fruits of a placed gamhling, such as the defend- crime for compensation consisting of ant pursued, in the category of crimes, a percentage of such fruits." and have expressly declared that all 18. Burling v. King, (Sup. G. T. evidences of indebtedness, of which 1874) 2 Thomp. & C. 545, 46 How. the consideration, in whole or in part, Pr. 452. ia money lost at play, shall be utterly 19. See infra, section 490 et seq. void. If gambling is criminal, illegal 20. 'Sed'gwick v. Stanton, (1856) 14 and immoral, and the money lost N". Y. 289, 300; Williams v. Boyle, thereat is for that reason made uncol- (Com. PI. G. T. 1892) 1 Misc. 364, lectable, .it seems to me to be perfectly 367, 48 State Rep. 713, 20 N. Y. S. clear that an agreement to oompen- 720. See also Thallhimer v. Brinker- sate a lawyer for collecting such a hoflf, (Ct. of Err. 1824) 3 Cow. 623, claim by paying him a percentage of 645. the amount recovered must be treated 21. Sedgwick v. Stanton, 14 N. Y. as itself illegal and unenforceable. 289, 300. Such an agreement amounts to noth- 726 NEW YORK LAW OF CONTRACTS [§ 466 or tenements, or of any interest or estate therein, from any per- son not being in the possession thereof, while such lands or tenements are the subject of controversy, by suit in any court, knowing the pendency of such suit and that the grantor was not in possession of such lands or tenements, is guilty of a mis- demeanor. " ^^ A conveyance in violation of this provision is held to be void,^ but proceedings before the comptroller of the state to vacate a tax sale of lands to the state is not a " suit in any court " within the provision, and a conveyance of land involved in such proceedings is not therefore rendered invalid by such provision.^* It is also provided that a person is guilty of a similar offense who " buys or sells, or in any manner procures, or takes or makes any covenant or promise to convey any right, or title real or pretended, to any lands or tenements, unless the grantor thereof or the person making such covenant or promise has been in possession, or he and those by whom he claims have been in possession of the same or of the reversion and remainder thereof, or have taken the rents and profits thereof for the space of one year before such covenant or promise made." ^^ And of course one who violates this prohibition is subject to the penalty imposed by the statute,^^ and to render him liable to the penalty it is immaterial whether his title was in fact good or bad.^' The grantor need not, however, be in the actual pos- session to take his conveyance out of the prohibition; it is suf- ficient if he has constructive possession or that no one else has actual possession.^* It is further provided that a grant of lands is " absolutely void " if at the time of the delivery thereof such property is in the " actual possession of a person claiming under 22. 1 Rev. L. p. 172, § 2; 2 Rev. Stat. p. 691, § 6; Penal Law, § 2032; Stat. p. 691, § 5; Penal Law, § 2031; 39 McKinney's Cons. Laws, p. 704. 39 McKinney's Dona. Laws, p. 703. 26. Teele v. Fonda, (Sup. 1810) 7 23. Jackson v. Ketchum, (Sup. Johns. 251 ; Tomb v. Siherwood, (Sup. 1811) 8 Johns. 479; Jackson v. An- 1816) 13 Johns. 289. drews, (Sup. 1831) 7 Wend. 152. See 27. Tomb v. Sherwood, (Sup. 1816) also Axents v. Long Island R. Co., 13 Johns. 289. (Sup. 1899) 36 App. Div. 379, 382, 28. Meigs v. Roberts, (Sup. 1899) 55 N. Y. S. 401. 42 App. Div. 290, 300, 59 N. Y. S. 24. Meigs v. Roberts, (Sup. 1899) 215, reversed on other grounds 162 42 App. Div. 290, 59 N. Y. S. 215, N. Y. 371, 56 N. E. 838; Wright v. reversed on other grounds 162 N. Y. Syracuse, etc., R. Co., (Sup. G. T. 371, 56 N. E. 838. 1895) 92 Hun 32, 72 State Rep. 236, 25. 1 Rev. L. p. 172, § 2; 2 Rev. 36 N. Y. S. 901. § 467] ILLEGALITY 727 a title adverse to that of the grantor."^ In an early case it was decided that under the common law as recognized in our state a conveyance of land held adversely to the grantor was ineffectual to confer any title on the grantee which he could enforce against the claimant.'" Also in an early ease a contract for the sale of what was known as a Connecticut claim or title to land in Pennsylvania in possession of the claimant under the Pennsyl- vania title was regarded as illegal, and a recovery for services in negotiating such a sale was denied.'^ Mortgages are expressly excepted from the operation of the above provisions, and it is provided that a duly recorded mortgage shall bind the lands from the time the possession thereof is recovered by the mortgagor or his representatives and is given preference over judgments, etc., subsequent to the recording, and in case of two or more mort- gages they have precedence according to the time of the recording.'^ § 467. Exception as Regards State. — It has been held from an early date that a conveyance by the state of lands held by persons under a claim of title adverse to the state is not affected by the statute.^ This is evidently for the reason that the state cannot be disseized and an adverse possession established against it. As said by Kent, C. J., in an early case: " There may be an intrusion on the lands of the state, but the state cannot be disseized, and its grant is good notwithstanding the possession of the intruder. ' ' ^* Also, for the reason that the state is not " a person," it is held that the statute does not prohibit a con- veyance of land of which the state may be in possession under an adverse claim of title ; '' and it is held that the state forest com- 29 1 Eev L. p. 173, § 8; 1 Eev. Co. v. Roberts, (Sup. 1908) 125 App. N. Y. 371, 56 N. E. 838; Stat. p. 739, Div. 333, 345, 109 N. Y. S. 547; Ja*k- § 147- Real Prop. Law, § 260; 49 son v. Winslow, (Sup. 1806) 2 Johns. McKinney's Cons. Laws, p. 307. 80, 83 (per Kent, Ch. J.) ; Jackson v. »A T 1 T. ™^r,+ fq,iTi 1812^ Gumaer, (Sup. 1824) 2Cow. 552, 568; 30 Jackson v. Demont, (Sup. 1812) ^^^^^^.^ <^ ^^^^ ^^^^ ^ ^ ^^^^^ 9 Johns. 55. 3 Thomp. & C. 251 ; Brady v. Begun, 31. Belding v. Pitkin, (Sup. 1804) ^g^^ ^ j, ^^gggj gg Barb. 533. But 2 Gaines 147. see People v. New York, (Sup. Sp. T. 32. 1 Eev. Stat. p. 739, § 148; Real i859) 19 How. Pr. 289, 305. Prop. Law, § 260; 39 MoKinney's 34. Jackson v. Winslow, (Sup. Oons. Laws, p. 307. See infra, sec- igoe) 2 Johns. 80, 83. As to the tion 470. necessity that the possession be ad- 33 Candee v. Hayward, (1868) 37 verse, see infra, section 474. N Y 653 3 Trans • App. 194, affirm- 35. Sarajiac Land, etc., Co. v. Rob- ing 34 Barb. 349; Saranao Land, etc., erts, (1909) 195 N. Y. 303, 88 N. E. 728 NEW YORK LAW OF CONTRACTS [§ 468 mission is not " a person " within the meaning of this phrase, and therefore its possession will not invalidate a conveyance.'* By a statute enacted in 1910 section 260 of the Real Property Law invalidating conveyances of lands held adversely to the grantor was amended by adding the provision that the section does not apply to a grant of such property to the people of the state nor to a person where the title granted to such person shall thereafter by grant or mesne conveyance become vested in said people. The effect of this amendment is to validate the conveyance when made to the state or where the title of the grantee becomes vested in the state and permits .the state in its own name to sue for the recovery of the land." And since by the provision of the Code of Civil Procedure, § 1501, a grantee is permitted to sue for the recovery of the land in the name of his grantor, it is held that in effect the general provision invalidating the conveyance is one affecting the remedy rather than the substantial right, and the amendment should for all purposes of suit by the state in its own name be given a retroactive effect so as to apply to convey- ances theretofore executed.'* § 468. General Operation of Statutes. — The above provisions are said to be declaratory of the common law.'' They are regarded, however, as abrogating the common law rule, in so far as inconsistent therewith; and to invalidate a conveyance on account of the possession of an adverse claimant, the transaction must be brought within the prohibition of the statutes.^" These provisions are directed against champertous acts, and do not, like the statute of limitations, constitute a mere statute of repose. It was not iutended thereby to terminate disputes, but simply to prevent the transfer of disputed titles and to compel their settlement between the original parties.*^ It has frequently been said that the statute declaring invalid grants of lands held adversely to the grantor, due to its severity, is to be strictly 753, affirming 125 App. Div. 333, 109 1918) 102 Misc. 595, 604,, 170 N. Y. S. N. Y. S. 547. ,196. 38. Saranac Land, etc., Oo. v. Eiob- 39. Hopkins v. Baker, (Sup. 1910) erts, (1909) 195 N. Y. 303, 88 N. E. 1^0 App. Div. 460, 461, 125 N. Y. S. 753, affirming 125 App. Div. 333, 109 ^^ TZ,\T^7i '""'• ^^ "^ N. Y. b'. 547. ^Q g^^ supra, section 466, as to 37. People v. Ladew, (Sup. Tr. T. ^^e wording of the statutes. 1918) 102 Msc. 595, 170 N. Y. S. 196. 41. Crary v. Goodman, (1860) 22 38. People v. Ladew, (Sup. Tr. T. N. Y. 170, 176. § 469] ILLEGALITY 729 construed, and consequently is not to be extended beyond what its terms necessarily require." A contract between an attorney and his client for an interest in lands for the recovery of which an action is brought by way of a contingent fee for the services to be rendered, is not prohibited by the. statutes.*^ "Where land held adversely and other land not held adversely are included in the same conveyance, the conveyance is valid as to the land not held adversely." And the fact that a small part of the land conveyed is held under an adverse claim of title does not, it seems, affect the validity of the deed even as against the claim- ant of such part, and this is especially true where such possession arises from a dispute between adjoining landowners as to the true boundary line.*^ As said in this connection: " To extend this statute so as to embrace a grant of land, the greater part of which was in the possession of the grantor at the delivery of the grant, and establish, as a rule, that grantees must, under such circumstances, recover part of the land by an action in the name of his grantor . . . and the remainder by a suit in his own name, would perpetuate a common law rule which has no exist- ence in the law of this state except as it is contained in our statute. "*« § 469. Conveyances of Particular Rights and Interests. — lA conveyance of an individual interest in lands is within the prohi- bition of the statute to the same extent as a conveyance of the whole estate, provided the party in possession holds under color 42. Crary v. Goodman, (1860) 22 45. Danziger v. Boyd, (1890) 120 N. Y. 170, 177; Saranac Land, etc., N. Y. 628 mem., 30 State Kep. 889, Co. V. Roberts, (Sup. 1908) 125 App. 24 N. E. 482, 2 Silv. App. 568; Sar- Div. 333, 345, 109 N. Y. S. 547; Truax anac Land, etc., Oo. v. Roberts, (Sup. V. Thorn, (Sup. G. T. 1848) 2 Barb. 1908) 125 App. Div. 333, 350, 109 156, 160; Bissing v. Smith, (Sup. N. Y. S. 547, affirmed 195 N. Y. 303, G. T. 1895) 85 Hun 564, 570, 66 88 N. E. 753; Allen v. Welch, (Sup. State Hep. 796, 33 N. Y. S. 123; Corn- G. T. 1879) 18 Hun 226; Webber v. well V. Clement, (Sup. G. T. 1895) Gillies, (Sup. Tr. T. 1908) 112 N. Y. 87 Hun 50, 52, 67 Sitate Rep. 482, 33 S. 397; Clark v. Davis, (Super, a. N. Y. S. 866. Tr. T. 1892 28 Abb. N. Oas. 135, 19 43. Chester v. Jumel, (Sup. G. T. N. Y. S. 191. See also Van Dyke v. 1889) 2 Silv. Sup. 159, 24 State Kep. Van Buren, (Sup. 1806) 1 Johns. 214 5 N Y. ® 809, affirmed as to this 345; Zahm v. Dopp, (Super. Ct. G. T. 125' N. Y. 237, 35 State Rep. 4, 26 1892) 46 State Rep. 920, 19 N. Y. S. N. E. 297. As to the validity of con- 863. tracts for contingent fees generallly, 46. Danziger v. Boyd, (1890) 120 see supra, section 464. N. Y. 628, 629 mem., 30 State Rep. 44. Towle V. Smith, (Super, a. 889, 24 N. E. 482, 2 Silv. App. 568. 1864) 25 Super. Ct. 489. 730 NEW YORK LAW OF CONTRACTS [§ 469 of title adverse to such undivided interests.*^ And under the early statute, which in terms prohibits " every grant," this was held to include a conveyance or deed of release by a tenant by the curtesy to the heir, and consequently the heir could not main- tain an action in his own name to recover the possession of the land from the adverse claimant.*^ The provision against the sale of any pretended right was held at an early date to include a lease for a term of years,*' and also the assignment of a certifi- cate of purchase of state lands.^" But the view has been taken that a transfer of an equity of redemption is not a " grant " of lands, and therefore is not affected by the adverse possession of a third person." It has also been held that the statute does not prohibit a conveyance made merely to correct a defect in a previous deed which could itself be obviated by parol testimony, such as a failure to recite a consideration.*^ The holder of the legal title, though not a perfect one, who is in possession is not precluded from procuring further conveyances in support of his existing title ; ^' but the view seems to have been taken that where an action for the recovery of land by the owner of record is pending against a person in possession, who in defense claims title by adverse possession, he cannot bolster his defense by the taking of a deed from one who theretofore had possession, as such 47. McAuliff V. Hughes, (Sup. App. Div. 333, 345, 109 N. Y. S. 547, 1908) 128 App. Div. 355, 112 N. Y. S. where the Stoddard case is cited as 486; Eisemann v. Lapp, (Sup. Tr. T. holding that a, conveyance of an 1902) 38 Misc. 14, 76 N. Y. S. 695. equity of redemption is not within the 48. Vrooman v. Sheppard, (Sup. G. prohibition of the statute. And see T. 1852) 14 Barb. 441. Ten Eyck v. Craig, (Sup. G. T. 1874) 49. Tombv. Sherwood, (Sup. 1816) 2 Hun 452, 5 Thomp. & 0. 65, af- 13 Johns. 289, 291. firmed on other grounds 62 N. Y. 406. 50. Tomb V. Sherwood, (Sup. 1816) But see Odell v. Montross, (1877) 13 Johns. 289. 68 N. Y. 499, 506, wherein the state- 51. Stoddard v. Whiting, (1871)' 46 ment is charjacterized as dilcbum, and N. Y. 627, 634, wherein Grover, J., the broad proposition that a transfer said in reference to Rev. Stat. p. 734, of an equity of redemption is not § 147: "That provides that every a grant of lands is denied. Audi this grant of lands shall be absolutely would seem to be the better view void, if, at the time of the delivery even as applied to the statute in- thereof, such lands shall be in the volved in the Sfboddard case, as in actual possession of a person claim- our state the Ifegal title is considered ing Tinder a title adverse to that of as remaining in the mortgagor, the the grantor. But it was not a grant mortgage creating a lien only. of the lands, but of the equity of re- 52. TVyer v. Rockefeller, (1875) demption, that was transferred by the 63 N. Y. 268. instrument." See also Saranac Land, 53. Lambert v. Huber, (Sup. Sp. T. etc., Co. v. Roberts, (Sup. 1908) 125 1898) 22 Misc. 462, 50 N. Y. S. 793. § 470] ILLEGALITY 731 a deed would be champertous.^* The statute applies only to an adverse holding of land, and not to such a holding of some incor- poreal right appurtenant thereto, which passes with a grant of the land.^' Therefore the fact that the incorporeal right of a riparian owner to the unobstructed flow of the waters of a stream is invaded under an adverse claim of title will not prevent such right from passing under a conveyance of the land, and the grantee in his own name may sue to prevent a continued invasion of such riparian right.^* § 470. Mortgages. — The phrase ' ' every grant ' ' is sufficiently broad to cover mortgages, and that this was the intention of the legislature is manifested by the express exception giving a quali- fied effect to mortgages,"' and it has been held that a conveyance absolute in form, though intended as a mortgage and provable as such in a court of equity, is within the general prohibition of the statute.^* It is held that the exception in favor of mort- gages, to the effect that a person having title to land in the adverse possession of another may execute a mortgage thereon which will bind the land from the time the possession thereof shall be recovered by the mortgagor or his representatives, does not give validity to a mortgage until the possession has been recovered by the mortgagor or his representatives, and until such time the mortgagee cannot maintain a suit to foreclose the mortgage.^' Where, however, a mortgage was valid when given, the operation and effect of an assignment thereof are in no way 54. Jackson v. Given, (Sup. 1811) Timmermann v. Oohn, (Sup. Sp. T. 8 Johns. 137; Belotti v. Bickhardt, 1911) 70 Misc. 327, 128 N. Y. S. 770, (Sup. Sp. T. 1916) 101 Misc. 707, 167 affirmed, 146 App. Div. 924 mem., 131 N Y S. 19, affirmed! 180 App. Div. IST. Y. S. 1146, reversed on other 890 mem. grounds 204 N. Y. 614, 97 N. E. 589. 55. Corning V. Troy Iron, etc., Fao- 58. Towle v. Eemflen, (1877) 70 tory, (1869) 40 K Y. 191, 204; N. Y. 303, 318. Glover v. Manhattan E.. Co., (Super. 59. Hopkins v. Baker, (Sup. 1910) a. Sp. T. 1883) 66 How. Pr. 77, af- 140 App. Div. 460, 125 N. Y. S. 417. firmed on opinion below 51 Super. See also De Garmo v. Ptilps, (1903) Ct. 1. See also Cheney v. Syracuse, 176 N. Y. 455, 458, 68 K E. 873; etc E Co (Sup. 1896) 8 App. Div. Timmermann v. Cohn, (Sup. Sp. T. 62o', 75 State E«p. 423, 40 N. Y .S. 1911) 70 Misc. 327, 128 N. Y. S. 770, 2J03 affirmed 146 App. Div. 924 mem., 131 56 Corning v. Troy Iron, etc., Fac- K. Y. S. 1146, reversed on other tory' (1869) 40 N. Y. 191, affirming grounds 204 K Y. 614, 97 N. E. 589; 39 Barb 311 Lowber v. Kelly, (Super, a. Sp. T. 57. Hopkins V. Baker, (Sup. 1910) 1861) 17 Abb. Pr. 452, 460. 140 App. Div. 460, 125 N. Y. S. 417; 732 NEW YORK LAW OF CONTRACTS [§471 affected by the fact that at the time of such assignment the land is in the possession of an adverse claimant.^" " The statute," says Cullen, J., in this connection, ' ' does not assume to deal with assignments of mortgages, and in the only case [a Vermont case] that I can find in which the question was presented, a similar statute was held inapplicable to such transfers. ' ' ^ § 471. Judicial Sale; Devise; Assignment for Benefit of Creditors. — Though the statute contains no express exception in favor of conveyances in pursuance of judicial sales, it has been established that it has no application to such sales.®^ " That judicial sales," says Cullen, J., " do not fall within the con- demnation of these statutory provisions has been settled law from a very early time in the history of this state."** And in an early case Chancellor Walworth says: " I am satisfied the stat- ute against buying and selling pretended titles cannot apply to judicial sales. The statute, except as to the penalty, is merely in affirmance of the common law; and that never has been con- sidered as preventing the change of property by operation of law, or by a sale by the proper officer under a bona fide judg- ment or decree of a court having competent jurisdiction to order such sale. It does not come within the mischiefs intended to be guarded against by the statute. ' ' ^ Thus a conveyance under a decree foreclosing a mortgage is not within the prohibition of the statute ; ** and where, in pursuance of a mortgage foreclosure sale under a decree of court, a purchase money mortgage is given, the conveyance and mortgage are to be regarded as one trans- 60. De Garmo v. Philps, (1903) Jackson, (Sup. 1830) 6 Wend. 213; 176 N. Y. 455, 68 N. E. 873; Tobias Truax v. Thorn, (Sup. G. T. 1848) V. New York, (Sup. G. T. 1879) 17 2 Barb. 156; Stevens v. Palmer, Hun 534. (Super. Ct. 1862) 23 Super. Ct. 60; 61. Be Garmo V. Philps, (1903) 176 Knapp v. Burton, (Soip. 1885) 7 Oiv. N. Y. 455, 457, 68 N. E. 873. Pro. 448. See also Towte v. Remsen, 62 Hoyt V. Thompson, (1851) 5 (1877) 70 N. Y. 303, 317; In re N. Y. 320, 345; Cook v. Travis, Downing, (D. C. N. D. N. Y. 1912) (1859) 20 N. Y. 400, 405; Stevens v. 192 Fed. 683 (eonstruing New York Hauser, (1868) 39 N. Y. 302, 306, statute). But see Jackson v. Vroo- 7 Trans. App. 71; Smith v. Scholtz, man, (Sup. 1816) 13 Johns. 488. (1877) 68 N. Y. 41, 53; Ooleman v. 63. De Garmo v. Philps, (1903) 176 Manhattan- Beach Imp. Co., (1883) N. Y. 455, 457, 68 N. E. 873. 94 N. Y. 229, affirming 26 Hun 525; 64. Tuttle v! Jackson, (Sup. 1830) De Garmo v. Philps, (1903) 176 N. Y. 6 Wend. 213, 224. 455, 68 N. E. 873; Sandiford v. Frost, 65. Cook v.' Travis, (1859) 20 N. Y. (Sup. 1896) 9 App. Div. 55, 75 State 400, 405; De Gar-mo v. Philps, (1903) Rep. 564, 41 N. Y. S. 103; Tuttle v. 176 N. Y. 455, 68 N E 873 § 472] ILLEGALITY 733 action, and the mortgage is not affected by the fact that the land was at the time held adversely, though ordinarily a mortgage woiild he within the general prohibition in so far as it is not brought within the express exception.^^ Nor does the prohibition apply to a conveyance by a master under a decree for partition ; *^ or to a conveyance by a trustee in bankruptcy under an order or decree of the bankruptcy court ; ^* or, where a receiver is appointed for an insolvent corporation, to a conveyance by him under an order of the court ; *' or to a conveyance in pursuance to a sale under execution."* It has also been doubted whether the statute applies to a conveyance by an exec-utor under a power contained in the will.'^ But it has been held that the statute includes a conveyance or assignment by an administrator of a leasehold estate per autre vie which under the statutory pro- vision passes to him, on the death of the owner, as a chattel real.'^ A devise is not considered a grant within the meaning of the statute, and it was therefore held at quite an early date that the possession of land under a claim of title adverse to a testator did not affect his right to dispose of it by will.'" It has also been said that an assignment for the benefit of creditors should not be regarded as within the purview of the statute.'* § 472. Character of Possession Generally. — No particular length or duration of possession by the claimant is necessary to invalidate the conveyance,'^ and it is not necessary to show 66. De Garmo v. Philps, ( 1903 ) 176 " If a different construction were N. Y. 455, 68 2Sr. E. 873, reversing 64 given to tlie act," says Parker, J., App. Div. 590, 591, 72 N. Y. S. 773. "it would not be in the power of a 67. Truax v. Thorn, ( Sup. G. T. judgment creditor to acquire the title 1848) 2 Barb. 156. But see Jackson of his judgment debtor by sale under V. Vrooman, (Sup. 1816) 13 Johns. a judgment and execution, if the 488. lands belonging to the debtor hap- 68. Stevens v. Hauser, (1868) 39 pened to be held ^adversely." Truax 2Sr. Y. 302, 306, 7 Trans. App. 71; v. Thorn, (Sup. G. T. 1848) 2 Barb. Smith V. Scholtz, (1877) 68 N. Y. 156, 160. 41; Coleman v. Manhattan Beach 71. Bullard y. Bicknell, (Sup. Imp. 'Co., (1883) 94 N. Y. 229, af- 1898) 26 App. Div. 319, 49 N. Y. S. firming 26 Hun 525; Stevens v. 666. Palmer, (Super, a. 1862) 23 Super. 72. Moster v. Yost, (Sup. G. T. Ct. 60. See also In re Downing, 1860) 33 Barb. 277. (D. C. K D. N. Y. 1912) 192 Fed. 73. Jackson v. Varick, (Sup. 1827) 683 (con-struing New York statute). 7 Oow. 238, affirming 2 Wend. 166. 69. Hoyt V. Thompson, (1851) 5 74. Borst v. Boyd, (Chan. Ct. 1846) N. Y. 320. 3 Sandf. Ch. 501, 508. 70. Tuttle V. Jackson, (Sup. 1830) 75. Crary v. Goodman, (1860) 22 6 Wend. 213. N. Y. 170, 175; Livingston v. Peru 734 NEW YORK LAW OF CONTRACTS [§ 472 that either the grantor or grantee had actual notice or knowledge of the adverse claimant's possession.'^ "An adverse possession," says Selden, J., " of a single day, whether known or unknown to the grantor, avoids the conveyance. ' ' " But to bring a case within the penal provisions directed against the giving or taking of a conveyance of land held adversely, etc., to the grantor, it is neces- sary that the party charged with the offense had knowledge or notice of the adverse holding.''* In case a conveyance is made in pursuance of a previous contract to convey, the conveyance is regarded, it seems, as relating back to the time of the contract, and to render it invalid the adverse possession must have then existed.'' "When a deed is attacked on the ground of champerty, the defendant must show the necessary facts to bring the transac- tion within the .prohibition of the statute, as the presumption is that the grantor was in possession or that the- possession of another was in subservience to his title and not adverse under a claim of title.*" Iron Co., (Ct. Err. 1832) 9 Wend. 511, 512, 516; Howard v. Howard, (Sup. G. T. 1854) 17 Barb. 663. 76. Crary v. Goodlman, (1860) 22 N. Y. 170, 175; Jackson v. Demont, (Sup. 1812) 9 Johns. 55; Lowber y. Kelly, (Super. Ct. Sp. T. 1861 17 Abb. Pr. 452, 458. 77. 'Crary v. Goodman, (1860) 22 N. Y. 170, 175. 78. Belcher v. Belcher, (Sup. 1909) 134 App. Div. 726, 728, 119 N. Y. S. 144; Van Dyke v. Van Beuren, (Sup. 1806) 1 Johns. 345; Hassenfrats v. Kelly, (gup. 1816) 13 Johns. 466; Preston v. Hunjt, (Sup. 1831) 7 Wend. 53; Etheridge v. Cromwell, (Sup. 1832) 8 Wend.- 629. See also Sandiford v. Frost, (Sup. 1896) 9 App. Div. 55, 57, 75 State Rep. 564, 41 N". Y. S. 103. 79. Jackson v. Bull, (Sup. 1799) 1 Johns. Cas. 81, 2 Oaines Cas. 301; Jackson v. Raymond, (Sup. 1798) 1 Johns. Cas. 85, 86 note. In Jackson v. Raymond, (Sup. 1798) 1 Johns. Cas. 85, 86, note, Benson, J., said: "The conveyance must be deemed to relate to the time when the contract for the sale of the premises was made; and I adopt it as a general principle that whenever it is intended to be shown that noth- ing passed by a grant, by reason that at the time there was a possession in another adverse to the grantor, the time to which the grant is to relate is the time when the bargain or con- tract for the sale and purchase of the land was finally concluded between the grantor and grantee, and conse- quently, any intermediate adverse possession before the execution of the conveyance, which is the technical consummation of evidence of the grant, can never affect it." 80. Stevens v. Hauser, (1868) 39 N. Y. 302, 7 Trans. App. 71; Whiting V. Edinunds), (1884) 94 N. Y. 309, 316; Pines v. Traktman, (Sup. 1919) 189 App. Div. 904 mem., 178 N. Y. S. 90; Wiekham v. Conklin, (Sup. 1811) 8 Johns. 220; Clarke v. Hughes, (Sup. G. T. 1852) 13 Barb. 147; Bisaing V. Smith, (Siup. G. T. 1895) 85 Hun 564, 569, 66 State Rep. 796, 33 N". Y. S. 123; Arents v. Long Island R. Co., (Sup. G. T. 1895) 89 Hun 126, 69 State Rep. 1, 34 N. Y. S. 1085, af- firmed 156 N. Y. 1, 50 N. E. 422. § 473] ILLEGALITY 735 § 473. 'Actual Possession " Required. — To render a con- veyance champertous it is essential, as expressly required by the statute, that there be an " actual possession " by an adverse claim- ant.^^ The ' ' actual possession ' ' so required refutes any idea of a constructive possession as being sufficient to bring the case within the prohibition.^ The possession must also be shown, it is said, by ' ' plain and unequivocal proof, " *^ or made out clearly and posi- tively and not by inference. ' ' ** And in case of wild landd the usual acts of care in looking after their preservation, etc., do not constitute such an actual possession as is required by the statute.^" Thus it is held that even though actual possession by the state under a claim of adverse title is within the statute, which is not so,*^ the possession by the state of wild forest lands, through the forest commission in the exercise of its usual supervision over such lands, is not such an actual possession as to invalidate a conveyance by one claiming title adversely to the state.*' 81. Saunders v. New York Central, etc., R. Co., (1892) 135 N. Y. 613 mem., 32 N. E. 54; Saranac Land, etc., Co. v. Roberts, (1909) 195 N. Y. 303, 88 ISr. E. 753, affirming 125 App. Div. 333, 109 K Y. S. 547; Udell v. Stearns, (Sup. 1908) 125 App. Div. 196, 109 N. Y. S. 407; Sheridan v. Cardwell, (Sup. 1910) 141 App. Div. 854, 858, 126 N. Y. S. 781; Jackson V. Burehin, (Sup. 1817) 14 Johns. 124; Cornwell v. Clement, (Sup. G. T. 1895) 87 Hun 50, 52, 67 State Rep. 482, 33 N. Y. S. 866; Marsh v. Ne-ha-sa-ne Park Ass'n, (Sup. Tr. T. 1896) 18 Misc. 314, 321, 42 N. Y. S. 996, reversed on other grounds 25 App. Div. 34, 49 N. Y. S. 384; Kiowa Realty Co. v. Molenaor, (Sup. Sp. T. 1917) 98 Misc. 694, 165 X. Y. S. 131; Cross V. Mowers, (Sup. G. T. 1888) 16 State Rep. 425, 1 N. Y. S. 341; Clark V. Davis, (Super. Ct. Tr. T. 1892) 28 Abb. N. Cas. 135, 19 N. Y. S. 191. 82. Dawley v. Brown, (1880) 79 N. Y. 390, 396; Udell v. Steams, (Sup. 1908) 125 App. Div. 196, 198, 109 N. Y. S. 407; Cross v. Mowers, (Sup. G. T. 1888) 16 State Rep. 425, 1 N. Y. S. 341; Clark v. Davis, (Super. Ct. Tr. T. 1892) 28 Abb. N. Cas. 135, 19 ISr. Y. S. 191, 192. See also Churchill v. Onderdonk, (1874) 59 N. Y. 134, involving the meaning of the phrase " actual possession " as used in 2 Rev. Stat. p. 312, § 1. And see Code Civ. Proc. § 1638 et seq., authorizing proceedings to determine adverse claims to real estate. 83. Saranac Land, etc., Co. v. Rob- erts, (Sup. 1908) 125 App. Div. 333, 347, 109 K Y. S. 547, affirmed 195 K Y. 303, 88 K. E. 753. 84. Livingston v. Peru Iron Co., ('Ct. Err. 1832) 9 Wend. 512, 516; Howard v. Howard, (Sup. G. T. 1854) 17 Barb. 66.^. 85. Saranac Land, etc., Co. v. Rob- erts, (1909) 195 N. Y. 303, 88 N. E. 753, affirming 125 App. Div. 333, 109 N". Y. S. 547 ; Meigs v. Roberts, ( Sup. 1899) 42 App. Div. 290, 299, 59 N". Y. S. 215, reversed on other grounds 162 N. Y. 371, 56 N. E. 838; Marsh v. Ne-ha-isa-ne P^rk Ass'n, (Sup. Tr. T. 1896) 18 Misc. 314, 42 N. Y. S. 99B, reversed on other grounds 25 App. Div. 34, 49 N. Y. S. 384. 86. See supra, section 467. 87. Saranac Land, etc., Co. v. Rob- erts, (1909) 195 N. Y. 303, 88 N. E. 786 NEW YORK LAW OF CONTRACTS [§ 474 § 474. Possession Required to Be Adverse. — To bring a conveyance within the prohibition of the statute, the possession and claim of title must be adverse to the grantor.** Thus the possession of a tenant or those entering under him is not. as a general rule, adverse to the landlord and does not affect his right to convey,*' and this includes the possession of one holding under a tax lease, however long the term, and the owner may convey whatever interest he may have in the land, and his grantee may question the validity of the tax sale on which the lease is based.'" But where a tenant conveys the fee, the title of the grantee may, after the lapse of twenty years without the payment of rent, dur- ing which his possession is under section 373 of the Code of Civil Procedure presumed to be as a tenant, become adverse to the 753, affirming 125 App. Div. 333, 109 N. Y. S. 547. 88. Cook V. Travis, (1859) 20 N. Y. 400, 405, affirming 22 Barb. 338; Eequa v. Holmes, ( 1863 ) 26 N. Y. 338 ; Vandevoort v. Gould, (1867) 36 N. Y. 639, 3 Trans. App. 57; Stevens v. Hauser, (1868) 39 N. Y. 302, 306, 7 Trans. App. 71; Sands v. Hughes, (1873) 53 N. Y. 287; Broiestedt v. South Side R. Co., (1873) 55 N. Y. 220; Dawley v. Brown, (1880) 79 N. Y. 390; Whiting v. Edmunds, (1884) 94 N. Y. 309; Clute v. New York Cent., etc., R. Co., (1890) 120 N. Y. 267, 30 State Rep. 967, 24 N. E. 317; Finn v. Lally, (Sup. 1896) 1 App. Div. 411, 72 State Rep. 492, 37 N. Y. S. 437; Sheridan v. Oard- ■well, (Sup. 1910) 141 App. Div. 854, 858, 126 N. Y. S. 781; Jackson v. Bard, (Sup. 1809) 4 Johns. 230; Jackson v. Sharp, (Sup. 1812) 9 Johns. 163; Preston v. Hunt, (Sup. 1831) 7 Wend. 53, 54; Webb v. Bin- don, (Sup. 1839) 21 Wlend. 98; Liv- ingston v. Proseus, (Sup. 1842) 2 Hill 526; Keneda v. Gardner, (Ot. Err. 1842) 4 Hill 469; Clarke v. Hughes, (Sup. G. T, 1852) 13 Barb. 147 ; Howard v. Howard, ( Sup. G. T. 1854) 17 Barb. 663; Hoyt v. Dillon, (Sup. G. T. 1855) 19 Barb. 644; Learned v. Tallmadge, (Sup. Sp. T. 1856) 26 Barb. 443; Brady v. Begum, (Sup. G. T. 1862) 36 Barb. 533; Newton v. McLean, (Sup. G. T. 1863) 41 Barb. 285; Borden v. South Side R. Co., (Sup. G. T. 1875) 5 Hun 184, affirmed 67 N. Y. 588 mem.; Crooked Lake Nav. Co. v. Keuka Nav. Co., (Sup. G. T. 1855) 37 Hun 9, 12; Bissing v. Smith, (Sup. G. T. 1895) 85 Hun 564, 569, 66 State Rep. 796, 33 N. Y. S. 123; White v. Miller, (Sup. Tr. T. 1912) 78 Misc. 428, 139 N. Y. S. 660; Borst v. Boyd, (Chan. Ct. 1846) 3 Sandf. Ch. 501; Knapp v. Burton, (Sup. 1885) 7 Civ. Pro. 448; De Silva v. Flynn, (Sup. 1886) 9 Civ. Pro. 426: Barley V. Roosa, (Sup. G. T. 1891) 20 tliv. Pro. 113, 35 State Rep. 898, 13 N. Y. S. 209. 89. Whiting v. Edmunds, (1884) 94 N. Y. 309; Jackson v. Raymond, (Sup. 1798) 1 Johns. Gas. 85, 86 note; Clarke v. Hughes, (Sup. G. T. 1852) 13 Barb. 147; Learned v. Tall- madge, (Sup. Sp. T. 1856) 26 Barb. 443; McRoberts v. Bergman, (Sup. G. T. 1890) 57 Hun 591 mem., 32 State Rep. 1111, 11 N. Y. S. 108. 90. King V. Townshend, (1894) 141 N. Y. 358, 57 State Rep. 437, 36 N. E. 513, affirming 65 Hun 567, 48 State Rep. 592, 20 N. Y. S. 602; Sheridan v. Cardwell, (Sup. 1910) 141 App. Div. 854, 126 N. Y. S. 781; Hoyt V. Dillon, (Sup. G. T. 1855) 19 Barb. 644; Willis v. Gehlert, (Sup. G. T 1885) 34 Hun 566. § 474] ILLEGALITY 737 landlord, so as to avoid a subsequent conveyance by him.'^ The possession of one claiming under a tenant for life is not, during the life estate, adverse to the remainderman or reversioner, and therefore does not prevent the latter from conveying a good title.'^ As said by Potter, J. : " Until the precedent estate is terminated, giving the remainderman the right of possession, no possession can be adverse to the remainderman. ' ' ^^ But after the death of a life tenant who has attempted to convey the fee his grantee's possession may then become adverse and so bring a subsequent conveyance by the remainderman within the prohibition of the statute.^* The possession of a mortgagee or his assigns, subject to the mortgagor's right to redeem, is not adverse and does not affect a conveyance by the mortgagor.'^ Likewise where lands are sold on execution, the continued possession of the execution debtor is not adverse to the purchaser and does not therefore affect his right to convey.'* And the same has been held true where the owner or occupant of land continues in possession after a sale of the land for taxes,'^ and where a mortgagor continues in possession after a foreclosure sale.'* Where a defendant in ejectment con- fesses the title of the plaintiff his possession ceases to be adverse and will not affect a subsequent conveyance by the plaintiff.'* So where, after a judgment by default, the adverse claimant attorns to the plaintiff, his possession ceases to be adverse and does not affect a subsequent conveyance by the plaintiff, though after such conveyance the judgment is vacated and the possession 91. Church V. Schoonmaker, (1889) 1846) 3 Sandl Oh. 501; Chalmers 115 N. Y. 570, 26 State Rep. 779, 22 v. Wright, (Super. Ot. Sp. T. 1866) N. E. 575, affirming 42 Hun 225, 3 28 Super. Ct. 713; Davis v. Duffie, State Rep. 768, 25 Wkly. Big. 350. (Super. Ct. Sp. T. 1861) 18 Abb. Pr. See also Becker v. Church, (1889) 369, reversed on other grounds 21 115 N. Y. 562, 26 State Eep. 775, 22 Super. Ct. 617, which is affirmed 3 N. E. 748, affirming 42 Hun 258, 5 Keyes 606, 1 Abb. App. Dec. 486, 4 State Eep. 97, 25 Wkly. Dig. 134. Abb. Pr. N". 8. 478, 3 Trans. App. 54. 92. Christie v. Ga^e, (1877) 71 See also Stoddard v. Whiting, (1871) N. Y. 189 ; Clute v. New York Cent., 46 N. Y. 627. etc., R Co., (1890) 120 N. Y. 267, 30 96. De Silva v. Flynn, (Sup. 1886) State Rep. 967, 24 N. E. 317, affirm- 9 Civ. Pro. 426. See also Jackson v. ing 5 State Rep. 117. Collins, (Sup. 1824) 3 Cow. 89. 93. Clute V. New York Cent., etc., 97. Hubbell v. Weldon, (Sup. R. Co., (1890) 120 N. Y 267, 273, 30 1843) Hill & D. Supp. 139. State Rep. 967, 34 N. E. 317. 98. Sayres v. Rathbone, (Sup. Sp. 94. Christie v. Gage, (1877) 71 T. 1869) 9 Abb. Pr. N. S. 277. N Y. 189, affirming 2 Thomp. & C. 99. Keneda v. Gardner, (Ct. Err. 344 ■ 1842) 4 Hill 469. 95. Borst v. Boyd, (Chan. Ct. 47 788 NEW YORK LAW OF CONTRACTS [§ 475 of the defendant restored.^ If the claimant holds under color of title his possession may be deemed adverse without any express declaration on his part of an intention to hold adversely to the superior title.^ § 475. Necessity for Color of Title Generally. — To bring a cen- veyance within the provision invalidating conveyances of lands held adversely, the land must, as provided by the statute, be in the possession of a person ' ' claiming under a title adverse to that of the grantor." While in some of the early cases the necessity for color of title was not expressly regarded as a requisite,' and it was held that the possession of the native Indians was not suf- ficient to avoid grants by patentees of the state and their assigns,* it is now well established that the party in possession must have color of title adverse to that of the grantor whose deed is assailed,^ 1. Bawley v. Brown, (1880) 79 N. y. 390, reversing 9 Hun 461. 2. Christie v. Gage, (Sup. G. T. 1873) 2 Thomp. & C. 344. 3. See for instance Jackson v. Hal- stead, (Sup. 1825) 5 Cow. 216. 4. Jackson v. Hudson-, (Sup. 1808) 3 Johns. 375. 5. Crary v. Goodman, (1860) 22 N. Y. 170; Higinbotham v. Stoddard, (1878) 72 N. Y. 94, affirming 9 Hun 1; In re Public Parka, (1878) 73 N. y. 560; Dawley v. Brown, (1880) 79 N. Y. 390; King v. Townshend, ( 1894 ) ■ 141 N. Y. 358, 364, 57 State Rep. 437, 36 N. E. 513; Arents v. Long Island R. Co., (1898) 156 N. Y. 1, 50 N". E. 422, affirming 89 Hun 126, 68 State Rep. 1, 34 N. Y. S. 1085; Archibald v. New York Cent., etc., E. Co., (1899) 157 N. Y. 574, 581, 52 N. E. 567, affirming 1 App.' Div. 251, 72 State Rep. 689, 37 N. Y. S. 336; Green v. Horn, (1913) 207 N. Y. 489, 101 N. E. 430, revers- ing 146 App. Div. 896 mem., 131 N. Y. S. 1118; Finn v. Lally, (Sup. 1896) 1 App. Div. 411, 72 State Rep. 492, 37 N. Y. S. 437; Biglow v. Big- low, (Sup. 1899) 39 App. Div. 103, 56 N. Y. S. 794; Willey v. Green- field, (Sup. 1901) 64 App. Div. 220, 71 N. Y. S. 1046; Belcher v. Belcher, (Sup. 1909) 134 App. Div. 726, 119 N. Y. S. 144; Wilson v. Boyce, (Sup. 1911) 143 App. Div. 782, 128 N. Y. S. 438; Fish v. Fish, (Soip. G. T. 1863) 39 Barb. 513; Hallas v. Bell, (Sup. G. T. 1869) 53 Barb. 247; Nash v. Kemp, (Sup. G. T. 1878) 12 Hun 592,595; Swettenham v. Leary, (Sup. G. T. 1879) 18 Hlin 284; Crooked Lake Nav. Oo. v. Keuka Nav. Co., (Sup. G. T. 1885) 37 Hun 9; Smith V. Faulkner, (Sup. G. T. 1888) 48 Hun 186, 15 State Eep. 637; Harris V. Oakley, (Sup. G. T. 1888) 49 Hun 605 mem., 17 State Eep. 198, 2 N. Y. S. 305; Sands v. Church, (Sup. G. T. 1893) 70 Hun 483, 54 State Rep. 58, 24 N. Y. S. 251; Fortmann V. Wheeler, (Sup. G. T. 1895) 84 Hun 278, 65 State Rep. 589, 32 N. Y. S. 384; Jones v. Hoyt, (Sup. G. T. 1895 ) 85 Hun 35, 66 s'tate Rep. 136, 32 N. Y. S. 625; Eisemann v. Lapp, (Sup. Tr. T. 1902) 38 Misc. 14, 16, 76 N. Y. S. 695; People v. Ladew, (Sup. Tr. T. 1918) 102 Misc. 595, 604, 170 N. Y. S. 196; Moore V. Brown, ( Sup. G. T. 1891 ) 41 State Eep. 847, 16 N. Y. S. 592, reversed on other grounds 139 N. Y. 127, 54 State Eep. 523, 34 N. B. 772; Zahen V. Dopp, (Super. Ot. G. T. 1892) 46 State Rep. 920, 19 N. Y. S. 863; Bowie V. Brahe, (Super. Ct. 1854) 10 Super. Ct. 35; Siayres v. Rath- § 475] ILLEGALITY 739 and that title must be shown by the claimant so that the court may- see that it is adverse to the title of the grantor in the deed which is assailed, and unless that fact is made to appear the deed is valid.* As said by Miller, J. : " It is the settled law of this state that to avoid a deed under the . . . statute the adverse possession must be under a claim of some specific title, necessarily, of course, a good title, but still a paper title as distinct from a general asser- tion of ownership, a title ' under some written instrument purport- ing to convey the lands to the claimant, or else some judg- ment, decree or executed process of a court. ' " ' A distinction in this respect is made between the possession sufficient to enable a person to acquire title by adverse possession under the statute of limitations and that necessary to render a conveyance invalid.* As said by Selden, J., in this connection : "In passing the statute of limitations the matter under consideration was the evidence of title afforded by long continued possassion. The prominent thing before the legislative mind was the possession, while the principal thing in view in passing the champerty act was that of opposing titles. This difference led naturally to the difference in the phraseology adopted. In the one act mere possession with a gen- eral claim of ownership, irrespective of any particular title, was all the legislature had in contemplation; hence the language ' under a claim of title.' But the other act had respect to the transfer of one of two conflicting titles. The title and not the possession was the thing prominently in view, and this led to the more specific language, ' claiming under a title.' Nothing can satisfy the language of the latter act but the existence of some specific title, under which the party claims. This title may be good or bad, but there must be at least a color of title opposed to the title of the grantor in the deed. ' ' ' bone, (Sup. Sp. T. 1869) 9 Abb. Pr. 72 State Eep. 492, 37 N. Y. S. 437; N. S. 277; Clark v. Davis, (Super. Sands v. Cburch, (Sup. G. T. 1893) Ct. Tr. T. 1892) 28 Abb. N. Cas. 135, 70 Hun 483, 54 State Kep. 58, 34 19 N". Y. S. 191 ; De Silva v. Flynn, N. Y. S. 251. (Sup. 1886) 9 Civ. Pro. 426; Hoi- 7. Green v. Horn, (1913) 207 N. Y. lister V. Dow, (Sup. G. T. 1876) 3 489, 492, 101 N. E. 430. Wkly. Dig. 557. But see Livingston 8. Crary r. Goodiman, (1860) 22 V. Peru Iron Co., (Ct. Err. 1833) N. Y. 170, 172; Fish v. Fish, (Sup. 9 Wend. 511, 512, 517. G- T. 1863) 39 Barb. 513. See also 6. Crary v. Goodman, (1860) 22 Towle v. Remsen, (1877) 70 N. Y; N. Y. 170; Dawley v. Brown, (1880) 303, 315. 79 N. Y. 390, 396; Finn v. Lally, 9. Crary v. Goodman, (1860) 22 (Sup. 1896) 1 App. Div. 411, 416, N. Y. 170, 176. 7140 NEW YORK LAW OF CONTRACTS [§§ 476, 477 § 476. Application of Rule. — For want of color of title it is held that the statute does not include a case where a person, under a conveyance by metes and bounds, through misunderstand- ing takes the actual possession of lands not included in his deed.^" So the mere filing by a railroad company of a location map does not confer any color of title to state lands within the location, and preclude a subsequent conveyance of lands so included either by the state or its grantees.'^ Also in an early case, on the theory that a purchase of land from a party to a pending suit involving the title thereto is void, it was held that a possession under such a purchase did not preclude a conveyance of such lands.^^ A contract to convey, especially when accompanied with the payment of the purchase money so as to entitle the purchaser to a deed, may, it has been held, constitute color of title, '' but it has been held otherwise as to a possession under a mere oral contract to convey." The possession must be under an adverse claim of title to the land itself, and therefore possession under a claim of right to exercise an easement over the land is not sufficient to bring the transaction within the prohibition.'^ § 477. Good Faith of Adverse Claimant. — It is said in an early case that the claim of title must be in good faith," and it has been held in several eases that a deed procured by fraud cannot 10. Orary v. Goodman, (1860) 22 etc., R. Co., (1899) 157 N. Y. 574, N. Y. 170; Wilson v. Boyce, (Sup. 581, 52 N. E. 567, affirming 1 App. 1911) 143 App.Div. 782, 128 N.Y.S. Div. 251, 72 State Rep. 689, 37 438; Hallas v. Bell, (Sup. G. T. 1869) N. Y. S. 336. 53 Barb. 247; Harris V.Oakley, (Sup. 12. Jackson v. Andrews, (Sap. G. T. 1888) 49 Hun 605 mem., 17 1831) 7 Wend. 152. iState Rep. 198, 2 N. Y. S. 305; 13. Jackson v. Foster, (Sup. 1815) Danziger v. Boyd, (Super, a. 1887) 12 Johns. 488; Whitney v. Wright, 55 Super. Ct. 537, 12 State Rep. 64, (Sup. 1836) 15 Wend. 171. See also 27 Wkly. Dig. 479, affirmed 120 Jackson v. Wheeler, (Sup. 1813) 10 N. Y. 628, 30 State Rep. 889, 24 Johns. 164. N. E. 482, 2 Silv. App. 568; Clark 14. Carter v. Meisch, (Sup G T. V. Davis, (Super. Ct. Tr. T. 1892) 1892) 45 State Rep. 719, 18 N. Y. S. 28 Abb. N. Caa. 135, 19 N. Y. S. 191. 804. See also Smith v. Faulkner, (Sup. 15. Witter v. Blodget, (iCbm. PI. 1888) 48 Hun 186, 15 iState Rep. 637; 1846) 4 N. Y. Leg. Obs. 263. Bowie V. Brahe, (Super. Ct. 1854) IG. Livingston v. Peru Iron Oo., 10 Super. Ct. 35. But see Sherry (Ct. Err. 1833) 9 Wend 511, 512. V. Frecking, (Super, a. 1855) 11 See also Lambert v. Huber, (Sup. Super. Ct. 452. Sp. T. 1898) 22 Misc. 462, 469, 50 11. Archibald v. New York Cent., N. Y. S. 793. § 477] ILLEGALITY 741 be made the basis of such an adverse claim of title as will invali- date a subsequent conveyance by the defrauded grantor." It has also been held that the possession of a grantee in a quitclaim deed executed by one having a mere naked possession, and without any consideration of value, would not render invalid a conveyance by the true owner.^^ This doctrine, however, in so far as it requires a bona fide claim of title, has been questioned in the later cases, and it seems, according to the better view, that the good faith of the claimant in that respect is not one for considera- tion,^' and if the claimant holds under color or semblance of title the statute applies, however defective such title may be in fact."" " It has never been considered necessary," says Rapallo, J., " to constitute an adverse possession, that there should be a rightful title in the party setting up the defense or in his grantor. When- ever that defense is set up the idea of right is excluded. . . . Under the statutes of this state there must be a claim or color of 17. McMahon v. Allen, (1866) 35 N. Y. 403, 409, 3 Abb. Pi-. N. S. 74, 32 How. Pr. 313; Livingston v. Peru Iron Co., (Ct. Err. 1833) 9 Wend. 511, 512; Moody v. Moody, (Sup. G. T. 1878) 16 Hun 189. In the Moody case, supra, whidbi was a suit to set aside a deed to the defendant, it appeared that the plain- tiff by fraud procured his deed from, one J. M., and immediately went into possession. Thereafter J. M. con- veyed to the defendant, and it was claimed by the plaintiff that this deed was rendered void as to him on account of his adverse possession. It was held, however, that as the plain- tiff's deed was procured by fraud, it did not confer on him sufficient color of title to bring the second convey- ance within the prohibition of the statute, Gilbert, J., isaying: " If the deed to the plaintiff was fraudu- lently obtained, it was a nullity, and gave to her not even a colorable title. The defendants' title, therefore, was not affected by the provision of the Revised Statutes respecting cham- perty. (1 R. S., 739, § 147.) That statute only avoids grants of lands which, at the time of the delivery thereof, are in the actual possession of a person claiming under a title adverse to that of the grantor. As- suming, as we must, in determining this question, that the deed to the plaintiff was void, her claim was not under an adverse title, but imder no title at all." 18. Jackson v. Hill, (Sup. 1830) 5 Wend. 532. 19. Sands v. Hughes, (1873) 53 N. Y. 287, 296; Munro v. Merchant, (Sup. G. T. 1858) 26 Barb. 383, 402; Bissing v. Smith, (Sup. G. T. 1895) 85 Hun 564, 570, 66 State Rep. 796, 33 N. Y. S. 123. 20. Sands v. Hughes, (1873) 53 N". Y. 287, 296; Pearce v. Moore, (1889) 114 N. Y. 256, 23 State Rep. 796, 21- N". E. 419; Dever v. Hagerty, (1902) 169 N. Y. 481, 62 N. E. 586; De Garmo v. Phelpo, (Sup. 1901) 64 App. Div. 590, 592, 72 N. Y. S. 773, reversed on other grounds 176 N. Y. 455, 68 N. E. 873; Jackson v. Elston, (Sup. 1815) 12 Johns. 452; Thurman v. Cameron, (Sup. 1840) 24 Wend. 87; Mosher v. Yost, (Sup. G. T. 1861) 33 Barb. 277, 281; Eiae- mann v. Lapp, (Sup. Tr. T. 1902) 38 Misc. 14, 16, 76 K. Y. S. 695. 742 NEW YORK LAW OF CONTRACTS [§ 478 title, but if the entry is under color of title the possession will be adverse, however groundless the title. "^ § 478. Effect of Conveyance as against Adverse Claimant Generally. — As against the adverse claimant, the conveyance is wholly ineffectual to transfer any title to the grantee which he can assert in his own name.^ Thus he acquires no title on which he can maintain an action, in his own name, against the adverse claimant or those in privity with him, to recover the possession ; ^^ nor can the grantee maintain a suit in equity against the adverse claimant to enforce any rights under the deed.^ For instance, he 21. Sands v. Hughes, (1873) 53 N. Y. 287, 295. 22. Pearce v. Moore, (1889) 114 N. Y. 256, 23 State Rep. 796, 21 N. E. 419; Becker v. Church, (1889) 115 N. Y. 562, 26 State Rep. 775, 22 N. E. 748, affirming 42 Hun 258, 5 State Rep. 97; Baecht v. Hevesy, (Sup. 1906) 115 App. Div. 509, 101 N. Y. S. 413; Green V. Horn, (Sup. 1908) 128 Ajxp. Div. 686, 112 N. Y. S. 993; Col- lins V. Buffalo, etc., R. Co., (Sup. 1911) 145 App. Div. 148, 129 N. Y. S. 139; Webster v. Van Steenbergh, (Sup. G. T. 1864) 46 Barb. 211; Ten Eyck V. Craig, (Sup. G. T. 1874) 2 Hun 452, 460, 5 Thomp. & C. 65; Hoopes V. Auburn Waterworks Co., (Sup. G. T. 1885) 37 Hun 568, 575, affirmed 109 N. Y. 635 mem., 16 N. E. 681; Merritt v. Smith, (Sup. Sp. T. 1899) 27 Misc. 366, 58 N. Y. S. 851, 29 Civ. Pro. 369, affirmed 50 App. Div. 349, 63 N. Y. S. 1068; Lakes Island Realty Go. v. MoDermott, (Sup. Sp. T. 1916) 96 Misc. 37, 160 N. Y. S. 450; Ba-mes v. Kandt, (Sup. Eq. T. 1911) 134 N. Y. S. 339;*Town- shend v. Thomson, (Super. Ct. G. T. 1892) 60 Super. Ot. 454, 46 State Hep. 847, 849, 18 N. Y. S. 870. 23. Sands v. Hughes, (1873) 53 N. Y. 287; Towle v. Remsen, (1877) 70 N. Y. 303, 318; Gihnan, v. Dolan, (Sup. 1906) 114 App. Div. 774, 100 N. Y. S. 186, affirmed 193 N. Y. 677 mem., 87 N. E. 1119; McAuliff v. Hughes, (Sup. 1908) 128 App. Div. 355, 360, 112 N. Y. S. 486; Jackson V. Halstead, (Sup. 1825) 5 Cow. 216; Livingston v. Proseus, (Sup. 1842) 2 Hill 526 ; Howard v. H, (Sup. G. T. upon the exaction of the creditor, as 1865 ) 43 Barb. 577 ; Glens Falls Nat. a condition of his signing a com- Bank v. Van Nostrand, (Sup. Sp. T. position, inay.be regarded as having 1903 ) 41 Misc. 526, 528, 85 N. Y. S. paid under duress and as not equally 50, affirmed 103 App. Div. 598 mem., criminal with the creditor. These 92 N Y S 1125. decisions cannot be upheld on the 56.' See Solinger v. Earle, (1880) ground simply that such payment is 82 i2Sr Y 393, 397, 60 How. Pr. 116 against public policy. Doubtless the (reversing English cases). rule declared in these cases tends to 57. Solinger v. Earle, (1880) 82 discourage fraudulent transactions of N y' 393 60 How. Pr. 116. In this this kind, but this is no legal ground ease Andrews, J., said : " It is some- for allowing one wrongdoer to recover what difficult to understand how a back money paid to ^another m pur- debtor who simply pays his debt in suance of an- agreement, illegal as full can be considered the victim, of against public policy. It was con- oppression or extortion because such ceded by Lord Mansfield, in Smith payment is exacted by the creditor v. Bromley, [2 Dougl. 696] that when as a condition of his signing a com- both parties are equally criminal promise, or to see how both the debtor against the general laws of public and creditor are not in pari delicto. policy, the rule is potior est con- 790 NEW YORK LAW OF CONTRACTS [§ 512 If a third person, without any knowledge of the illegal purpose of benefiting the preferred creditor, gives his note with collateral security for the payment of a sum to such creditor, he is not in pari delicto, and relief has been granted him by way of a cancel- lation of his note and a return of the securities.^* § 512. Effect of Illegal Agreement on Composition. — The agree- ment for the secret preference and the composition are regarded as separate transactions, and the illegality of the former does not nullify the composition. It is to its full extent binding on the preferred creditor,^' and in conformity with the view taken in our state, may be enforced by him according to its terms, the agree- ment for the preference being alone invalidated.^" Thus where by the terms of the composition a part of the debtor's notes were to be indorsed by a third person, and as a secret preference to a ditio defendentis, and Lord Kenyon, ia Howson v. Hancock, [8 T. R. 575] said that tliere is no case where, when money has been actually paid hy one of two parties to the other upon an illegal contract, both being partieeps crimiuis, an action has been maintained to recover it back. We see no ground upon which it can be held that the plaintiff in this case was not in par delictum in the trans- action with the defendants. So far as the complaint shows he was a volunteer in entering into the fraudu- lent agreement. It was not even alleged that he acted at the request of the debtor. And in respect to the claim of duress, upon which Smith V. Bromley was decided, we are of opinion that the doctrine of that and the subsequent cases referred to can only be asserted in. behalf of the debtor himself, or of a wife or Jius- band, or near relative of the blood of the debtor, who intervenes in his behalf, and that a person in the situa- tion of the plaintiflF, remotely related by marriage with a. debtor, who pays money to a creditor to induce him to sign a composition, cannot be deemed to have paid xmder xiuress, by reason simply of that relationship, or of the interest which he might naturally take in his relative's affairs." 58. Glens Falls Nat. Bank v. Van Nostrand, (Sup. Sp. T. 1903) 41 Misc. 526, 85 N. Y. S. 50, afBrmed 103 App. Div. 598 mem., 92 N. Y. S. 1125. 59. White v. Kuntz, (1887) 107 N. Y. 518, 12 State Rep. 297, 14 N. E. 423, affirming 13 Daly 286; Hanover Nat. Bank v. Blake, (1894) 142 N. Y. 404, 59 State Rep. 794, 37 N. E. 519; Glens Falls Nat. Bank v. Van Nos- trand, (Sup. Sp. T. 1903) 41 Misc. 526, 85 N. Y. S. 50, affirmed 103 App. Div. 598 mem., 92 N. Y. S. 1125. See also Robinson v. Striker, (Sup. G. T. 1888) 47 Hun 546, 549, 15 State Rep. 42, affirmed 113 N. Y. 635 mem., 20 N. E. 878. 60. Hanover Nat. Bank v. Blake, (1894) 142 N. Y. 404, 59 State Rep. 794, 37 N. E. 519, reversing 66 Hun 33, 49 State Rep. 432, 20 N. Y. S. 780 (and disapproving earlier Eng- lish authorities). See also White v. Kuntz, (1887) 107 N. Y. 518, 12 State Rep. 297, 14 N. E. 423, affirming on other grounds 13 Daly 286, in which a contrary view was -taken as to the right of the preferred creditor to enforce his right under the composi- tion; Russell v. Rogers', (Sup. 1833) 10 Wend. 473, 474, 479; Breck v. Cole, (Super. Ct. 1850) 6 Super. Ct. 79, 8 N. Y. Leg. Obs. 273. In the Hanover Nat. Bank case. § 513] ILLEGALITY 791 creditor other notes were also indorsed, it was held that this did not preclude the creditor from enforcing such third person's liabil- ity on the indorsement made in accordance with the terms of the; composition, though liability on the additional indorsements could not be enforced.*^ Nonpref erred creditors, on account of the fraud practiced on them, will be relieved from its eifect if the secret agreement for the preference is carried out ; *^ but this is not so, it seems, if the 'agreement for the preference is not executed.** A creditor who has himself taken an unlawful preference cannot avoid the composition because preferences were also, without his knowledge, given other creditors. Having been guilty of the very fraud of which he complains, he cannot allege that he was induced to enter into the composition in consequence of any fraud practiced on him. Knowing that there was not to be equality among the creditors, he cannot be permitted to complain that there was not such equality.** Stifling or Puffing Competition at Sales or Letting of Contracts § 513. General Rule as to Public Sales.^ Public policy requires that competition at auction sales should not be restrained, and agreements between third persons having for their object the stifling of competition or biddings at such sales are as a general rule held illegal.*" Also a contract having for its purpose the supra, Gray, J., says : " If we should within the rule, which permits a sev- 9ay that the (fraud of the secret agree- erance of the illegal from the legal ment made by the creditor operated part of the covenant." to avoid the whole transaction of 61. Hanover Nat. Bank v. Blake, composition, the result would be to (1894) 142 N". Y. 404, 59 State Rep. leave him with the original indebt- 794, 37 N. E. 519, reversing 66 Hun edness unreleaaed. ... We assert 33, 49 State Eep. 432, 20 N. Y. S. a wholesome rule and one which 780. works a just result, if we hold that 62. Hanover Nat. Bank v. Blake, the secret and fraudulent agreement (1894) 142 N. Y. 404, 59 State Rep. itself is illegal and is inoperative to 794, 37 N. E. 519; Glen® Palls Nat. confer any rights or advantages upon Bank v. Van Nostrand, ( Sup. Sp. T. the creditor. Perfect equality is to 1903) 41 Misc. 526, 85 N. Y. S. 50, he maintained among the creditors, affirmed 103 App. Div. 598 mem., 92 It was thought below that the secret N. Y. S. 1125. agreement and the composition agree- 63. Hanover Nat. Bank v. Blake, ment constituted but a single and in- (1894) 142 N. Y. 404, 59 State Eep. divisible transaction or agreement. I 794, 37 N. E. 519. am not prepared to aocede to that 64. White v. Kuntz, (1887) 107 proposition, though it has support in N. Y. 518, 12 State Rep. 297, 14 some of the English cases referred to. N. E. 423, affirming 13 Daly 286. It seems to me the case falls easily 65. Brackett v. Wyman, (1872) 48 792 NEW YORK LAW OF CONTEACTS [§ 513 fictitious puffing of bids at auction, sales operates as a fraud on the bidders and is consequently illegal.^^ The principle applies %¥ith full force to execution and judicial sales." As said by Spencer, J., in an early case in which reference was made to earlier cases which involved voluntary auction sales : ' ' These were cases of sales at auction ; but the principle applies with equal, nay, with more, force to sales on execution."^ The fact that the party agreeing to abstain from bidding was under no obligation or duty to bid does not affect the principle. As also said by Spencer, J. : " That is not the test of the principle. In none of the cases cited was the party bound to bid; but, being at liberty to bid, he suffered himself to be bought off in a way which might prevent a fair competition. The abstaining from bidding, upon concert, and by agreement, under the promise of a benefit for thus abstaining, is the very evil the law intends to repress. A public auction is open to every one; but there must be no combination among persons competent to bid, silencing such bidders, for the tendency to sacrifice the debtor's property is inevitable.'"' The N. Y. 667; Jones v. Caswell, (Sup. 1802) 3 Johns. Oas. 29; Doolin v. Ward, (Sup. 1810) 6 Johns. • 194; Thompson v. Davies, (Sup. 1816) 13 Johns. 112; Wheeler v. Wheeler, (Sup. 1872) 5 Lanfi. 355; Munson v. Syracuse, etc., E. Co., (Sup. G. T. 1883) 29 Hun 76, affirmed on other grounds 103 N. Y. 58, 3 State Rep. 31, 8 N. B. 355. 66. Jones v. Caswell, (Sup. 1802) 3 Johns. Oas. 29 (per Radcliff, J.). See also People v. Lord, (Sup. G. T. 1876) 6 Hun 390, 394. G7. Brisbane v. Adams, (1849) 3 N. Y. 129; Brax;kett v. Wyman, (1872) 48 N. Y. 667; Jones v. Cas- well, (Sup. 1802) 3 Johns. Cas. 29; Thompson v. Davies, (Sup. 1816) 13 Johns. 112; Meech v. Bennett, (Sup. 1843) Hill & D. Supp. 191; Wheeler V. Wheeler, (Sup. 1872) 5 Lans. 355. In the Thompson case, supra, A and B having executions against C, of which A's execution was the elder lien, and C being indebted to D, it was agreed between A and D tiha/t A should pay 1> two hundred and twenty-five dollars; that, at the saJ« under the executions, A should bid off the personal property of O to the amount of his execution, and that D should bid oflf the real property of C to the amount of B's execution, should dispose of the same, and after satisfying his own demands against C, should refund A the said sum of two hundred and twenty-five dollars. A and D at the sale bid off the prop- erty of C in conformity to the agree- ment, and D disposed of the real estate, and, after satisfying his own demands against C, there was a suffi- cient surplus to repay A, and A brought his action to recover the money. It was held that although there was a sufficient consideration to support lys promise, yet that the agreement itself was void, being con- trary to public policy, as it was an agreement tending to prevent compe- tition at a sale under execution, and thus injurious to the original debtor. 68. Thompson v. Davies, (Sup. 1816) 13 Johns. 112, 115. 69. Thompson v. Davies, (Sup. 1816) 13 Johns. 112, 115. § 513] ILLEGALITY 793 rule as applied in an earlier ease was very stringent. Thus it appeared that certain articles were advertised for sale at public auction, which A and B were desirous to purchase, and it was agreed between them that they would not bid against each other, that A should buy the articles and divide them equally with B. A being the successful bidder afterwards refused to deliver one- half to B as agreed. It was held that the contract was illegal and no action could be maintained thereon by B.'" And where the property of a mortgagor was being sold under a foreclosure sale, and two of his judgment creditors entered into an agreement by which one was to pay to the other a certain amount in considera- tion of his refraining from bidding at the sale,, it was held that the agreement was illegal and unenforceable.''^ Also in ease of a contract to prevent competition at a foreclosure sale under which one party agreed to save harmless the other, a surety for the mortgagor, in consideration of his refraining from bidding, the fact that the mortgagor consented to the agreement was held not to render it valid, as its tendency was to perpetrate a fraud not only on the mortgagor -but also on the mortgagee or other cred- itors.'^ It has been held that however upright the motives of the parties in entering into the agreement may have been, it will not save their agreement from the condemnation of the law." The later cases have, however, as is shown in the following section, to 70. DooUn V. Ward, (Sup. 1810) 6 ment could operate as a. fraud on any Johns. 194. person whatsoever, as in effect the In Jones' V. Caswell, (Sup. 1802) 3 land sold was that of and was sold Johns. Cas. 29, It appeared' that the only for the .purpose of satisfying the land of A was advertised for sale on claim of B, and if recognized goes far execution at the suit of B. C, who to denounce all agreements . in any had purchased .the land from A, with- way stifling competition at execution out notice of the judgment and exe- sales irrespective of any possible in- cution, agreed with B that if he jurious eflfect on third persons. would not hid against him he would 71. Brackett v. Wyman, (1872) 48 pay him the amount of the execution N. Y. 667. and give 'his note for an additional 72. Meech v. Bennett, (Sup. 1843) sum. C bid off the land for the Hill & D. Supp. 191. amount of B's execution and gave 73. Thompson v. Davies, (Sup. him his note as agreed. It was held 1816) 13 Johns. 112. in an action on the note that though This, however, does not prevent the refraining from bidding was a parties who have an interest to pro- sufficient consideration for C's prom- tect from entering into valid agree- ise, the agreement was illegal as one ments, though their indirect effect is to suppress competition at the sale, to suppress competition between them. It is difficult to see how the agree- See the following section. 794 NEW YORK LAW OF CONTRACTS [§514 a considerable extent restricted the stringent rule applied in the foregoing cases. § 514. Qualification of General Rule. — The general rule prohibiting a contract tending to suppress competition at public sales does not, according to the modern view, prevent persons who have an existing interest in the property to be sold from entering into contracts for the protection of such interest, though it may to some extent suppress competition among themselves.'* ' ' In such a case," says Landon, J., " the rule which forbids parties having no interests in common from combining to prevent competition among themselves, and thus aiding the sacrifice of the property of another, does not apply. ' ' '^ And says Andrews, J. : " The mere fact that an arrangement, fairly entered into, with honest motives, for the preservation of existing rights and property, may incidentally restrict competition at a public or judicial sale, does not, we think, render the arrangement illegal. ' ' '* This is also the view taken by the leading Massachusetts case of Phippen v. Stick- ney, (1841) 3 Mete. 384, which has frequently been cited with approval by our courts." As said by Smith, P. J. : " The doc- trine deducible from the case of Phippen and the others above cited, in which it is approved and followed, seems to be that an agreement made by parties, one or more of whom has a lien upon, or an interest in, the property about to be disposed of at a public or judicial sale, is not against public policy, because it has the effect to prevent competition at such sale, provided it was made, not with the intent of producing that effect, but was fairly made 74. Marie v. Garrison, (1880) 83 (Sup. Sp. T. 1881) 61 How. Pr. 184, N. Y. 14, reversing on other grounds affirmed 25 Hun 563 mem.; Cornell v. 45 Super. Ct. 157; Hopkins V. Ensign, King, (Sup. 6. T. 1881) 13 Wkly. (1890) 122 N. Y. 144, 33 State Rep. Dig. 327; McKenna V. Bolger, (Sup. 299, 25 N. E. 306, affirming 11 State G. T. 1883) 17 Wlcly. Dig. 431. Eep. 85; Munson v. Magee, (Sup. 75. Munson v. Magee, (Sup. 1897) 1897) 22 App. Div. 333, 47 N. Y. S. 22 App. Div. 333, 341, 47 N. Y. S. 942. 942, affirmed on other grounds 161 76. Marie v. Garrison, (1880) 83 N. Y. 182, 55 N. E. 916; Goldman v. N. Y. 14, 28. Cohen, (Sup. 1915) 167 App. Div. 77. See for instance. Marsh v. Rus- 666, 153 N. Y. S. 41; Bame v. Drew, sell, (1876) 66 N. Y. 288; Hopkins (Sup. 1847) 4 Denio 287; Myers v. v. Ensign, (1890) 122 N. Y. 144, 150, Dorman, (Sup. G. T. 1884) 34 Hun 33 State Rep. 299, 25 N. B. 306; 115; Oolton V. Kennedy, (Sup. Tr. T. Myers v. Dorman, (Sup. G. T. 1884) 1911) 74Mis«. 217, 131 N. Y. S. 483; 34 Hun 115; Delisi v. Fioarrotta, Delisi v. Ficarrotta, (Sup. App. T. (Soip. App. T. 1912) 76 Misc. 488, 1912) 76 Misc. 488, 135 N. Y. S. 135 N. Y. S. 653. 653; Cornell v. Utica, etc., R. Co., § 515] ILLEGALITY 795 to protect tlie lien or interest of the parties, or for any other reason- able and lawful purpose. ' ' '* § 515. Illustrative Examples of Qualification. — It is well recognized that the mortgage bondholders of an insolvent corpora- tion, such as a railroad or the like, may join in an agreement to purchase the property at a foreclosure of the mortgage on their joint account.'* And where the plaintiffs, who were stockholders of a railroad which was to be sold under a foreclosure sale, in order to protect their interest as stockholders agreed to relinquish their opposition to the sale and permit, in so far as in their power, a committee of bondholders to purchase the property at the sale, in consideration of the latter 's agreement to give them an interest in a new corporation to be organized to take over and operate the road, the contract was held valid, Andrews, J., saying: " This was not the case of a combination between persons having no prior interest in the property to suppress bidding at a judicial sale for speculative purposes. The arrangement made was, so far as appears, a reasonable and honest attempt on the part of the 78. Myers v. Dorman, (Sup. G. T. 1884) 34 Hun 115, 118. In Hopkins v. Ensign, (1890) 122 N. Y. 144, 149, 33 State Rep. 299, 25 iN". E. 306, Brown, J., after referring to the stringent rule announced in the earlier cases, said: " But the rule applied in these cases has been very materially modified 'by the later decisions of the courts, and it is now- settled that agreements between two or more persons .that all but one shall refrain from bidding, and per- mitting that one to become the pur- chaser, are not necessarily and under all circumstances void. They may be entered into for a lawful purpose and from honest motives, and in such cases will be upheld, and they will not vitiate the purchase or neces- sarily destroy the completed con- tracts to which they refer and in respect to which they are nmde. . . . It would be impossible to distin- guish, in their facts, many of the cases I have cited from the earlier decisions in Johnson's Reports, and so far as those early cases lay down the broad rule that every agreement of which the consideration is the for- bearance of bidding at a public sale is per se void, they must be deemed to be overruled, and the extent to which the doctrine will now be car- ried seems to embrace only cases of fraudulent acts and combinations having for their object to suppress fair competition at the sale with the purpose of, acquiring the prop- erty at less than its fair value. The courts will now look to the intention of the parties, and if that be fair and honest, and the primary purpose be not to suppress competition but to protect their own rights, and there be no fraudulent purpose to injure or defraud others interested in tJie result of the sale, the agreement may be upheld. The question is one of fact to be determined by the trial court upon the evidence before it." 79. Munson v. Magee, (Sup. 1897) 22 App. Div. 333, 47 N. Y. S. 942, affirmed on other grounds 161 N. Y. 182, 55 N. E. 916; Cornell v. Utica, etc., R. Co., (Sup. Sp. T. 1881) 61 How. Pr. 184, affirmed 25 Hun 563 mem.; Cornell v. King, (Sup. G. T. 1881) 13 Wkly. Dig. 327. 7% NEW YORK LAW OF CONTRACTS [§ 515 plaintiffs to save their property from being sacrificed on the fore- closure. The other stockholders and bondholders were at liberty to bid on the sale. " ^^ So in case of an assignment for the benefit of creditors, where the property assigned, consisting of notes secured by a mortgage, is of less value than the claims of the creditors, public policy does not forbid a contract between the creditors and the assignee, that the assignee shall purchase the property on the foreclosure of the mortgage for the benfit of the creditors.^i Where three judgment creditors entered into an agreement under which two agreed not to bid at a sale of their judgment debtor 's property under a prior judgment, and the other agreed in case he became the purchaser to pay the amounts due on their judgments, the agreement was upheld, it appearing that the agreement was made to protect their interests and not to suppress competition in the bidding.'^ "Where a creditor of a deceased mortgagor agreed with the devisee of a life estate in the equity of redemption to refrain from bidding at the forelosure sale in consideration of the payment of a certain amount on his claim against the mortgagor, the agreement was upheld.*^ It is also held that one whose property is about to be sold under a chattel mortgage may lawfully agree with another that the latter shall bid a certain amount for the property and give the mort- gagor an undivided interest therein for the benefit of the mem- bers of his family on his paying a proportionate share of the price.** An agreement by a second mortgagee to refrain from bidding at a foreclosure sale of the first mortgage, in consideration of which the first mortgagee agreed, in case he became the pur- chaser, to pay the amount of the second mortgagee's claim, has been upheld, where it was entered into on the latter 's part for the sole purpose of protecting his interest as second mortgagee, and not for the purpose of stifling competition at the sale; and in such a case it is immaterial that it was the undisclosed purpose of the other party to suppress competition.*^ 80. Marie v. Garrison, (1880) 83 cases seems to go the furthest of any N. Y. 41. in upholding agreements of this 81. Bradley v. Kingsley, ( 1871 ) 43 class. N. Y. 534. 84. Bame v. Drew, (Sup. 1847) 4 82. Myers v. Dorman, (Sup. G. T. Denio 287. 1884) 34 Hun 115. 85. Delisi v. Ficarrotta, (Sup. App. 83. Hopkins v. Ensign, (1890) 122 T. 1912) 76 Misc. 488, 135 N. Y. S. N. Y. 144, 33 State E«.p. 299, 25 N. E. 653. 306, affirming 11 State Eep. 85. This § 516] ILLEGALITY 797 § 516. Stifling Competition at Letting of Public Contracts.— Following the principle announced as to auction sales, the general rule is laid down that where a contract for the performance of services or work for, or the furnishing of supplies to, the state or a municipal or quasi-municipal corporation is to be let at com- petitive biddings to the bidder offering the most favorable terms to the public, any secret agreement between parties designing to make bids, tending either directly or indirectly to restrain or lessen competition between them, is illegal as against public policy,^ even though it may not appear that the agreement did reaUy produce any result detrimental to the public interest.*' This is especially true where apparent competition between the parties is made to appear by the submission of collusive bids.*' Thus, where the board of town auditors was required to let the contract for collecting the taxes to the person who should offer, on- com- petitive sealed proposals, to collect the same on the terms most favorable to the town, an agreement between two persons to sub- mit collusive bids and to share the profits of the contract if awarded to one of them has been held illegal.*' So where, after bids for a street paving contract have been asked for, a person who has on hand- blocks of stone which he wishes to dispose of and who intends to put in a bid, in consideration of a second person's agreeing to take such stone from him at a specified price, puts in a sham bid by which the second person is enabled to obtain the contract, such a transaction must be regarded as contrary to pub- lic policy, and the agreement cannot be made the basis of a recovery against the successful bidder, where the latter refuses to take the entire quantity of stone.'" This rule, however, does not prevent persons from submitting a joint bid, the result of honest co-operation, though it might prevent the rivalry of the parties 88. Atcheson v. Mallon, (1870) 43 87. Atcheson v. Mallon, (1870) 43 N. Y. 147; Woodworth v. Bennett, N. Y. 147. (1870) 43 N. Y. 273, reversing on 88. Atcheson v. Mallon, (1870) 43 other grounds 53 Barb. 361; Mar«li N. Y. 147; Baird v. Sheehan, (Sup. V. Russell, (1876) 66 N. Y. 288; 1899) 38 App. Div. 7, 56 N. Y. S. 228, Baird v. Sheehan, (Sup. 1899) 38 affirmed on opinion below 166 N. Y. App. Div. 7, 56 N. Y. S. 228, affirmed 631, 60 N. E. 1107. on opinion below 166 N. Y. 631, 60 89. Atcheson v. Mallon, (1870) 43 N. E. 1107; Wilbur v. How, (Sup. N. Y. 147. 1811) 8 Johns. 444] Sharp v. Wright, 90. Baird v. Sheehan, (Sup. 1899) (Sup. G. T. 1861) 35 Barb. 236; Peo- 38 App. Div. 7, 56 N. Y. S. 228, pie V. Lord, (Sup. G. T. 1876) 6 affirmed on opinion below 166 N". Y. Hun 390. See also People v. Stephens, 631, 60 N. E. 1107. (1878) 71 N". Y. 527. 788 NEW YOElK LAW OF OONTRACTS [§§ 517, 518 and thus lessen competition.'* Nor does it prevent persons from entering into a partnership for the furnishing of commodities or the like required by public corporations, and stipulating that as individuals they are not to compete with the firm or furnish the services or commodities at less than a certain price.'^ Thus it was held that persons, at the time of the Civil War, were at liberty to enter into a partnership for furnishing volunteers to towns and limit the price at which any of the partners should furnish such volunteers.^' It has also been held that public policy does not prohibit one, who intends to bid for a contract for public work, from entering into a bona fide subcontract for a part of the work, which is to be effective on the contingency that the main contract is awarded to him, where the other party to the contract did not intend to submit any bid for the contract as a whole.'* § 517. Leasing of Municipal Property at Auction. — "Where the lease of municipal property is to be sold at auction to the highest bidder, a contract by a prospective bidder to compensate another in consideration that the latter does not bid at such auction, is contrary to public policy.'^ And the mere fact that a person has made application to the municipality for a lease of the property does not give him any interest to protect on which the agreement to refrain from bidding can be sustained.'* "Where municipal property is to be let on competitive biddings, a contract by a proposed bidder to pay a broker for services rendered in connec- tion with the matter of procuring the lease is not rendered illegal because it is contingent on his bid 's being accepted, if no efforts are made or intended to stifle competition in the biddings.'' § 518. Effect of Illegal Combination on Sale or Contract Let. — The fraud in stifling competition in this class of cases does not render the sale or contract, let to one of the parties to the illegal agreement, itself illegal; it does, however, furnish ground for its 91. Atcheaon v. M'allon, (1870) 43 affirmed 178 N. Y. 602 mem., 70 N. E. N. Y. 147. 1097. See also Myers V. Dean, (Com. 92. Marsh v. Russell, (1876) 66 PI. G. T. 1894) 9 Misc. 183, 185, 60 N. Y. 288, reversing 2 Lans. 340. State Rep. 644, 29 N. Y. S. 578. 93. Marsh v. Russell, (1876) 66 96. Coverly v. Terminal Warehouse N. Y. 288. Co., (Sup. 1902) 70 App. Div. 82, 75 94. Dutch V. Harrison, (Super. Ct. N. Y. S. 145. 1874) 37 Super. Ct. 306. 97. Myers v. Dean, (Com. PI. 1890) 95. Coverly v. Terminal Warehouse 16 Daly 251, 32 State Rep. 313, 10 Co., Sup. 1902) 70 App. Div. 82, N. Y. S. 532, reversed on other 75 N. Y. S. 145, on second appeal grounds 132 N. Y. 65, 43 State Rep. 85 App. Div. 488, 83 N. Y. S. 369, 391, 30 N. E. 259. i§ 519, 520] ILLEGALITY 790 rescission or repudiation, and under proper circumstances may- entitle the person injured by the fraud to recover damages for the resulting injury ; ^' but as regards the latter proposition, if the person affected by the fraud, with knowledge thereof, requires that the contract awarded by him be performed, he thereby waives his right of action for the fraud.'' § 519. Restraint of Competition at Private Sales. — Public policy does not require that competition for the purchase of prop- erty at a private sale be unrestrained. Thus, if two persons are desirous of purchasing the same property from a third person at a private sale, it is not a fraud on such third person and against public policy for one to induce the other, even for a considera- tion, to promise to refrain from attempting to make the purchase and thus restrict competition for the purchase of the property.'^ In this connection McAdam, J., after referring to the rule as to stifling biddings at public auctions, said : ' ' The contract in ques- tion concerns a private sale. The distinction between the two is obvious. The avowed purpose of a public sale is to knock the property down to the highest bidder, whether the sum realized be satisfactory to those interested or not ; whereas at a private sale the person interested is the sole judge whether he will sell at all, when he will sell, to whom, at what price, and on what terms. If he and the purchaser agree upon the price and terms, there is no one left who has the legal right to complain. ' ' ^ § 520. Combination to Secure Private Contract Let on Com- petitive Biddings. — ^Where the public or a number of persons are invited by a private individual to submit bids for work to be done or property to be sold* or furnished, the one inviting the bids remains at liberty to accept or reject any or all bids ; ^ and it seems that a combination between persons desirous of securing the con- tract, under which one of them is to submit a bid and hold the contract, if awarded to him, for their joint benefit, the others to refrain from bidding, is not necessarily illegal, and does not fall within the rule prohibiting combinations to stifle biddings at 98. People v. Lord, (Sup. G. T. N. Y. 527, affirming 51 How. Pr. 1876) 6 Htiii 390. See also People 235. V. Stephens, (1878) 71 K. Y. 527, 1. McCallum v. Grossman, (Marine affirming 5l' How. Pr. 235; Veazie v. a. Tr. T. 1882) 1 City a. 423. Williams (1850) 8 How. 134, 12 2. McCallum v. Grossman, (Marine U. S. (L. ed.) 1018. iCt. Tr. T. 1882) 1 City Ct. 423. 99. People v. Stephens, (1878) 71 3. See supra, section 14. 800 NEW YOEK LAW OF CONTRACTS [§ 521 auction sales.* It is otherwise, however, where the parties are invited to submit bids and they agree to make collusive bids, the one to whom the contract is awarded to hold it for the joint bene- fit of all the parties.^ Thus, where a railway company solicited bids for the sale and removal of buildings on its lands, and practically all of the persons in the locality capable of doing the work within the required time, and who were invited by the com- pany to submit bids, entered into a secret agreement for the pur- pose of obtaining the property at the lowest price, under which they were to put in fixed bids, ostensibly as competing, the party to whom the contract should be awarded to hold it for the joint benefit of all, it was held that the agreement was illegal as con- templating a fraud on the company and therefore would not be enforced against one of the parties who succeeded in obtaining the contract. " The combination," says Leventritt, J.j " was not formed for the proper purpose of carrying on a joint business. The motive was not honest. The aim went beyond even limiting competition to the point of destroying it, while leading the party most vitally interested to believe that it was securing that full and free competition which its invitation was intended to evoke. ' ' ° Organization and Management of Corporation § 521. Organization. — ^In the absence of a statute prohibiting the organization of a corporation on the basis of chattel or other property contributed by the parties, there is no principle of pub- lie policy which condemns an agreement between persons about to form a corporation, because the capital stock is to be represented by property that they contribute at a valuation agreed on between themselves.'' As said by Andrews, J., in reference to such a con- tract: "It is further claimed that the agreement is illegal, because it provides that property shall be taken to represent the whole capital, at a valuation fixed by the parties. We have not been referred to any statute which prohibits the organization of a 4. See Southard v. George W. 7. Lorillard v. Clyde, (1881) 86 Jump Co., (Sup. Sp. T. 1904) 43 N. Y. 384; King v. Barnes, (1888) Misc. 164, 170, 88 N. Y. S. 317. 109 N. Y. 267, 15 State Eep. 52, af- 5. Southard v. Cteorge W. Jump firming 16 JNT. E. 832, 12 State E»p. Co., (Sup. Sp. T. 1904) 43 Misc. 164, 642; Electric Fireproofing Co. v. 170, 88 N. Y. S. 317. Smith, (Sup. 1906) 113 App. Div, 6. Southard v. Gteorge W. Jump 615, 99 N". Y. S. 37. Co., (Sup. Sp. T. 1904) 43 Misc. 164, 88 N. Y. S. 317. § 522] ILLEGALITY 801 corporation of the character of the one contemplated by this agree- ment, on the basis of chattel property contributed by the corpora- tors. It cannot be assumed that the transaction was not bona fide, or that the valuation put on the vessels was fictitious or extrava- gant. The value of the stock would depend on the value of the property and business. The parties fixing the valuation were the only parties in interest, and we know of no principle of public policy which condemns an agreement between parties dbout to form a corporation, because by the arrangement the capital stock is to be represented by property which they severally contribute, at a valuation agreed upon between themselves. " * It is suggested, however, that if the organization of a corporation in this way is intended as a device to defraud the public by putting valueless stock on the market, having an apparent basis only, the result may be otherwise.' So an agreement for the formation of a cor- poration by parties intending to furnish its entire capital is not rendered illegal by a provision that the stock shall be subscribed for by one of the parties and held in trust for his associates." Also an agreement between persons about to form a close corpora- tion, where they are to own all of the stock, under which agree- ment one party is to be retained in a certain office and if this is not done the other is to purchase the former's stock, has been upheld.^^ There is no objection on the ground of public policy, as withdrawing the management from the directors and stock- holders, to an agreement between parties about to form a corpora- tion, especially where they are to be the only persons interested therein, as to the general plan on which its affairs are to be con- ducted, so long as nothing is provided for inconsistent with the statute or immoral in itself. An agreement of this character may not be binding on the corporation when formed, still it is not illegal.^^ § 522. Subscriptions to Stock. — Where in the promotion of a corporation original subscriptions to its stock are solicited, each subscriber has the right to suppose that the subscription of every 8. Lorillard v. Clyde, (1881) 86 209 N". Y. 211, 102 N. E. 599, revers- N. Y. 384, 388. ing on other grounds 155 App. DiV. 9. Lorillard v. Cayde, (1881) 86 83, 140 N. Y. S. 60. N. Y. 384, 388. 12. Lorillard v. Oyde, (1881) 86 10. King V. Barnes, (1888) 109 N. Y. 384. See also Ejng v. Bajrnes, N. Y. 267, 15 State Eep. 52, affirming (1888) 109 N. Y. 267, 288, 15 State 16 N. E. 332, 12 State Rep. 642. Eep. 52, 16 N. B. 322, afanning 12 11. Drucklieb v. Harris, (1913) State Rep. 642. 51 802 NEW YORK LAW OF CONTRACTS [§ 522 other subscriber is a bona fide undertaking according to its terms, and a secret agreement between the corporation and a subscriber made concurrently with the subscription, which purports to annul its obligations or materially limit and change the liability of such subscriber, to the detriment of the company, necessarily operates as a fraud on the other subscribers and is illegal, and the courts hold the subscriber to the ostensible contract and permit it to be enforced in an action by the company as the only means of pre- venting the consummation of the fraudulent scheme and protecting the other subscribers.^' Also where persons are solicited to sub- scribe for the stock of a corporation to be formed as a joint adven- ture for the purchase of particular property or the like, to be paid for in stock of the corporation, good faith is due from one to the other, and a secret agreement by which the owner of the property to be purchased is to transfer to one of the subscribers a portion of the stock to be received for his property is held illegal as a fraud on the other subscribers." "Where, however, subscriptions to the purchase of treasury stock are solicited for the purpose of securing working capital, under a general plan by which each subscriber subscribes to the amount of shares set opposite his naine, no subscription to be binding until a certain amount is subscribed, public policy does not avoid a contract by which a third person, though he may be directly interested in the completion of the subscriptions, undertakes to purchase from one of the subscribers at the latter 's option the amount of the stock 13. Meyer v. Blair, (1888) 109 sutiscription, or which substantially N. Y. "600, 605, 16 State Eep. 380, 17 varies its ostensible terms, is void N. E. 228, affirming as to this but and leaves ithe subscription umaf- reversing on other grounds 19 Abb. fected. ... By secrecy in the agree- N. Oas. 214, 1 How. Pr. N. S. 299; ment is meant that it isr kept from the fbiikers iOazette" Co. v. Jones, (1898) knowledge of the body of subscribers, 30 App. Biv. 316, 51 N. Y. S. 973; the reason of the rule which in- A-rmsitrong v. Donahy, (Sup. G. T. validates such collateral contracts 1894) 75 Hun 405, 56 State Rep. 743, being that 'the action of each in his 27 N. Y. S. 60. See also Troy, etc., subscription may .be supposed to be R. Co/ V. Tibbits, (Sup. G. T. 1854) influenced by that of the others, and 18 Barb. 297; Tuckerman v. Brown, every subscription to be based upon {Swp. Q: T. 1862) 23 How. Pr. 109, the ground that the others are whait 3? N. Y;.297; Tuckerman v. BroWn, upon their face they purport to be.'" (Sup. G. T. 1860) 11 Abb. Pr. 389. Yonkers Gazette Co. v. Jones, (Sup. : :!» this ponnection Bartlett, J., 1898) 30 App. Div. 316, 51 N. Y. S. says: "A secret collateral contract 973. between' st corporation and a sub- 14. Koster v. Pain, (Sup. 1899) 41 s' On the other hand, stockholders, especially where they own a majority of the shares, may enter into a bona fide agreement for N. Y. S. 472, 180 App. Div. 565, 168 N. Y. S. 90; Fremaut v. Stone, (Sup. G. T. 1864) 42 Barb. 169; Fennessy V. Eoss, (Sup. G. T. 1895) 90 Hun 298, 70 State Rep. 310, 35 N. Y. S. 868, on second appeal 5 App. Div. 344, 39 K Y. S. 323. In the Fennessy case, supra, Van Brunt, P. J., said (90 Hun 300) : " It does not appear that the plain- tiff in this action was the sole stock- holder or that he owned a majority of the stock. And even if this latter fact appeared, it might not be suffi- cient to justify a direotor or an of- ficer of the corporation in selling its offices and management for money which he places in his own private pocket. As already stated, in the case at bar it does not appear but that the plaintiff was sacrificing the interest of the other stockholders in these corporations for a money bene- fit to be derived by himself alone. It seems to us, therefore, that the attempted sale of sitock connected with such conditions is necessarily against public policy and cannot be enforced. Our attention has been called to no case where any such principle has been upheld. On the contrary, wherever there has been an attempt at bartering away the in- terests of the corporation by one of its stockholders or directors, con- tracts tending to that result have always been held to be against pub- lic policy." 45. Fremont v. Stone, (Sup. G. T. 1864) 42 Barb. 169. 46. Fennessy v. Ross, (Sup. 1896) 5 App. Div. 342, 39 N. Y. S. 323, on prior appeal 90 Hun 298, 70 State Rep. 310, 35 N. Y. S. 868; Pabre v. O'Donohue, (Sup. 1918) 185 App. Div. 779, 173 N. Y. S. 472, 180 App. Div. 565, 168 N. Y. S. 90. In Fennessy v. Ros's (Sup. 1896) 5 App. Div. 342, 39 N. Y. iS. 323, Patterson, J., says : " It is true that the plaintiff, as the owner of a majority of the stock in the three corporations, would have power to shape their policy, and by the pos- session of that power to control their business, but that does not make him the owner of the corporations BO that he can farm out their offices. . . . The control which he acquires by reason of his ownership of a majority of the shares of the corpo- rations is the control of the legiti- mate business policy of the corpo- rations within lawful limits, and a contract by which he agrees that a part of his shares shall be used to put and keep in office a person who may or may not be qualified to dis- charge its duties is not a lawful exercise of power." § S25] ILLEGALITY 809 the purpose of electing directors of their choosing." As said by Sandford, J.: " Practically, the selection of candidates must pre- cede an election, and it would often be difficult, if not impossible, to make such selection without comparison of views, combination, concession and concerted action."^' Collins, J., also says in a recent case: "It is not illegal or against public policy for two or more stockholders owning the majority of the shares of stock to unite upon a course of corporate policy or action, or upon the officers whom they will elect. An ordinary agreement, among a minority in number but a majority in shares, for the purpose of obtaining control of the corporation by the election of particular persons as directors is not illegal. Shareholders have the right to combine their interests and voting powers to secure such control of the corporation and the adoption of and adhesion by it to a specific policy and course of business. Agi'eements upon a suf- ficient consideration between them, of such intendment and effect, are valid and binding, if they do not contravene any express charter or statutory provision or contemplate any fraud, oppres- sion or wrong against other stockholders or other illegal object. ' ' ^' A director or other officer, on a bona fide sale of his stock, may agree to resign his office, so as to permit the purchaser to be elected thereto, without rendering the transaction illegal ; °" and if the seller owns a majority of the stock, an agreement by him to use his influence to secure the resignation of the present directors and thus enable the purchaser, as owner of a majority of the stock, to substitute others selected by him, is upheld. ^^ An agreement between parties for the formation of a corporation is not rendered illegal because it provides that certain persons are to act as tem- porary directors and at the request of the parties resign to make room for those having the actual interest in the corporation.^^ Where all the stock of the corporation is held by the parties to the 47. Manson v. Curtis, (1918) 223 49. Manson v. Curtis, (1918) 223 N. Y. 313, 119 N. E. 559, affirming N. Y. 313, 319, 119 N. E. 559. 171 App. Div. 954 mem., 155 N. Y. S. 50. Barnes y. Brown, (1880) 80 1123; Havemeyer v. Havemeyer, N. Y. 527, reversing as to this 11 (Super. Ct. 1878) 43 Super. Cft. 506, Hun 315. affirmed 86 N. Y. 618 mem., 13 Wkly. 51. Barnes v. Brown, (1880) 80 Dig. 125. See also Bonta v. Gridley, N. Y. 527, reversing as to this 11 (Sup. 1902) 77 App. Div. 33, 78 Hun 315. N. Y. S. 961. 52. King v. Barnes, (1888) 109 48. Havemeyer v. Havemeyer, N. Y. 267, 15 State Rep. 52, 16 N. E. (Super. Ot. 1878) 43 Super. Ot. 506, 332, affirming 12 State Hep. 642. 512. glO NEW YORK LAW OF CONTRACTS [!§ 526 agreement, an agreement by one to purchase the stock of the other in case he is not retained in a particular office is upheld.^' It has also been held that a provision in a contract by a corpora- tion for the sale of the treasury stock, constituting an overwhelm- ing majority of the stock, that the secretary and treasurer of the corporation should resign and that a person selected by the purchaser should be appointed to fill such offices, and that the directors should also resign before the expiration of their term of office and thus enable the purchaser, as the owner .of a majority of the stock, to select the persons to fill the vacancies, did not render the contract of sale illegal. ' ' It certainly, ' ' says Scott, J., " did not destroy the validity of the contract that by one of its terms defendant was to be invested with this power of control at once, upon acquiring the stock, instead of waiting for the next annual meeting. ' ' ^ § 526. Proxies. — Though the right of a member of a corporation to vote by proxy may not be a common law right but must be conferred by statute or a by-law enacted under statutory sanction express or implied,^" it has been conferred on stockholders of domestic private corporations from quite an early date,^^ and is expressly recognized in the General Corporation Law (see Gen. Corp. Law, § 26; 22 McKinney's Cons. Laws, p. 155), and the view has been taken that an agreement between stockholders that they will not exercise their right to vote by proxy is contrary to public ■ policy and unenforceable.^' In the absence of a statutory restric- tion a provision that a proxy shall not be revoked is upheld as con- 53. Drucklieb v. Harris, (1913) 57. Fisher v. Bush, (Sup. G. T. 2Q9 N. Y. 211, 102 N. E. 599, revera- 1885) 35 Hun 641, wherein Barker, J., ing on other grounds 155 App. Div. said (p. 644): "The clause that 83, 140 N. Y. S. 60. neither will vote by proxy in the 54. San Remo Copper Min. Co. v. choice of a board of directors is per- Moneuse, (Sup. 1912) 149 App. Div. nicious, and is well calculated to 26, 133 N. Y. S. 509, reversing 132 concentrate in the hands of a few N. Y. S. 570. shareholders the power of selecting 55. People v. Twaddell, (Sup. G. T. the executive and managing officers 1879) 18 Hun 427; Philips v. Wick- of the corporation, and deprives the ham, (Chan. Ct. 1829) 1 Paige 590, owner of shares of one of the at- 599. tributes of ownership, that is, of 56. In re Lighthall Mfg. Co., (Sup. selecting agents and attorneys to G. T. 1888) 47 Hun 258, 13 State counsel and aid him in the prudent Rep. 381; Hev v. Dolphin, (Sup. and intelligent management of his G. T. 1895) 92 Hun 230, 71 State .property." Rep. 794, 36 N. Y. ,S. 627. S 527] ILLEGALITY 811 sistent with public policy when given for a consideration and coupled with an interest.^* Thus a provision in an agreement between the joint owners of property to be transferred to a corporation in consideration of shares of stock to be issued to them jointly, whereby an irrevocable proxy is given one to vote the stock, has been upheld.^' It seems, however, that a stockholder in a domestic corporation cannot, under the provision of the Gen- eral Corporation Law (see Gen. Corp. Law, § 26; 22 McKinney's Cons. Laws, p. 155) which expressly provides that every proxy shall be revocable at the pleasure of the person executing it, give an irrevocable proxy or bind himself by an agreement not to revoke his proxy.^" Still it has been held that the provision is not retroactive and does not invalidate an irrevocable proxy thereto- fore given.*^ Indemnity against Liability for Wrongful Act § 527. In General. — A contract to indemnify a person from the consequences he might suffer from the perpetration of an unlawful act would be illegal. Consequently a contract to reimburse a liquor dealer for any fine which may be imposed on him by reason of his violation of the liquor laws is illegal, and unenforceable by the liquor dealer ; ^^ but it would be otherwise, it seems, as to a contract for indemnity against liability which the liquor dealer might incur by reason of a violation of such laws by his servants without his consent or acquiescence.*^ Likewise an automobile insurance policy in so far as it may in express terms attempt to insure the policyholder against liability which he may incur while the car is being driven, with his consent, by a person under eighteen years of age in violation of the statute (Highway Law, § 282, subd. 2; 24 McKinney's Cons. Laws, p. 281), is illegal and 58. Hey v. Dolphin, (Sup. G. T. 1892) 65 Hun 606, 48 State Kep. 294, 1895) 92 Hun 230, 71 State Eep. 794, 20 N. Y. S. 495. 36 K Y. S. 627. See also Brown v. 61. Hey v. Dolphin, (Sup. G. T. Pacific Mail Steamship Co., (1867) 1895) 92 Hun 230, 71 State Rep. 794, 5 Blatohf. 525, 4 Fed. Cas. No. 2,025. 36 N. Y. S. 627. 59. Hey v. Dolphin, (Sup. G. T. 62. In re White, (Sup. 1907) 122 1895) 92 Hun 230, 71 State Rep. 794, App. Div. 93, 95, 106 N. Y. S. 738, 36 N. Y. S. 627. reversing 54 Misc. 357, 104 N. Y. S. 60. Sullivan v. Parkes, (Sup. 1902) 711. 69 App. Div. 221, 230, 74 N. Y. S. 63. In re White, (Sup. 1907) 122 787; In re Germicide Co., (Sup. G. T. App. Div. 93, 95, 106 N. Y. S. 738. 812 NEW YORK LAW OF CONTRACTS [§ 527 therefore unenforceable ; '^ but it is held that where the policy is one of general indemnity against liability resulting from the use of the car, without any contemplation that it might be wrong- fully driven, the fact that the liability in question was incurred while the car was being unlawfully driven with the consent of the insured by a person under the required age will not prevent a recovery on the policy. In this connection Hubbs, J., says: " The independent legal contract of insurance, founded upon a good and valid consideration, was not made void by an incidental violation of the Highway Law. The violation of the statute was an entirely distinct and disconnected act. The issuing of the policy and the violation of the Highway Law were in no way connected. The issuing of the policy did not lead to the violation of the Highway Law in any way, it was not intended to aid or encourage such violation of the law, and it is not alleged in the answer to have had any such effect. The risks insured against are not the consequences of illegal acts, but of accidents. " ^° A contract to indemnify a person against the consequences of a known wrongful act injurious to a third person is also held illegal.^' " If two parties unite, ' ' says Shearn, J., ' ' intending to commit any species of wrongful act against the person or property of another, it is clear that no court would sustain an action based upon the promise of one of the wrongdoers to indemnify the other in consideration of his participation in the wrong."'' This would be true as to a contract to indemnify a person against the consequences of an act which both parties know at the time will be a trespass.'* No rule of public policy precludes an employer from contracting for indemnity against liabilities which he may incur through the negligence of his employees.'* 64. MesaerBmith V. American Fidel- 68. Coventry v. Barton, (Sup. ity Co., (Sup. ,Sp. T. 1917) 101 Misc. 1819) 17 Johns. 142. 598, 167 N. Y. S. 579, affirmed as to 69. Westinghouse, etc., Co. v. Long .this but reversed on other grounds Island R. Co., (Sup. 1914) 160 App. 187 App. Div. 35, 175 N. Y. S. 169. Div. 200, 145 N. Y. S. 201, affirmed 65. Messersmith v. American Fidel- 216 N. Y. 697 mem., and affirming ity Co., (Sup. 1919) 187 App. Div. 110 N. E. 1051, 80 Misc. 127, 141 35, 175 N. Y. S. 169, reversing 101 N. Y. .8. 644; Post v. New York ■Misc. 598, 167 N. Y. S. 579. Municipal E. Corp., (Sup. 1919) 187 66. Griffiths v.Hardenbergh, (1869) App. Div. 167, 175 N. Y. S. 392. 41 N. Y. 464. See also Long Island R. Co. v. 67. Appleton v. Warbasse, (S^up. American Bridge Co., (Sup. 1916) Sp. T. 1915) 92 Misc. 42, 46, 155 175 App. Div. 170, 161 N. Y S. 543. N. Y. S. 987. § 528] ILLEGALITY S13 § 528. Want of Knowledge of Wrongful Character of Act.— If the parties to the contract do not contemplate that an unlawful act may be perpetrated, a contract of indemnity in case the act should in fact be wrongful as regards third persons is upheld,™ and this is true if the party to be indemnified does not himself know that the act he is doing is wrongful, though the party at whose instance the act is done and who agrees to indemnify the other does know it.'i " I have no hesitation," says Spencer, C. J., in an early case, ' ' in saying that it is a true and just distinction between promises of indemnity which are, and those which are not, void; that if the act directed or agreed to be done is known at the time to be a trespass, an express promise to indemnify would be illegal and void; but if it was not known at the time to be a trespass, the promise of indemnity is a good and valid promise. ' ' ''^ Thus where the plaintiff at the instance of the defendant and under the latter 's promise of indemnity does an act which he did not know at the time was a trespass, the promise of indemnity is held valid.'^ And where a sheriff in good faith levies an execu- tion on the property claimed by a third person, a bond given to indemnify him is upheld.'* Also in case of a contract between an author and a publisher for the publication of a book to be written, if the parties do not contemplate that it shall contain libelous matter, but the contrary, a stipulation by the author to indemnify the publisher against any suit, etc., by reason of any libelous mat- ter contained in the work is valid and enforceable. " The case stands," says Shearn, J., quoting with approval from a well con- sidered Massachusetts case, " on grounds entirely different from those on which it would stand if it appeared that the parties intended to publish or contemplated the publication of libelous matter. There is nothing in the agreement fairly to show that such was their purpose. The most that can be said is, that though there was no intention to write or publish, nor any contemplation 70. Coventry v. Barton, (Stip. 72. Coventry v. Barton, (Sup. 1819) 17 Jolins. 142; Stone V. 1819) 17 Jolins. 142, 143. Hooker, (Sup. 1828) 9 Cow. 154; 73. Stone v. Hooker, (Sup. 1828) Appleton V. Warbasse, (Sup. Sp. T. 9 Cow. 154; Allaire v. Ouland, (Sup. 1915) 92 Misc. 42, 155 N. Y. S. 987. 1800) 2 Johns. Cas. 52; Coventry v. See also Parlcer v. Rochester, (Chan. Barton, (Sup. 1819) 17 Johns. 142. Ct. 1820) 4 Johns. Ch. 329. 74. Griffiths v. Bardenbergh, (1869) 71. Coventry v. Barton, (Sup. 41 N. Y. 464; Ball v. Pratt, (Sup. 1819) 17 JohM. 142; Stone v. G. T. 1862) 36 Barb. 402, 407. Hooker, (Sup. 1828) 9 Cow. 154. 814 NEW YORK LAW OF CONTRACTS [§ 529 of writing or publishing, libelous matter on the part of the author or publisher, it might turn out after the book was published that it did contain libelous matter. But that is very far from saying that the parties had in view an illegal purpose in publishing the book. We see nothing unlawful in a contract which provides, with- out anything more, that the author shall indemnify the publisher for costs and damages to which he may be subjected by reason of the publication of a book to be written by the author. ... In order, we think, to render the contract unlawful, it should appear that there was an intention on the part of the author and pub- lisher to write and publish libelous matter, or that the author proposed, with the knowledge and acquiescence of the publisher, to write libelous matter, or that the contract on its face provided for or prompted an illegal act. ' ' '^ § 529. Indemnity against Past Wrongful Act, — There can be no question but that a contract to indemnify a person against the consequences of an act already done, and not known by him to be wrongful or illegal at the time of its doing, is valid.'® And the same is held true though the party to be indemnified may have known at the time of the doing of the act that it was wrongful, as that fact can in no way operate as an encouragement to the doing of an illegal act." Thus though a bond to indemnify a sheriff against the consequences of a voluntary escape of a judg- ment debtor to be thereafter permitted would be illegal,'* it is held otherwise as to a bond to indemnify him against a voluntary escape which had theretofore happened.'^ And this is held true as to an indemnity bond against liability for an act done in good faith in the levy of an execution, but which turned out to be a trespass.'" So where an agent has incurred a liability for fraud while acting for his principal in the sale of property, a contract by a third person to indemnify him against liability for such past conduct is valid.'^ 75. Appleton v. Warbasse, (Sup. 79. Oiven v. Driggs, (Sup. 1803) Sp. T. 1915) 92 Misc. 42, 45, 155 1 Gaines 450, 460. See also Doty N. Y. S. 987. V. Wilson, (Sup. 1817) 14 Johns. 378, 76. Uriifitlis V. HardenbeTgh, (1869) 381. 41 N. Y. 464. 80. Griffiths v. Hardenbergh, (1S69) 77. Kneeland v. Rogers, (Super. Ct. 41 N. Y. 464. As to obligations, etc., 1829) 2 Super. Ct. 579. exacted colore officii, see supra, sec- 78. Wheeler v. Bailey, (Sup. 1816) tion 429. l3 Johns. 366; Webber v. Blunt, 81. Kneeland v. Rogers, (Super. (Sup. 1838) 19 Wend. 188. Ct. 1829) 2 Super. Ct. 579. §§530,531] ILLEGALITY ,815 Exemption from and Limitation of Liability for Negligence § 530. 'In Greneral. — As heretofore shown public policy forbids a person to contract for indemnity against liability for his own wrongful act committed with knowledge of its wrongful charac- ter,^2 and it has been said that a provision in a contract between the state and a railway company, under which the company is given the privilege of using a bridge erected by the state, to indemnify the state from any liability to third persons resulting from the gross negligence of the state in performing its duty of keeping the bridge in proper repair, would be against public policy and unenforceable.^^ While a person may not, on grounds of public policy, relieve himself from liability for his own negligent acts,'* this does not preclude a master, whether an individual or a corporation, from contracting for immunity from liability for injuries caused by the negligence of servants,*^ and a warehouse- man is permitted to limit the measure of its liability for the loss of articles to a valuation. fixed by the parties.^^ § 531. Liability of Master to Servant. — i According to the view taken in some jurisdictions, a servant may by contract exonerate his master from liability for a personal injury which may be inflicted by the negligence of the master; but the view taken in most jurisdictions in this country is that an agreement of this character is against public policy,^^ and this is now the established doctrine of our courts.** This is especially true where the attempt is to relieve the master from liability for his failure to perform 82. See supra, 'section 527. 87. See Master and Servant, 18 83. People y. Syracuse Eapid R. C. L. p. 555 et seq. Transit R. Co., (Sup. 1909) 129 App. 88. Johnston v. Fargo, (1906) 184 Div. 800, 804, 114 N. Y. S. 776. N. Y. 379, 77 N. E. 388, 20 Am. Neg. 84. This is the rule applied where Kep. 156, affirming 98 App. I>iv. 436, a master seeks to limit his liability 90 N. y. S. 725; Kelly v. Central for injuries to his servant caused by E. Co., (Sup. 1917) 178 App. Div. the master's own negligence. See 685, 165 N. Y. S. 862; Fried v. New next following section. York, etc., E. Co., (Sup. 1918) 183 85. Ferrari v. New York, etc., R. App. Div. 115, 170 N. Y. S. 697. See Co., (Sup 1914) 162 App. Div. 6, also Oolaizzi v. Pennsylvania R. Co., 147 N. Y. S. 376, affirmed 220 N. Y. (1913) 208 N. Y. 275, 282, 101 N. E. 712 mem., 116 N. E. 1044. 859; Runt v. Herring, (Com. PI. This rule is applied most fre- G.T. 1892) 2 Misc. 105, 107, 49 State quently to common carriers, telegraph Rep. 126, 21 N. Y. S. 244; Bossout companies, and the like. See infra, v. Rome, etc., R. Co., (Sup. G. T. section 532 et ,seq. 1890) 32 State Rep. 884, 10 N. Y. S. 86 Eapp v. Washington Storage 602, affirmed on opinion below 126 Warehouse, etc., Co., (City Ct. Tr. T. N. Y. 646, 27 N. E. 853; Shepard v. 1911) 75 Misc. 16, 134 N. Y. S. 855. New York Cent., etc., R. Cb., (Sup. 816 NEW YORK LAW OF CONTRACTS [§ 531 a duty imposed upon him by statute.*' In a recent well considered case where this question arose for the first time in the Court of Appeals, Gray, J., says : " If it were true that the interest of the employed, only, would be affected by such contracts as the present one, as it was held by the English court in Griffiths v. Earl of Dudley [L. R. 9 Q. B. D. 557] , it would be difficult to defend, upon sound reasoning, the denial of the right to enter into them; but that is not quite true. The theory of their invalidity is in the importance to the state that there shall be no relaxation of the rule of law, which imposes the duty of care on the part of the employer towards the employed. The sta:te is interested in the conservation of the lives and of the healthful vigor of its citizens, and if employers could contract away their responsibility at common law, it would tend to encourage on their part laxity of conduct in, if not an indifference to, the maintenance of proper and reasonable safeguards to human life and limb. The rule of responsibility at common law is as just as it is strict and the interest of the state in its maintenance must be assumed; for its policy has, in recent years, been evidenced in the progressive enact- ment of many laws, which regulate the employment of children and the hours of work, and impose strict conditions with reference to the safety and healthfulness of the surroundings of the employed, in the factory and in the shop. . . . That freedom of contract may be said to be affected by the denial of the right to make such agreements is met by the answer that the restriction is but a salutary one, which organized society exacts for the surer pro- tection of its members. ' ' '" The Workmen 's Compensation Law G. T. 1892) 44 State Rep. 816, 18 wherein an agreement between a N. Y. S. 665, 63 Hun 634 mem. railroad company and one of its em- 89. Ohristiensen v. Morse Dry ployees that the company should not Dock, etc., Co., (Sup. 1917) 179 App. be liable for any injury to the per- Div. 825, 167 N. Y. S. 57 (statutory son or property of the employee by duty to provide safe scaffolding; see reason of tlie negligence of the corn- Labor Law § 18; 30 McKinney's Cons, pany, its agents, etc., was held in- Laws, p. 50) ; Fried v. New York, vaJid for want of consideration, the etc., R. Co., (Sup. 1918) 183 App. court, per Peekham, J., said: "In Div. 115, 170 N. Y. S. 697. thus deciding we do not intimate thaA 90. Johnston v. Pargo, (1906) 184 if the defendant had given some kind N. Y. 379, 384, 77 N. E. 388, 20 Am. of a consideration for the paper it Neg. Rep. 156. would have been valid. It might In the earlier case of Purdy v. even then be urged that public policy Rome, etc., R. Co., (1891) 125 N. Y. forbids the exaction of such a oon- 209, 34 State R«p. 737, 26 N. E. 255, tract from its em^ployees by railroad § 532] ILLEGALITY 817 expressly provides that no agreement by an employee to waive his right to compensation under that law shall be valid.'^ In the contract of membership in the relief departments or associations supported wholly or partly by employers, such as railway com- panies, it is frequently provided that the acceptance of benefitb by a member who has been injured in the course of his employment shall operate as a full discharge of the company from liability to him. The validity of such a provision has been sustained by our courts, not as a waiver by the employee of liability on the employ- er's part for future injuries, but as a release of an existing liability at the time of the receipt of the benefits.^^ The principle preclud- ing a master from contracting for nonliability for injuries caused by his negligence does not apply so as to prevent the application of the doctrine of assumption by the servant of the known risks of the employment, which is, according to the generally accepted view, based on the theory of implied contract.** § 532. Limitation, of Liability of Telegraph and Telephone Companies Generally. — In the transmission of messages, tele- graph and telephone companies are not held to the strict liability of common carriers and consequently are not insurers of the cor- rect transmission and delivery of messages; they are, however, required to use ordinary diligence in this respect and are liable for damages resulting from their failure to do so.^ And the failure to transmit a message correctly is, as a general rule, prima facie evidence of the want of ordinary care.^^ In the several jurisdic- tions in this country the authorities are not in accord as regards the right of such companies to contract for a total exemption or even a limitation in the measure of recovery for errors, etc., in the transmission and delivery of messages.'" According to the view taken by the federal Supreme Court, as a matter of general common law jurisprudence, telegraph companies to the same extent as common carriers, as a general rule, are prohibited on grounds of and other corporations, and upon Co., (1902) 170 N. Y. 459, 63 N. E. that question we desire to express no 541. opinion at the present time." 94. Pearsajll v. Western Union Tel. 91. Work. lOomp. Law, § 32; 64 Co., (1891) 124 N. Y. 256, 35 State McKinney's Laws, p. 79. Rep. 307, 26 N. E. 534. 92. Colaizzi v. Pennsylvania B. Co., 95. Rittenhouse v. Independent (1913) 208 N. Y. 275, 101 N. E. 859, Line, etc., (1870) 44 N. Y. 263, affirm- rear^ment denied 209 N. Y. 573, ing 1 Daly 474. 103 N. E. 1122, affirming 143 App. 96. See Telegraphs and Telephones, Div. 638, 128 N. Y. S. 312. 26 R. C. L., p. 570 et seq. 93. Dowd V. New York, etc., R. 52 S18 NEW YOEK LAW OF CONTRACTS [§ 533 public policy from contracting for exemption from all liability for errors or mistakes in the transmission and delivery of messages caused by their own negligence or the negligence of their agents or servants.^' They may, however, it seems, contract for exemption from liability for errors in the transmission of cipher messages in which they do not have the usual assistance of the context in ascertaining particular words.®* They may also by special con- tract limit the measure of their liability to a reasonable extent,'' and a stipulation limiting their liability for mistakes in the trans- mission of unrepeated messages, which are sent for a lower rate than repeated messages, to the amount paid for sending the same is upheld as a reasonable limitation.^ In this connection it may be noted that the Act of July 18, 1910, amending the Interstate Commerce Act, expressly provides that messages by telegraph, etc., may be classified into night and day, repeated and unrepeated, etc., messages, and such other classes as are just and reasonable, and different rates may be charged therefor.^ And this, it would seem, expressly authorizes the company to limit its liability in case of unrepeated messages or other proper classification.^ But in view of the consistent stand taken by the federad Supreme Court against the right of common carriers to contract for an exemption from all liability for losses or injuries caused by the negligence of their servants, it is not believed that such court will construe this provision as authorizing telegraph companies and the like to contract for a total exemption from all liability for mistakes due to the negligence of their servants.* § 533. General Rule in Our State as to Limitation of Liability. — In our state the broad view is taken that a company engaged in the transmission of messages by telegraph or the like 97. Primrose v. Wes-tern Union Tel. 1. Primrose v. Western Union Tel. Co., (1893) 154 U. S. 1, 15, 14 S. Co., (1893) 154 U. S. 1, 14 S. Ot. Ct. 1098, 38 U. S. (L. ed.) 883. See 1098, 38 U. S. (L. ed.) 883. See also also Southern Express Co. v. Cald- Western Union Tel. Co. v. James, well, (1874) 21 Wall. 264, 269, 22 (1895) 162 U. S. 650, 663, 16 S. U. S. (L. ed.) 556. Ct. 934, 40 U. S. (L. ed.) 1105. 98. Primrose v. Western Union Tel. 2. 4 Fed. Stat. Ann. (2d ed.) , p. 355. Co., (1893) 154 U. S. 1, 28, 14 S. 3. Western Union TeJ. Co. v. Dant, Ct. 10*8, 38 U. S. (L. ed.) 883. (Sup. 1914) 42 App. Gas. (D. C.) 99. Primrose v. Western Union Tel. 398. Co., (1893) 154 U. S. 1, 14 S. Ct. 4. See infra, section 541, as to the 1098, 38 U. S. (L. ed.) 883. See view taken by the federal Supreme also Southern Express Co. v. Cald- Court as to the validity of s.peml well, (1874) 21 Wall. 264, 270, 22 contracts by carriers for exemption U. S. (L. ed.) 556. from or limitation of liability. § 533] ILLEGALITY 819 has the right to make reasonable regulations for the transaction of its business, and by special contract to protect itself against liability which it might otherwise incur because of the negligence or carelessness of its agents and the mistakes and defaults incident to the transaction of its business.^ " It is entitled," says Gray, J., " to protect itself against the incidental hazards of operation and, by contract, to limit its liability for mistakes, or delays, or non- delivery, caused by the negligence of its servants, if not gross. ' ' ^ And it is now firmly established that a stipulation for a limitation of the measure of liability in case of errors in the transmission of unrepeated messages, caused by the ordinary negligence of the servants of the company, is valid,^ whether the mistake is one in the verbal transmission of the message, or in delay in transmis- sion, or in delivery or nondelivery of the message,^ as where the alleged negligence causing the delay consisted in an error in trans- mitting the name or address of the person to whom the message 5. Breese v. United States Tel. Co., (1871) 48 N. Y. 132, affirming 45 Barb. 274, 31 How. Pr. 86; Kiley v. Western Union Tel. Co., (1888) 109 N. Y. 231, 14 State Rep. 816, 16 N. E. 75, a,ffinning 39 Hun 158; Pearsall V. Western Union Tel. Co., (1891) 124 N. Y. 256, 267, 35 State Eep. 307, 26 N. E. 534; Weld v. Postal Tel. Cable Co., (1913) 210 N. Y. 59, 103 N. E. 957, affirming as to this but reversing on other grounds 148 App. Div. 588, 133 N. Y. S. 228, on prior appeal 199 N. Y. 88, 92 N. E. 415, reversing 132 App. Div. 924 mem., 116 N. Y. S. 1150; Ay res v. Western Union Tel. Co., (Sup. 1901) 65 App. Div. 149, 155, 72 N. Y. S. 634. See also Halsted v. Postal Tel. Cable Co., (1908) 193 X Y. 293, 302, 85 ^^. E. 1078, affirming 120 App. Div. 433, 104 N. Y. S. 1016; De Rutte v. New York, etc.. Electric Magnetic Tel. Co., (Com. PI. 1866) 1 Daly 547, 559, 30 How. Pr. 403. 6. Halsted v. Postal Tel. Cable Co., (1908) 193 2Sr. Y. 293, 302, 85 N. E. 1078. 7. Breese v. United States Tel. Co., (1871) 48 X. Y. 132, affirming 45 Barb. 274, 31 How. Pr. 86; Kiley v. Western Union Tel. Co., (1888) 109 N. Y. 231, 14 State Eep. 816, 16 N. E. 75, affirming 39 Hun 158; Hal- sted V. Postal Tel. Cable Co., (1908) 193 X. Y. 293, 85 N. E. 1078, affirm- ing 120 App. Div. 433, 104 N. Y. S. 1016; Weld v. Postal Tel. Cable Co., (1913) 210 N. Y. 59, 103 N. E. 957, reversing on other grounds 148 App. Div. 588, 133 N. Y. S. 228, on prior appeal 199 N. Y. 88, 9'2 N. E. 415, reversing 132 App. Div. 924 mem., 116 N. Y. S. 1150; Dixon v. Western Union Tel. Co., (Sup. 1896) 3 App. Div. 60, 3 N. Y. Annot. Cas. 126, 38 N. Y. S. 1056; Monsees v. Western Union Tel. Co., (Sup. 1908) 127 App. Div. 289, 111 N. Y. S. 53; S^chwartz v. Atlantic, etc., Tel. Co., (Sup. G. T. 1879) 18 I-Iun 157; Riley v. Western Union Tel. Co., (Com. PI. G. T. 1894) 8 Misc. 217, 59 State Rep. 227, 28 N. Y. S. 581, affirming 6 Misc. 221, 26 N". Y. S. 532; Altman v. Western Union. Tel. Co., (Sup. App. T. 1903) 84 N. Y. S. 54. 8. Kiley v. Western Union Tel. Co., (1888) 109 N. Y. 231, 14 State Rep. 816, 16 N. E. 75, affirming 39 Hun 158; Riley v. AVestern Union Tel. Co., (City Ct' G. T. 1893) 6 Misc. 221, 26 N. Y. S. 532, affirmed 8 Misc. 217, 59 State Rep. 227, 28 N. Y. S. 581. 820 NEW YORK LAW OF CONTRACTS [§ 533 was sent.^ The company may likewise limit its liability for errors or delays in the transmission of so-called night messages which are sent at one-half the regular rates and with the privilege of repetition,^" and in case of a repeated message the company may limit its liability for errors in transmission due to ordinary negli- gence to a specified multiple of the amount charged for its trans- mission, unless accuracy of the message is expressly insured for which an additional charge is made." It has also been held that a stipulation that if a message is sent to the office of the company by one of its delivery messengers the latter shall be deemed the agent of the person sending the message, so as to relieve the com- pany from liability for a delay in transmission due to the negli- gence of the messenger in delivering the message to the office, is reasonable and valid.^^ In regard to the general right to limit its liability Werner, J., says: " The liability of telegraph companies in respect of the business which they carry on is regulated by two things: (1) by contract; (2) by the nature of their quasi-public employment. In the absence of any special contract limiting or regulating their liability, they do not insure the safe and accurate transmission of messages, but they are bound to transmit them with a degree of care and diligence adequate to the business which they undertake. The liability which a telegraph company assumes under this general rule may, however, be limited by special con- tract, and that is to-day the universal practice. As it is a business requiring employees of peculiar skill, so it is also subject to atmos- pheric and physical disturbances which may set at naught the 9. Monsees v. Western Union Tel. decided. There the messenger was Co., (Sup. 1908) 127 App. Div. 289, expressly directed to receive a reply 111 N. Y. S. 53. message. The answer was obtained 10. Schwartz v. Atlantic, etc., Tel. by the messenger and retained by him Co., (Sup. G. T. 1879) 18 Hun 157. without delivery to the transmitting H. Bennett v. Western Union Tel. agent until the ifollowing day and Co., (Sup. G. T. 1888) 18 State Rep. without any inquiry 'by the office 777, 2 N. Y. S. 365, 50 Hun 600 mem. manager for the answer. It was held 12. Ayres v. Western Union Tel. that as the company had constituted Co., (Sup. 1901 ) 65 App. Div. 149, the messenger its agent to receive the 72 N. Y. S. 634. answer, it waived the benefit of the In the case of Will v. Postal Tel. stipulation relieving it from liability Cable Co., (Sup. 1896) 3 App. Div. for the messenger's negligence. It 22, 3 N. Y. Annot. Caa. 123, 73 State was further said that the transaction Rep. 552, 37 N. Y. S. 933, there is showed gross negligence on the part dictum to the effect that a stipulation of the company in failing to transmit of this 'Character where the messenger the answer, and that it could not stip- is sent to receive a message is unrea- ulate for ' nonliability due to negli- sonable, though the question is not gence of this character. § 534] ILLEGALITY 821 greatest care and skill. It is, therefore, but right that telegraph companies should have the power to limit their liability in cases where mistakes occur through no fault on their part, or for such mistakes of their employees as will occur through ordinary negli- gence in spite of the most stringent regulations or the most vigilant general oversight. ' ' ^' § 534. Qualification of General Rule; Gross Negligence. — As a qualification of the general rule announced in the preceding section it is held that public policy forbids a telegraph company from contracting for exemption for liability, or even, it seems, a limitation of liability, for mistakes, etc., caused by the wilful neglect or gross negligence of its agents or servants." As said by Werner, J., after a statement of the general rule as to the right by special contract to limit liability : ' ' But manifestly this power cannot be extended further without placing the public absolutely at the mercy of those engaged in transmitting telegraphic messages. This is the reason of the rule, long since established in this state, that individuals and corporations engaged in this quasi-public business cannot contract to absolve themselves from liability for their own wilful misconduct or gross negligence. They may pro- tect themselves by contractual limitations that are reasonable, but beyond that they may not go. That is the law as laid down by this court in a number of cases. ' ' ^° The courts recognize the difficulty of distinguishing between ordinary and gross negligence, but that there is a distinction is recognized throughout our eases, and it has been said in this connection by Hogan, J., that " gross negligence is the commission or omission of an act or duty owing by one person to a second party which discloses a failure to exercise 13. Weld V. Postal Tel. Cable Co., 785, 74 N. Y. S. 876; Empire Roller (1910) 199 N. Y. 88, 98, 92 N". E. 415. Eink Co. v. Western Uaion Tel. Co., 14. Weld V. Postal Tel. Cable Co., (Sup. Eq. T. 1912) 75 Misc. 567, 133 (1913) 210 N. Y. 59, 103 N. E. 957, N". Y. S. 717. See also Will v. Postal reversing on other grounds. 148 Aipp. Tel. Cable Co., (Sup. 1896) 3 App. Div. 588, 133 N. Y. S. 228, on prior Div. 22, 3 N. Y. Annot. Cas. 123, 73 appeal 199 N. Y. 88, 92 N. E. 415, re- State Rep. 552, 37 N. Y. S. 933. versing 132 App. Div. 924 mem., 116 See infra, section 537 et seq., as N". Y. S. 1150; Dixon v. Western regards the right of a carrier of pas- Union Tel. Co., (Sup. 1896) 3 Afpp. sengers to contTact for exemption Div. 60, 3 N. Y. Annot. Cas. 126, 38 from liability for injuries to or loss N. Y. S. 1056; Mbwry v. Western of property or personal injuries to Union Tel. Co., (Sup. G. T. 1889) 51 passengers due to the gross negligence Hun 126, 20 State Rep. 626, 4 N. Y. of its servants. S. 666; Postal Tel. Cable Co. v. Rob- 15. Weld v. Postal Tel. Cable Co., ertson, (Sup. App. T. 1901) 36 Misc. (1910) 199 N. Y. 88, 98, 92 N. E. 415. 822 NEW YORK LAW OF CONTRACTS [§ 535 slight diligence. In other words, the act or omission must be of an aggravated character as distinguished from the failure to exer- cise ordinary care. ' ' ^^ § 535. Proof of Gross Negligence. — Where it is claimed that the mistake in the transmission of a message was due to the gross negligence of the company, and therefore within the excep- tion to the general rule, the burden is on the plaintiff to show that this is true, and the mere fact that there were errors in transmission, which are equally consistent with the absence as with the existence of gross negligence, is insufficient to establish the essential facts necessary to bring the case within the exception." And, it seems, a delay in delivery is not prima facie evidence of gross negligence.^* But if the error consists in the omission of an entire word, materially changing the purport of the message, and the servant receiving the despatch has information that it originally contained another word, this has been held evidence of gross negligence.^' Thus where a message consisted of eight words, and the sending operator gave notice that it consisted of such number of words, but the receiving operator in transcribing the message omitted one word, materially altering its purport, it was held that this was evidence of gross negligence, and there- fore that the company was not relieved from liability by a gen- eral stipulation for nonliability for mistakes in unrepeated messages.^" It has also been held that a prima facie case of 16. Weld V. Postal Tel. CaUe Co., ing 120 App. Div. 433, 104 N. Y. S. (1913) 210 N. Y. 59, 72, 103 N. E. 1016. 957. 18. Riley v. Western Union Tel. Co., 17. Weld V. Postal Tel. CaWe Co., (City Ct. G. T. 1893) 6 Misc. 221, 26 (1913) 210 N. Y. 59, 103 N. E. 957, N. Y. iS. 532, affirmed 8 Misc. 217, 69 reversing 148 App. Div. 588, 133 N. Y. State Rep. 227, 28 N. Y. S. 581. S. 228 (in addition to minor irregu- 19. Dixon v. Western Union Tel. larities in an .mirepeated message the Co., (Sup. 1896) 3 App. Div. 60, 3 chief mistake in .this case consisted in N. Y. Annot. Cas. 126, 38 N. Y. S. the transposition in the numerals giv- 1056; Empire Roller Rink Co. V. ing (the price at which the sale of Western Union Tel. Co., (Sup. Eq. cotton was directed, namely, 1207 for T. 1912) 75 Misc. 567, 133 N. Y. S. 12.70, and the omission of the deci- 717 (omission of negative in short mal point) ; Altman v. Western Union message, making it read " want" in- Tel. Co., (Sup. App. T. 1903) 84 N. Y. stead of " don't want"). ■S. 54 (error in name signed where 20. Dixon v. Western Union Tel. signature was not plain and distinct; Co., (Sup. 1896) 3 App. Div. 60, 3 "A. H. May" for "Altman"). See N. Y. Annot. Caa. 126, 38 N. Y. S. also Halsted v. Postal Tel. Co., (1908) 1056. 193 N. Y. 293, 85 N. E. 1078, affirm- § 536] ILLEGALITY 823 gross negligence is shown where an important telegram was sent to Toledo, Ohio, instead of to its proper address Chicago, 111.'^^ And where the company failed to transmit the message for a number of days, due to placing it by mistake in the pile intended for messages sent, the operator having been interrupted at the moment he was about to send the message, a finding that the company was guilty of gross negligence has been sustained.^^ § 536. General Requisites and Construction of Contract, — To render eifectual any contractual limitation as to the lia- bility of the telegraph company there must be, of course, as in case of other contracts, an assent thereto by the other party, and a mere adoption by the company of a rule or regulation in respect thereto will not be effectual, even according to the view taken by our courts, though the sender of the message may have had n.otice thereof.^- But where the message is written on a blank form of the company, the sender is, as a general rule, deemed to con- sent to the stipulations printed thereon limiting the liability of the company.^* This rule has been held, however, not to include a case where a blank was delivered by the company's servant to the sender of the message at the time he wrote the message on it, and the servant knew that the sender, who was in fact ignorant of the nature of the printed matter thereon, did not read it.^^ 21. Postal Tel. Cable Co. v. Rob- Kiley v. Western Union Tel. Co., ertson, (Sup. App. T. 1901) 36 Misc. (1888) 109 N. Y. 231, 14 State Eep. 785, 74 N. Y. S. 876. 816, 16 N. E. 75, affirming 39 Hun 22. Mowry v. Western Union Tel. 158; Dixon v. Western Union Tel. Cb., Co., (Sup. G. T. 1889) 51 Hun 126, (Sup. 1896) 3 App. Div. 60, 3 N. Y. 20 Stale Rep. 626, 4 N. Y. S. 666. Annot. Cas. 126, 38 N. Y. S. 1056; 23. Pearsall v. Western Union Tel. Ayres v. Western Union Tel. Co., Co., (1891) 124 yf. Y. 256, 35 State (Sup. 1901) 65 App. Div. 149, 72 Rep. 307, 26 N. E. 534, affirming 44 N". Y. S. 634; Monsees v. Western Hun 532, 9 State Rep. 132 (in this Union Tel. Co., (Sup. 1908) 127 App. case the message was written by the Div. 289, 111 N. Y. S. 53; Schwartz sender on an ordinary sheet of paper v. Atlantic, etc., Tel. Co., (Sup. G. T. instead of on the usual blank of the 1879) 18 Hun 157; Bennett v. West- company) ; De Rutte v. New York, ern L'nion Tel. Co., (Sup. G. T. 1888) etc.. Electric Magnetic Tel. Co., (Com. 18 State Rep. 777, 2 N. Y. S. 365, 50 PI. 1866) 1 Daly 547, 559, 30 How. Hun 600 mem. Pr. 403. 25. Curtin v. Western Union Tel. 24. Breese v. United States Tel. Co., Co., (Sup. App. T. 1896) 16 Misc. 347, (1871) 48 ]Sr. Y. 132, affirming 45 3 N. Y. Annot. Cas. 130, 74 State Barb. 274, 31 How. Tr. 86; Young v. Rfep. 313, 38 N. Y. S. 58, reversing Western Union Tel. Co., (1875) 65 on other grounds 14 Misc. 459, 72 N. Y. 163, affirming 34 Super. Ct. 390; State Rep. 260, 36 N. Y. S. 1111. 824 NEW YORK LAW OF CONTRACTS [§ 537 As in case of a contract with a common carrier of property or passengers,^^ a contract by which a telegraph company attempts to restrict its common law liability for mistakes in transmission, delays or nondelivery of messages is not, it seems, to be extended by construction beyond the clear terms of the contract ; ^^ and it has been held that a limitation of liability for mistakes or delays in the " transmission " of a message does not include mistakes or delays in the delivery of the message by the office to which it is transmitted.^* It has also been held that the total failure to send the message was not a " mistake or delay in the transmission or delivery, or nondelivery," of the message within the meaning of such phrase as used in a stipulation limiting liability.^' A pro- vision, however, limiting the measure of responsibility for mis- takes in unrepeated messages or half rate messages is held to include a mistake caused by the ordinary negligence of the com- pany's servants, and it is not necessary in such a provision that the word " negligence " be expressly used.*" This will include delay in delivery or nondelivery of a message when due to a mis- take in transmitting the name or address of the person to whom the message is sent.^^ § 537. Limitation of Liability of Carrier Generally. — While there is authority in an early case to the contrary,^^ it has been the accepted doctrine of our courts from quite an early date, in the absence of a statutory provision to the contrary, that no rule of public policy precludes a common carrier of goods from limit- ing his common law liability as an insurer for the loss of or injury to the goods.^ And though he cannot contract for exemption 26. See following sections. Schwartz v. Atlantic, etc., Tel. Co., 27. Bryant v. American Tel. Co., (Sup. G. T. 1879) 18 Hun 157. (Com. PI. 1866) 1 DaJly 575. See also 31. Monsees v. Western Union Tel. Will V. Postal Tel. Cable Co., (Sup. Co., (Sup. 1908) 127 App. Div. 289, 1896) 3 App. Div. 22, 3 N. Y. Annot. Ill N. Y. S. 53. Cas. 123, 73 State Rep. 552, 37 N. Y. 32. Gould v. Hill, (Sup. 1842) 2 S. 933. Hill 623. 28. Bryant v. American Tel. Co., 33. Dorr v. New Jersey Steam Nav. (Com. PI. 1866) 1 Daly 575. Co., (1854) 11 N. Y. 485, affirming as 29. Sprague v. Western Union Tel. to this but reversing on other grounds Co., (Com. PI. 1875) 6 Daly 200, af- 6 Super. Ct. 136, 8 N. Y. Leg. Obs. firmed on opinion below per Daly, 345; Mercantile Mut. Ins. Co. v. Ch. J., 67 N. Y. 590. Calebs, (1859) 20 N. Y. 173, 176; 30. Halsted v. Postal Tel. Cable Parsons v. Monteath, (Sup. G. T. Co., (1908) 193 N. Y. 293, 305, 85 1851) 13 Barb. 353; Moore v. Evans, N. E. 1078, affirming 120 App. Div. (Sup. G. T. 1851) 14 Barb. 524; 433, 104 N. Y. S. 1016. See also Falkenau v. Eargo, (Super. Ct. 1873) § 537] ILLEGALITY 825 from liability for a loss or injury caused by his own negligence or his own affirmative wrongdoing,'* he is permitted, in the absence of a statutory inhibition, to contract for exemption from liability for injuries caused by the negligence of his servants or employees.^" And in the absence of a statute to the contrary there can be no doubt whatsoever in our state as to the right of a carrier to limit his liability to a specified amount for a loss caused by the negli- gence of his servants, where the rate of transportation is based on the valuation of the goods by the shipper.^^ The degree of 35 Super. Ct. 332, 44 How. Pr. 325, affirmed 55 N. Y. 642 mem.; Mercan- tile Mut. Ins. Co. V. Chase, (Com. PI. 1850) I E. D. Smith 115; Meyer v. Haxnden's Express Co., (Com. PI. G. T. 1862) 24 How. Pr. 290. 34. Cragin v. New York Cent. R. Oo., (1872) 51 N. Y. 61, 63. See also Magnin v. Dinsmcre, (1875) 62 N. Y. 35, 50 How. Pr. 457 ; B'Utassy v. Bar- rett, (1916) 219 N. Y. 420, 424, 114 N. E. 786; Anderson v. Erie R. Co., (Sup. 1916) 171 App. Div. 687, 693, 157 N. Y. S. 740, affirmed 223 N. Y. 277, 119 N. E. 557; Heineman v. Grand Tiunk R. Co., (Super. Ct. G. T. 1866) 31 How. Pr. 430, 453, Sheld. 95. In Perkins v. New York Cent. R. Co., (1862) 24 N. Y. 196, 213, Selden, Ch. J., in a concurring opinion says: "A distinction is no doubt to be madf between the directors or managing officers of a corporation and its sub- ordinate agents. As the former exer- cise all the powers of the corporation and are its only direct medium of communication with outside parties, they must, in respect to all its ex- ternal relations, be considered as identical with the corporation itself. No contract, therefore, can exempt a railroad company from liability for the wilful or wanton misconduct or gross recklessness of its directors; but the rule extends to no other officer or agent of the company." 35. Penn v. Buffalo, etc., R. Oo., (1872) 49 N. Y. 204, reversing on question of construction 3 Lans. 443; Cragin v. New York Cent. R. Co., (1872) 51 N. Y. 61; Mynard v. Syra- cuse, etc., R. Co., (1877) 71 N. Y. 180, 185, affirming 7 Hun 399; Wilson V. New York Cent. R. Co., (1884) 97 N. Y. 87, affirming 27 Hun 149; Lee V. Marsh, (Sup. G. T. 1864) 43 Barb. 102, 28 How. Pr. 275; Prentice v. Decker, (Sup. G. T. 1867) 49 Barb. 21, 30; Steiger v. Erie R. Co., (Sup. G. T. 1875) 5 Hun 345; Rubens v. Ludgate Hill Steamship Co., (Sup. G. T. 1892) 48 State Rep. 732, 20 N. Y. S. 481, 65 Hun 625 mem., affirmed 143 N. Y. 629 mem., 37 N. E. 825; Knell V. United States, etc.. Steamship Co., (Super. Ct. 1871) 33 Super. Ct. 423; Ghormley v. Dinsmore, (Super. Ct. 1885) 51 Super. Ct. 196. See also Dorr V. New Jersey Steam Nav. Co., (1854) 11 N. Y. 485. The rule in the federal courts as announced by the federal Supreme Court is different, and that court has expressly refused to follow the rule of our courts in a case which involved the carriage of a passenger, though the contract was made and the trans- portation involved intrastate trans- portation. See infra, section 541. 36. Zimmer v. New York Cent., etc., R. Co., (1893) 137 N. Y. 460, 51 State Rep. 269, 33 N. E. 642, affirm- ing 42 State Rep. 63, 16 N! Y. S. 631, 62 Hun 619 mem.; Tewes v. North German Lloyd Steamship Co., (1906) 186 N. Y. 151, 78 N. E. 864, 20 Am. Neg. Rep. 701 ; Gardiner v. New York Cent., etc., R. Co., (1911) 201 N. Y. 387, 94 N. E. 876, affirming 139 App. Div. 17, 123 N. Y. S. 865; Boyle v. Bush Terminal R. Co., (1914) 210 826 ]SrEW YORK LAW OF CONTRACTS [§ 537 negligence on the part of a servant does not affect the validity of the exemption or limitation; the carrier may not only limit his liability for an injury or loss due to the ordinary negligence of his servants but also where it is caused by their gross or wilful negligence.^'' As said by Commissioner Earl: " In this state it is well settled that a carrier may, by express contract, exempt himself from liability for damages resulting from any degree of negligence on the part of his servants, agents and employees. . . . In some of the states it is held that a carrier cannot be exempted from responsibility for gross negligence. But so long as the freighter can insist that the carrier shall carry his property under the common law responsibility, there can be no reason founded in justice, convenience or public policy why he may not voluntarily enter into a contract founded upon suflSeient consideration exempt- ing the carrier from all responsibility for any degree of negligence, whether it be gross or slight. " ^ A carrier may even, by special contract, relieve himself from liability for loss caused through theft by his servant or employee.'^ The effect of a valid contractual limitation on a carrier's liability cannot be avoided by the mere form of the action resorted to.^" N. Y. 389, 104 N. E. 933; D'Utassy V. Rapid Delivery Express Co., (Sup. Barrett, (1916) 219 N. Y. 420, 114 Ajpp. T. 1917) 163 N. Y. S. 102; K. E. 786, aiBnning 171 App. Div. 772, Moriarty v. Harnden's Express, (Com. 157 N. Y. S. 916; Jones v. New York,. PI. 1862) 1 Daly 227; Heineman v. etc., R. Co., (Sup. 1896) 3 App. Div. Grand Trunk R. Co., (Super. Ct. G. 341, 73 State Rep. 765, 38 N. Y. S. T. 1866) 31 How. Pr. 430, Sheld. 95. 284; Bates v. W«ir, (Sup. 1907) 121 37. Cragin v. New Ybrk Cent. R. App. Div. 275, 105 N. Y. S. 785; Co., (1872) 51 N. Y. 61 ; Heineman v. Poster v. Taylor, (Sup. 1916) 171 Grand Trunk R. Co., (Super. Ct. G. App. Div. 511, 157 N. Y. S. 571; T. 1866) 31 How. Pr. 430, 454, Sheld. Henman v. M. H. Powers Co., (Sup. 95. 1916) 175 App. Div. 627, 162 N. Y. S. 38. Cragin v. New York Cent. R. 590; Prentice v. Decker, (Sup. G. T. Co., (1872) 51 N. Y. 61, 63. 1867) 49 Barb. 21; Springer V. West- 39. D'Utassy v. Barrett, (1916) cott, (Sup. G. T. 1894) 78 Hun 365, 219 N. Y. 420, 114 N. E. 786, affirm- 60 Sitate Rep. 713, 29 N. Y. S. 149; ing 171 App. Div. 772, 157 N. Y. S. Lansing v. New York Cent., etc., R. 916; Heuman v. M. H. Powers Co., Co., (Sup. Sp. T. 1907) 52 Misc. 334, (Sup. 1916) 175 App. Div. 627, 162 102 N. Y. S. 1092; Addoms v. Weir, N. Y. S. 590; Knell v. United States, (Sup. App. T. 1907) 56 Misc. 487, etc.. Steamship Co., (Super, a. 1871) 108 N. Y. S. 146; Liohterman v. Bar- 33 Super. Ct. 423. rett, (Sup. App. T. 1916) 95 Misc. 40. Dyke v. Erie R. Co., (1871) 45 594, 159 N. Y. S. 929; Kolb v. Tay- N. Y. 113, 118; Fish v. Delaware, etc., lor, (Sup. App. T. 1918) 102 Misc. R. Co., (1914) 211 N. Y. 374, 382, 220, 168 W. Y. S. 685; Greenberg v. 105 N. B. 661; D'Utassy v. Barrett, § 538] ILLEGALITY 827 § 538. Carrier of Passengers.— It is also established in our state that a carrier may by contract limit his common law liability for injuries to passengers caused by the negligence of his servants.^i " It cannot now be disputed," says Euger, C. J., " that an individual transported over the route of a carrier of passengers may debar himself, by a contract founded upon a sufficient consideration, from any claim to damages for injuries to his person or property occasioned by the negligence of such corporation during the course of transportation. " ^2 while this rule has most generally been, announced in cases where the pas- senger was traveling on a free pass "or what is known as a drover's pass, and regarded as being carried gratuitously, it is now estab- lished that this is true whether the passenger is carried gratui- tously or for a reward, provided there is a sufficient consideration for the special contract.*^ ' ' The principle being established, ' ' says Selden, J., " that railroads may, by contract, relieve themselves from the negligence of their servants in. the carrying of passengers (Sup. 1916) 171 App. Div. 772, 157 N. Y. S. 916; affirmed 219 N. Y. 420, 114 N. E. 786. 41. Wells V. New York Cent. R. Co., (1862) 24 K. Y. 181, affirming 26 Barb. 641; Perkins v. New York Gent. R. Co., (1862) 24 N. Y. 196; Bissell V. New York Cent. R. Co., (1862) 25 N. Y. 442, reversing 29 Barb. 602 ; Stinson v. New York Cent. R. Co., (1865) 32 N. Y. 333, 337; Poucher v. New York Cent. R. Co., (1872) 49 N. Y. 263; Seybolt v. New York, etc., R. Co., (1884) 95 N. Y. 562, 573; TJlrich v. New York Cent. R. Co., (1888) 108 N. Y. 80, 13 State Rep. 120, 15 N. E, 60, reversing on other grounds 13 Dally 129; Kenney V. New York Cent., etc., R. Co., (1891) 125 N. Y. 422, 425, 35 State -Rep. 447, 26 N. E. 626; Fish v. Delaware. etc., R. Co., (1914) 211 N. Y. 374, 382, 105 N. E. 661 ; Anderson v. Brie R. Co., (1918) 223 N. Y. 277, 119 N. E. 557, affirming 171 App. Div. 687, 157 N. Y. S. 740; Hodge v. Rutland R. Co., (Sup. 1906) 112 App. Div. 142, 97 N.' Y. S. 1107, affirmed 194 N. Y. 570 mem., 88 N. E. 1121; Wilson v. I>elaware, etc., R. lOo., {Svup. 1907) 119 App. Div. 675, 104 N. Y. S. 293; Willcox V. Erie R. Co., (Sup. 1914) 162 App. Div. 94, 147 N. Y. S. 360; Boswell V. Hudson, etc., R. Co., (Super. Ct. 1860) 18 Super. Ct. 699, 10 Abb. Pr. 442. The federal Supreme Court consid- ers on comtmion law principles sucli a contract contrary to public policy, and -under its asserted power to deter- mine for itself the common law on matters of general jurisprudence, has refused to follow our courts though the contract was entered into in our state and involved intrastate trans- portation. New York Cent. R. Co. v. Lockwood, (1873) 17 Wall. 357, 21 U. S. (L. ed.) 627. See also Chicago, etc., R. Co. V. Solan, (1898) 169 U. S. 133, 18 S. Ct. 289, 42 U. S. (L. ed.) 688. 42. Seybolt v. New York, etc., R. Co., (1884) 95 N. Y. 562, 573. 43. Bissell v. New York Cent. R. iCo., (1862) 25 N. Y. 442; Anderson v. Erie R. Co., (1918) 223 N. Y. 277, 119 N. E. 557, affirming 171 App. Div. 687, 157 N. Y. S. 740. But see Gill v. Erie R. Co., (Sup. 1912) 151 App. Div. 131, 135 N. Y. S. 355. 82g NEW YORK LAW OF CONTRACTS [§ 539 when carried gratuitously, I can discover no rule of law or pub- lic policy to prevent their doing it on any other terms which may be agreed upon between them and their passengers, and which shall furnish a consideration to the passengers for the risk which they assume. All the arguments which have been urged against the propriety and safety of allowing carriers to make such con- tracts apply with as much force to cases where passengers are carried gratuitously as where they are carried for reward. So far as the public are concerned, the question of reward is one of indifference; and so far as the parties are concerned, if they are allowed to make the contract at all, they are the judges of the amount of consideration which will compensate them for assuming the risk, whether the whole fare, or half or an eighth, or any other proportion, or other consideration. ' ' ** And the rule has, in a late ease in the Court of Appeals, been held to apply to one traveling on what is known as a clerical or minister's ticket, which was sold at a greatly reduced fare, and as a consideration for such reduc- tion the' passenger assumed all risk of personal injuries.*' It seems to be immaterial, especially if the carriage is gratuitous, as regards the validity of the stipulation for exemption from liability, whether the injury is caused by the ordinary or the gross negli- gence of a servant." § 539. Statutory Provisions; Public Service Commission Law. — The Public Service Commission Law, after providing that every common carrier, etc., shall issue a receipt or bill of lading 44. Bissell v. New York Cent. E. whether it be the whole fare or any- Co., (1862) 25 N. Y. 442, 447. thing less than that." 45. Anderson v. Erie E. Co., (1918) 46. Perkins v. New York Cent. E. 223 N. Y. 277, 119 N. E. 557, affirm- 'Oo-' (1862) 24 N. Y. 196, 205; An- ing 171 App. Div. 687, 157 N. Y. S. ^^''^°'' "^- ^^<= ^- ^o., (1918) 223 •7dn T^ +>;;= „o=o n/^„T a„„i,i^„ T N. Y. 277, 280, 119 N. E. 557, affirm- 740. In this case Mcijaugnnn, J., . ,_, . 4^. „„„ ,„_ -' „ o ., „-r, . . n mg 171 App. Div. 687, 157 N. Y. S. «aid: Does an agreement to sell a ^/^ ^^/^^^ ^^^j,^ '^_ ^^ Y^^^ ticket at a reduced rate of fare m ^^^ ^ ^ (^gg2 g^ j^_ y jgj considteration of exemption from lia- jgS; Smith v. N«w York Cent. R. Co., hility m case of negligence, change (jggg) 24 N. Y. 222, affirming on the rule? I do not think it does. g^unds on which the judges differ No good reason can be suggested why 29 Barb 132 it should. If a railroad company and See supra, section 534, as to the a passenger be permitted to make right of a telegraph company to con- such contract at all, then they are tract for exemption, etc., from lia- the sole judges of the amount of con- bility for errors in the transmission sideration which will compensate the and delivery of telegrams due to the one for being relieved from liability gross negligence of the servants of the and tlie other for assuming the risk, Company. § 539] ILLEGALITY 829 for all property delivered to the carrier for transportation, further provides that " no contract, stipulation or clause in any receipt or bill of lading shall exempt or be held to^ exempt any common carrier, baggage company, transfer company, railroad corpora- tion or street railroad corporation from any liability for loss, damage or injury caused by it to property from the time of its delivery for transportation until the same shall have been received at its destination and a reasonable time shall have elapsed after notice to consignee of such arrival to permit of the removal of such property. ' ' *'' This undoubtedly restricts the general right, heretofore recognized, of a common carrier of property to eon- tract for exemption from his common law liability as an insurer or from liability for a loss or injury to property caused by the negligence of his servants or employees.** As regards the trans- portation of baggage the statute expressly authorizes the carrier to limit his liability as to amount, namely $150, unless the pas- senger or shipper is willing to pay a rate based on a valuation in excess of such amount.*^ And as applied to a carrier generally, since it only prohibits contracts " exempting " the carrier from liability, it is held not to affect his right to limit his liability on the basis of a fixed valuation and charges based thereon.^" As 47. Pub. Serv. Com. Law, § 38; 47 struction of the act, which has, how- MoKinney's' Cons. Laws, p. 44. This ever, been amended by the omission of section of the present laws is deri-ved the wprd "freight" (L. 1910, ch. from Laws 1907, ch. 409, § 38, as 480 ), and' it now would seem tq apply amended by Laws 1910, ch. 480, § 38, to an express shipment as well as an as further amended by Laws 1913, ordinary freight shipment though car- ch. 344, § 1. riers toy express are not specifically 48. In Baum. v. Long Island R. Co., included in the terms of the enact- (City Ct. Tr. T. 1908) 58 Misc. 34, ment. 108 N". Y. S. 1113, the view is taken 49. See as to the effect of this pro- that the provision of the Act of 1907 vision, as- in itself a limitation of the was intended to appiy only to ship- carrier's liability, Robinson v. New memts of ordinary freight, and not to York -Cent., etc., R. Co., (Sup. 1911) shipments by express where delivery 145 App. Div. 391, 129 N. Y. S. 1030, is made to the consignee at his resi- affirmed on opinion below per Miller, dence, and did- not restrict the right J., 203 N. Y. 627 mem., 97 N. E. of an express company to contract for 1115; Noel v. Westcott Express Co., exemption from liability. This is- said (Sup. App. T. 1916) 95 Misc. 154, 158 to follow from the use of the phrase N. Y. S. 702; Levett v. Draper, (Sup. " freight or property " and the pro- App. T. 1919) 10(|5 Misc. 497, 174 vision that the liability is to extend N. Y. S. 721. until the consignee has a reasonable 50. Foster v. Taylor, (Sup. 1916) time after notice of arrival to re- 171 App. Div. 511, 157 N. Y. S. 571; move such freight or property. Baum v. Long Island R. Co., (City This would seem to be a forced con- Ct. Tr. T. 1908) 58 Misc. 34, 108 830 NEW YORK LAW OF CONTRACTS [§ 539 the provision relates only to carriers of property it does not affect the right of a carrier of passengers to contr'act for exemption from liability for personal injuries.^^ It is also to be noted that the statute is only applicable to intrastate shipments, and not to interstate commerce.^^ Consequently the right of the carrier, in an interstate transaction, to contract for a limitation of his lia- bility is not affected by this statute.^' And it is held that even if the provision limiting the amount of liability for baggage did apply to hand baggage, it would not apply to a case where the passenger was traveling from New York city to a point in Massa- chusetts and the loss of the baggage occurred in Massachusetts." N. Y. S. 1113; Jones v. Wells Fargo Express Co., (Sup. Tr. T. 1914) 83 Misc. 508, 145 N. Y. S. 601. See also Heuman v. M. H. Powers Co., (Sup. 1916) 175 App. Div. 627, 162 N. Y. S. 590; .LieMerman v. Barrett, (Sup. Aipp. T. 1916) 95 Misc. 594, 159 N. Y. S. 929; Greenbexg v. Rapid Delivery Express Co., (Sup. App. T. 1917) 163 N. Y. S. 102. And see other late cases, cited (see supra, section 537) to the general right of a carrier to limit the amount of recovery, in wiliich. the right so to contract is upheld witliout reference to this provision of the Public Service Commission Law. In .this connection Brown, J., in Jones V. Wells Fargo Express Oo., (Sup. Tr. T. 1914) 83 Misc. 508, 511, 145 N. Y. S. 60r, says : " To exempt from liability is one thing, and to fix or limit the amount of damages' is entirely another thing. Exempt means to release, discharge, waive, relieve from liability. Century Dic" tionary defines exempt, ' To free, to except or excuse from some burden- some condition or obligation or the operation of some law to which others are subject; free, clear or released as from some liability, restriction or •burden affecting other persons.' ' Limit ' is to fix a point or boundary beyond which the subject cannot pass or extend; a working day is limited to eight hours, the speed of a motor car is limited to a certain number of miles per hour, the damages are limited to fifty cents per pound. The liability for the loss of the furs was not in any manner exempted by limit- ing the damages to fifty cents per pound." This is also tihe view taken as to the effect of the Carmaek Amendment prohibiting interstate carriers from contracting for an " exemption " from liability. See infra, section 541. But in Schutte v. Weir, (Sup. App. T. 1908) 59 Misc. 438, 111 N. Y. S. 240, a case involving the Carmaek Amendment to the Interstate Com- merce Act, the view was taken, con- trary to that now established by de- cisions of the federal Supreme Court (see infra, section 541), that a limi- tation of liability as to amount is a " partial exemption " of liability and therefore a violation of the statu- tory inhibition. 51. See late cases, cited in preced- ing section, uphoilding the right of a carrier of passengers to limit his lia- bility without reference to the statute. 52. Shapiro v. Weir, (Sup. 1908) 128 App. Div. 245, 112 N. Y. S'. 705. 53. Shapiro v. Weir, (Sup. 1908) 128 App. Div. 245, 112 N. Y. S. 705. 54. Hasbrouck v. New York Cent., etc., R. Cb., (1911) 202 N. Y. 363, 95 N. B. 808, affirming 137 App. Div. 532, 122 N. Y. S. 123, which afflnned 64 Misc. 478, 118 N. Y. S. 735. § 540] ILLEGALITY 831 § 540. Essentials of and Construction of Contract with Carrier. — The rule upholding the right of a common carrier to limit his liability applies only to cases where there is in fact a contract to which the passenger has given his assent. The carrier cannot limit his liability by the mere publication of a notice, even though the shipper has knowledge thereof.^^ And though ordi- narily a shipper or passenger is to be considered as assenting to the provisions contained in a bill of lading, ticket, or the like, this is not so where the circumstances show that the shipper or passenger had no knowledge of a provision therein and was not negligent in his failure to acquire knowledge. Therefore the lia- bility of a carrier cannot in all cases be limited by the mere insertion of a provision to that effect in a bill of lading or ticket, if the circumstances show that the shipper or passenger had no knowledge thereof, actual or constructive, and did not assent thereto.^^ It is also essential that the contract be supported by a sufficient consideration, and the mere performance by the carrier of his existing duty, either common law or contractual, does not furnish such a consideration.^' Contracts of this class are not looked on with favor by the courts and will not be extended beyond the clear terms of exemp- tion.^ As said by Gray, J. : " The rule is firmly established in 55. Dorr v. New Jersey Steam Nav. Dow v. Syracuse, etc., E. Co., (Sup. Co., (1854) 11 N. Y. 485, 490, affirm- 1903) 81 App. Div. 362, 80 N. Y. S. ing aa to this 6 Super. Ct. 136, 8 941. See also Gill v. Brie R. Co., N. Y. Leg. Obs. 345 ; Hollister V. Now- (Sup. 1912) 151 App. Div. 131, 135 len, (Sup. 1838) 19 Wend. 234; Cole N. Y. S. 355. V. Goodwin, (Sup. 1838) 19 Wend. See supra, section 325 et seq. as 251. See also Pendergast v. Union R. to whether the performance of a legal Co., (Sup. 1896) 10 App. Div. 207, 75 duty furnishes a consideration. State Eep. 1297, 41 N. Y. S. 927. 58. Wells v. Steam Nav. Co., (1853) 56. WaJdron v. Fargo, (1902) 170 8 N. Y. 375, 1 Seld. Notes 132; Stin- N. Y. 130, 62 N. E. 1077, reversing son v. New York Cent. R. Co., (1865) 52 App. Div. 18, 64 N. Y. S. 798; 32 N. Y. 333; Steinweg v. Erie B. Co., Olds V. New York Cent., etc., R. Co., (1870) 43 N. Y. 123; Magnin v. Dins- (Sup. 1905) 107 App. Div. 26, 94 more, (1874) 56 N. Y. 168; Blair v. N. Y. S. 924. See supra, section 86 Erie R. Co., (1876) 66 N. Y. 313; et seq. aa to when a person receiving Mynard v. Syracuse, etc., R. Co., a receipt or the like is held to have (1877) 71 N. Y. 180; Canfleld v. Bal- assented to provisions contained timore, etc., R. Co., (1883) 93 N. Y. therein. 532, reversing 48 Super. Ct. 550 57. Bissell v. New York Cent. R. mem.; Kenney v. New York Cent., Co., (1862) 25 N. Y. 442, 448; Sey- etc., R. Co., (1891) 125 N. Y. 422, 35 bolt V. New York, etc., E. Co.' (1884) StateRep. 447, 26 N. E. 626; Jen- 95 N. Y. 662, affirming 31 Hun 100; nings v. Grand Trunk R. Co., (1891) 832 NEW YORK LAW OF CONTRACTS [§ 540 this state that a common carrier may contract for immunity from its negligence, or that of its agents; but that, to accomplish that object, the contract must be so expressed, and it must not be left to a presumption from the language. Considerations based upon public policy and the nature of the carrier's undertaking influence the application of the rule, and forbid its operation, except where the carrier's immunity from the consequences of negligence is read in the agreement ipsissimis verbis. ' ' '^ Thus a provision in general terms releasing or exempting a carrier from entire lia- bility for a loss of goods or baggage will not be construed as a release from liability for a loss due to the negligence of the carrier or his servant, as such an exemption should be stated in express terms.*" On the other hand, it is held that a provision in con- sideration of reduced rates limiting the liability of the carrier to a specified valuation of the goods will include a loss due to such negligence without express mention thereof.'^ A provision that 127 N. Y. 438, 40 State Hep. 310, 28 N. E. 394, affirming 52 Hun 227, 23 State Rep. 15, 5 N. Y. S. 140; Has- taouck V. New York Cent., etc., R. Co., (1911) 202 N. Y. 363, 95 N. E. 808, affirming 137 App. Div. 532, 122 N. Y. S. 123, which affirmed 64 Misc. 478, 118 N. Y. S. 735; Will v. Postal Tel. iCaWe Co., (Sup. 1896) 3 App. Div. 22, 3 N. Y. Annot. Cas. 123, 73 State Rep. 552, 37 N. Y. S. 933; Bermel v. New York, etc., R. Oo., (Sup. 1901) 62 App. Div. 389, 70 N. Y. S. 804, affirmed on opinion helow 172 N. Y. 639, 65 N. B. 1113; Dow V. Syracuse, etc., R.- Co., (Sup. 1903) 81 App. Div. 362, 80 N. Y. S. 941; Brewster v. New York Cent., etc., R. Co., (Sup. 1911) 145 App. Div. 51, 129 N. Y. S. 368; Prentice v. Decker, (Sup. G. T. 1867) 49 Barb. 21; Bawer v. Barrett, (Sup. App. T. 1918) 171 N. Y. S. 322; Stoddard V. Long Island R. Co., (Super. Ot. 1851) 7 Super, a. 180; Knell v. United States, etc., Steamship Co., (Super. Ct. 1871) 33 Super. Ct. 423; Ghormley v. Dinsmore, (Super. Ot. 1885) 51 Super. iCt. 196. See also Alexander v. Greene, (Ct. Eirr. 1.844) 7 Hill 533. 59. Kenney v. New York Cent., etc., R. Co., (1891) 125 N.Y. 422, 425, 35 State Rep. 447, 26 N. E. 626. 60. Magnin v. Dinsmore, (1874) 56 N. Y. 168; Nicholas v. New York Cent., etc., R. Co., (1882) 89 N. Y. 370 ; Jennings v. Grand Trunk E. Co., (1891) 127 N. Y. 438, 450, 40 State Rep. 318, 28 N. E. 394, affirming 52 Hun 227, 23 State Rep. 15, 5 N. Y. S. 140; Prentice v. Decker, (Sup. G. T. 1867) 49 Barb. 21; Knell v. United States, etc., Steamship Co., (Super. Ct. 1871) 33 Super. Ct. 423. 61. Tewes v. North German Lloyd Steamship Co., (1906) 186 N. Y. 151, 152, 78 N. E. 864, 20 Am. Neg. Rep. 701 ; Gardiner v. New York Cent., etc., R. Co., (1911) 201 N. Y. 387, 94 N. K 876, affirming 139 App. Div. 17, 123 N. Y. S. 865 ; Boyle v. Bush Terminal R. Co., (1914) 21(T N. Y. 389, 104 N. E. 933, reversing 151 App. Div. 551, 136 N. Y. & 355. But see Ber- mel V. New York, etc., R. Co., (Sup. 1901 ) 62 App. Div. 389, 70 N. Y. S. 804, affirmed on opinion below 172 N. Y. 639, 65 N. E. 1113. But see Ghormlev v. Dinsmore, (Super. Ct. 1885) si Super. Ct. 196. 541] ILLEGALITY 833 persons " riding free to tate charge of the stock do so at their own risk of personal injury from whatever cause," has been held not to relieve the carrier from liability for injuries due to his negligence and occurriag while the person is engaged in loading the stock on cars, as such person cannot, at the time of the injury, be deemed as " riding free to take charge of the stock. "*^ § 541. Interstate Carriage Generally. — ^Where a limita- tion of liability is authorized by the federal statutes its effect can- not be avoided by the mere form of the action, the scope and effect of which is an action for damages against the carrier.*' If the transaction in question involves interstate commerce the con- sequent rights and liabilities of the parties, if within a provision of the federal statutes regulating interstate commerce and the construction thereof by the federal Supreme Court as to the validity of special contracts limiting the liability of the carrier, are governed thereby.^* And as regards interstate shipments our courts are bound to follow the federal statutes and the construc- tion given thereto by the federal Supreme Court as to the right of the carrier to exempt himself from or to limit his liability.^ 62. Stinson v. New York Cent. K. Co., (1865) 32 N. Y. 333. 63. Georgia, etc., E. Co. v. Blisli Milling Co., (1916) 241 U. S. 190, 197, 36 S. Ct. 541, 60 U. S. (L. ed.) 948. 64. Adams Express Co. v. Cronin- ger, (1913) 226 U. S. 491, 33 S. Ct. 148, 57 U. S. (L. ed.) 314; Missouri, etc., R. Co. V. Harriman, (1913) 227 U. S. 657, 33 S. Ct. 397, 57 U. S. (L. ed.) 690; Cincinnati, etc., R. Co. V. EajikiD, (1916) 241 U. S. 319, 326, 36 S. Ct. 555, 60 U. S. (L. ed.) 1022; New York Cent., etc., R. Co. v. Bea- ham, (1916) 242 U. S. 148, 151, 37 S. Ct. 43, 61 U. S. (L. ©d. 210). See also Southern Express Co. v. Byers, (1916) 240 U. S. 612, 614, 36 S. Ct. 410, 60 U. S. (L. ed.) 825. 65. lyutassy v. Barrett, (1916) 219 N. Y. 420, 425, 114 N. E. 786; Barnet v. New York Cent., etc., K. Co., (1918) 222 N. Y. 195, 198, 118 N. E. 625 ; United Lead Co. v. Lehigh Valley R. 'Co., (Sup. 1913) 156 App. Div. 69, 154 N. Y. S. 701; Meyers v. 53 215 N. Y. 751 mem., 109 N. E. 1094; BaTstow V. New York, etc., R. Co., (Sup. 1913) 158 App. Div. 665, 143 N. Y. S. 983; Frank v. Michigan Cent. R. Co., (Sup. 1915) 169 App. Div. 69, 154 N. Y. S. 701 ; Meyers v. Cleveland, etc., R. Co., (Siup. 1918) 183 App. Div. 453, 171 N. Y. S. 71. As said by Andrews, J., in Barnet V. New York Cent., etc., R. Co., (1918) 222 N. Y. 195, 198, 118 N. E., 625, reversing 167 App. Div. 738, 153 N. Y. S. 374: « Under, the Carmack Amendment the carrier is made liable to the shipper of inter- state freight for loss, damage or in- jury caused by it, and no contract m^ay relieve it of such liability. This act m,akes uniform hitherto divergent state rules as to the effect of agree- ments contained in bills of lading, and state courts when considering interstate shipments are bound by it and by the inter.pretation put upon it by the Supreme Court of the United States. This legislation super- sedes all the policies of the state ,834 NEW YORK LAW OF CONTRACTS [§ 541 1 In the federal courts the rule has always prevailed, unlike that in, our state, that a common carrier, either of property or of passengers, cannot exempt himself from liability for losses, etc., caused by his negligence or the negligence of his servants.'* And the federal Supreme Court, on the theory that it has the right to determine for itself the common law on matters of general juris- prudence, refused in quite an early case to follow the rule applied in our courts though the contract was made in our state and the transportation involved intrastate transportation." This rule of the federal court as applied to carriers of property and as to an exemption from all liability is considered as incor- porated in the Carmack Amendment to the Interstate Commerce Act, and precludes a carrier of goods in interstate commerce from contracting for an exemption from all liability for a loss or injury caused by the negligence of the servant of the carrier ; ^* and if the transaction is one of interstate commerce and for carriage as a common carrier, the rule so announced must be followed by our state courts.'' upon the same suTjject." And it is beld in this case that as regards in- terstate shipments the state courts are bound? to follow the rule estab- lished by the federaJ Supreme Court, that where it is shown that a loss or injury was caused by an act of God the iburden is on the shipper to show that the negligence of the carrier was also a contributing cause, such rule being considered 'by the federal court one of substance and not of pro- cedure merely, raither than the rule of OUT courts that the burden is on the carrier to show freedom from negligence which contributed proxi- mately to the loss. And see in this connection the dissenting opinion of Howard, J., in the court below (167 Aipp. Div. 741), 66. New York Cent. R. Co. v. Lock- wood, (1873) 17 Wall. 357, 21 U. S. (L. ed.) 627; Chicago, etc., R. Co. v. Solan, (1898) 169 U. S. 133, 135, 18 S. Ot. 289, 42 U. S, (L. ed.) 688. 67. New York Cent. R. Co. v. Lock- wood, (1873) 17 Wall. 357, 21 U. S. (L.-ed.) 627. 68. Adams Express Co. v. Cron- inger, (1913) 226 U. S. 491, 33 S. Ct. 148, 57 U. S. (L. ed.) 314; Santa Fe, etc., R. Co. v. Grant Bros. Constr. C6., (1913) 228 U. S. 177, 33 S. a. 474, 57 U. S. (L. ed.) 787. 69. See Ferrari v. New York, etc., R. Co., (Sup. 1914) 162 App. Dlv. 6, 9, 147 N. Y. S. 376, aflarmed 200 N. Y. 712 mem., 116 N. E. 1044. But in this case it is held that the trans- action involved, which related to the hauling of the cars of a circus, was not one for transportation as a com- mon carrier, and therefore, though ■the transportation was to be inter- state, the federal statutes did not apply, and the railroad company was not precluded from contracting for exemption from liability for a lt)ss or injury caused by the m^Iigence of its servants. A provision exempting the carrier from common law liability as an in- surer where cars are received from or delivered on private or other sid- ings, " until the cars are attached to or after they are detached from § 541] ILLEGALITY 835 A contract limiting liability to a value agreed on for the pur- pose of fixing the rate, alternate rates fairly based on valuation being offered, has always been upheld in the federal courts on common law principles, irrespective of whether the injury is caused by the act of some third person or by the negligence of the carrier's servant. And where a valuation is agreed on between the shipper and the carrier, such value is the maximum amount for which the carrier may be held liable, whether or not the loss or damage occurs through negligence of the carriei^'s servants. And the Interstate Commerce Act and the so-called Carmack Amendment (Act of June 29, 1906) do not in any way affect the right of the carrier so to limit his liability, such limitation not being regarded as an exemption from liability.™ And even if our courts had been disposed to adopt a contrary view, this rule as announced by the federal -Supreme Court would be binding on them.'" The Cummins amendment (Act of March 4, 1915), subject to certain exceptions, which in respect to the exceptions is frrther amended by the Act of Aug. 9, 1916, expressly makes the carrier or initial carrier in interstate or territorial shipments, etc., liable for the full value of the property, and prohibits any exemption or trains,'' has been given effect in our 60 U. S. (L. ed.) 1022; Greenwald v. courts. Sieljert v. Erie R. Oo., (Sup. Barrett, (1910) 199 N. Y. 170, 92 Tr. T. 1915) 163 N. Y. S. HI. N. E. 218, affirming 130 App. Div. 70. Hart v. Pennsylvania R. Co., 696, 115 N. Y. S. 311, which reversed (1884) 112 U. S. 331, 341, 5 S. Ot. 59 Misc. 431, 111 N. Y. S. 235; Boyle 151, 28 U. S. (L. ed.) 717; Adams v. Bush Terminal B. Co., (1914) 210 ExpresB Co. v. Oroninger, (1913) N. Y. 389, 104 K E. 933; United 226 U. S. 491, 33 S. Ct. 148, 57 U. S. Lead Co. v. Lehigh Valley R. Co., (L. ed.) 314; Kansas City Southern (Sup. 1913) 156 App. Div. 525, 141 R. Co. V. Carl, (1913) 227 U. S. 639, N. Y. S. 310, affirmed 215 N. Y. 751 •33 S. Ct. 391, 57 U. S. (L. ed.) 683; mem., 109 N". E. 1094; Frank v. Missouri, etc., R. Co. v. Harriman, Michigan Cent. R. Co., (Sup. 1915) (1913) 227 U. S. 657, 33 S. Ct. 397, 169 App. Div. 69, 154 N. Y. S. 701. 57 U. S. (L. ed.) 690; Great North- But see Schutte v. Weir, (Sup. App. em R. Co. v. O'Connor, (1914) 232 T. 1908) 59 Misc. 438, HI N. Y. S. U. S. 508, 515, 34 S. Ct. 380, 58 U. S. 240. (L. ed.) 703; Atchison, etc., R. Co. 71. Adams Express Co. v. Cron- v. Robinson, (1914) 233 U. S. 173, inger, (1913) 226 U. S. 491, 33 S. Ct. 180, 34 S. Ot. 556, 58 U. S. (L. ed.) 148, 57 U. S. (L. ed.) 314; Missouri, 901; Cleveland, etc., R. Co. v. Dettle- etc., R. Co. v. Harriman, (1913) 227 bach, (1916) 239 U. S. 588, 593, 36 U. S. 657, 33 S. Ct. 397, 57 U. S. S. Ct. 177, 60 IT. S. (L. ed.) 453; (L. ed.) 690; Cincinnati, etc., R. Co. Cincinnati,' etc., R. Co. v. Rankin, v. Ranldn, (1916) 241 U. S. 319, 326, (1916) 241 U. S. 319, 36 S. Ct. 555, 36 S. Ct. 555, 60 U. S. (L. ed.) 1022. 836 NEW YORK LAW OF CONTRACTS f§ 542 limitation of this liability by contracts, etc., unless the transaction is brought within the exceptions therein provided for.'^ § 542. Transactions Not within Federal Statute; Conflict of Laws. — If the transaction is not brought within any provision of the federal statutes governing interstate commerce, it seems that the validity of a provision limiting or exempting the carrier from liability is to be determined by the law as established or announced by the courts of the state by the laws of which the contract is governed, and the state courts are not required to follow the view taken by the federal Supreme Court as the rule of the common law." And where the laws of the several states through which an interstate carriage is made differ as to the validity of a con- tract limiting the liability of the carrier, its validity is, accord- ing to the view taken in our courts, which is in accordance with the better view as announced in other jurisdictions, to be determined by the law of the place where the contract was made and the transportation commenced, without reference to the law of the place of destination or of the place where the actual injury or loss occurred.''^ And where the contract is entire, the fact that it is to be performed by a series of connecting carriers over a route established by them does not alter this rule.'^ Thus where an entire contract for the transportation of a shipper of livestock from another state into our state, over a route estab- lished by several connecting carriers, exempted the initial and connecting carriers from liability for personal injuries to the shipper, it is held that its validity is governed by the law of the former state, when an action for injuries is brought in our courts, though the accident causing the injury occurred in our state on the line of a connecting carrier operating wholly within our state, and where according to the law of such foreign state 72. 4 Fed. Stat. Ann. (2d ed.) p. 646, 38 N. Y. S. 490, affirmed on 506; L918 Supp. Fed. Stat. Ann. p. opinion 158 N". Y. 688, 53 N. E. 1125. 386. See also Dyke v. Erie R. Co., (1871) 73. Fish v. Delaware, etc., R. Co., 45 N. Y. 113; Valk v. Erie R. Co., (1914) 211 N. Y. 374, 105 N. E. 661, (Sup. 1909) 130 App. Div. 446, 114 reversing 158 App. Div. 92, 143 N. Y. S. 965; Ferrari v. New York, N. Y. S. 365. But see Stoddard v. Erie R. Co., (Sup. 1914) 162 App. Long Island R. Co., (Super. Ot. 1851) Div. 6, 147 N. Y. S. 376, affirmed 220 7 Super, tt. 180. N. Y. 712 mem., 116 N. E. 1044. 74. Fish V. Delaware, etc., R. Co., 75. Fish v. Delaware, etc., R. Co., (1914) 211 N. Y. 374, 382, 105 N. E. (1914) 211 N. Y. 374, 385, 105 N. E. 661; Grand v. Livingston, (Sup. 661, reversing 158 App. Div. 92, 143 1896) 4 App. Div. 589, 73 State Rep. N. Y. S. 365. §'542] ILLEGALITY S3 7 a contract of this character is held invalid it should be so aegarded by our courts, though if it were governed by our laws it would be upheld.'* And in a case which involved an injury to horses shipped by express from Boston to Buffalo, under a contract made at the point of shipment which contained a pro- vision exempting the carrier from liability for injuries due to the negligence of his servants, it was held that the validity of this exemption was to be determined by the law of Massachusetts, nothing appearing to show that it was not the intention of tha parties that the validity of the contract should be so governed, and that as it was invalid as against public policy under the Massachusetts rule, it would not be given effect by our courts." The federal statutes in the limitation of the right of interstate carriers to contract for exemption or limitation of their liability do not in terms apply to carriers of passengers, and consequently do not broaden this right," nor it would seem do they restrict it ; and our courts, it is surmised, will continue to apply their view of the common law as to the validity of stipulations or contracts exempting or limiting the carrier's liability, even though the transaction involves interstate transportation, and will not con- sider themselves bound to follow the view of the federal courts 76. Fish V. Delaware, etc., R. Co., the intervening states through which (1914) 211 N. Y. 374, 105 N. E. 661, the transit was made. In such a reversing 158 App. Div. 92, 143 case as the one at bar the place of N. Y. S. 365. See also Willcox v. the personal injury should not de- Erie R. Ck)., (Sup. 1914) 162 App. termine the validity of the contract. Div. 94, 147 N. Y. S. 360, appeal dis- If that were the rule it could never missed 220 N. Y. 94, 116 N. B. 1083. be known by what law a contract In the Fish case, supra (211 N. Y. is to be governed until that im- 383), Werner, J., said: "The con- portant consideration is determined tract was made in Michigan, where by sheer accident. There may be a the carriage was commenced. The different law in every state through destination was in New York, where which a shipment is to pass, and it delivery was to be made. In transit cannot be presumed that parties have the plaintiff passed through several contracted with reference to such other states, and the contract was to uncertainty." be partly performed in these inter- 77. Grand v. Livingston, (Sup. mediate states, no leas than in Michi- 1896) 4 App. Div. 589, 73 State Rep. gan and New- York. The mere fact 646, 38 N. Y. S. 490, affirmed on opin- that delivery was to be made in New ion below 158 N. Y. 688, 53 N. E. York does not denominate that as 1125. the particular place of performance, 78. Willcox v. Erie R. Co., (Sup. for that place was of no greater im- 1914) 162 App. Div. 94, 147 N. Y. S. portance in the contract than the 360. pllace of shipment in Michigan, or 838 NEW YORK LAW OF CONTRACTS [§543 as to the validity of contracts exempting carriers of passengers from liability for personal injuries caused by the negligeftee of the agents or servants of the carrier. Contracts in Restraint of Trade Generally § 543. In General. — It has been said that at common law the inhibition against restraints of trade at first had no exception." It soon became apparent, however, to the people and the courts that it was in the interest of trade that reasonable covenants in partial restraint of certain businesses and trades should be upheld and enforced,'" and it is now firmly established that a contract imposing only a reasonable restraint is not necessarily prohibited by public policy without regard to the nature or character of the trade or business involved.*^ " The law has," says Andrews, J., " for centuries, permitted contracts in partial restraint of trade, when reasonable. ' ' '^ And the tendency of the courts in the modern decisions is towards upholding freedom of contract unless the agreement is permeated with the vice of unreasonableness or its enforcement will be manifestly injurious to the public.*^ " It is clear, ' ' says Andrews, J., in this connection, ' ' that public policy 79. Metropolitan Opera Co. v. Rep. 47, 13 N. E. 419; Central New Hammeratein, (Sup. 1914) 162 App. York Telephone, etc., Co. v. Averlll, Div. 691, 701, 147 N. Y. S. 532, (Sup. 1909) 129- App. Div. 752, 757, wherein reference is made to state- 114 N. Y. S. 99, reversed on the ment to this effect of Justice Hull, ground that the particular contract Year Book 2 Hen. V, folio 5, pi. 26; involved was against public policy Central New York Tel., etc., Co. v. 199 N. Y. 128, 92 N. E. 206; Hodge Averill, (Sup. Sp. T. 1907) 55 Misc. v. Sloan, (1887) 107 N. Y. 244, 11 346, 347, 105 N. Y. S. 378. State Eep. 770, 17 N. E. 335; Leslie 80. See Diamond Match Co. v. v. Lorillard, (1888) 110 N. Y. 519, Boeher, (1887) 106 N. Y. 473, 11 18 State Rep. 520, 18 N. E. 363; State Rep. 47, 13 N. E. 419, revers- New York Bank Note Co. v. Hamil- ing the early English cases. ton Bank Note Engraving, etc., Co., 81. Dunlop V. Gregory, (1851) 10 (1905) 180 N. Y. 280, 293, 73 N. E. N. Y. 241, 243; Metropolitan Opera 48; Eu Ton v. Everitt, (Sup. 1898) Co. v. Hammerstein, (Sup. 1914) 162 35 App. Div. 412, 54 N. Y. S. 896; App. Div. 691, 147 N. Y. S.. 532, Alden v. Wright, (Sup. 1916) 175 affirmed 221 N: Y. 507 mem., 116 App. Div. 692, 162 N. Y. S. 668; N. E. 1061; Ohappel v. Brockway, Central New York Telephone, etc., (Sup. 1839) 21 Wend. 157; Van Co. v. Averill, (Sup. Sp. T. 1907) 55 Marter v. Babcock, (Sup. G. T. 1857) Misc. 346, 348, 106 N. Y. S. 378; 23 Barb. 633. Wayne-Monroe Telephone Co. v. 82. Diamond Match Co. v. Roeber, Ontario Telephone Co., (Sup. Sp. T. (1887) 106 N. Y. 473, 482, 11 State 1908) 60 Misc. 435, 112 N. Y. S. 424. Rep. 47, 13 N. E. 419. See also Matthews v. Asswiated 83. Diamond Match Co. v. Roeber, Press. (1893) 136 N. Y. 333. 340, 50 (1887) 106 N. Y. 473, 482, 11 State State Rep. 9, 32 N. E. 981. § 544] ILLEGALITY 839 and the interests of society favor the utmost freedom of contract within the law, and require that business transactions should not be trammeled by unnecessary restrictions. ' ' ^* And in a later case Gray, J., says that the doctrine which avoids contracts for being in restraint of trade " had its origin at a time when the field of human enterprise was limited and when each man's industrial activity was, more or less, necessary to the. material well-being and welfare of his community and of the state. . . . The condi- tions which made so rigid a doctrine reasonable no longer exist. In the present practically unlimited field of human enterprise, there is no good reason for restricting the freedom to contract, or for fearing injury to the public from contracts which prevent a person from carrying on a particular business. Interference would only be justifiable when it was demonstrable that in some way the public interests were endangered. ' ' ^^ On the other hand, when the business to which the contract relates is of such a char- acter that it cannot be subjected even to the partial restraint which is contemplated without injury to the public interest, then such partial restraint cannot be tolerated.^ Irrespective of the ques- tion of the sale and protection of trademarks, a person may bind himself by a contract not to sell a so-called patent medicine or extract from herbs, etc., under a particular name, irrespective of the territorial extent or time limit of the restriction ; the party bound by the restriction not being precluded from making and selling the product, but only from doing so under the particular name, the restriction is not a total or general restraint of trade."" § 544. General Classification of Valid Restraints.— There are now established five general classes in which reasonable restraints may be upheld.** (1) It is recognized as of importance, as an 84. Diamond Mateli Co. v. Eoeber, partial restraint of the business of (1887) 106 N. Y. 473, 482, 11 State public service corporations. See Rep. 47, 13 N. E. 419. supra, section 441. 85. Wood V. Wihiteliead Bros. Co., 87. Pond's Extract Co. v. Hum- (190H 165 N Y 545, 551, 59 N. E. plireys' Specific Homoeopatliic Co., 3g7_ ' (Sup. Sp. T. 1875) 50 How. Pr. 358. 86 Central New York Telephone, 88. See in this connection Metro- 6tc, Co V. AveriU, (1910) 199 N. Y. politan Opera Co. v. Hammerstem, 128 134 92 N E 206, reversing 129 (Sup. 1914) 162 App. Div. 691, 147 App Div 72 114 N. Y. S. 99, which N. Y. S. 532, affirmed 221 N. Y. 507 reversed 58 Misc. 59, 110 N. Y. S. mem., 116 N. K 1061, ajid the able 273, 55 Misc. 346, 105 N. Y. S. 378. op^fn of Taft J., m (6th Cir. This principle finds its a^pplication 1898) Umted States v^ Addyston in the ca^es involving contracts in Pipe, etc., Co., 85 Fed. 271, 29 840 NEW YORK LAW OF CONTRACTS [§ 544 incentive to industry and honest dealing in trade, that after a man has built up a business with an extensive good mil, he should be able to sell his business and good will to the best advantage. He cannot do so unless he can bind himself by an enforceable con- tract not to engage in the same business to the injury of that which he is about to sell, and reasonable covenants having this object are sustained.** (2) It is considered equally good for the public and for the trade, when partners dissolve, and one takes the business or they divide it between them, that each partner be permitted to bind himself not to do anything in trade thereafter which wUl derogate from his grant of the interest conveyed to the other partner.'" (3) Also reasonable restrictions in articles of partner- ship on the business activity of the members, with a view to secur- ing their entire effort in the common enterprise, being only ancil- lary to the main object of the union, are upheld.*^ (4) "Where one in business sells property with which the buyer may set up a rival business, it is considered reasonable that the seller should be able to restrain the buyer from doing him an injury, which, but for the sale, the buyer would be unable to inflict. This is not reducing competition but is only securing the seller against an increase of competition of his own creating, and the recognition of this right is considered necessary to promote the free purchase and sale of property.'^ (5) Again, it is considered of importance that business and professional men should have every motive to employ the ablest assistants and to instruct them thoroughly. They would naturally be reluctant to do so unless such assistants were able to bind themselves not to set up a rival business in the vicinity after learning the details and secrets of the business of their employers. The right to do this was at an early date recog- ized as an exception to the general rule prohibiting contracts in restraint of trade.'^ "While these five classes cover most of the cases upholding reasonable restraints, it would be stating it too strongly to say that they include all of those upheld as valid, and addi- tional instances of valid restraints are to be found and n°w excep- tions will undoubtedly be made as new conditions arise.'* And C. C. A. 141, wherein a general divi- 92. See infra, section 549. sion of legal contracts in partial re- 93. See infra, section 548. straint of trade is made. 94. See Metropolitan Opera Co. v. 89. See infra, s'ection 546. Hammerstein, (Slip. 1914) 162 App. 90. See infra, section 550. Div. 691, 703, 147 N. Y. S. 632. 91. See infra, seotioB 550. § 545] ILLEGALITY 841 an additional class has, in very recent times, been added which relates to contracts between labor unions and their members on the one side and manufacturers or employers on the other.'^ § 545. Seasons for Rule against General Restraints. — In the earlier cases especially the courts in denouncing contracts in gen- eral restraint of trade have usually asserted several grounds for so doing : (1) on account of injury to the public in being deprived of the restricted party's industry in the particular trade or busi- ness involved; (2) injury to the party on whom the restriction operates in preventing him from earning a living for himself and his family; (3) where the restriction is general, its oppressive character and want of actual benefit to the covenantee.'* " Con- tracts, upon whatever consideration made," says Paige, J., " which go to the total restraint of trade, such as obligate a man not to pursue his occupation or exercise his trade anywhere in the state, are void. Such contracts are injurious to the public, and oper- ate oppressively upon one party, without being beneficial to the other. ' ' " Also Selden, J., says : ' ' The welfare of a state is advanced by the increase of its productive industry. It is import- ant, therefore, that each of its citizens should be free to employ himself in that department of labor in which his personal efforts will be likely to add most to the aggregate productions of the country. This is the first and leading reason for the rule in question. But there is another. The conA^enience of the public requires that all the various trades and employments of society should be pursued each in its due proportion, a result with which the exclusion of any individual from his accustomed pursuits has a tendency to interfere. These two reasons for the invalidity of contracts in restraint of trade are entirely distinct from each other; one relating to the wealth and profit, and the other to the convenience of the nation. The advancement of society and the multiplication of tradesmen and artisans of every description have undoubtedly taken something from the weight of the latter, while they have in no respect diminished the force of the former. Were it an open question, much might be said as to the sufficiency of the reasons upon which the rule was originally founded. But 95. See infra, section 572. N. Y. 244, 249, 11 State Eep. 770, 96. Bingliani v. Maigne, (Super. 17 N. E. 335. Ct. 1885) 52 Super. Ct. 90; Mitohel 97. Dunlop v. Gregory, (1851) 10 V. Eeynoldia, (1711) 1 P. Wins. 181. N. Y. 241, 243. See also Hodge v. Sloan, (1887) 107 842 XEW YORK LAW OF CONTRACTS [§546 speculation of that sort would be out of place after the numerous cases in which the doctrine has been asserted, ' ' ^ None of these reasons due to the changed methods of doing business, general competition, and enlarged opportunities for human enterprise, is now entitled to or given the same weight as was formerly- attached thereto.'' § 546. Kestraints Ancillary to Sale of Trade, Business or Pro- fessional Practice. — It is said by Andrews, J., to be " an encour- agement to industry and to enterprise in building up a trade, that a man shall be allowed to sell the good will of the business and the fruits of his industry upon the best terms he can obtain. ' ' ^ This frequently requires that the seller agree that he will not engage in business in competition with' the buyer, and it is well'recognized in our state, as elsewhere, that where the restraint is such only as to afford a fair protection to the interest of the buyer and not so great as to interfere with the interests of the public, it is not pro- hibited by any principle of public policy, and is valid and enforce- able.^ The reason for this, as said by Pendleton, J., is that " where the covenants are an incident of the sale and made only as a reasonable provision for the protection of the vendee, they are valid for the reason that they are not really' in restraint, but are, on the contrary, in the interest of freedom of trade, as they tend to permit that to be sold and disposed of which, without the 98. Lawrence v. Kidder, (Sup. Sp. Metropolitan Opera Co. v. Hammer- T. 1851) 10 Barb. 641, 648. stein, (Sup. 1914) 162 App. Div. 691, 99. Diamond Match Co. v. Roeber, 147 N. Y. S. 532, affirmed 221 N. Y. (1887) 106 N. Y. 473, 481, 11 State 507, 116 N. E. 1061; Nobles v. Bates, Rep. 47, 13 N. E. 419; Central New (Sup. 1827) 7 Cow. 307; Cha;ppel v. York Telephone, etc., Co. v. Averill, Brockway, (Sup. 1839) 21 Wend. (Sup. Sp. T. 1907) 55 Misc. 346, 347, 157; Weller v. Hersee, (Sup. G. T. 105 N. Y. S. 378. 1877) 10 Hun 431; Greite v. Hen- 1. Diamond Match Co. v. Roeber, dricks, (Sup. G-. T. 1893) 71 Hun 7, (1887) 106 N. Y. 473, 482, 11 State 53 State Rep. 851, 24 N. Y. S. 545; Rep. 47, 13 N. E. 419. United States 'Oordage Co. v. Wall's 2. Dunlop V. Gregory, (1851) 10 Son's R»pe Co., (Sup. G. T. 1895) N. Y. 241; Sander v. Hoffman, 90 Hun 429, 70 State Rep. 602, 35 (1876) 64 N. Y. 248, 50 How. Pr. 449, N. Y. S. 978; Booth v. Seibold, (Sup. reversing on other grounds 39 Super. ' Sp. T. 1902) 37 Misc. 101, 74 K Y. 8. Ct. 307; Diamond Match Co. v. Roe- 776; Jarvis v. Peck, (Chan. Ot. ber, (1887) 106 N. Y. 473, 11 State 1843) 10 Paige 118, affirming Hoffm. Rep. 47, 13 N. E. 419, affirming 35 Hun 479; Mackinnon- Pen Co. v. Fountain 421; Tode v. Gross, (1891) 127 N. Y. Ink Co., (Super. Ct. 1882) 48 Super. 480, 40 State Rep. 300, 28 N. E. 469, Ot. . 442, appeal dismissed 93 N. Y. affirming 22 State Rep. 818, 4 N. Y. S. 658; Dethlefs v. Tamisen, (Ccan. PI. 402; Ru Ton v. Everitt, (Sup. 1898) 1878) 7 Daly 354. 35 App. Div. 412, 54 N. Y. S. 896; § 54T] ILLEGALITY 843 protection of such covenants, might not be." ^ And it was held at an early date that this included the business of a common car- rier.^ It is also held that the purchaser of a business may bind himself by a covenant not to extend the business into a designated territory in opposition to a similar business conducted in such territory by the seller.^ As a person may bind himself by a con- tract that a third person will do or will refrain from doing any lawful act, the seller may enter into a valid covenant that certain of his former servants or employees will not engage in a similar business to that sold in competition with the buyer.* The same principle which permits a person on the sale of a business to enter into a contract imposing reasonable restrictions against his re-en- gaging in the business in competition with the purchaser applies to the sale by a professional man of the good will of his practice, such as the practice of a physician or the like.'' § 547. Sale of Patent or Secret Process of Manufacture.^ Pub- lic policy does not preclude a person as ancillary to a sale of a patent or a nonpatented secret process of manufacture or the like, from agreeing not to disclose the process to others or to make fur- ther use of the process whether limited as to territorial extent or not.* "Although the policy of the law," says Sir John Leach, in a leading English case, " will not permit a general restraint of trade, yet a trader may sell a secret of business and restrain him- self generally from using that secret."' " Patented inventions," 3. Metropolitan Opera Oo. v. Ham- Eep. 427, 35 N. E. 435; Smith v. merstein, (-Sup. 1914) 162 App. Div. Smith, (Sup. 1830) 4 Wend. 468. 691, 703, 147 N. Y. S. 532. 8. Tode v. Gross, (1891) 127 N. Y. 4. Chappel v. Brockway, (SUp. 480, 40 State Eep. 300, 28 N. E. 469, 1839) 21 Wend. 157. See also Leslie aflSnning 22 State Kep. 818, 4 N. Y. S. V. Lorillard, (1888) 110 N. Y. 519, 402; Hand v. Seeley, (Sup. 1865) 47 18 State Eep. 520, 18 N. E. 363. Barb. 428; Underwood v. Smith, 5. Alden v. Wrigbt, (Sup. 1916) (Com. PI. G. T. 1892) 46 State Ilep. 175 App. Div. 692, 162 N. Y. S. 668. 654, 19 N. Y. S. 380; Jarvia v. Peck, 6. Tode V. Grose, (1891) 127 N. Y. (Chan. Ct. 1843) 10 Paige 118, ai- 480, 40 State Eep. 300, 28 K E. 469, firming Hoifm. 479; Alooek v. Gil- affirming 22 State Rep. 818, 4 N". Y. S. berton, (Super. Ot. 1855) 12 Super. 402. Ct. 76; Mackinnon Pen Co. v. Foun- 7. Mott V. Mott, (Sup. Sp. T. tain Ink Co., (Super. Ct. 1882) 48 1851) U Barb. 127; Holbrook v. Stiper. Ct. 442, 443, 447. Waters, (Sup. Sp. T. 1854) 9 How. 9. Bryson v. Whitehead, (1822) Pr. 335 (agreement not to practice 1 Sim. & St. 74. This statement is medicine in the county of Oswego quoted with approval by the Chan- held a reasonable restriction and eellor in Jarvis v. Peck, (Chan. Ot. valid). See also Greenfield v. Gil- 1843) 10 Paige 118, 124. man, (1893) 140 N. Y. 168, 55 State 844 l^TEW YORK LAW OF CONTRACTS II 648 says Freedman, J., " and secrets of art or trade, not patented, are not within the purview of the rule against restraint of trade; and a trader may sell a secret in his art, and restrain himself generally from the use of it. These exceptions are allowed for the purpose of stimulating inventive genius and of encouraging science and well-directed ingenuity."^" Where the secret process involved in the business sold is known to trusted employees, the seller may bind himself by an agreement that such process will not be dis- closed by his servants, so as to render him liable in case of a dis^ closure by them.^ Thus where a covenant by the seller of a busi- ness of manufacturing cheeses, founded on a secret process, was upheld, Vann, J., said: " The business carried on by the defend- ant was founded on a secret process known only to herself and her agents. She had the right to continue the business, and, by keeping her secret, to enjoy its benefits to any practicable extent. She also had the right to sell the business, including as an essen- tial part thereof the secret process, and, in order to place the pur- chasers in the same position that she occupied, to promise to divulge the secret to them alone and to keep it from everyone else. In no other way could she sell what she had and get what it was Worth. . . . The covenant was not in general restraint of tra;de, but was a reasonable measure of mutual protection to the parties, as it enabled the one to sell at the highest price and the other to get what they paid for. It imposed no restriction upon either that was not beneficial to the other by enhancing the price to the seller or protecting the purchaser.""^ § 548. Agreement by Employee Nat to Compete. — It has been established as a general rule from quite an early date that an employee, in consideration of his employment by a tradesman, manufacturer or professional man, may bind himself, within rea- sonable limitations, by a contract not to carry on or engage in the same trade or profession, after leaving the employment. In this connection Baron Parke, in a leading English case, said: " In such a case the public derives an advantage in the unrestrained choice which such a stipulation gives to the employer of able assistants, and the security it affords that the master will not 10. Mackinnon Pen Co. v. Foun- affirming 22 State Itep. 818, 4 N. Y. S. tain Ink Co., (Super. Ot. 1882) 48 402. Super, ,Gt. 443, 447. 12. Tode v. Gross, (1891) 127 N. Y. 11. Tode T. Gross, (1891) 127 N. Y. 480, 484, 40 State Eep. 300, 28 N. E. 480, 40 State Kep. 300, 28 N. E. 469, 469. § S48] ILLEGALITY 845 withhold from the servant instruction in the secrets of his trade,. and the communication of his own skill and experience, from the fear of his afterward having a rival in the same business. ' ' " And the validity of such contracts has frequently been recognized and upheld by our courts.^^ As said by Hiscock, J., in a recent case: " It would seem that there is no fundamental principle in favor of the validity and enforceability of such an agreement in the case of the sale of a business which would not sustain a contract on a good consideration prohibiting for a limited period an employee who has entered the employment and learned the busi- ness of one employer from carrying the benefit of the information and trade secrets thus acquired into the employment and main- tenance of a competing business, and, as I read them, the authori- ties hold that a contract to prevent an employee from so doing may be enforced. ' ' ^^ And where an employer was desirous of securing itself from competition by an employee, who had long been in its employ and acquired familiarity with and experience in the business, it has been held that a contract to pay such employee, in case his employment is terminated, an annuity in consideration of his refraining from engaging in such business in competition with the employer, is not opposed to public policy.^' 13. Mallan. v. May, (1843) 11 M. 733, 62 N. Y. S. 1076; Witkop, etc., & W. 653. This statement of Baron Co. v. Boyce, (Sup. Sp. T. 1908) 61 Parke has been quoted with approvaJ Misc. 126, 112 N. Y. S. 874, affirmed by our courts. See for instance 131 App. Div. 922 mem., 115 N". Y. S. Metropolitan Opera Co. v. Hammer- 1150. stein, (Sup. 1914) 162 App. Div. 691, An early statute prohibited an em- 703, 147 N. Y. S. 532. ployer from taking from a journey- 14. McCall Co. V. Wright, (1910) man or apprentice any agreement not 198 N. Y. 143, 91 N. E. 516, affirming to exercise his trade in any partiou- 133 App. Div. 62, 117 N. Y. S. 775; lar place, 2 E. S. p. 160, § 39 (see Magnolia Metal Co. v. Price, (Sup. Domestic Relations Law, § 127; 14 1901 ) 65 App. Div. 276, 72 N. Y. S. McKinney's Cons. Laws, p. 937,— 792; Mutual Milk, etc., Co. v. Heldt, made applicable, however, to appren- (Sup. 1907) 120 App. Div. 795, 105 tices only). Thia restricts the com- N. Y. S. 661 ; Metropolitan Opera Co. mon law right of an employer to V. Hammerstein, (Sup. 1914) 162 bind his employees by agreements App. Div. 691, 147 N. Y. S. 532, af- not to exercise their trade after leav- firmed 221 N. Y. 507 mem., 116 N. E. ing the employer. Bingham v. 1061; Davies v. Racer, (Sup. 1893) Maigne, (Super. Ct. 1885) 52 Super. 72 Hun 43, 55 State Rep. 191, 25 Ot. 90. N. Y. S. 293; Stanley v. Pollard, 15. McCall Cb. v. Wright, (1910) (Super. Ct. G. T. 1893) 5 Mi«c. 490, 198 N. Y. 143, 151, 91 N. E. 516. 55 State Rep. 157, 25 N. Y. S. 766; 16. -Stover v. Gamewell F. Alarm Haekett v. A. L. & J. J. Reynolds Tel. Co., (Sup. 1914) 164 App. Div. Co., (Sup. App. T. 1900) 30 Misc. 155,. 149 N. Y. S. 650. NEW YORK LAW OF CONTRACTS U 548 It is also lield that an employee or stockholder of a corporation may bind himself, as ancillary to a contract by his employer or the corporation for the sale of the business, by a promise to the buyer not to engage in a similar business in competition with the pur- chaser." The fact that the employment is terminated by the acceptance of the employee's resignation, and not by lapse of time, is not necessarily a mutual abrogation of the contract, so as to render the agreement of the employee not to engage in business in competition with his employer ineffectual.^* Though a contract of this character may not be illegal, it does not necessarily follow that a court of equity will grant an injunction to prevent its 17. Metropolitan Opera Co. v. Hammerstein, (Sup. 1914) 162 App. IMv. 691, 147 N. Y. S. 532, affirmed 221 N. Y. 507 mem., 116 N. E. 1061; Booth V. Seibold, (Sup. Sp. T. 1902) 37 Misc. 101, 74 N. Y. S. 776. As said by Pendleton, J., in this connection : '^ If a contract by an employee with his employer not to enter into the same business or com- pete is not illegally in restraint of trad^ for the reasons above given, in order to sell hia business and good will protected by such a covenant the employer must have the right to transfer to his vendee the benefit and protection of such covenant. If the right of enforcing such a cove- nant can be vested in the vendee by assignment, it is difficult to see why the same covenant made by the em- ployee directly with the vendee, as an incident of the sale, is an illegal restraint of trade. It accomplishes directly what concededly might be accomplished indirectly, and if the contract of the employee with the employer is not illegally in restraint of trade, the same contract with the vendee of the employer, made as an incident to and part of the contract of sale where the restraint is no greater than required by the legiti- mate interest of the vendee, is equally not illegally in restraint of trade." Metropolitan Opera Co. v. Hammerstein, (Sup. 1914) 162 App. Div. 691, 703, 147 N. Y. S. 532. 18. Magnolia Metal Co. v. Price, (Sup. 1901) 65 App. Div. 276, 72 N". Y. S. 792. In this case the con- tract provided as follows : " That ' in the event of his [the employee's] connection with the pa,rty of the first part being severed under this agree- ment he will not, either directly or indirectly, connect himself with any company or firm engaged in business similar to that of the party of the first part, nor will he himself engage in 'any business that would compete with the business of the party of the first part, for a period of five years from the date of his connection being so severed;' that the plaintiff should have the right to end the agreement at any time 'for neglect of duty, wilful disobedienice of instructions, or for any conduct on the part of the party of the second part [employee] that would reflect dis- credit upon the party of the first part, or be injurious to its business interests, or reflect discredit upon its methods of conducting business;' and that the plaintiff' was to have the right to consider the agreement terminated should the defendant die, or be disabled by illness for more than thirty consecutive days." The contract having been terminated by the acceptance of the employee's res- ignation, it was held that the re- striction was banding on him. § 549] ILLEGALITY 847 breach, and, as in other cases, if under the circumstances the con- tract is an unreasonable one, this is ground for denying equitable relief for its enforcement.^' § 549. Restriction Ancillary to Sale of Property. — The courts do not hesitate to uphold, as between the parties, reasonable restric- tions ancillary to a sale of real or personal property. Thus it is well recognized that the owner of real or personal property may on its sale impose reasonable restrictions on its use by the pur- chaser, and the seller may also bind himself by restrictions ,on the use of other property which he retains.^ And so long as there is no combination constituting an illegal monopoly, a manufacturer, publisher or the like may enter into a valid agreement with a, retail dealer to whom he sells his product binding the latter not to sell such product except at a fixed or minimum price,^' includ- ing not only the goods sold by the covenantee but also goods , which the buyer might purchase from third persons.^^ Likewise no .r,ule of public policy is violated, where the question of a monopoly is not involved, by a contract by which a dealer in a commodity agrees to purchase only from, or to sell no other than the products of, a certain manufacturer,^' or whereby a manufacturer or the 19. Gilbert v. Wilmer, (Sup. Sp. T. 1918) 102 Misc. 388, 168 N. Y. S. 1043. 20. See infra, section 577. 21. John D. Park, etc., Co. v. National Wholesale Druggists' Ass^n, (1903) 175 N. Y. 1, 67 K E. 136, affirming 54 App. Div. 223, 66 N. Y. S. 615, which affirmed 30 Misc. 675, 64 N. Y. S. 276; Walsh v. Dwight, (Sup. 1899) 40 App. Div. 513, 58 N. Y. S. 91; See also Whitney v. Biggs, (County Ct. 1915) 92 Misc. 424, 156 N. Y. S. 1107. In Dr. Miles Medical Co. v. Park, etc., Co., (1911) 220 U. S. 373, 31 S. Ct. 376, 55 U. S. (L. ed.) 502, the federal Supreme Court takes the view, it seems, that the attempt of a manufacturer to restrict all whole- sale or retail dealers to whom- sales are made, as regards the minimum price at which his products are to he sold, would he an unreasonable restraint on trade, and considers the transaction somewhat on the same plane as a contract to create a monopoly, as if all the retail dealers had themselves entered into a con- tract to maintain a fixed price, and thus prevent competition, and for this reason it is held that an injunc- tion to restrain a third person from inducing a dealer to violate the con- tract is properly denied. It is diffi- cult to see the analogy thus advanced, and Mr. Justice Holmes dissents from the conclusion of the court, and in an able opinion shows with consider- able clarity that the sole question in- volved is whether a manufacturer may impose on a dealer, to be bind- ing on him alone, a restriction as to the resale price, and reaches the con- clusion that he has unquestionably this right. 22. Waleh v. Dwight, (Sup. 1899) 40 App. Div. 513, 58 N. Y. S. 91. 23. Walsh V. Dwight, (Sup. 1899) 40 App. Div. 513, 516, 58 K Y. S. 91; Matthews v. Associated Press, (Sup. G. T. 1891) 61 Hun 199, 205, 40 State Rep. 593, 15 N. Y. S. 887; Live Stock Ass'n v. Levy, (Super. Ot. v^ 8*8 NEW YORK LAW O'F CONTRACTS [§ 549 like, in consideration of the purcliase of his products, agrees not to sell to other dealers or persons,^* or to other dealers for a lower price than that received from the buyer.^ Thus an agree- ment by a clothing manufacturer, ancillary to a sale of clothing of a particular design, not to sell clothing of a similar design to others is upheld,^ and also an agreement by the manufacturer of a sideboard not to manufacture or sell a duplicate." " It cannot be," says Ingraham, J., in this connection, " that a manufacturer of merchandise cannot agree to sell to others upon condition that the vendees in selling at retail should charge a specified price for the goods sold, or should sell only the manufactured product of the manufacturer. If a dealer in articles of this kind, for his own advantage, agrees to confine his business to a particular line of goods, or agrees vnth the manufacturers to charge a particular price for the articles which he sells in his business, such an agree- ment is not illegal as in restraint of trade or as tending to create a monopoly, as there is nothing in the agreement to prevent others from engaging in the business, or the manufacturers of other articles from selling their product to any one who is willing to buy."^' It has also been held that a manufacturer of a press, particularly adapted with certain attachments to do a certain kind of printing in a specially effective way, may, on a sale of one of the presses with the special attachment, bind himself by a valid agreement not to sell a similar press to others with the attach- ment without restrictions as to the use to be made of the press by such purchasers, as the covenant is an integral part of the value of the thing sold, and is made for the purpose of protecting the covenantee from undue competition in the kind- of printing 1886) 54 Super. Ct. 32, 3 State Rep. Co., (Sup. 1899) 38 App. Ddv. 449, 514; Ebling v. Bauer, (Sup. G. T. 56 N. Y. S. 588, on prior appeal 9 1883) 17 Wkly. Dig. 497. App. Kv. 425, 75 State Rep. 763, 41 24. Stemmerman v. Kelly, (Sup. N. Y. S. 345, reversed on other 1912t;..150 App. Biv. 735, 135 N. Y. «. grounds 166 N. Y. 499, 59 N. E. 906. 82/; Van Marter v. Babcock, (Sup. 26. Blauner v. Williams Co., (Sup. G. T. 1857) 23 Barb. 633; Barber App. T. 1901) 36 Misc. 173, 73 Asphalt Co. V. Brand, (Sup. G. T. N. Y. S. 165, aflBrming 34 Misc. 823, 1889) 4 Silv. Sup. 519, 27 State Rep. 69 N. Y. S. 749. 883, 55 Hun 606 mem., 7 N. Y. S. 27. Lowenbein v. Fuldner, (Super. 744; Live Stock Ass'n v. I/evy, Ct. G. T. 1893) 2 Misc. 176, 50 State (Super. Ct. 1886) 54 Super, a. 32, Rep. 520, 21 N. Y. S. 615, affirmed 3 State Rep. 514. See also Blauner 143 N. Y. 639 mem., 60 State Rep. v. Williams Co., (Sup. App. T. 1901) 874, 37 N. E. 823. 36 Misc. 173, 73 N. Y. S. 165. 28. Walsh v. Dwight, (Sup. 1899) 25. Cohen y. Berlin, etc.. Envelope 40 App. Div. 513, 516, 58 N. Y. S. 91. § 550] ILLEGALITY 849 for which the attachment rendered the press particularly effec- tive.^' So where the manufacturer of a certain kind of quiltini? machine, the patents on which had expired, sold all the machines he had on hand, his aneillaiy agreement not to manufacture or sell any more of the machines has been upheld.^ It has also been held that an agreement by a manufacturer for the sale of asphalt, chiefly used in street paving, to a dealer in New York city, for use and sale by him in such city alone, under which the manu- facturer agreed not to sell to other dealers or users, is not illegal."^ There is nothing illegal in a contract by a manufacturer to consign to a factor or commission merchant for sale the entire product of his factory.'^ § 550. Restriction Ancillary to Paxtnership and the Like. — Partners in their articles of partnership or in their agreement for dissolution may provide for the transfer of the business and good will to one of the partners and stipulate against competition by the retiring partner.'^ As said by Allen, J., in a case of this char- acter : ' ' The partners were competent to contract that one should not engage in a particular business within a limited territory and for a specified period of time, or so long as the other should have an interest in the observance of such an undertaking, and should be capable of serving and ready to serve the public in that busi- ness. Such an agreement is not in restraint of trade, and is valid. ' ' ^* And there is nothing illegal in an agreement between 29. New York Bank Note Co. v. Cow. 307; Mott v. Mott, (Sup. Sp. T. Hamilton Bank Engraving, etc., Co., 1851) II Barb. 127; Dethlefs-v. Tam- (1905) 180 N. Y. 280, 73 N. E. 48, sen, (Com. PI. 1878) 7 Daly 354; reversing on other grounds 92 App. Boardman v. Wheeler, (Sup. G. T. Div. 427, 87 N. Y. S. 200. 1882) 15 Wkly. Dig. 325. See also 30. Excelsior Quilting Co. v. Greter, Greenfield v. Gilman, (1893) 140 (Sup. Sp. T. 1902) 36 Misc. 698, 74 N. Y. 168, 55 State Eep. 427, 35 N. E. N. Y. S. 361. 435; Metropolitan Opera Co. v. Ham- 31. Stemmerman v. Kelly, (Sup. merstein, (Sup. 1914) 162 App. Div. 1912) 150 App. Div. 735, 135 N. Y. S. 691, 701, 147 N. Y. S. 532. 827. See also Barber Asphalt Co. v. In Curtis v. Gokey, (1877) 68 N. Y. Brand, (Sup. G. T. 1889) 4 Silv. 300, it is said that if the contract is Sup. 519, 27 State Eep. 883, 55 Hun unlimited as to territory it is ille- 606 mem., 7 N. Y. S. 744. gal as in restraint of trade. 32. Hadden v. Dimick, (Sup. G. T. But as is shown later (see section 1866) 31 How. Pr. 196, 226, reversed 557), the fact that the covenant is on other grounds, 48 N. Y. 661, 13 unlimited as to territory does not. Abb. Pr. N. S. 135. according to the modern view, render 33. Curtis v. Gokey, (1877) 68 it illegal. N. Y. 300; Corwin v. Hawkins, (Sup. 34. Curtis v. Gokey, (1877) 68 1899) 42 App. Div. 571, 59 N. Y. S. N. Y. 300, 304. 603; Nobles v. Bates, (Sup. 1827) 7 54 850 NEW YORK LAW O'F CONTRACTS [§ 550 partners that upon the dissolution of the firm neither party shall engage in the same business for a very limited time, and at the old stand or placie of business or within a very limited distance therefrom.^" There is also no doubt but that the members of a business partnership may provide that none of them shall attend to any business other than that of the partnership, and that each partner who may come in shall agree not to do any other business and shall give up such business as he had theretofore done. Such an agreement is not an unlawful restraint of trade, although its direct effect might be to restrain to some extent the trade which had been done or might be thereafter done by the members as individ- uals.^^ Partners may likewise enter into a valid agreement restrict- ing the amount of the business to be done. As said by Bartlett, J. : "A man who proposes to put money into a joint undertaking with strangers may lawfully bind them not to do more business than he thinks will be warranted by the capital to be employed, even if the result be to limit the production of a particular com- modity."^' Similarly there is nothing objectionable in an agree- ment between the members of a press association engaged in the collection of news for publication in the newspapers published by them, whereby the members are restrained from publishing the news gathered by a rival association. And consequently it is held that a by-law of an incorporated association of this character, prohibiting its members from publishing the news gathered by a rival association, is not opposed to public policy.^ 35. Shearman v. Hart, (Com. PL In the Matthews case, supra, it is Sp. T. 1862) 14 Abb. Pr. 358. also held that such a by-law is not 36. Matthews v. Associated Press, invalid as an unreasonable restriction (1893) 136 N. Y. 333, 341, 50 State on the freedom of the press. Gray, J., Eep. 9, 32 N. E. 981. See also Met- saying: "As to the objection that the ropolitan Opera Co. v. Hammerstein, by-law restricts the liberty of the (Sup. 1914) 162 App. Div. 691, 701, press, I think there is no force what- 147 N. Y. S. 532. ever to it. For the purpose of eflS- 37. Standard Oil Do. v. Scofield, ciently conducting the business of (Sup. Sp. T. 1885) 16 Abb. N. Cas. procuring and supplying the news to 372. its members, the association provides 38. Matthews v. Associated Press, that no one of its mem'bers shall take (1893) 136 N. Y. 333, 50 State Rep. or publish news from any other asso- 9; 32 N. E. 981, affirming 61 Hun ciation. In what way -the liberty of 199, 40 State Rep. 593, 15 N. Y. S. the press is in the least degree re- 887. See also Dunlap's Cable News strieted by such by-law, I am unable Co. V. Stone, (Sup. Sp. T. 1891) 27 to see. The constitutional provision Abb. N. Cas. 28, affirmed 39 State regarding the liberty of speech and of Eep. 237, 15 N. Y. S. 2. the press has nothing whatever to do §§ 551, 552] ILLEGALITY 851 § 551. Agreement for Exclusive Use of Patent.— The object and effect of the patent laws is to confer on the patentee the exclusive right to use or vend the patented device, and no rule of public policy precludes him from selling the right to the exclu- sive use of the patent.'* And the fact that in granting this exclu- sive right the licensee is not required to make use of the patent does not render the agreement illegal as against public policy. " The owner," says Peekham, J., " does not possess his patent Upon the condition that he shall make or vend the article patented or allow others to do so for a fair and reasonable compensation. When he has once secured his patent, he may, if he choose, remain absolutely quiet, and not only neglect and refuse to make the patented article, but he may likewise refuse to permit any one else to do so on any terms. If the patent be a valuable one, self- interest may be relied upon as a strong enough motive to induce the owner either to take himself or to permit others to take some steps toward introducing his invention into use. How far it will go depends upon the owner, and his right to decide that question is not in the least circumscribed by the interests of the public in obtaining such machinery or invention, or a right to its use. He may keep such right himself, or make the machinery, or manu- facture the patented article alone, or he may permit others to share such right with him, or he maj^ allow them an exclusive right and retain none himself. It all follows from and is founded upon the absolute and exclusive right which the owner of the patent has in the article patented. Having such right, he must plainly be permitted to sell to another the right itself, or to agree with him that he will permit none other than such person to use it. That person need not agree to make the patented article or to sell it. It is a question solely for the parties interested. This right is necessary in order that the owner of the patent shall have the largest measure of protection under it. ' ' ^^ § 552. Necessity that Restraint Be Ancillary to Other Contract. It has been said to follow from the general tests laid down for determining the validity of agreements in restraint of trade, that no conventional restraint of trade can be enforced unless the with such a .provision, and no argu- 15, affirming 25 State Rep. 496, 6 nien,t fcan make it plainer than does IST. Y. S. 204, 53 Hun 634 mem. the reading of the constitutional pro- 40. Good v. Daland, 1890) 121 Vision itself." ^- Y. 1, 8, 30 State Eep. 636, 24 N. E. 39. Good V. Daland, (1890) 121 15. N. y. 1, 30 State Rep. 636, 24 N. E. 852 NEPIV YORK LAW US' OONTRACTO [§ 563 covenant embodying it is merely ancillary to the main purpose of a lawful contract, and necessary to protect the covenantee in the enjoyment of the legitimate fruits of the contract or to protect him from an unjust use of those fruits by the other party." And it was said by Bronson, J., in an early case, that " a man cannot for money alone, where he has no other interest in the matter, purchase a valid contract in restraint of trade, however limited may be the circle of its operation. ' ' *^ Still, while usually agree- ments of the kind have been incidental to contracts for the sale of a business, property, or the like, it has been expressly decided by the Court of Appeals that it is not essential that they should be incidental or ancillary to some such contract.*' And a fortiori in case of a contract for the sale of a business or property the fact that a separate and distinct consideration is paid for the restricting covenant or agreement does not render it an illegal restraint.** Thus where in a contract for the manufacture and sale of a printing press a price was fixed for the press, and a further consideration for the restrictive agreement of the seller not to sell a similar press to any one else, it was held that this did not render the restriction illegal, CuUen, C. J., saying: " Though the consideration is thus divided I think the contract should be treated as an entirety and that the covenant not to sell other presses should be deemed as collateral and in aid of the covenant to manufacture the press sold. "*^ § 553. Agreement for Removal or Prevention of Competi- tion. — ^Where the question of a monopoly is not involved,*" it is established in our state that a contract which has for its purpose and object the removal of a rival or competitor in business is not necessarily illegal as in restraint of trade.*^ And the same view 41. See Metropolitan Opera Co. v. Co., (1905) 180 N. Y. 280, 294, 73 Hammerstein, (Sup. 1914) 162 App. N. E. 48. Div. 691, 702, 147 N. Y. S. 532. 45. New York Bank Note Co. v. 42. Chappel v. Brockway, (Sup. Hamilton Bank Note Engraving, etc., 1839) 21 Wend. 157, 161. Co., (1905) 180 N. Y. 280, 73 N. E. 43. Wood- V. Whitehead Bros. Co., 48. (1901) 165 N. Y. 545, 550, 59 N. E. 46. See infra, section 564 et seq. as 357. See also Leslie v. Lorillard, to contracts having for their object (1888) 110 N. Y. 519, 18 State Biej). the creation of monopolies. 520, 18 N. E. 363; Brett v. Ebel, 47. Wood v. Whitehead Bros. Co., (Sup. 1898) 29 App. Div. 256, 51 (1901) 165 N. Y. 545, 59 N. B. 357, N. Y. S. 573. affirming 37 App. Div. 625 mem., 56 44. New York Bank Note Co. v. N. Y. S. 1119. See also Oakes v. Cat- Bamilton Bank Note Engraving, etc., taraugus Water Co., (1894) 143 § 553] ILLEGAMTY 853 has been taken as regards a contract which has for its object the prevention of a possible future competition.^* Thus where a per- son engaged in the business of buying and selling a certain com- modity, but with neither a business plant nor stock, entered into an agreement with a business rival whereby he agreed for a certain consideration to discontinue his business and to turn over all orders which he then had or might thereafter receive for the com- modity in question, it was held that the effect of this was to trans- fer to his rival the good will or custom of the business which he had built up and to cease to be a competitor, and was not illegal as in restraint of trade. " Heretofore," says Gray, J., " in most of the cases which had come before the courts, the covenant to refrain from a calling within a territory described accompanied a sale of the business itself, with all its appliances or appurte- nances. For obvious reasons, that would be so ; but if the calling be one which is followed without a business plant, is any principle of public policy the more violated by a covenant to discontinue it ? Clearly not, and this court has not held to that effect. Indeed, its utterances have intimated to the contrary. ' ' *^ And in an earlier case a contract under which a steamship company, in con- sideration of monthly payments, agreed to discontinue its busi- ness of running vessels between certain points was considered unobjectionable,^" and the same has been held true as regards an N. Y. 430, 62 State Hep. 445, 38 N. E. contract under which a person agrees 461; Cimiminga v. Union Blue Stone to withdraw from business and cam- Co., (1900) 164 N. Y. 401, 404, 58 petition with a rival, said: "It N. E. 525; Brett v. Bbel, (Sup. 1898) may be conceded that the law, as now 29 App. Div. 256, 51 N. Y. S. 573; understood, restrains no one from Ceballoe v. Munson Steamship Line, selling his property, nor does it com- (Sup. 1904) 93 App. Div. 593, 87 pel any one to continue a business N. Y. S. 811, reversing on other which he can sell, or finds it to his grounds 42 Misc. 22, 85 N. Y. S. 530. interest to abandon; much less to con- 48. Alden v. Wright, (Sup. 1916) tinue it for any time or in any par- 175 App. Div. 692, 162 N. Y. S. 668. ticular manner or place. However it 49. Wood V. Whitehead Bros. Co., may have teen when trade was small, (1901) 165 N. Y. 545, 59 N. E. 357, money scarce, opportunities and mar- affirming 37 App. Div. 625 mem., 56 kets few, at present the public has N. Y. S. 1119. little to fear from any individual re- in Oummings v. Unioni Blue Stone nouncing his calling and business in Co., (1900) 164 K". Y. 401, 404, 58 favor of another, and seeking a new N. E. 525, a case in whidi the con- field of activity. Contracts between tract in question* was held as illegal individuals to that eilect are not in as having for its purposesi the crea- general restraint of trade." tion of a monopoly, Landon, J., in 60. Leslie v. Lorillard, (1888) 110 reference to the rule applicable to a N. Y. 519, 18 State Rep. 520, 18 854 NEW YORK LAW OF CONTRACTS [§ 554 agreement by a person engaged in the business of freighting vessels to withdraw from such business.^^ It has also been held that a contract which has for its object the removal of the com- petition of a rival for the acquisition of a franchise, not to be let or sold to the highest bidder, and the construction of water works for supplying a municipality with water, is not opposed to pub- lic policy."^^ In another case it appeared that a corporation was engaged in a certain business, such as the cake business, its opera- tion being confined to our state, and the plaintiff, a stockholder of the corporation, was engaged in a similar business confined to the New England states. A majority of the stockholders of the corporation wished to sell its business to a new corporation; and to avoid the objection of the plaintiff and the necessity for a pur- chase by the corporation of the plaintiff's stock, it was agreed that in consideration of a sale by the plaintiff of his stock to another stockholder, the corporation would not extend the busi- ness into the New England states in competition with the plaintiff's business. It was held that this was a reasonable restraint and therefore the agreement was not illegal.^* It has also been held that if* no question of a monopoly is involved, an agreement between dealers having for its object the elimination of a ruinous competition under which they agree upon the minimum prices at which a commodity is to be sold by them is not illegal as an unreasonable restraint of trade.^* § 554. Tests as to Reasonableness of Restraint Generally. — The public interest is the first consideration in determining the validity of partial restraints as well as general restraints of trade.^° " Contracts for the partial restraint of trade," says N. E. 363. But see Murray v. Van- the public interests or the public good derbilt, (Sup. Sp. T. 1863) 39 Barb. in such an arrangement. ... If 140, 152. the parties in' this case deemed it for 51. Brett v. Ebel, (Sup. 1898) 29 the interest of both that only one App. Div. 256, 51 N. Y. S. 573. application ehould be made for a 52. Oakes v. Cattaraugus Water franchise that could be granted to but, Co., (1894) 143 N. Y. 430, 62 State one of them, the arrangement does Rep. 445, 38 N. E. 461. In this case not, as I conceive, violate any settled Gray, J., said : "Assuming that both rule or principle of public policy." the plaintiff and Cowan intended to 53. AJden v. Wright, (Sup. 1916) apply for the franchise, and that the 175 App. Div. 692, 162 N. Y. S. 668. latter persuaded the former to aban- 54. Kohart v. Skou, (Sup. 1914) don his purpose and aid him in the 163 App. Div. 899, 147 N. Y. S. 509. manner mentioned in the contract for 55. Metropolitan Opera Oo. v. the consideration promised, there was Hammerstein, (Sup. 1914) 162 App. nothing immoral or that threatened Div. 691, 702, 147 N. Y. S. 532; § 654] ILLEGALITY 855 Baron Parke, " are upheld, not because they are advantageous to the individual with whom the contract is made, and a sacrifice pro tanto of the rights of the community, but because it is for the benefit of the public at large that they should be enforced. ' ' ^* This aspect involves two considerations: (1) the interest of the public in the general increase of its wealth through the unre- strained effort of its citizens, and (2) the convenience of the public in having all the fields of necessary enterprise properly filled ; that is, the law regards the convenience of the public not less than its profit." As said by Selden, J. : " It is for the convenience of the commimity not only that all the various arts and trades should be followed, but that their pursuit should be distributed through- out the different sections of the country, so that every locality should have its appropriate accommodation. Hence the law will not tolerate a contract which excludes one individual from carry- ing on his trade in a particular locality, unless the circumstances show that his place is to be supplied by some other person of the same trade. ' ' '* The fact that the restriction may be beneficial to the person on whom it is imposed cannot itself validate the contract if it is in fact injurious to the public. As also said by Selden, J., in this connection: " It is . . . clear that the validity of the contract does not depend in the slightest degree upon the question whether -it is beneficial or otherwise to the party bound. " ^' It has frequently been said that the restriction to be valid must be found to be reasonable both with respect to the public and to the parties; that the restriction must be limited to what is fairly necessary, in the circumstances of the particular ease, for the protection of the person for whose benefit it is imposed.^" The motive of the covenantee is not the test of the Lawrence v. Kidder, (Sup. Sp. T. 57. Lawrence v. Kidder, (Sup. Sp. 1851) 10 Barb. 641, 648; Central New T. 1851) 10 Barb. 641, 650. York Telephone, etc., Co. v. Averill, 58. Lawrence v. Kidder, (Slip. Sp. (Sup. Sp. T. 1907) 55 Misc. 346, 348, T. 1851) 10 Barb. 641, 651. 105 N. Y. S. 378; Alcock v. Gil'berton, 59. Lawrence v. Kidder, (Sup. Sp. (Super, a. 1855) 12 Super, a. 76, T. 1851) 10 Barb. 641, 648. 79. See also Dr. Miles Medical Co. v. 60. Weller v. Hersee, (Sup. G. T. John D. Park, etc., Co., (1911) 220 1877) 10 Hun 431. See also Metro- U. S. 373, 406, 31 S. Ot. 376, 55 politan Opera Co. v. Hammerstein, U. 8. (L. ed.) 502. (Sup. 1914) 162 App. Div. 691, 702, 56. Mallan v. May, (1843) 11 M. 147 N. Y. S. 532. & W. 653. This statement is quoted In Lawrence v. Kidder, (Sup. Sp. with approval in Metropolitan Opera T. 1851) 10 Barb. 641, 649, however, Co. v. Hammerstein, (Sup. 1914) 162 as regards the reasonableness of the App. Div. 691, 702, 147 N. Y. S. 532. contract as affecting the parties -them- 866 NHW YORK LAW OF CONTRACTS [§ 555 validity of the restriction. A person may legally purchase the trade and business of another for the very purpose of preventing competition, and the validity of the restrictive covenant, if sup- ported by a consideration, depends on its reasonableness." The true test, therefore, would seem to be " whether the restraint is such only as to afford a fair protection to the interests of the party in favor of whom it is given, and not so large as to inter- fere with the interests of the public." ^^ And as said by Paige, J. : "A contract not to exercise a trade or carry on business in a particular place, made upon good consideration, may be upheld, where suflcient reasons are shown for entering into it. The con- tract, to be upheld, must appear from special circumstances to be reasonable and useful, and the restraint of the covenantor must not be larger than is necessary for the protection of the covenantee in the enjoyment of his trade or business."*' As also said by Bronson, J., in an early case: " Whatever may be the pecuniary consideration, it must appear, in addition, that there was some good reason for entering into the contract, and that it imposes no restraint upon one party which is not beneficial to the other."" § 555. — I — Time Limit as Test. — The fact that the restriction is unlimited as to time is not an objection to its validity if it is otherwise good.'^ selves, Selden, J., after a reference to 61. Diamond Match Co. v. Eoeber, earlier cases, says: "All this, how- (1887) 106 N. Y. 473, 11 State Rep. ever, about the reasonableness of the 47, 13 N. E. 419, affirming 35 Hun contract, its beneiits to the one or 421. the other party, the inadequacy of a 62. Diamond Match Co. v. Roeber, pecuniary consideration, etc., is ob- (1887) 106 N. Y. 473, 482, 11 State viously founded upon the erroneous Eep. 47, 13 N. E. 419. See also id«a that in regard to this species of lOhappel v. Brockway, (Sup. 1839) 21 contract the law, not content with Wend. 157; Mackinnon Pen Co. v. effectually protecting the rights of the Fountain Ink Co., (Super. Ot. 1882) public, undertakes to extend its 48 Super. Ct. 442, 447; Dethlef® v. guardianship over the private inter- Tamsen, (Com. PI. 1878) 7 Daly 354, ests of the parties concerned — to 357; Holbrook v. Waters, (Sup. Sp. supervise their acts with a view to T. 1854) 9 How. Pr. 335, 339; Dr. their own individual advantage. This Miles Medical Go. v. John' D. Park, notion cannot be reconciled with that etc., Co., (1911) 220 U. S. 373, 406, uniform policy which leaves parties 31 S. Ct. 376, 55 U. S. (L. ed.) 502. to make whatever contracts they 63. Dunlop v. Gregory, (1851) 10 please, provided no legal or moral N. Y. 241, 243. obligation is thereby violated or any 64. Chappel v. Brockway, (Sup. public interest impaired, nor with 1839) 21 Wend. 157, 160. some of the adjudications on this par- 65. Diamond Match Co. v. Eoeber, ticular subject." (1887) 106 N. Y. 473, 484, 11 State § 556] ILLEGALITY 857 § 556." Territorial Extent of Restriction as Test — Early VieWi — In the early cases both in England and in this state stress is laid on the fact that the restraint against engaging in a par- ticular trade or business was limited as to its territorial extent, and the restriction sustained because it was not general but limited as to the territory included and consequently but a partial restraint; and in a number of the earlier cases in our state the view is taken that if the covenant is unlimited as to territory it will constitute a general restraint and be illegal.^' And it has been said, in cases the majority of which sustained the covenant because it was limited in extent to a part only of the state, that if the restriction covered the whole state it would be invalid as a general restraint," as in passing on the validity of contracts of this class the court is not to look at the whole United States as constituting a single state or nation, but the rules are to be applied to a contract embracing the state of New York alone as by the common law the rules have been applied to contracts embracing the whole territory of Great Britain.*' And even as late as 1870 the Commission of Appeals, speaking through Leonard, J., observed that " agreements restraining the use of any occupation or trade beyond a locality of very moderate extent are illegal and Eep. 47, 13 N. E. 419. See also Tode son, J., in stating the general doctrine V. Gross, ( 1891 ) 127 N. Y. 480, 485, as to contracts in restraint of trade, 40 State Eep. 300, 28 N. E. 469. remarked that " contracts which go 66. Saratoga County Bank v. King, to the total restraint of trade, as (1870) 44 N. Y. 87; Curtis v. Gokey, that a man will not pursue his occu- (1877) 68 N". Y. 300, approving as to pation or carry on ■business anywhere this but reversing on the ground that in the state, are void." the contract was not unlimited as to And in Lawrence v. Kidder, (Sup. territory, 5 Hun 555; Maierv. Homan, Sp. T. 1851) 10 Barb. 641, 647, Sel- (Com. PI. 1871) 4 Daly 168. d«n, J., says: "That contracts in 67. Dunl'op V. Gregory, (1851) 10 restraint of trade, which embrace the N. Y. 241, 243; Nobles v. Bates, (Sup. entire kingdom or state, are void is a 1827 ) 7 Cow. 307 ; Chappel v. Brock- doctrine coeval with the common law. way, (Soip. 1839) 21 Wend, 157; Law- It makes no difference whether the rence t. Kidder, (Sup. Sp. T. 1851) contract is or is not limited in re- 10 Barb. 641, 647, 653; Holbrook v. spect to time. Whether the restraint Waters, (Sup. Sp. T. 1854) 9 How. be for one month or for life, if it be Pr. 335, 337. See also Witkop, etc., general and unlimited in respect to Co. V. Boyce, ( Sup. Sp. T. 1908 ) 61 space, the contract is absolutely void, Misc. 126, 112 N. Y. S. 874, aifirmed and no circumstances whatever can 131 App. Div. 922 mem., 115 N. Y. S. justify or uphold it." 1150. 68. Lawrence v. Kidder, (Sup. Sp. Thus in Chappel v. Brockway, T. 1851) 10 Barb. 641, 653. (Sup. 1839) 21 W«nd. 157, 159, Bron- 858 NEW YORK LAW O^F CX>NTRACTS [§ 557 void on grounds of public policy. " ^' As affecting the public interest or convenience the fact that the restriction, under the particular circumstances, covers more territory than the party in whose favor it is imposed can extend his activities, has been con- sidered a material consideration as affecting the validity of the restriction.'" " Not," says Selden, J., " however, for the reason that it is an unreasonable restriction upon the obligor or party bound, but because it embraces a portion of territory from which one party is excluded and which the other party cannot supply. The same reason which annexes it as a condition to the validity of such a contract that (in the language of the cases) the party with whom the contract is made shall have an interest in the restriction, which means, as I say, that he shall pursue the same business, applies with all its force to a restriction covering more territory than one person can profitably occupy. " '^ It seems that a restriction, if divisible as to its territorial extent, may be upheld in so far as it applies to a restriction limited and reasonable in its extent, though a further unlimited restriction is invalid.'^ § 557. Modern View as to Territorial Extent of Restric- tion. — The idea that the validity of the restriction, especially as applied to a covenant by the seller of a business not to re-engage in that business in competition with the buyer, is governed, if reason- ably necessary for the full protection of the buyer, by the terri- torial extent of the covenant, met the disapproval of the Court of Appeals at quite an early date, for the reason that the present means and methods of doing business have almost annihilated dis- tance and made the whole world a market for the distribution of the products of industry.'^ And where on the sale of a business 69. Saratoga County Bank v. King, 71. Lawrence v. Kidder, (Sup. Sp. (1870) 44 N. Y. 87, 91. T. 1851) 10 Barb. G41, 651. 70. Lawrence v. Kidder, (Sup. Sp. 72. Alcock v. Giberton, (Super. Ct. T. 1851) 10 Barb. 641, holding that Sp. T. 1855) 12 Super. Ct. 76. though -the restriction in question did 73. Diamond Match Co. v. Roeber, not cover *he whole state, still under (1887) 106 N. Y. 473, 11 State Esp. the circumstances, considering the 47, 13 N". E. 419. In this case, trade involved, the making of palm- Andrews, J., says : " When the re- leaf bed mattresses, it was opposed to straint is general, hut at the same public policy. Siee also Bingham v. time is coextensive only with the Maigne, (Super. Ct. Sp. T. 1885) 52 interest to be protected, and with Super. Ct. 90 (restriction against me- the benefit meant to 'be conferred, chanic or journeyman from exercising there seems to be no good reason why, his trade within 250 miles of New as between the parties, the contract is York held invalid) . not as reasonable as when the interest § 557] ILLEGALITY 859 of manufacturing matches, the seller agreed not to re-engage directly or indirectly in such business in any of the states or territories of the United States, with the exception of Nevada and Montana, it was held that the restriction was not invalid oil account of the extent of the territory covered.'* And in a later case a covenant by the seller of a business founded on a secret process not to re-engage in the business or disclose the secret pro- cess was upheld though it was unlimited as to territory yet limited as to time; Vann, J., saying that " recent cases make it very clear that such an agreement is not opposed to public policy, even if the restriction was unlimited as to both time and territory. ' ' '^ And in cases in the lower courts the restriction has been upheld though it expressly extended throughout the entire limits of the United States." The present view of our courts would seem there- fore to be that the fact that the restriction is unlimited in extent will not necessarily render it illegal or unenforceable, provided that it is reasonably necessary to protect fully the interest of the covenantee. And even if the courts have not committed them- selves to the full extent of this view, a contract in general terms unlimited as to extent may, for the purpose of sustaining its legal- ity, be restricted by the evident intent of the parties as shown by is partial and there is a correspond- 469, affirming 22 State Eep. 818, 4 ing partial restraint. And is there N. Y. S. 402. See also Eu Ton v. any real puhlio interest which neces- Everitt, (Sup.'^Igip 35 App. Div. aarily condemns the one and not the 412, 54 N. Y. S. 896; Magnolia Metal other? ... In the present state of Co. v. Price, (Sup. 1901) 65 App. the authorities we think it cannot be Div. 276, 72 N. Y. S. 792; United said that the early doctrine that con- States Cordage Co. v. William Wall's tracts in general -restraint of trade Son's Eope Co., (Sup. G. T. 1895) are void, without regard to circum- 90 Hun 429, 70 State Eep. 602, 35 stances, has been abrogated. But it N. Y. S. 978; Booth v. Seibold, (Sup. is manifest that it has been much Sp. T. 1902) 37 Misc. 101, 74 N. Y. weakened, and that the foundation S. 776; Underwood v. Smith (Com. upon which it was originally placed PI. G. T. 1892) 46 State Eep. 654, 19 has, to a considerable extent at least, N. Y. S. 380, affirmed on opinion below by the change of circtmstances, been 135 N. Y. 661, 32 N. E. 648; Mackin- removcd." noii P«" Co. v. Fountain Ink Co., 74. Diamond Match Co. v. Boeber, (Super. Ot. 1882) 48 Super. Ct. 442, (1887) 106 N. Y. 473, 11 State Eep. 443. 47 13 N. E. 419, affirming 35 Hun 76. Watertown Thermometer Co. v. 421 See also National Wall Paper Pool, (Sup. G. T. 1889) 51 Hun 157, Co V. Hobbs, (Sup. G. T. 1895) 90 20 State Eep. 592, 4 N. Y. S. 861; Hun 288, 70 State Eep. 599, 35 N. Y. United States Cordage Co. v. William g 932 Wall's Son's Eope Co., (Sup. G. T. 75 -iode V Gross, (1891) 127 1895) 90 Hun 429, 70 State Eep. 602, N. Y. 480, 40 State Eep. 300, 28 N. E. 35 N. Y. S. 978. 860 NEW YORK LAW OF CONTRACTS [§§ 558, 559 the nature of the business involved and the surrounding circum- stances." § 558. Creation of Monopoly as Test. — It has been denied by the Court of Appeals that the invalidity of contracts in restraint of trade is founded in any way on the policy of preventing monopolies. As said by Andrews, J., in this connection : "It has sometimes been suggested that the doctrine that contracts in gen- eral restraint of trade are void is founded in part upon the policy of preventing monopolies, which are opposed to the liberty of the subject, and the granting of which by the king under claim of royal prerogative led to conflicts memorable in English history. But covenants of the character of the one now in question operate simply to prevent the covenantor from engaging in the business which he sells, so as to protect the purchaser in the enjoyment of what he has purchased. To the extent that the contract prevents the vendor from carrying on the particular trade, it deprives the community of any benefit it might derive from his entering into competition. But the business is open to all others, and there is little danger that the public will suffer harm from lack of persons to engage in a profitable industry. Such contracts do not create monopolies. They confer no special or exclusive privilege. If con- tracts in general restraint of trade, where the trade is general, are void as tending to monopolies, contracts in partial restraint, where the trade is local, are subject to the same objection, because they deprive the local community of the services of the covenantor in the particular trade or calling, and prevent his beconiing a competitor with the covenantee. . . . Combinations between pro- ducers to limit production and to enhance prices are or may be unlawful, but they stand on a different footing. ' ' ■" § 559. Sherman Anti-trust Act. — The federal act known as the Sherman Anti-trust Act (Act of July 2, 1890, ch. 647, 26 U. S. Stat, at Large 209),^' entitled "An Act to protect trade and commerce against unlawful restraints and monopolies," has refer- ence to trade or commerce among the several states or with foreign nations, and it is only covenants and agreements which are in their direct effect in restraint of such trade and commerce that 77. Ru Ton v. Everitt, (Sup. 1898) validity of contracts tending to cre- 35 App. Div. 412, 54 N. Y. S. 896. ate monopolies, see infra, section 564 78. Diamond Match Co. v. Roe'ber, et seq. (1887) 106 N. Y. 473, 483, 11 State 79. 9 Fed. Stat. Ann. (2d ed.) 644. Bep. 47, 13 N. E. 419. As to the i 6*0] ILLEGALITY 861 come within the provisions of the act.*" It therefore in no way affects the validity of contracts not affecting interstate commerce, such as a contract restricting the right of the parties to engage in the Tiusiness of giving theatrical performances, though the. ter- ritorial extent of the restriction may cover several states or parts thereof, and in its pursuit an instrument of interstate commerce may be used.*i In this connection Pendleton, J., in a case involving a covenant not to give grand opera performances in New York city or Boston, said: " If the production of opera is not commerce, the fact of its production, sometimes at one place and sometimes at another, does not make it so. If, then, the thing or matter directly affected by the covenants in question is not commerce, the fact that incidentally in preparation for or to enable it to give the production plaintiff does some acts or enters into transactions of interstate commerce and uses the instrumentalities of inter- state transportation, and to that extent is at times engaged in interstate commerce, does not bring these covenants within the provisions of the act of Congress, for the reason that they do not relate to such acts or activities, and the latter are not directly affected thereby. The effect thereon, if there be any, is only incidental, secondary and remote. . . . The fact, if it be a fact, that as a result of this contract the amount of transportation from one state to another might be curtailed or other acts of interstate commerce be in similar indirect manner affected does not bring this contract within the Sherman Anti-trust Act. Such effect is incidental only and secondary."*^ § 560. Consideration for Restriction. — The contract must, as in case of other contracts, be supported by a sufficient considera- tion.^ And there are cases which take the view that in contracts of this character there must be some special consideration; that the fact that there is a consideration which would be sufficient to support an ordinary contract is not necessarily sufficient to sup- port a contract in restraint of trade.** And the fact that the con- 80. Metropolitan Opera Oo. v. Hammerstein, (Sup. 1914) 162 App. Hammerstein, (Sup. 1914) 162 App. Div. 691, 693, 147 N. Y. S. 532. Div. 691, 147 N. Y. S. 5^2, affirmed 83. Weller v. Hensee, (Sup. G. T. 221 N. Y. 507 mem., 116 N. E. 1061. 1877) 10 Hun 431. Aa to considera- 81. Metropolitan Opera Co. v. tion generally, see supra, section 232 Hammerstein, (Sup. 1914) 162 App. et seq. Div. 691, 147 N. Y. S^ 532, affirmed 84. Ohappel v. Brockway, (Sup. 221 N. Y. 507 mem., 116 N. E. 1061. 1839) 21 Wend. 157; Ross v. Sadg- 82. Metropolitan Opera Co. v. beer, (Sup. 1839) 21 Wend 166. 962 NEW YORK LAW OF CONTRACTS f§ 501 tract is under seal does not, it has been held, import a considera- tion sufficient to uphold it.*^ In so far, however, as the mere sufficiency of the consideration alone is concerned, there does not seem to be any good reason for making a distinction as to this particular class of contracts.*^ As said by Selden, J. : "In many of the early cases the language of the courts would seem to imply that the adequacy or extent of the consideration had something to do with the validity of the contract. They say that a mere pecuniary consideration is not sufficient ; that there must be some- thing, although it does not appear very clearly what, added to this to support the contract. This idea, however, of the necessity of any greater or other consideration for a contract of this descrip- tion, than any other, was obviously unfounded, and has been exploded by the recent cases. ' ' ^ § 561. General Oonstruction of Contracts in Restraint of Trade. — I While the law, to a certain extent, tolerates contracts in partial restraint of trade or business, they are not treated with special indulgence, and the restraint will not by construction be extended beyond the plain terms used and the extent of the parties.'* And where in the sale of a business a restriction against competition is imposed on the seller, the obvious purpose of the restriction is to secure the buyer against acts on the part of the seller which constitute competition in fact, and when this object is secured it will not be presumed that more was intended.^ For example, on the dissolution of a partnership between physicians, the retiring partner agreed not to practice medicine or surgery within a certain 85. RosB V. Sadigbeer, (Sup. 1839) R. Co., (Sup. G. T. 1895) 85 Hun 392, 21 Wend. 166; Weller v. Hersee, 66 State Rep. 376, 32 N. Y. S. 945; (Sup. G. T. 1877) 10 Hun 431. Dethlefs v. Tamaen, (Com. PI. 1878) 86. Iiawrence v. Kidder, (Sup. Sp. 7 Daly 354. T. 1851) 10 Barb. 641, 649. See also 89. Greenfield v. Gilman, (1893) Holbrook v. Waters, (Sup. Sp. T. 140 N". Y. 168, 173, 55 State Rep. 427, 1854) 9 How. Pr. 335, 337. 35 N. E. 435; Boardman v. Wheeler, 87. Lawrence v. Kidder, (Sup. Sp. (Sup. G. T. 1882) 15 Wkly. Dig. 325. T. 1851) 10 Barb. 641, 649. See also Dethlefs v. Tamsen, (Com. 88. Greenfield v. Gilman, (1893) PI. 1878) 7 Daly 354, 357, wherein 140 N. Y. 168, 55 State Rep. 427, 35 Van Hoesen, J., says: " It would be N. E. 435; Hammerstein Amusement most unreasonable to say that an Co. V. Keith, (Sup. 1917) 177 App. agreement not to injure an estab- Div. 198, 163 N". Y. S. 348; Lawrence lished trade by rivalry necessarily V. Kidder, (Sup. Sp. T. 1851) 10 operated as a restraint upon the Barb. 641, 655; Stull v. West- establishment of a similar business in fall, (Sup. G. T. 1891) 25 Hun 1; any locality where it would not injure Pacific Mail Steamship Co. v. Panama the purchaser, of the good will." § 561] ILLEGALITY 863 territory, and it was also agreed that ' ' to practice medicine and surgery as above mentioned shall be construed to mean to pre- scribe for, to compound medicine for, advise or visit any person sick or disabled, or to perform any act or service which the laws of the state of New York at present require to be done by a person legally qualified to practice medicine and surgery." It was held that conducting a drug store, filling prescriptions, supplying pat- ent medicines to customers suitable to their ailments without any charge for advice, and occasionally giving, in emergency, gratui- tous medical aid to persons did not constitute a violation of the restriction.^" And in case of a joint and several covenant by par- ties that " they " will desist from a certain business, the court was of the opinion that this should not be construed as a covenant that " they and each of them " will so desist, and therefore that it was not broken by one of the covenantors engaging in the busi- ness.'^ The restriction may be broad enough to include not only the act of the party on whom the restriction is imposed in engaging in the business in question on his own behalf, but also his enter- ing into the employ of a third person engaged in such business,*' and such a construction should be given to the contract where it is evident that this was the intention of the parties and necessary for the protection of the convenantee.'* Thus where the retiring member of a partnership doing a general hardware, plumbing, etc., business in a small town, covenanted not " to engage " in such business in the locality for a limited time, this was held to pre- clude him from entering the employ of a third person and solicit- ing business for him, though it would not forbid merely friendly acts in recommending such third person to the public or particular individuals.'* It is also held that a person on whom the restric- tion is imposed cannot evade it by joining with others and transact- ing the business through a corporation.'^ As regards the territorial 90. Greenfield v. Gilman, (1893) 93. Corwin v. Hawkins, (Sup. 140 N. Y. 168, 55 State Eep. 427, 35 1899) 42 App. Div. 571, 59 N. Y. S. N. E. 435, reversing 47 State Rep. 934 603. mem., 21 N. Y. S. 475 mem. 94. Corwin v. Hawkins, (Sup. 91. Lawrence v. Kidder, (Soip. Sp. 1899) 42 App. Div. 571, 59 N. Y. S. T. 1851) 10 Barb. 641, 655. 603. 92. National Wall Paper Co. v. 95. Booth v. Seibold, (Sup. Sp. T. Hobbs, (Sup. G. T. 1895) 90 Hun 288, 1902) 37 Misc. 101, 74 N. Y. S. 776; 70 State Eep. 599, 35 N. Y. S. 932; Mackinnon Pen Co. v. Fountain Ink Underwood v. Smith, (Com. PI. G. T. Co., (Super. Ct. 1882) 48 Super. Ct. 1892) 46 State Rep. 654, 19 N. Y. S. 442, appeal dismissed 93 N. Y, 658. 380. 864 NEW YORK LAW OF CONTRACTS [§ 5€2 extent of the restriction, if it admits of two interpretations one of which affords a clearly defined limit to its extent while the other leaves its boundaries loose and uncertain, the court should not hesitate, it has been said, to adopt the former.'* In case of a sale of a retail business a restriction against engaging in such business within certain limits may be broken by the systematic solicitation of the patronage of the old customers within the limits, though the new business is established outside of the limits," and this is held true though the original suggestion that someone be sent to take the orders of such customers proceeded from the customers themselves.'* So a restriction against the practice of medicine within certain limits is broken by the continued visiting of patients therein, though the residence or office of the physician is located outside of the limits.'' § 562. Assignment of Restrictive Contract. — The buyer of a business, for the benefit of which a restriction against competition has been imposed on the seller, or an employer, for the benefit of whose business an employee has bound himself not to engage in competition after leaving the employer's service, may, on a sale of the business, transfer the benefit of the restriction so as toi enable his transferee to enforce it.^ And where a purchaser of a business has taken it subject to restrictions on doing business in a particular locality, a subsequent purchaser of such business who 96. Lawrence v. Kidder, (Sup. Sp. Eep. 772, 22 N. Y. S. 722;- American T. 1851) 10 Barb. 641, 652, constru- Ice Co. v. Meckel, (Sup. 1905) 109 ing phrase "west of Albany" and App. Div. 93, 95 N. Y. S. 1060; Met- holding that it included the territory ropolitan Opera Co. v. Hammerstein, west of a meridian drawn north and (Sup. 1914) 162 App. Div. 691, 147 south through Albany, and further N. Y. S. 532, aflBrmed 221 N. Y. 507 holding that under the circumstances, mem., 116 N. E. 1061; Watertown by reason of its unreasonable extent, Thermometer Co. v. Pool, (Sup. G. T. the restriction was invalid. 1889) 51 Hun 157, 20 State Rep. 592, 97. Sander v. HoiTman, (1876) 64 4 N. Y. S. 861; Greite v. Hendricks, N. Y. 248, 50 How. Pr. 449. (Sup. G. T. 1893) 71 Hun 7, 11, 53 98. Sander v. Hoffman, (1876) 64 State Rep. 851, 852, 24 N. Y. S. 545, N. Y. 248, 50 How. Pr. 449, reversing 546; Barber Asphalt Paving Co. v. 39 Super, a. 307. Brand, (Sup. G. T. 1889) 4 Silv. Sup. 99. Smith V. Smith, (Sup. 1830) 4 519, 27 State Rep. 883, 7 N. Y. S. Wend. 468. 744, .55 Hun 606 mem. ; Booth v. Sei- 1. Diamond Match Co. v. Roeber, bold, (Sup. Sp. T. 1902) 37 Misc. 101, (1887) 106 N. Y. 473, 11 State Rep. 74 N. Y. S. 776. See also New York 47, 13 N. E. 419, affirming 35 Hun Bank Note Co. v. Hamilton Bank 421; Francisco V. Smith, (1894) 143 Note Engraving, etc., Co., (1905) 180 N; Y. 488, 62 State Rep. 803, 38 N. E. N. Y. 280, 291, 73 N. E. 48. 980, affirtning 67 Hun 225, 50 State § 563] ILLEGALITY »65 assumes all the obligations of the first purchaser will be bound by such restriction.^ § 563. Remedy by Way of Injimction.— It is well settled that courts of equity will, within proper limitations, enforce restrictive covenants given as ancillary to the sale of property or a business and the good will thereof,^ or a restraint on an employee from engaging in a rival business and the disclosure of business secrets, etc.* The power to enjoin the breach of a restrictive covenant is not necessarily excluded by the fact that a bond has been given conditioned to pay a certain sum as liquidated damages in case of a breach of the agreement.^ In this connection Andrews, J., says: " It is, of course, competent for parties to a covenant to agree that a fixed sum shall be paid in case of a breach by the party in default, and that this should be the exclusive remedy. The intention in that ease would be manifest that the payment of the penalty should be the price of nonperformance, and to be accepted by the covenantee in lieu of performance. . . . But the taking of a bond in connection with a covenant does not exclude the jurisdiction of equity in a case otherwise cognizable therein, and the fact that the damages in the bond are liquidated does not change the rule. It is a question of intention, to be deduced from the whole instrument and the circumstances ; and if it appear that the performance of the covenant was intended, and not merely the payment of damages in case of a breach, the covenant will be enforced. ' ' * Under the general principles of equity the fact that the specific enforcement of the restriction will not be of any material benefit to the one party and will work an undue hardship on the other party, as well as the general reasonableness of the contract, should be taken into consideration in determining 2. Alden v. Wright, (Sup. 1916) 442, appeal dismissed 93 N. Y. 658. 175 App. Div. 692, 162 N. Y. S. 668. 4. McCall Co. v. Wiright, (1910) 3. Diamond Match Co. v. Roeber, 198 N. Y. 143, 91 N. E. 516, affirm- (1887) 106 N. Y. 473, 11 State Rep. ing 133 App. Div. 62, 117 N. Y. S. 47, 13 N. E. 419, affirming 35 Hun 775; Davies v. Eacer, (Sup. G. T. 421; Hodge v. Sloan, (1887) 107 1893) 72 Hun 43, 55 State Rep. 191, N. Y. 244, 11 State Rep. 770, 17 N". E. 25 K Y. S. 293. 335; Leslie v. Lorillard, (1888) 110 5. Diamond Match Co. v. Eoeber, N. Y. 519, 18 State Rep. 520, 18 N". E. (1887) 106 N. Y. 473, 11 State Rep. 363; Metropolitan Opera Co. v. Ham- 47, 13 N. E. 419, affirming 35 Hun merstein, (Sup. 1914) 162 App. Div. 421. 691, 147 N. Y. S. 532, affirmed 221 6. Diamond Match Co. v. Roeber, N. Y. 507 mem., 116 N. E. 1061; (1887) 106 N. Y. 473, 486, 11 State M^ackinnon Pen Co. v. Fountain Ink Rep. 47, 13 N. E. 419. Co., (Super. Ct. 1882) 48 Super. Ct. 866 XEW YORK LAW OF CONTRACTS [§§ 564, 565 whether the court will interpose its aid toward the enforcement of the restriction. Monopolies § 564. In General. — By an early statute (2 Rev. Stat. p. 691, § 8) which is brought into our Penal Law, § 580 (39 McKinney's Cons. Laws, p. 211), it is made a misdemeanor for two or more persons to conspire to commit any act injurious to trade or com- merce. And it is expressly provided by the Act of 1899, c. 690, § 1 (re-enacting and amending Laws 1897, c. 383), which is brought into the General Business Law, § 340 (19 McKinney's Cons. Laws, p. 183), that " every contract, agreement, arrangement or com- bination whereby a monopoly in the manufacture, production or sale in this state of any article or commodity of common use is or may be created, established or maintained, or whereby com- petition in this state in the supply or price of any such article or commodity is or may be restrained or prevented, or whereby for the piirpose of creating, establishing or maintaining a monopoly within this state of the manufacture, production or sale of any such article or commodity, the free pursuit in this state of any lawful business, trade or occupation is or may be restricted or prevented, is hereby declared to be against public policy, illegal and void." By amending Law 1918, ch. 490, it is provided that the provisions " shall not apply to co-operative associations, cor- porate or otherwise, of farmers, gardeners or dairymen, including live stock farmers and fruit growers, nor to contracts, agreements or arrangements made by such associations." It has frequently been said that the prohibition is little more than a codification of the common law, on the subject of monopolies ; ' and it is well recognized that, independent of statute, contracts which have for their object the establishment of a monopoly are obnoxious to public policy and illegal.' § 565. Combinations and Agreements to Fix Prices Generally. — An agreement between manufacturers or dealers in a com- modity by which it is sought to stifle competition between them- selves and to enhance the price of an article of general commerce, has, from an early date, been denounced as illegal, and in this 7. In re Davies, (1901) 168 N. Y. Misc. 1, 107 N. Y. S. 799; People v. 89, 101, 32 Civ. Pro. 163, 61 N. E. American lee Co., (Sup. Tr. T. 1909) 118; Booth V. SeiboM, (Sup. Sp. T. 120 N. Y. S. 443. 1902) 37 Misc. 101, 74 N. Y. S. 776; 8. Falvey v. Woolner, (Sup. 1902) In re Jackson, (Sup. Sp. T. 1907) 57 71 App. Div. 331, 75 N. Y. S. 1106. § 5©5] ILLEGALITY 967 respect our statute directed against monopolies is but an announce- ment of the common law rule.* As said by Rapallo, J. : " That a combination to effect such a purpose is inimical to the interests of the public, and that all contracts designed to effect such an end are contrary to public policy, and therefore illegal, is too well settled by adjudicated cases to be questioned at this day. " ^'' To render the contract illegal it is not necessary that the commodity involved should be an article of prime necessity." Thus the courts have denounced as illegal an agreement the object of which was to stifle competition in the sale of blue stone, an article well adapted to and of general use in the construction of buildings and the like ; ^^ to control competition in the manufacture and sale of envelopes ; ^^ the manufacture, sale and erection of iron bridges and other similar structures,^* and the manufacture and sale of carbons.^^ And an agreement of a large percentage of the pub- 9. Arnot v. Pittston, etc.. Coal Co., (1877) 68 N. Y. 558, reversing on other grounds 2 Hun 591, 5 Thomp. & C. 143 ; Pittsburg Carbon Co. v. Mc- Millin, (1890) 119 N. Y. 46, 28 State Eep. 807, 23 N. E. 530, 24 Abb. N. Gas. 96, affirming 53 Hun 67, 24 State Bep. 848, 6 N. Y. S. 463, 23 Abb. N. Cas. 298; Judd v. Harrington, (1893) 139 N. Y. 105, 54 State Eep. 471, 34 N. E. 790, affirming 46 State Rep. 925, 19 N. Y. S. 406; Phoenix Bridge Co. v. Keystone Bridge Co., (1894) 142 N. Y. 425, 59 State Rep. 807, 37 N. E. 562 ; Cummings v. Union Blue Stone Co., (1900) 164 K Y. 401, 58 N. E. 525, affirming 15 App. Div. 602, 44 N. Y. S. 787; Cohen v. Berlin, etc., Envelope Co., (1901) 166 K Y. 292, 59 N. E. 906, reversing 38 App. Div. 499, 56 N. Y. S. 588, on prior appeal 9 App. Div. 425, 75 State Rep. 763, 41 N. Y. S. 345; Straus v. American Publishers' Ass'n, (1904) 177 N. Y. 473, 69 N. E. 1107, affirm- ing 85 App. Div. 446, 83 N. Y. S. 271, on second appea,! 193 N. Y. 496, 86 N. E. 525, affirmiing 127 App. Div. 935, 111 N. Y. S. 830; Falvey v. Wool- ner, (Sup. 1902) 71 App. Div. 331, 75 N. Y. S. 1106; Clanoey v. Onondaga Fine Salt Mf,^ Co., (Sup. G. T. 1862) 62 Barb. 395 ; Drake v. Siebold, ( Sup. G. T. 1894) 81 Hun 178, 62 State Rep. 694, 30 N. Y. S. 697; Strait v. Na- tional Harrow Co., (Sup. Ct. Sp. T. 1891) 18 N. Y. S. 224; De Witt Wire Cloth Co. v. New Jersey Wire-Clotli Co., (Com. PI. 1891) 16 Daly 529, 14 N. Y. S. 277, affirmed 38 State Rep. 1023 mem., 16 N. Y. S. 384. See also People V. Milk Exeh., (1895) 145 N. Y. 267, 64 State Rep. 694, 39 N. E. 1062, 9 N. Y. Crim. 459, affirming 77 Hun 436, 60 Sta,te Bep. 676, 29 N. Y. S. 259. But see Kohart v. Skon, (Sup. 1914) 163 App. Div. 899, 147 N. Y. S. 509. 10. Arnot v. Pittston, etc.. Coal Co., (1877) 68 N. Y. 558. 11. Cummings v. Union Blue Stone Co., (1900) 164 N. Y. 401, 405, 5S N. B. 525, affirming 15 App. Div. 602, 44 N. Y. S. 787. 12. 'Cummings v. Union Blue Stone Co., (1900) 164 N. Y. 401, 58 N. E 525, affirming 15 App. Div. 602, 44 N. Y. S. 787. 13., Cohen v. Berlin, etc.. Envelope Co., (1901) 166 N. Y. 292, 59 N. E. 906, reversing 38 App. Div. 499, 56 N. Y. S. 588. 14. Phoenix Bridge Co. v. Keystone .Bridge Co., (1894) 142 N. Y. 425, 59 State Rep. 807, 37 N. E. 562. 15. Pittsburg Carbon Co. v. Mc- Millin, (1890) 119 N. Y. 46, 28 State 868 NEW YORK LAW OF OONTRACTS [§ 566 Ushers of uncopyrighted books, by which they attempt to compel retail dealers to sell the books published by the parties to the agreement art the price fixed by each publisher on his own product, has been held illegal.^^ And in several early cases an agreement of the whole or a large part of the proprietors of boats on the Brie and Oswego canals, having for its object the fixing of the freight and passenger rate to be charged by the several parties and a pro rata distribution of the earnings, was held illegal and an action based thereon dismissed." Though usually, in order to effect its object, the combination is that of a large percentage of the dealers generally or of the dealers in a particular locality, it is said by Landon, J., that ' ' the same evil principle pervades both large and small combinations; all are alike offenders, differing in degree but not in kind."^* § 566. Contract in Aid of Monopolistic Scheme. — The law not only denounces contracts between manufacturers or dealers in an ordinary commodity -of commerce by which they directly attempt to stifle competition and fix the price of such article in its sale to the public, but also all devices to evade this wholesome rule." And the fact that the person with whom a contract is made by certain manufacturers or dealers who have entered into a combina- tion for the illegal purpose of controlling competition is not a party to the illegal combination will not prevent the contract from being declared illegal, if the object and purpose of the contract is to further or aid the illegal object of the combination. Thus in a case it appeared that a large percentage of the manu- Bep. 807, 23 K E. 530, 24 Abb. N. 18. aimmings v. Union' Blue Stone Cas. 96, affirming 53 Hun 67, 24 State Co., (1900) 164 N. Y. 401, 404, 58 Rep. 848, 6 N. Y. S. 463, 23 Abb. N". N. E. 525. Cas. 298. 19. Pittsburg Carbon Co. v. McMul- 16. Straus v. American Publishers' lin, (1890) 119 N. Y. 46, 28 State Ass'n, (1904) 177 N. Y. 473, 69 N. E. Rep. 807, 23 N. E. 530, 24 Abb. N. 1107, affirming 85 App. Div. 446, 83 Cas. 96, affirming 53 Hun 67, 24 N. Y. S. 271, on second appeal 193 State Rep. 848, 6 N. Y. S. 463, 23 N. Y. 496, 86 N. E. 525, affirming' 127 Abb. N. Cas. 298; Judd v. Harring- App. Div. 935, 111 N. Y. S. 830. ton, (1893) 139 N. Y. 105, 54 State 17. Hooker v. Vandsewater, (Sup. Rep. 471, 34 N. E. 790, affirming 46 1847) 4Denio349; Stanton v. Allen, State Rep. 925, 19 N. Y. S. 406; (Sup. 1848) 5 Denio 434. As regards Unckles v. Colgate, (1896) 148 N. Y. the legality of a contract by a single 529, 43 N. E. 59, affirming 72 Hun manufacturer with his customers to 119, 55 State Rep. 522, 25 N. Y. S. maintain the retail price of his prod- 672; Cohen v. Berlin, etc., Envelope ucts, see infra, section 570. Co., (1901) 166 N. Y. 292, 59 N. B. 906. § 566] ILLEGALITY 869 facturers of envelopes, who had entered into a combination to control the price, made an agreement with an independent manu- facturer, who would not become a party to the combination, the general purpose of which was to secure to such independent manu- facturer, under the guise of a purchase of the entire product of his factory, a sale by such manufacturer to the public of his entire product at prices to be fixed by the members of the illegal combina- tion. The contract bound the independent manufacturer not to sell any envelopes to the public at a less price than that so fixed. It was held that as the agreement was entered into in furtherance of the illegal scheme of the combination to control the price to the public, it was itself illegal and no action could be maintained by the independent manufacturer for its breach by the other party.^" In another case it appeared that a large number of commission brokers doing business in New York city entered into an association agreement to pool all commissions received by them on the sale of sheep and lambs, the fund so provided to be divided among themselves on a fixed basis. Supplemental to such agree- ment the brokers entered into another agreement with a great many of the butchers of the vicinity, under which the brokers agreed not to engage in the business of slaughtering sheep for the local market, and the butchers agreed to purchase all sheep which they slaughtered from the brokers or to pay a certain amount on all animals purchased from others. It was held that the two agreements, which should be read together, showed an illegal com- bination to control the price of meat and that no action could be maintained to enforce the agreement of the brokers to pool their commissions.^^ So where a mine operator entered into a contract for the sale of a certain amount of coal per month, not binding the buyer to take the whole product of the mine and leaving it optional with the seller as to the amount he would deliver, and the seller had knowledge that the buyer was attempting to secure a monopoly of the coal trade of a certain district and that he had similar contracts with a large number of other mine owners, supplying the district in question, and agreed not to ship any coal into such 20. Oohen v. Berlin, etc., Envelop© 21. Judd v. Harrington, (1893) 139 Co., (1901) 166 N. Y. 292, 59 N. E. N. Y. 105, 54 State Eep. 471, 34 N. E. 906, reversing 38 App. Div. 499, 56 790, affirming 46 State Eep. 925, 19 N. Y. S. 588, whioh followed decision N. Y. S. 406. on prior appeal 9 App. Div. 425. 75 State Rep. 763, 41 N. Y. S. 345. 870 NEW YORK LAW OF CONTRACTS [§ 56i7 district, the contract of sale was held illegal as having for its pur- pose the creation of a monopoly.^^ The fact that a seller of goods is a party to an illegal combination to stifle competition in the manufacture and sale of a commodity will not preclude him, it seems, from maintaining an action to recover from a buyer the price, or at least the reasonable value, of the commodity sold and delivered, where the latter was not a party to the combination and the sale was not entered into in aid of the illegal combination.^' A contract by a manufacturer or the like for the sale of even the entire product of his factory is not rendered illegal so as to pre- clude a recovery by him thereon, because he has knowledge that the object of the purchaser is to secure a monopoly in the sale of the commodity to the public, provided the seller does nothing beyond making the sale to aid the illegal purpose of the buyer.^* Likewise the mere fact that a lessor of a factory or the like has knowledge that the object of the lessee is to secure a monopoly in the production and sale of a commodity, by acquiring control of all or practically all of the establishments engaged in the pro- duction of such commodity, has been held not to render the lease illegal and preclude its enforcement by the lessor.^^ § 567. Contracts to Corner Market. — An agreement between persons to buy up and withhold from the market a commodity of general use or necessity, in order to corner the market and thus advance the price of the commodity to the public, is held illegal.^^ Such an agreement is a conspiracy to do an act injurious to trade and commerce and within the prohibition of the penal laws directed against unlawful conspiracies (2 R. S. p. 692, § 8, subd. 6; Penal Law, § 580; 39 McKinney's Cons. Laws, p. 211), and a 22. Arnot v. Pittston, etc., Coal 1857) 23 Baub. 633; Olancey v. On- Oo., (1877) 68 N. Y. 558, reversing ondkga Fine Salt Mfg. Co., (Sup. on other grounds 2 -Hun 591, 5 G. T. 1862) 62 Barb. 395. Thomp. & C. 143. 25. Brooklyn Distilling Co. v. 23. Dra-ke v. Siebold, (Sup. G. T. Standard Distilling, etc., Co., (Sup. 1894) 81 Hun- 178, 62 State Rep. 694, 1907) 120 App. Div. 237, 105 N. Y. S. 30 N. Y. S. 697. See Pittsburg Oar- 264, affirmed on- other grounds 193 bon. Co. V. McMillin, (1890) 119 N. Y. 551, 86 N. E. 564. N. Y. 46, 28 State Rep. 807, 23 N. E. 26. Leonard V. Poole, (1889) 114 530, 24 Abb. N. Cas. 96, affirming 53 N. Y. 371, 23 State Rep. 753, 21 N. E. Hun 67, 24 State Rep. 848, 6 N. Y. S. 707, affirming 55 Super. Ot. 213, 13 463, 23 Abb. N. Cas. 298 (quare). State Rep. 305, 28 Wkly. Dig. 61; 24. Arnot v. Pittston, etc., Coal Keene v. Kent, (Sup. Q. T. 1886) Co., (1877) 68 N. Y. 558. See also 4 State Rep. 431, 7 State Rep. 229 Van Marter v. Babcock, (Sup. G. T. (land). § 56.8] ILLEGALITY 871 contract having for its object the carrying out of such a con- spiracy is illegal as in violation of the penal statute." § 568. Necessity for Undue Advance of Price.— In a case of contracts having for their object the creation of monopolies, it is not necessary to render the agreement illegal that the price of the commodity has in fact been unduly enhanced; its illegality is due to what may be done to the injury of the public rather than what has in fact been done.^ As said by Landon, J.: " The scope of the contract, and not the possible self-restraint of the parties to it, is the test of its validity. They could raise prices to what they supposed the market would bear, and as they expected to supply nearly the entire demand of the market, the temptation to extortion was unusually great. ' ' ^ And the fact that the com- bination is for the purpose of enabling the parties to prevent a ruinous competition and to secure reasonable prices only will not render the contract valid.'" It has also been held that the fact that a combination between distributors of milk may have been for the primary purpose of reducing the price to be paid to the farmer or producer did not render it legal, Haight, J., saying: " It may be claimed that the purpose of the combination was to reduce the price of milk, and that it being an article of food such reduction was not against public policy. But the price was fixed for the benefit of the dealers, and not the consumers, and the logical efl'ect upon the trade of so fixing the price by the com- bination was to paralyze the production and limit the supply, and thus leave the dealers in a position to control the market, and at their option to enhance the price to be paid by the consumers. This brings the case within the condemnation of the authorities to which we have referred." ^ 27. Leonard v. Poole, (1889) 114 Kohart v. Skou, (Sup. 1914) 163 App. ISr. Y. 371, 23 State Eep. 753, 21 N. E. Div. 899, 147 N. Y. S. 509. 707, affirming 55 Super. Ct. 213, 13 29- Cumminga v. Union Blue Stone State Rep. 305. Co., (1900) 164 N. Y. 401, 404, 58 N" E 525 28. Judd V. Harrington ( 1893 ) 139 g^ " q^^^ ^ ^nion Blue Stone F. Y. 105, 109, 54 State Itep. 471, 34 ^^^ ^^g^^j f^^ ^_ Y. 401, 404, 58 N. E. 790; Cummings v. Union Blue j^ j, ggs. But see Cohen v. Berlin, Stone Co., (1900) 164 N. Y. 401, 404, ^^ ^ Envelope Co., (Sup. 1899) 38 58 N. E. 525; Straus v. American ^pp jy^^ 499^ 55 n. Y. S. 588, re- Publiahers' Ass'n, (1904) 177 N. Y. versed 166 N. Y. 292, 59 N". E. 906. 473, 477, 69 N. E. 1107; Strait v. 31. People t. Milk Exch., (1895) National Harrow Co., (Sup. Sp. T. 145 N. Y. 267, 274, 64 State Rep. 1891) 18 N. Y. S. 224, 233. But see 694, 39 N. E. 1062, 9 N. Y. Crim. 459. 872 NEW YORK LAW OF CONTRACTS [§ 569 § 569. Partial Restraints on Trade. — Neither the common law rule nor the present statutes directed ag-ainst monopolies, or against acts injurious to trade or commerce, preclude parties from entering into contracts though their effect is to impose a partial and reasonable restraint on trade or commerce. To bring a trans- action within their inhibition it must tend to or have for its pur- pose the creation of a monopoly, and therefore persons are still at liberty to enter into contracts whereby reasonable restraints are imposed on one as regards his engaging in a particular trade or business in competition with the person for whose benefit the restraint is imposed. Such contracts, where the restraint is restricted to a single person or even a limited number of persons, do not create or tend to create a monopoly.^^ Thus in a case where a common carrier by vessel between certain ports imposed, as a condition to a reduced rate for the carriage of goods shipped during the week when the vessel of a rival carrier sailed, that the shipper agree to ship all his goods by the carrier, this was upheld as valid though it did tend to drive the rival carrier out of busi- ness, O'Brien, J., saying: " The monopoly which the law views with disfavor is the manipulation of a business in which the public are interested in such a way as to enable one or a few to control and regulate it in their own interest and to the detriment of the public by exacting unreasonable charges. But when an individual or a corporation has established a business of a special and' limited character, such as the defendants in this case had, they have a right to retain it by the use of all lawful means. That was what the defendants attempted to do against a competitor that engaged in it, not regularly or permanently, but incidentally and occasion- ally. The means adopted for this purpose was to offer the service to the public at a loss to themselves whenever the competition was to be met and when it disappeared to resume the standard rates, which, upon the record, did not at any time exceed a reasonable 32. Lough V. Outerbridge, (1894) merman v. Kelly, (Sup. 1912) 150 143 N. Y. 271, 62 State Rep. 324, 38 App. Div. 735, 135 N. Y. S. 827; N. E. 292; Brett V. Ebel, (Sup. 1898) Alden v. Wright, (Sup. 1916) 175 29 App. Div. 256, 51 N. Y. S. 573; App. Div. 692, 162 N. Y. S. 668; Walsh V. Dwight, (Sup. 1899) 40 Ohappel v. Broekway, (Sup. 1839) App. Div. 513, 58 N. Y. S. 91; Export 21 Wend. 157, 163; Booth v. Seibold, Lumber Co. v. South Brooklyn Saw- (Sup. 8p. T. 1902) 37 Misc. 101, 74 mill Co., (Sun. 1000) 54 App, Div. N. Y. S. 776. See supra; section 543 518, 67 N. Y. S. 626; Ceballos v. Mun- et seq., as to the general validity of son Steamship Line, (Sup. 1904) 93 contracts in partial restraint of App. Div. 593, 87 N. Y. S. 811 ; Stem- trade. § 570] ILLEGALITY 873 and fair charge. I cannot perceive anything unlawful or against the public good in seeking by such means to retain a business which it does not appear was of sufficient magnitude to furnish employment for both lines." ^ It has also been held that an agree- ment by practically all of the dairymen farmers of a community to sell and deliver their milk, except that needed for family pur- poses, to a certain creamery established by them, is not against public policy as creating an unlawful monopoly.'* § 570. Price Fixing Agreement by Single Manufacturer. — The federal Supreme Court has taken the view that a scheme by a single manufacturer, such as a manufacturer of proprietary medicines under a secret process, by which he undertakes to fix the retail price at which his medicines are to be resold by all whole- sale or retail dealers to whom they have been sold by the manu- facturer, is opposed to public policy as tending to create a monopoly and as opposed to the federal Anti-trust Act, the court placing the transaction on the same basis as though the retail dealers had between themselves entered into such a combination or agreement which concededly would be illegal.^' In this connection Mr. Justice Hughes says: " If there be an advantage to a manu- facturer in the maintenance of fixed retail prices, the question remains whether it is one which he is entitled to secure by agree- ments restricting the freedom of trade on the part of dealers who own what they sell. As to this, the complainant can fare no better with its plan of identical contracts than could the dealers them- selves if they formed a combination and endeavored to establish the same restrictions, and thus to achieve the same result, by agree- ment with each other. If the immediate advantage they would thus obtain would not be sufficient to sustain such a direct agree- ment, the asserted ulterior benefit to the complainant cannot be regarded as sufficient to support its system. But agreements or combinations between dealers, having for their sole purpose the destruction of competition and the fixing of prices, are injurious to the public interest and void. They are not saved by the advan- tages which the participants expect to derive from the enhanced 33. Lough V. Outerbridge, (1894) 35. Dr. Miles Medical Co. v. John 143 N Y 271, 282, 62 State Rep. D. Park, etc., Co., (1910) 220 U. S. 324, 38 N. E. 292. 373, 31 S. Ct. 376, 55 U. S. (L. ed.) 34. Castorland Milk, etc., Co. v. 502. Shantz, (Sup. Sp. T: 1919) 179 N. Y. S. 131. 874 NEW mmi LAW. of contracts i§ 571 price to the consumer. ' ' =« Prior to this decision by the federal court our Court of Appeals sustained as valid an agreement between a dealer and a single manufacturer, ancillary to the sale by the manufacturer, fixing the price at which the product of the manufacturer was to be resold by the dealer." In so far as the decision of the federal Supreme Court is to be considered an annunciation of the rule of the common law, it is not controlling on our courts, and they are not bound thereby; if, however, it is a construction of the federal Anti-trust Acts, it is binding in so far as foreign and interstate commerce are concerned. § 571. Labor Unions. — It is well settled in our state that the organization or co-operation of workingmen is not of itself against any rule of pu:blic policy, and must be regarded as having the sanction of the law, where it is for such a legitimate purpose as that of obtaining an advance in the rate of wages, or of main- taining or improving working conditions, or the like.^* And the 36. Dr. Miles Medical Co. v. John D. Park, etc., Co., (1910) 220 U. S. 373, 407, 31 S. Ct. 376, 55 U. S. (L. E. ) 502. In this ease Holmes, J., dissents, and in the course of his opinion very aptly says: " The sale to the retailers is made by the plain- tiff, and the only question is whether the law forbids a purchaser to con- tract with his vendor that he will not sell below a certain price. This is the Important question in this case. I suppose that in the case of a single object, such as a painting or a statue, the right of the artist to make such a stipulation hardly would be denied. In other words, I suppose that the reason why the contract is held bad is that it is part of a scheme em- br.acing other similar contracts each of which applies to a number of simi- lar things, with the object of fixing a general market price. This reason seems to me inadequate in the case before the court. In the first place, by a slight change in the form of the contract the plaintiflF can accomplish the result in a way that would- be beyond successful attack. If it should make the retail dealers also agents in law as well as in name and retain the title until the goods left their hands, I cannot conceive that even the present enthusiasm for regulating the prices to be charged by other peo- ple would deny that the owner was acting within -his rights. It seems to me that this consideration by itself ougiht to give us pause. But I go farther. There is no statute cover- ing the case; there is^ no body of precedent that by ineluctable logic requires the conclusion to which the court has come. The conclusion is reached by extending a certain con- ception of public policy to a new sphere. On such matters we are in perilous country. I think that, at least, it is safe to say that the most enlightened judicial policy is to let people manage their own business in ■their own way, unless the ground for interference is very clear." 37. John D. Park, etc., Co. v. National Wholesale Druggists' Ass'n, (1903) 175 N. Y. 1, 67 N. E. 136, affirming 54 App. Div. 223, 66 N. Y. S. 615, which affirmed 30 Misc. 675, 64 N. Y. S. 276. See supra, section 549, as to whether an agreement between seller and buyer fixing the resale price is in general restraint of trade and illegal, 38. Curran v. Oalen, (1897) 152 [§ 572 ILLEGALITY 875 legality of such unions is impliedly recognized in the Labor Law, § 15 et seq. (30 McKinney's Cons. Law, p. 47 et seq.), which authorizes a labor union to adopt a device in the form of a label for the purpose of designating the products of the labor of its members and affords protection against the unauthorized use of such label. And an agreement between workmen not to work for less than a fixed wage, and on failure to perform their agree- ment to forfeit a certain amount as liquidated damages, has been held valid and enforceable.^' Also, as is shown in the following section, an agreement between employees on the one side and an employer on the other, whereby the latter is restricted to the employment only of members of a labor union to which such employees belong is upheld. If, however, the purpose of an organ- ization or combination of workmen is to hamper or restrict the freedom of the citizens in pursuing their lawful trade or calling, and through contracts and arrangements with employers to coerce other workmen, under the penalty of the loss of their positions and of deprivation of employment, such purpose is against public policy and illegal." " Public policy," says our Court of Appeals in a per curiam opinion, " and the interests of society favor the utmost freedom in the citizen to pursue his lawful trade or calling, and if the purpose of an organization or combination of working- men be to hamper or to restrict that freedom, and through con- tracts or arrangements with employers to coerce other working- men to become members of the organization and to come under its rules and conditions, under the penalty of the loss of their position and of deprivation of employment, then that purpose seems clearly unlawful and militates against the spirit of our government and the nature of our institutions. The effectuation of such a purpose would conflict with that principle of public policy which prohibits monopolies and exclusive privileges. It would tend to deprive the public of the services of men in useful employments and capacities. ' ' *^ § 572. Labor Union and Employers' Association Agreemeats. — The organization of labor unions and their activities have resulted N Y 33 46 N. E. 297; Jacobs v. 40. Curran v. Galen, (1897) 152 Cohen, (1905) 183 N. Y. 207, 76 N. Y. 33, 46 N. E. 297. N E 5. 41. Curran v. Galen, (1897) 152 39. Master Stevedores' Aas'n v. N. Y. 33, 37, 46 N. E. 297. Walsh, (Com. PI. Sp. T. 1867) 2 Daly 1. 876 NEW YORK LAW OF CONTRACTS [§ 572 in the execution of an agreement between such unions on the one side, and manufacturers on the other side, commonly known as the closed-shop agreement. Under this agreement, in addition to fixing the hours of labor, wages, etc., the manufacturer agrees for a certain period not to employ any help whatsoever other than those belonging to and who are members of the union, and in good standing, and who conform to the rules and regulations of the union, and to cease to employ, after notice from the proper representatives of the union, any persons who are not members of the union or who are not in good standing. The union and the employees on their part agree to render their services and to furnish the services of the members of the union as required by the manufacturer. Objection has been made to the validity of such a contract that it is an unreasonable restraint of trade and has for its purpose the combination of employers and employees, whereby the freedom of the citizen in pursuing his lawful trade and calling is, because of such contract, combination, and arrange- ment, hampered and restricted, and an unlawful coercion is brought to bear to force them to join the union under the penalty of the loss and deprivation of employment. Our Court of Appeals has denied the full force of such an objection and has held that such a contract is not necessarily illegal.*^ It has also been held that a contract of this character with an incorporated labor union is for the benefit of its members, and where a member, without knowledge of the agreement with the union, consents to work for the manufacturer for a less compensation than that agreed on in the contract with the union he is entitled to recover the excess compensation for the time he worked in ignorance of the agree- ment." This principle, however, it is pointed out, does not sanc- tion oppressive conduct on the part of unions to compel persons to become members or does not relieve the unions from liability in accordance with the prior decision of our courts for their unrea- sonable and unlawful conduct in preventing nonunion persons from following their respective trade and calling." And it has 42. Jax;obs v. Cohen, (1905) 183 43. Gulla v. Barton, (Sup. 1914) N. Y. 207, 76 N. E. 5, reversing 99 164 App. Div. 293, 149 N. Y. S. 952. App. Div. 481, 90 N. Y. S. 854. See 44. Jacobs v. Cohen, (1905) 183 also Mills V. United States Printing N. Y. 207, 212, 76 N. E. 5, distin- Oo., (Sup. 1904) 99 App. Div. 605, guishing Curran v. Galen, (1897) 91 N Y. S. 185; Gulla v. Barton, 152 N. Y. 33, 46 N. E. 297. (Sup. 1914) 164 App. Div. 293, 149 N. Y. S. 952. § 573] ILLEGALITY 877 been held that while an individual employer may agree with a labor union to employ its members only, an agreement entered into between all or a large part of the employers in a community to employ only such laborers as join a union approved by them, being oppressive by operating generally on the craftsmen in the trade and imposing on them the penalty of inability to secure employ- ment unless they join the favored union, is against public policy, and a penal bond given by a party as security for his performance of the agreement cannot be enforced." An agreement between employers not to employ laborers unless the latter sign an agree- ment not to strike before submitting their grievances to arbitration has been upheld.*^ There would also seem to be no objection to a provision in a contract between individuals or private corpora- tions engaged in construction Work or the like that only members of a labor union should be employed on the work; but it may be' noted in this connection that where a contract on the part of a municipal or quasi-municipal corporation is required to be let to the lowest bidder, the corporation has no right to insert such a provision in the contract or as a part of the specifications for the work to be done, as this would not be a compliance with the requirement as to letting the contract on competitive bidding and would be an unlawful preference in favor of union labor.*^ An agreement between the members of an association of master steve- dores that they will charge a minimum price for services has been held to be opposed to public policy, and an action has been sustained to recover the stipulated damages for its breach.*^ § 573. Copyrighted Books and Patented Articles; Manufac- tures under Secret Process. — Our Court of Appeals has taken the view that as the object of copyright and patent statutes is to give monopolies, contracts made to secure the protection and enjoy- ment of such a monopoly are not condemned,** and that therefore the publishers of copyrighted books may enter into a valid agree- 45. McCord v. Thompson-Starrett 48. Master Stevedores' Ass'n v. Co., (Sup. 1908) 129 App. Div. 130, Walsh, (Com. PI. 1867) 2 Daly 1. 113 N. Y. S. 385, reversing 112 49. Straus v. American PuWishere' N. Y. S. 902, and affirmed 198 N. Y. Ass'n, (ISO®) 193 N. Y. 496. 86 N. E. 587 mem., 92 N. E. 1090. 525, affirming 127 App. Div. 935, 111 AB n-i rr J. ^ /^ TT7 ij N'- Y. S. 830, on prior appeal 177 46. City Trust, etc Co v Wald- ^^ ^ gg ^^ I 1107, affirming hauer, (Sup. Tr. T. 1905) 47 Misc. ^^ ^^^ ^.^ 44g 83 j^ ^ g 371 . 7, 95 X. Y. S. 222. Murphy v. Christian Press Ass'n 47. People V. Edgoomb, (Sup. 1906) Pub. Co., (Sup. 1899) 38 App. Div. 112 App. Div. 604. 98 N. Y. S. 965. 426, 430, 56 N. Y. S. 597. 878 XEW YORK LAW OF OOXTRACTS [§ 573 ment among themselves that they will sell, such books only to dealers who agree to resell the books at a fixed price.'" And in an eaiiier case the same view was taken as regards a combination between the manufacturers of proprietary medicines, the object of which was to compel wholesale and retail dealers to conform to the selling price fixed by each member of the association on his own proprietary medicines.'^ On the other hand, the view has been taken by the Supreme Court that a combination of the manu- facturers of a commodity or article of a particular class, such as harrows, though the articles of the several parties are manu- factured under separate patents, whereby they attempt to fix the price at which their product is to be sold by them, would be illegal.'^ The question as to the operation and effect of the copyright and patent statutes is a federal question, and as a general rule the decision of the federal Supreme Court thereon is controlling. It 50. Straus v. American Publishers' Ass'n, (1904) 177 N. Y. 473, 69 N. E. 1107, affirming 85 App. Div. 446, 83 N. Y. S. 271, on subsequent appeals 193 N. Y. 496, 86 N. E. 525, 199 N. Y. 548 mem., 93 N. E. 1133, affirming 127 App. Div. 935 mem.. Ill N. Y. S. 830, with dissenting opinions by Ingrabam and McLaughlin, JJ. On the first appeal in this case the Court of Appeals was unanimous as regards the right of the owners of copyright books to enter into agree- ments or combinations to fix the re- tail price. Between the time of the first appeal and the second appeal the case of Bobbs-Merrill Co. v. Straus, (1908) 210 U. S. 339, 28 S. Ct. 722, 52 U. S. (L. ed.) 1086, was decided. This decision merely decided that the owner of a copy- right could not on a sale of the book impose any restrictions on its resale whidh would bind subsequent pur- chasers of the book; that is, that the restriction ca,nnot be made to run with the book. But there are state- ments in the opinion of the court which tend somewhat to the view that the copyright and patent stat- utes in no way extend the right of owners of separate copyrights or patents to enter into combinations to fix the price at which the books or patented articles may be resold by persons to whom they are sold in the first instance; and on the ground that under this decision no special right is conferred to enter into monopolistic agreememts, Ingraham and McLaughlin, JJ., dissented, and took the position that the patent and copyright statutes confer no addi- tional power on the owners of patents and copyrights to combine and con- trol the price of their products. This is also the view taken by Willard Bartlett, J., in the Court of Appeals on the second appeal, and Cullen, Oh. J., and Ohase, J., concur with him. 51. John D. Park, etc., Co. v. National Wholesale Druggists' Ass'n (1903) 175 N. Y. 1, 67 N. E. 136, affirming 54 App. Div. 223, 66 N. Y. S. 615, which affirmed 30 Misc. 675, 64 N. Y. S. 276. 52. National Harrow Co. v. Beraent, (Sup. 1897) 21 App. Div. 290, 47 N. Y. S. 462, reversed on other grounds 163 N. Y. 505, 57 N. E. 764, which is affirmed 186 U. S. 70, 22 S. Ot. 747, 46 U. S. (L. ed.) 1058. § 573] ILLEGALITY 879 has been decided by this court that the owner of a patent and, it would seem, a copyright, may contract with buyers as to the price at which the articles or books may be resold, and that such a contract is binding as between the parties.'^ As said by Mr. Justice Peckliam: " The very object of these laws is monopoly, and the rule is, with few exceptions, that any conditions which are not in their very nature illegal with regard to this kind of property, imposed by the patentee and agreed to by the licensee for the right to manufacture or use or sell the article, will be upheld by the courts. The fact that the conditions in the contracts keep up the monopoly or fix prices does not render them illegal. ' ' ^* But it is the established doctrine of the court that the statutes do not confer any power or right on the owner of the patent or copy- right, by which he can, after a sale of a patented article or a copyrighted book, impose any restriction on its use or resale which will be binding on third persons who may thereafter acquire title to the article or book sold.^^ Until fairly recently it was considered a debatable question in the federal court whether the monopolistic character of the copy- right and patent statutes imposed such a special character on copyrighted books and patented articles as to take them out of the category of commodities within the general prohibition of agreements or combinations to create monopolies in their sale ; '^ 53. Virtue v. Creamery Package S. Ct. 616, 57 U. S. (L. ed.) 1041; Mfg. Co., (1913) 227 U S. 8, 33 S. Straus v. Victor Talking Mach. Co., Ct. 202, 57 U. S. (L. ed.) 393; (1917) 243 U. S. 490, 37 S. Ct. 412, Fowle V. Park, (1888) 131 U. S. 88, 61 TJ. S. (L. ed.) 866; Motion Pic- 9 S. Ct. 658, 3 U. S. (L. ed.) 67; ture Patents Co. v. Universal Film Bement v. National Harrow Co., Mig. Co., (1917) 243 U. S. 502, 37 (1901) 186 U. S. 70, 22 S. Ct. 747, S. a. 416, 61 U. S. (L. ed.) 871, 46 U. S. (L. ed.) 1058, affirming 163 overruling Henry v. A. B. Dick Co., N. Y. 505, 57 N. E. 764, which re- 224 U. S. 1, 32 S. iCt. 364, 56 U. S. versed 21 App. Div. 290, 47 N. Y. S. (L. ed.) 645. 462; Motion Picture Patents Co. v. 56. See in this connection Bement Universal Film Mfg. Co., (1917) 243 v. National Harrow Co., (1902) 186 U. S. 502, 37 S. Ct. 416, 61 U. S. U. S. 70, 22 S. Ct. 747, 46 U. S. (L. (L. ed. 871. See also Bobbs-Merrill ed.) 1058, affirming 163 N. Y. 505, Co. V. Straus, (1908) 210 U. S. 339, 57 N. E. 764, which reversed 21 App. 28 S. Ct. 722, 52 U. S. (L. ed.) 1086. Div. 290, 47 N. Y. S. 462; Bobbs- 54. Bement v. National Harrow Co.. Merrill Co. v. Straus, ( 1907 ) 210 (1901) 186 U. S. 70, 91, 93, 22 S. Ct. U. S. 339, 28 S. Ct. 722, 52 U. S. 747, 46 U. S. (L. ed.) 1058. (L. ed.) 1086; Dr. Miles Medical Co. 55. Bobbs-Merrill Co. v. Straus, v. John D. Park, etc., Co., (1910) (1908) 210 U. S. 339, 28 S. Ct. 722, 220 U. S. 373, 31 S. Ct. 376, 55 U, (§. 52 U. S. (L. ed.) 1086; Bauer v. (L, ed.) 502, O'Donnell, (1912) 229 XJ. S. 1, 33 880 NEW YORK LAW OF CONTEACTS [§ 574 but even if this right exists it was held that it could not be extended to the manufacturers of patent medicines under a secret process, as commodities so manufactured are on the same footing, in so far as combinations to maintain prices are concerned, as other commodities." As said by Mr. Justice Hughes: " Because there is monopoly of production, it certainly cannot be said that there is no public interest in maintaining freedom of trade with respect to futiire sales after the article has been placed on the market and the producer has parted with his title. ' ' ^^ And it is now established in accordance with the view taken by our Supreme Court and contrary to that of our Court of Appeals, that neither the patent nor the copyright statutes authorize the separate owners of several patents covering a particular class of articles, or the separate owners of copyrights, to enter into combination or agree- ment to create a monopoly in their sale and distribution; that is, so far as such combinations are concerned, copyrighted books and patented articles are on the same footing as other commodities ; '' and that therefore an agreement between the several owners of separate copyrights under which they agree to sell only to such retail dealers as will not resell the book below a price fixed by the publisher is not authorized by the copyright statutes and, in so far as it relates to interstate commerce, is within the prohibi- tion of the Sherman Anti-trust Law.'" § 574. Relief from and Enforcement of Agreement. — As an agreement having for its object the creation of a monopoly is illegal, an action cannot be maintained thereon by either party, especially where the relief sought is in effect an affirmance of and 57. Dr. Miles Medical Co. v. Jolm (1920) 252 U. S. 85, 40 S. Ct. 251, D. Park, etc., Co., (1910) 220 U. S. 64 U. S. (L. ed.) 471; United States 373, 31 S. iCt. 376, 55 U. S. (L. ed.) v. Colgate, (1918) 250 U. S. 300, 39 502. S. Ct. 465, 63 U. S. (L. ed.) 992. As regards the validity of schemes 58. Dr. Miles Medical Co. v. John by manufacturers or the like to con- D. Park, etc., Co., (1910) 220 U. S. trol the resale price of their commodi- 373, 403, 31 S. Ct. 376, 55 U. S. ties as affected by the Sherman Anti- (L. ed.) 502. trust Act and the recent federal 59. Standard Sanitary Mfg. Co. v. Trade Commission Act, see the follow- United States, (1912) 226 U. S. 20, ing recent decisions of the federal 33 S. Ct. 9, 57 U. S. (L. ed.) 107; Supreme Court. Federal Trade Com- Straus v. American Publishers' Aiss'n, mission v. Beech-Nut Packing Co., (1913) 231 U. S. 222, 34 S. a. 84, (1922) 257 U. S. — , reversing 264 58 U. S. (L. ed.) 192. Fed. 885; Frey v. Cudahy Packing 60. Straus v. American Publishers' Co., (1921) 256 U. S. 208, 41 S. Ct. Ass'n, (1913) 231 U. S. 222, 34 S. Ct. 451; United States v. Schrader, 84, 58 U. S. (L. ed.) 192. § 5741] ILLEGALITY 881 not in repudiation of the agreement.'*! Thus where the manu- facturers of structural iron entered into an association agreement for the purpose of controlling prices under which each of the parties was to pay into a common fund a certain amount of money and a certain percentage of the price it should receive for sales and erection of iron structures, to be forfeited in case the party failed to perform the stipulations of the agreement, it was held that a party to the agreement after having acted thereunder for a considerable time could not maintain an action to enjoin the other members from expelling him from the association and declar- ing the amount paid by him into the common fund forfeited, as the action was in affirmance of the agreement.'^ And where a contract for the sale of coal was illegal as having for its object the securing to the buyer with the aid of the seller a monopoly in the coal business within a certain district, the seller was denied a recovery for coal delivered in pursuance of the contract.*' Where each of the parties to the illegal agreement makes a deposit as security for the performance of the agreement on his part, to be forfeited to the other parties for a failure of the depositor to comply with the terms of the agreement, and the deposit is declared forfeited for such failure, a court will not aid the party to recover it back.** "Where a large number of manufacturers adopt a scheme to stifle competition in the sale of the commodity produced by them, under which a trust combination or quasi partnership is formed, and the management of their several factories is vested in a common trustee, in whose name the business is carried on for the pro rata benefit of the several members, a receiver appointed for the trust or combination, on its insolvency, is entitled to receive moneys for goods sold in the name of the trust, and paid into court by the buyer, for distribution among its creditors, rather 61. Judd V. Harrington, (1893) 139 63. Arnot v. Pittston, etc.. Coal N. Y. 105, 54 State Rep. 471, 34 N. E. Co., (1877) 68 N. Y. 558, reversing 790, affirming 46 State Eep. 925, 19 5 Thomp. & Co. 143, 2 Hun 591. See N. Y. S. 406; Phoenix Bridge Co. v. also Clancey v. Onondaga Fine Salt Keystone Bridge Co., (1894) 142 ^Mfg. Co., (Sup. O. T. 1862) 62 Barb. N. Y. 425, 59 State Rep. 807, 37 N. E. 395. 562; Unckles v. Colgate, (1896) 148 64. DeWitt Wire Cloth Co. v. New N Y 529 43 N. E. 59, affirming 72 Jersey Wire Cloth Co., (Com. PI. Hun 119, 55 State Rep. 522, 25 Sp. T. 1891 ) 16 Daly 529, 14 N. Y. S. N. Y. S. 672. 277, affirmed 38 State Rep. 1023, 16 62. Phoenix Bridge Co. v. Keystone N. Y. S. 384 mem. Bridge Co., (1894) 142 N. Y. 425, 59 State Rep. 807, 37 N. E. 562. 56 882 NEW YORK LAW OF CONTEACTS [§ 575 than a member of the trust by whom the goods were manufactured and delivered in fulfilment of a contract of sale between such member and the buyer but which had been assigned to the trust.*' Restrictions on Alienation of Property § 575. In General. — The Revised Statutes contained a pro- vision prohibiting the absolute ownership and consequent power of alienation of land from being suspended for more than two lives in being (Rev. Stat. p. 723, § 15), and a similar provision as to the suspension of the absolute ownership of personal property (Rev. Stat. p. 773, § 1). These provisions are in substance brought into the present Real Property Law and the Personal Property Law.*^ These statutes evidence the public policy of the state as respects the validity of a contract whereby it is sought to restrict absolutely the power to alienate either real or personal property, and parties cannot by contract so restrict for a longer period of time than thus specified the right of the owner of either real or personal property to alienate the same.*' And any restriction for a definite period is regarded as a greater period than two lives in being, as it is possible that any definite period may extend beyond two lives in being.^* The test as to the suspension of the power of alienation is whether there are parties in being who can give a perfect title; if there are living parties who have unitedly the entire right of ownership, and there is vested in them collectively a present power or right to dispose of the whole interest, even if its exercise depends on the consent of many persons, there is no unlawful suspension of the power of alienation.^' Thus an agree- 65. Pittaburg Carbon Co. v. McMil- v. Britton, (Sup. 1899) 41 App. Div. lin, (1890) 119 N. Y. 46, 28 SUte 57, 64, 58 N. Y. S. 353. Rep. 807, 23 N. E. 530, affirming 53 68. Williams v. Lande, (Sup. G. T. Hun 67, 24 State Rep. 848, 6 N. Y. S. 1893) 74 Hun 425, 57 State Rep. 180, 463, 23 Abb. N. Gas. 298. 26 N. Y. S. 703, reversed on other 66. Personal Property Law, § 11, grounds 148 N. Y. 519, 43 N. E. 57 40 MoKinney's Cons. Laws, p. 9: ( sub nom. Williams v. Montgomery ) . Real Property Law, § 42, 49 Me- ,J^-J^l''^^l T, Whitney, (1894) „. , ^ \ CO 140 N. Y. 541, 56 State Rep. 510, 35 Kinneye Cons. Laws, p. 62. ^ ^ 3^ ^^^ ^ ^^ P ^^^ 67. Sullivan v^Parkes, (Sup. 1902) j gg jj^„ gg g^^^^ 33 69 App. D.v. 221, 229, 74 N. Y. S. 23 K Y S. 1134; Williams v. Mont- 787; Church v. Wilson, (Sup. 1912) gomery, (1896) 148 N. Y. 519, 43 152 App. Div. 844, 852, 137 N. Y. S. N. E. 57. See also Hey v. Dolphin, 1002; Fisher v. Bush, (Sup. G. T. (Sup. G. T. 1895)' 92 Hun 230, 71 1885) 35 Hun 641. See also Brown State Rep. 794, 36 N. Y. S. 627. § 576] ILLEGALITY S83 ment between cotenants that they will hold the land as joint tenants with right of survivorship is not an unlawful suspension of the right of alienation, as it does not prevent the alienation of the land if all are willing to convey.'" Nor does public policy preclude an owner of property from giving to his agent the exclu- sive power to sell the property, as this does not preclude its sale."^ Likewise an option to purchase is not unlawful restraint on the power of the owner to alienate during the life of the option, as lie may do so at any time subject to the right of the party to whom the option is given to enforce the option contract.'^ Public policy does not preclude the imposition by contract of reasonable regula- tions as to the mode of selling property so as to prevent its sacrifice. Thus it has been held that an agreement in writing between the promoters of a corporate enterprise, owning ninety-nine one-hun- dredths of its capital stock as tenants in common, to partition their holdings, after first placing in the treasury one-fifth of all the stock, to be sold to provide working capital, and, in order to pre- vent a sacrifice thereof, providing for the deposit of their individ- ual stock certificates with a trust company, each agreeing that he will not vsdthdraw the* same for six months except by mutual consent, unless enough treasury stock shall be sooner sold to realize a sum named, in which event any one may withdraw his certificate on five days' notice to the others, — does not constitute an unlaw- ful suspension of the power of alienation, and is not against public policy as -being in restraint of trade.'' § 576. Theatre Tickets. — A theatre ticket, or rather the con- tract implied therefrom, is property in a qualified sense only. It is a license issued by the proprietor pursuant to the contract as convenient evidence of the right of the holder to admission to the theatre at the date named with the privilege specified, subject, how- ever, to his observance of any reasonable condition appearing on the face thereof. Although granted for a consideration, the license is revocable for a violation of such condition by the holder of the 70. Murphy V.Whitney, (1894) 140 1902) 67 App. Div. 583, 588, 73 N. Y. 541, 56 State Rep. 510, 35 N. E. N. Y. S. 882. 930, 31 Abb. K Os. 86, affirming 69 73 Wimams v Mo^tg^^^y- „ -„„ ^„ r,, X T> oo/i OQ (1896) 148 ]Sr. Y. 519, 43 N. E. 57, HizB 573, 53 State Rep. 334, 23 ^^^^^J^^ ^^ ^^^ ^^5, 57 State Rep. N. Y. S. 1134. 180 26 N. Y. S. 703 (sub nom. Wil- 71. Lyon v. Mitchell, (1867) 36 liamis v. Lands), on prior appeal N. Y. 235, 243a, 2 Trans. App. 47. 68 Hun 416, 52 State Bep. 470, 22 72. Scruggs y. Cotterill, (Sup. N. Y. 8. 1033. 884 !NBW YORK LAW OF CONTRACTS [§ 577 ticket in the manner specified.'* The license may be granted or the ticket issued to a particular person and made nontransferable/^ And though issued in form giving the bearer the right to admis- sion, public policy does not preclude a restriction as to its transfer which will be binding on all purchasers with notice.'* It is there- fore held that a provision that if the ticket is sold on the side- walk admission will be refused the purchaser, the purpose being to prevent the purchase of tickets by speculators and their resale at an advanced price, is reasonable and valid." Restrictions on Use of Property § 577. Real Property. — No rule of public policy prohibits a lessor from restricting the uses to which the premises let may be put.'^ And at common law an owner of real property has the right so to deal with it as to restrict its use by his grantees within such limits as to prevent its appropriation to purposes which will impair or diminish the pleasure or enjoyment of the land he retains; the only limitation on this right is that it shall be exer- cised reasonably with due regard to public policy and without creating any unlawful restraint of trade.'* As said by Allen, J. : 74. Collister v. Hayman, (1905) of a theatre from making reasonable 183 N. Y. 250, 76 N. E. 20; Purcell regulations for the conduct of his V. Daly, (Com. PI. G. T. 1886) 19 business and imposing such reason- Abb. N. Oas. 301. able conditions upon the purchasers 75. Purcell v. Daly, ( Com. PI. G. T. of tickets as in his judgment will best 1886) 19 Abb. N. Oas. 301. serve the interests of that business. 76. Collister v. Hayman, (1905) A ticket speculator is one who sells 183 N. Y. 250, 76 N. E. 20. at an advance over the price charged 77. Collister v. Hayman, (1905) by the management. Speculation of 183 N. Y. 250, 76 N. E. 20, affirming this kind frequently leads to abuse, 91 App. Div. 617 mem., 86 N. Y. S. especially when the theatre is full 1132. In this case Vann, J., said: and but few tickets are left, so that " The main question presented for extortionate prices may be exacted, decision is whether the defendants A regulation of the proprietor which had the right to make a contract tends to protect his patrons from ex- with purchasers upon the condition tortionate prices is' reasonable, and printed in the ticket. There is no he has the right to make it a part restraint by statute Eigainst such a of the contract and a condition of the condition and it is not opposed to sale." public policy. There is no tendency 78. F. P. Proctor Troy Properties toward monopoly, for any one can Co. v. Dugan Store, (Sup. 1920) 191 buy and sell theatre tickets, provided App. Div. 685, 181 N. Y. S. 786. the sales are not made on the side- 79. Columbia College v. lynch, walk where the tickets themselves (1877) 70 N. Y. 440, reversing on provide they cannot be sold. The other grounds 39 Super. Ct. 372, law does not prevent the proprietor wihich affirmed 47 How. Pr. 273; § 577] ILLEGALITY 885 " Covenants, conditions and reservations, imposing . . . restric- tions upon urban property, for the benefit of adjacent lands, hav- ing respect to light, air, ornamentation, or the exclusion of occu- pations which would render the entire property unsuitable for the purposes to which it could be most advantageously devoted, have been sustained, and have never been regarded as impolitic. They have been enforced at law and in equity without question. The restrictions are deemed wise by the owners, who alone are interested, and they rest upon and withdraw from general and unrestricted use but a small portion of territory within the 'cor- porate limits of any city or municipality, and neither pubUc nor private interest can suffer. ' ' ^^ Restrictions against particular trades or businesses, or against trade or business generally, are not against public policy as an unreasonable restraint on trade. If they are confined to separate parcels of land of limited extent, they are at most in partial restraint of trade and do not transcend the legitimate exercise of the right which every owner of land has to control and dispose of his own estate.*^ Restrictions limit- ing the use of urban property to dwelling purposes are valid,*^ and there is no doubt as to the validity of restrictions as to the character or location of buildings or other structures to be erected on the land.*^ So covenants are upheld which restrict the build- ings on city lots to dwellings of a certain value and style, stand- ing a certain distance from the street,** or which prohibit the con- struction of a railway.*' Likewise a restriction against the sale Hodge V. Sloan, (1887) 107 N. Y. 82. Columbia College v. Lynch, 244, 11 State Eep. 770, 17 N. E. 335; (1877) 70 N. Y. 440. Rowland v. Miller, (1893) 139 N. Y. 83. Gilbert v. Peteler, (1868) 38 93, 34 N. E. 765; Flynn v. New York, N. Y. 165, 6 Trans. App. 329; Lewis etc., R. Co., (1916) 218 N. Y. 140, v. Gollner, (1891) 129 N. Y. 227, 41 112 N. E. 913, affirming 160 App. Div. State Rep. 173, 29 N. E. 81; Flynn 906, 907 mem., 144 N. Y. S. 1106; v. New York, etc., E. Co., (1916) Flynn v. New York, etc., R. Co., 218 N. Y. 140, 112 N. E. 913. (Snp. 1910), 139 App. Div. 199, 123 84. Flynn v. New York, etc., E. Co., N. Y. S. 759. (1916) 218 N. Y. 140, 112 N. E. 913, 80. Coliunbia College v. Lynch, affirming 160 App. Div. 906, 907 (1877) 70 N. Y. 440, 446. mem., 144 N. Y. S. 1106; Flynn v. 81. Rowland V. Miller, (1893) 139 New York, etc., R. Co., (Sup. 1910) N. Y. 93, 34 N. E. 765; Flynn v. New 139 App. Div. 199, 123 N. Y. S. 759. York, etc., E. €o., (1916) 218 N. Y. 85. Flynn v. New York, etc., R. Co., 140, 112 N. B. 913, affirming 160 App. (1916) 218 N. Y. 140, 112 N. E. 913, Div. 906, 907 mem., 144 N. Y. S. 1106; affirming 160 App. Div. 906, 907 Flynn v. New York, etc., R. Co., (Sup. mem., 144 N. Y. S. 1106. 1910) 139 App. Div. 199, 123 N. Y. S. Under the power of eminent domain 759. a railway company may by condemna- 886 NEW YORK LAW OF OONTRA'CTS [§ 578 of any sand from the land conveyed, to the injury of a sand business carried on by the grantor on land retained by him, has been upheld.** A grantor may also for the benefit of the land conveyed impose reasonable restrictions on his use of other lands retained by him.*'' § 578. Personal Property. — Kestrictions as to the use to be made of personal property have also been upheld,** and as a general rule, since the owner of personal property may withhold it from sale, he can at the time of its sale impose reasonable restrictions on its use without violating any rule of public policy.*' " The principle which favors freedom of trade," says Danforth, J., " requires that every man shall be at liberty to work for himself, and shall not deprive himself or the state of the benefit of his industry by any contract that he enters into. The same principle must justify a party in withholding from market the tools, or instruments, or means by which he gains the support of his family, or if, as in the case before us, the instrument or means are sus- ceptible of several uses, one of which will work mischief to him- self by the loss or impairment of his livelihood, there is no reason of public policy which requires him upon the sale of the instru- ment to consent to that use, or prohibits him from binding his vendee against it. ' ' '" Thus a covenant by a buyer of a steamboat not to run it on the upper waters of the Hudson river has been upheld.'^ According to the view taken generally, the seller of a chattel cannot by any provision in the contract of sale impose tion proceedings against tiie persons 86. Hodge v. Sloan, (1887) 107 beneficially interested in the restric- N. Y. 244, 11 State Rep. 770, 17 tions acquire the right to 'build its N". E. 335. railroad over the lots so restricted, 87. Greite v. Hendricks, (Sup. G. T. as the land owner cannot so restrict 1893) 71 Hun 7, 53 State Eep. 851, the use of land conveyed as to in- 24 N. Y. S. 545. fringe or impair the power of eminent 88. New York Bank Note Co. v. domain. See Flynn v. New York, Hamilton Bank Note Engraving, etc., etc., R. Co., (1916) 218 N. Y. 140, 112 Co., (Sup. G. T. 1895) 83 Hun 593, N. E. 913, wherein Pound, J., says: 65 State Rep. 38, 31 N. Y. S. 1060. " The public service corporation, ex- 89. Dunlop v. Gregory, ( 1851 ) 10 ercising the right of eminent domain, N. Y. 241. has the advantage over the private 90. Hodge v. Sloan, (1887) 107 person or corporation in that it can- N. Y. 244, 249, 11 State Rep. 770, not be kept off the premises entirely, 17 N. E. 335. but may enter the restricted district 91. Dunlop v. Gregory, (1851) 10 and destroy its exclusive character N. Y. 241. upon making just compensation for property rights thus taken." § &7&»i iLLilaALlTY m restrictions on the buyer's right to use or resell the article which will follow it into the hands of a third person, irrespective of whether he has notice of the restriction. The reason for this is that there is no priority of contract or estate between the second purchaser and the original seller, as the principle of the common law as to contracts running with property applies only to real estate.^^ In our state, however, where a manufacturer of printing presses entered into a contract restricting the use to be made of the presses manufactured and sold by him, the view was taken that the restriction could be enforced against a purchaser of a press with notice of the restriction. '^ Gambling Contracts Generally § . 579. In General. — At common law a wager contract is not necessarily illegal. This was definitely decided in England in the case of Good v. Elliott (3 T. R. 693), and has frequently been recognized in our courts as the common law rule.^* As said by Van Ness, J., in a very early case : " The counsel for the plaintiff in error denies that, at common law, any wager is recoverable, wherein the parties have no other interest than that which they create by the wager itself. It is now too late to draw this point into discussion. The law appears to be settled that some wagers form the proper ground of an action. ' ' '^ Thus at common law contracts of sale for future delivery, though intended as wagers on the rise or fall of the market price, are not illegal.'^ And in an early case, where A set up a mark to be shot at, and it was agreed that B should pay A twenty-five cents for every shot he fired, and that if B should hit the mark A should pay him twenty dollars, the contract was held valid, and B having hit the mark was allowed to recover the twenty dollars." It was considered, 92. See supra, section 573, and see Oouverneur, (Sup. 1845) 1 Denio , 24 R. C. L., p. 370. 170, 172; Morgan v. Groif, (Sup. 93. Xew York Bank Note Co. v. G. T. 1848) 4 Barb. 524, 526; May v. Hamilton Bank Note Engraving, etc., Burras, (City Ct. G. T. 1884) 13 Abb. Co., (Sup. G. T. 1895) 83 Hun 593, N. Cas. 384, 387; Eggers v. Klusa- 65 State Rep. 38, 31 N. Y. S. 1060. mann, (Sup. Sp. T. 1885) 16 Abb. 94. Ruckman v. Pitdher, (1848) 1 N. Cas. 226. N. Y. 392, 400, 4 How. Pr. 443, 8 95. Bunn v. Riker, (Sup. 1809) 4 N. Y. Leg. Obs. 177; Harris v. White, Johns. 426, 434. (1880) 81 N. Y. 532, 544; Zeltner v. 96. Zeltner v. Irwin, (Sup. 1898) Irwin, (Sup. 1898) 25 App. Div. 228, 25 App. Div. 228, 49 N. Y. S. 337. 49 N. Y. S. 337; Bunn v. Riker, (Sup. 97. Campbell v. Richardson, (Sup. 1809) 4 Johns. 426; Gibbons v. 1813) 10 Johns. 406. " If a wager of 889 NEW YORK LAW OF CONTRACTS [§ 579 however, that wagers on certain matters were in themselves detri- mental to public policy, and such contracts were deemed illegal and unenforceable.'* "All wagers," says Paige, J., " which tended to a breach of the peace, or to injure the feelings, character, or interests of a third person, or which were against the principles of morality or of sound policy, were void at common law. ' ' ^ Thus a wager on the election of a public officer is held illegal at common law.^ The reason given for this is that the contract is not only subversive of the free and unbiased exercise of the elective franchise, but also that an action to enforce the contract might involve an inquiry into the validity of the result of the election as announced by the election officers, and the consequent danger to the peace and tranquillity of the community.^ And the fact that the wager was not made until after the polls were closed is held not to prevent it from being illegal.' Where the rules of an unincorporated exchange authorize a committee to suspend or expel a member for his refusal to perform his contract with another member of the exchange, it is held that the courts will not interfere to prevent a member's expulsion for his failure to comply with his contract because such contract was a gambling contract and for that reason illegal.* any kind," says the court in this Johns. 426; MeCullum v. Gourley, ease, " is to be recognized as valid (Sup. 1811) 8 Johns. 147; Lansing in law, the one made in this case is v. Lansing, (Sup. 1811) 8 Johns, perhaps as harmless, and liable to as 454; Viseher v. Yates, (Sup. 1814) little objection, as any that could 11 Johns. 23, reversed on other be made. It has long been matter grounds 12 Johns. 1; Denniaton v. of regret with courts of justice that Cook, (Sup. 1815) 12 Jdhns. 376; wagers should have been so far Rust v. Gott, (Sup. 1828) 9 Cow. countenanced as to permit actions to 169; Brush v. Keeler, (Sup. 1830) be sustained for their recovery. The 5 Wend. 250; Morgan v. GroflF, (Sup. expression of this regret, however, is G. T. 1848) 4 Barb. 524, 526, revers- aceompanied with the admission that ing on other grounds 5 Denio 364; the common law does recognize some Like v. Thompson, ( Sup. Sp. T. 1850) wagei-s as valid; and we do not dis- 9 Barb. 315. cover any solid reason for saying the 2. Bunn v. Riker, (Sup. 1809) 4 present belongs to the class of ex- Johns. 426, 435. cepted cases." 3. Lansing v. Lansing, (Sup. 1811) 98. Ruckman v. Pitcher, (1848) 1 8 Johns. 454; Rust v. Gott, (Sup. N. Y. 392, 400, 4 How. Pr. 443, 8 1828) 9 Cow. 169; Brush v. Keller, N. Y. Leg. Obs. 177; Bunn v. Riker, (Sup. 1830) 5 Wend. 250. (Sup. 1809) 4 Johns. 426. 4. Lewis v. Wilson, (1890) 121 99. Morgan v. Groff , ( Sup. G. T. N. Y. 284, 30 State Rep. 987, 24 N. E. 1848) 4 Barb. 524, 526, 474, affirming 50 Hun 166, 19 State 1. Bunn V. Riker, (Sup. 1809) 4 Rep. 742, 2 N. Y. S. 806. § 5801] ILLBiaALITY 880 § 580. Statutory Prohibitions Generally. — From an early date statutes in our state have been directed against gambling generally • or particular classes of gambling contracts, and our constitution expressly provides that no form of gambling shall be authorized or allowed within the state. (Const. 1894, art. 1, § 10.) The tendency of the courts has been to construe liberally rather than to restrict the operation of such statutes. As said by Brown, J. : " The statute against betting and gaming was enacted as a pro- tection of the public morals. The intention of the legislature was to discourage and repress gambling in all its forms, and the law under consideration, having been enacted for the public good, is to be construed so as to accomplish, so far as possible, the- sup- pression of the mischief against which it was directed. "'' An early statute which is brought into the Penal Law (see Penal Law, § 991; 39 McKinney's Cons. Laws, p. 366) declares unlawful " all wagers, bets or stakes, made to depend upon any race, or upon any gaming by lot or chance, or upon any lot, chance, casualty, or unknown or contingent event whatever. ' ' * And it is further provided (see Penal Law, § 992; 39 McKinney's Cons. Laws, p. 366) that " all contracts for or on account of any money or property, or thing in action wagered, bet or staked, . . . shall be void. " ' It is said that the above provisions ' ' invalidate every wager which was allowed at common law."^ To constitute a " race " within the prohibition against betting on any race, the contest need not be betAveen two or more horses. Betting on a race against time is equally within the prohibition.' The question whether a third person has a lease to certain property may be an " unknown or contingent event " within the meaning of the pro- vision declaring unlawful all wagers upon any " chance ... or unknown or contingent event whatever." " An agreement between 5. Luetchford v. Lord, (1892) 132 10. Thomson v. Hayes, (Sup. App. N. Y. 465, 469, 44 State Rep. 625, 30 T. 1908) 59 Misc. 425, 111 N. Y. S. N. E. 859. See also Ruckman v. 495. In this case Greenbaum, J., Pitcher, (1848) 1 N. Y. 392, 396, 4 says: "A® the element of 'chance' How. Pr. 443, 8 N. Y. Leg. Obs. 177; is to be considered in the bet, it may Storey v. Brennan, (1857) 15 N. Y. be said that the word 'unknown' 524, 527; McDougall v. Walling, was only intended to refer to that (Sup. G. T. 1867) 48 Barb. 364, 370. which was unknown to the parties 6. 1 Rev. Stat., p. 662, tit. 8, § 8. to the wager. If it were intended to 7. 1 Rev. Stat., p. 662, tit. 8, § 8. limit the operation of the statute to 8. Morgan v. Groff, (Sup. G. T. events that were to occur in the 1848) 4* Barb. 524, 526. future, it would have been unneces- 9. Kail v. Bergen, (Sup. G. T. sary to employ the words ' unknown 1854) 19 Barb. 122. or contingent event whatever.' Such 890 NEW YORK LAW OF CONTRACTS [§ 581 an heir and one to whom the ancestor had agreed to leave her property, made after the ancestor's death and before it was known whether she had left a will, to divide the estate between them, is. not illegal as a wager as to whether or not the ancestor had left a will.^^ Likewise a contract for the exchange of property under which the question of boot money is left to the determination of third persons is not invalid as a wager contract because it stipulates for a certain amount to be paid by either of the parties who refuses to make the exchange on the basis fixed by such third per- sons.i^ A special statute authorizing horse racing under certain conditions in no way affects or repeals the general prohibition against wagers on horse races, and does not legalize wagers on such authorized races. The only effect of the special statute is to exempt the race itself from the penalties of the general law against racing, leaving the general statute which prohibits betting and gaming to have its full operation upon the wager on the event of the race." The selling of " tips " on horse races is an illegal business in furtherance of betting on the races, and a court of equity will not lend its aid to prevent a purchaser of such tips from disclosing or reselling the tips to others in violation of his agreement.-"^* § 581. Stock Jobbing Act. — An early statute in our state known as the Stock Jobbing Act (1 Rev. Stat. p. 710, §§ 6, 7, and 8) declared to be absolutely void all contracts for the sale of any certificate or evidence of debt due by or from the United States or any state, or of any share or interest in a bank or company incor- porated under any law of the United States or of any individual state, unless the party contracting to sell the same shall, at the time of the making of such contract, be in the actual possession of the certificate or other evidence of such debt, share or interest, or be otherwise entitled in his own right, or be duly authorized by words ' as any future event what- N. Y. 392, 4 How. Pr. 443, 8 N. Y. ever' would have been employed. Leg. Obs. 177, on second appeal 20 The cij>cumstance that the word N. Y. 9; Gibbons v. Gouverneur, 'contingent' is used shows that the (Sup. 1845) 1 Denio 170; Irving v. event referred to in the act applied Britten, (Com. PI. G. T. 1894) 8 equally to existing or nonexisting Misc. 201, 58 State Rep. 836, 28 «vents." N. Y. S. 529; Gahill v. Gilman, (Sup. 11. Minehan v. Hill, (Sup. 1911) Tr. T. 1914) 84 Misc. 372, 146 144 App. Div. 854, 129 N. Y. S. 873. N. Y. S. 224. 12. Parsons v. Taylor, (Sup. G. T. 14. Maxim, etc., Co. v. Sheehan, 1877) 12 Hun 252. (Sup. Sp. T. 1902) 37 Misc. 368, 75 13. Ruckman v. Pitcher, (1848) 1 N. Y. S. 422. § 5S1] ILLEGALITY 891 some person so entitled, to sell the evidence of debt, share or interest so contracted f or.^^ Wagers on the price of such evidences of debts or shares were also prohibited ; persons paying differences in pursuance of such contracts or wagers were authorized to recover back the money or property so paid, and any advances made to a broker for the purpose of paying any loss which might accrue on a sale in violation of the statute were recoverable back from the broker, if they had not actually been paid by him in pursuance of the illegal contract before he had notice not to pay or before he was informed of the illegality of the contract.^' The burden of proving that the seller did not at the time of the sale own the stock which he contracted to sell was held to be on the party attacking the validity of the sale, as the courts would not presume that the seller was not the owner of such stock and thus had violated the statute." And where the seller in the first instance proved that he owned, at the time of the sale, the amount of the stock sold, proof by the defendant that he had made other contracts of sale to a greater amount than the amount of the stock the seller had proved that he owned was held insufficient in itself to prove that the contract was in violation of the statute.^^ If the seller owned or possessed stock of the character called for by the contract at the time the executory contract of sale was made, the fact that prior to the time for delivery he sold a part thereof and thus became short of the stock did not affect the validity of the contract.^' But the ownership of stock which the seller had already contracted to sell would not support a second contract of sale. For instance, if the seller owned only a hundred shares of a particular stock and had made a valid contract for its sale, a second contract for the sale of another hundred shares would, as said by Hoyt, J., be a plain violation of the statute; otherwise a person by the ownership of a few shares of stock could by sepa- rate contracts of sale sell an indefinite number of shares.^" The statute applied only to the sale of the particular class of property 15. Dykers v. Townsend, (1861) 24 17. Dykers v. Townsend, (1861) 24 N. y. 57; Vaupell v. Woodward, N. Y. 57. (Ohan. Ct. 1844) 2 Sandf. Ch. 143; 18. Dykers v. Townsend, (1861) 24 Ward V. Van Duzen, (Super. Ct. K. Y. 57. 1829) 2 Super. Ct. 162; Genin v. 19. Prost v. Clarkson, (Sup. 1827) Isaacson, (Com. PI. 1848) 6 N. Y. 7 Cow. 24. Leg. Obs. 213. 20. Dykers v. Townsend, (1861) 24 16. Gram v. Stebbims, (CShan. Ot. N. Y. 57, 62, 1836) 6 Paige 124. 892 XEW YORK LAW OF CONTRACTS [§ 582 therein enumerated and did not affect the validity of sales for future delivery of general merchandise or commodities:^^ In 1858 the statute was repealed (Laws 1858, ch. 134) and it was expressly provided that contracts for the sale of such evidences of debt or shares shall not be invalid because the seller was not at the time of making the contract the owner or possessor of the certificate or other evidence of the debt, share or interest sold.^^ And the view has been taken that after this repeal an action could be main- tained on a prior contract in violation of the statute.^' "Wagers on the future price of such evidences of debt or shares are not, how- ever, sanctioned. The fluctuation in their market value is an uncertain event, and contracts of sale under which the parties intend a settlement in accordance with the difference in price at the time of the sale and the price at the future day fall within the general prohibition against gambling to the same extent as similar contracts for the sale of other property.^* § 582. Foreign Contracts. — If a gambling contract is regarded as illegal under the law of the state in which it is entered into, it will not be enforced in our courts.^ Our statutes against gam- bling do not have any extraterritorial force so as to render illegal gambling contracts entered into in other states and not illegal at common law.^* And where it is sought to enforce in our courts a foreign contract of this character it is incumbent on the defend- ant to show its illegality under the laws of the state where it was made.^'' But in declaring on a foreign gambling contract the complaint must show that it was made out of our state, as there can be no presumption, for the purpose of upholding the contract, 21. Stanton v. Small, (Super. Ct. Ct. 1884) 51 Super. Ct. 88, 7 Civ. 1849) 5 Super. Ct. 230. Pro. 1. As to the enforcement of for- 22. Yerkes v. Salomon, (Sup. G. T. eign contracts alleged to be illegal 1877) 11 Hun 471. generally, see supra, section 385. 23. Washburn v. Franklin, (Sup. 26. Zeltner v. Irwin, (Sup. 1898) G. T. 1861 ) 35 Barb. 599, 13 Abb. Pr. 25 App. Div. 228, 49 N. Y. S. 337, 140, 24 How. Pr. 515, reversing 11 reversing on the ground that the place Abb. Pr. 93. See Dykers v. Town- of contract was not in New York 21 send, (1861) 24 N. Y. 57 (qu»re). Misc. 13, 46 N. Y. S. 852, which af- See supra, section 402, as to the firmed 20 Misc. 398, 45 N. Y. S. 1036; general effect of tihe repeal of a stat- Nichols v. Lumpkin (Super. Ct. ute as regards a prior contract in 1884) 51 'Super. Ct. 88, 7 Civ. Pro. 1. violation thereof. 27. Nichols v. Lumpkin, (Super. 24. Yerkes v. Salomon, (Sup. G. T. Ct. 1884) 51 Super. Ct. 88, 7 Civ. 1877) 11 Hun 471. Pro. 1. 25. Nicbols" v. Lumpkin, (Supei-. § 583] ILLEGALITY 893 that it was not governed by the laws of our state.^^ Our statute authorizing the recovery of moneys lost at gaming does not apply where the transaction took place in another state.^' It would seem that a liability imposed by a statute of another state authoriz- ing the loser to recover money lost at gaming is not penal in such a sense as to preclude its enforcement in our courts; but it has been held that where the statute of a foreign state denounces as gaming the sale of commodities for future delivery where only one party to the transaction does not intend a bona fide sale but merely to speculate on the rise and fall of the market, it is so opposed to the policy of our law as regards the validity of such transactions, that our courts will not enforce a right given by such foreign statute to the party whose intent it was so to speculate to recover money paid to the other party in settlement of the sale.^" § 583. Devices to Evade Prohibition. — The courts will not per- mit persons under the guise of a contract of sale, with guaranty as to the speed of a horse sold, to circumvent the prohibition of the statute. Thus in an English case a contract for the sale of a horse by which the buyer was to give two hundred pounds for the horse if he trotted a certain distance in a certain time, and only one shilling if he failed to do so, it was held that the agreement was in the nature of a wager and illegal under the statute of 9 Anne, eh. 14, against betting and gaming.*^ The same view has been taken in our courts where the plaintiff purchased a half inter- est in a mare, and it was stipulated as a part of the contract of sale that if the animal did not trot a mile in a certain time the seller should pay back to the buyer one-half of such sum, as the failure might detract from the market value of the mare. ' ' This, ' ' says Johnson, J., " is nothing more nor less than a wager of an uncertain amount, under the guise and formality of a contract of sale. The contract is skilfully drawn, but the drapery does not conceal the vicious principle from careful observation. . . . The provision in question is not a mere warranty of the capacity or qualities of the animal. It is more. It is an agreement to forfeit and repay the price advanced, or a portion of it, in case she fails 28. Thatcher v. Morris, (1854) 11 1915) 170 App. Div. 879, 156 N. Y. S. N Y. 437. 700. As regards the efifect of the 29. Zeltner v. Irwin, (Sup. 1898) illegal intent of .one party to a sale 25 App. Div. 228, 49 N. Y. S. 337; for future delivery, see infra, section Eggers V. Klussmann, (Sup. Sp. T. 590. 1885) 16 Abb. N. Cas. 226. 31. Brogden v. Marriott, (1836) 3 30. Botts V. Mercantile Bank, (Sup. Bing. N. Cas. 88, .S2 E. C. L. 52. 894 NEW YORK LAW OF CONTRACTS [§§ 584,585 to perforin. It is staked upon the result of the trial of her speed." 32 § 584. Stipulation for Forfeiture or Liquidated Damages. — A contract containing a stipulation for the payment of a certain sum as a forfeiture or liquidated damages has been unsuccessfully- attacked as an illegal wagering contract. Thus an agreement by an assignor of a mortgage, with his assignee, that on the foreclosure of a prior mortgage, covering the same" and other premises, the decree shall contain a provision that the other premises be sold first and their proceeds applied to the prior mortgage, and if the decree does not contain such a provision, the assignor shall pay as liquidated damages a certain sum, equal to the amount of the mortgage assigned, has been held not to be illegal as a wager either under the statute prohibiting wagers on uncertain events generally, or at common law as a wager on the result of litigation.^* § 585. Races or Contests for Sweepstakes or Purses. — By a " bet or wager " each party contributes money or some valuable thing termed the stake, getting a chance to gain a portion or all of that put in by the others and taking a chance to lose that con- tributed by himself; while a " purse, prize or premium " is ordi- narily some valuable thing offered for a contest, into the strife for which the person offering it does not enter .^* A contest for a " purse, prize or premium " as so understood is not illegal as a gambling transaction,^ and this rule is not changed by the mere fact that entrance fees are charged the' participants, the fees so charged not constituting the purse or prize contested for.^* It consequently follows that the winner of such a " purse, prize or premium ' ' may maintain an action for its recovery. Where horse racing for purses or prizes is authorized, there is nothing illegal 38. Hall V. Bergen, (Sup. G. T- Stone, (Sup. 1903) 82 App. Div. 450, 1854) 19 Barb. 122. 81 N. Y. S. 597. 33. Cowdrey v. Carpenter, (App. 36. Harris v. White, (1880) 81 1869) 1 Abb. App. Dec. 445, revers- ^- ^- ^^^' Costello v. Curtis, (Sup. ing 24 Super. Ot. 429, 19 Abb. Pr. 373. «• ^.^1881) 13 Wkly. Dig. 20. See „. TT ■ Ttn^-x /ioon> oi ^.Iso People V. Fallon, (1897) 152 34. Harris v. White, (1880) 81 n. Y. 12, 46 N. E. 296, 12 N. Y. Crim. ^- "^- ^^2- 107; Jordan v. Kent, (Sup. 1872) 35. Harris v. White, (1880) 81 44 How. Pr. 206; Corrigan v. Coney N. Y. 532. See also People v. Van Island Jockey Club, (Super. Ct Sp. De Carr, (1896) 150 N. Y. 439, 44 T. 1891) 27 Abb. N. Cas. 294, 40 N. E. 1040, affirming 7 App. Div. 608 State Rep. 142, 15 N. Y. S. 705, re- mem., 39 N. Y. S. 581 ; People v. Fal- versed on other grounds 61 Super Ct. Ion, (1897) 152 N. Y. 12, 46 N. E. 393, 48 State Rep. 582, 20 N. Y. S. 296, 12 N. Y. Crim. 107; Brien v. 437. § 586] ILLEGALITY 895 in a contract to employ a person to ride or drive in such a contest so as to preclude a recovery for services rendered." And where a contract of this character provided for a certain compensation, and in addition thereto a per centum of " all sums of money or purses which might be won or earned " by the employer in the races, it was held that the contract should not be construed as an attempt to give the employee an interest in the prizes or purses to be contested for in violation of the statute (Laws 1895, ch. 570, § 3; Membership Corp. Law, § 282; 34 McKinney's Cons. Laws, p. 141) prohibiting any person other than the owner of a horse contesting in a race from having- any interest in the purse or prize contested for, but merely as a means of fixing the compensation of the employee, and that therefore the contract of employment was not illegal.^* A contract under which the participants in a horse race agree to contribute toward a sweepstakes which the winner of the race is to be entitled to or which is to be divided between the participants in certain proportions is within the gen- eral statutory prohibition declaring unlawful any wager, bet or stakes on any race, and cannot therefore be enforced in the courts.^* The same view is taken in regard to a prize fight where each participant contributes toward the prize to be fought for, and one of the participants may refCover under the statute from the stakeholder the amount contributed by him.^" § 586. Pdbl Selling. — Pool selling on either the auction pool or the French pool plan is undoubtedly gambling in its broad sense, and the general statutes against gaming expressly denounce such act as a crime. (See Penal Law, § 986 ; 39 McKinney's Cons. Laws, p. 359.)" On the theory that pool selling on races or bet- ting on what is commonly known as the French pool -or auction pool plan is a lottery, and as all lotteries are prohibited by our constitution, it has been held that the legislature has no power to legalize such pool selling so as to enable the winner to main- tain an action for his share of the pool.*^ In other cases, however, 37. Harris v. White, (1880) 81 infra, section' 595 et seq., .as to the ■v. Y 5.32. general liability of a stakeholder for 38. Brien v. Stone, (Sup. 1903) 82 money wagered. App. Div. 450, 81 N.»Y. S. 597. 41. As to the method in which 39. Gibbons 'v. Gouverneur, (Sup. "auction»pools " and' '"French pools " 1845) 1 Denio 170 are conducted, see Reilly v. Gray, 40 Stoddard v. ' McAuliflf, (Sup. (Sup. G. T. 1894) 77 Hun 402, 60 G T 1894) 81 Hun 524, 63 State State Kep. 45, 28 N. Y. S. 811. Rep 427 31 N Y S. 38, affirmed 151 42. Irving v. Britton, (Com. PI. \ Y 671 mem 46 N E 1151. See G. T. 1894) 8 Misc. 201, 58 State Rep. 896 NEW YORK LAW OF CONTRACTS [§i 587,589 the view has been taken that pool selling on races is simply a form of betting on the races, and not a lottery within the meaning of the constitution, and that where it is authorized by a statute the winner may maintain an action for his share of the pool ; *' and that such authorization relieves the manager of the pool, as the stakeholder of the parties contributing to the pool, from liability under the general statute giving to the loser of money, etc., lost at gaming the right to recover the amount of his stake from the stakeholder.** § 587. Speculative Purchases or Sales Generally. — The mere fact that property is purchased with* the hope or expectation of a rise in the market, and the resale of the property at a profit, does not render it a gambling transaction,'^ and it is perfectly legal for several persons to join in such a purchase.*^ There is nothing illegal in the purchase of a part interest in a cargo of fruit or the like to arrive by vessel, the entire cargo to be disposed of by the seller who is to account to the buyer for his portion of the proceeds.*^ § 588. Sales for Future Delivery. — It is well settled that though the future market price of property, the price of which is subject to fluctuation, is an unknown event, a contract for the sale of such property for future delivery is not necessarily ren- dered illegal because the seller did not own, at the time of the sale, any of the property so sold, and in order to perform his contract must himself purchase such property on the market ; *^ and this is 836, 28 N. Y. S. 529; Ludington v. 45. Viseher v. Bagg, (Sup. G. T. EudJey, (Com. PI. G. T. 1894) 89 1885) 21 Wkly. Big. 399. Misc. 700, 61 State Rep. 115, 30 N. 46. Quineey v. White, (1875) 63 Y. S. 221. N". Y. 370, reversing on other grounds 43. Brennan v. Brighton- Beach 5 Daly 327. Racing Ass'n, (Sup. G. T. 1890) 56 47. Lawrence v. Gallagher, (1878) Hun 188, 30 State Rep. 406, 9 N. Y. S. ,73 N". Y. 613, affirming 42 Super, a. 220, 24 Abb. N. Cas. 305. 309. 44. Reilly v. Gray, (Sup. G. T. 48. Springs v. James, (Sup. 1910) 1894) 77 Hun 402, 60 State Rep. 45, 137 App. Div. 110, 121 N. Y. S. 1054, 28 N. Y. S. 811. This decision is affirmed 202 N. Y. 603 mem., 96 N. E. eitedl with seeming approval in Peo- 1131; Lewis v. Wilson, (Sup. G. T. pie V. Fallon, (1897) .152 N. Y. 12, 17, 1888) 50 Hun 166, 19 State Rep. 742, 46 N. E. 296, 12 N. Y. Crim. 107, on 2 N. Y. S. 806; Wamsley v. Horton, the question as to what constitutes (Sup. G. T. 1894) 77 Hun 317, 59 it lottery. State Rep. 373, 28 N. Y. S. 423; As +o the general liability of a Hentz v. Miner, (Sup. G. T. 1892) 46 stakeholder for money wagered, see State Rep. 636, 18 N". Y. S. 880; Stan- infra, section 595 et seq. ton v. Small, (Super. Ct. 1849) 5 § 589] ILLEGALITY 897 true as regards a contract for the sale of gold coin, payment to be made in currency, where at the time of the sale gold was at a constantly fluctuating premium.^^ In this connection Earl, J., says: " Most contracts for the purchase or sale of merchandise at a future day are made with a view to the market price on the day of performance. There is always an element of speculation and uncertainty as to that, and yet it has never been supposed that there is any betting by such contracts. ' ' s" And in a leading English case where the validity of such a contract is upheld Baron Alderson says that if it were necessary that the seller should own the commodity sold at the time of the sale, it would put an end to half the contracts made in the course of trade.^^ § 589. Option Contracts; Puts and Calls. — Our statute against gaming does not necessarily render illegal as a wagering contract an agreement commonly known as a " put " on " call " contract, by which one of the parties gives to the other the right to demand that the party by whom the option is given shall either deliver or take certain property at a future day and at a fixed price.^^ And this is held true though the contract is what is known as a straddle, that is, contains both a ' ' put ' ' and a ' ' call ' ' option giving to one party the option to require the other party to buy or sell at the former's option.^' It is otherwise, however, if no actual sale is contemplated by either party and it is their inten- tion to settle according to the fluctuation in the market price.^' As said by Andrews, J., in this connection : ' ' Mercantile con- tracts of this character are not infrequent, and they are consistent with a bona fide intention on the part of both parties to perform them. The vendor of goods may expect to produce or acquire them in time for a future delivery, and while wishing to make Super. Ct. 230; Cassard v. Hinman, 51. Hibblewhite v. McMorine, (Super. Ct. Sp. T. 1857) 14 Super. (1839) 5 M. & W. 462. Ct. 207; Mellvaine v. Egerton, 52. Bigelow v. Benedict, (1877) (Super. Ct. 1864) 25 Super, tt. 422; 70 N. Y. 202, affirming 9 Hun 429; Tyler v. Barrows, (Super. Ct. 1868) Story v. Salomon, (1877) 71 N. Y. 29 Super. Ct. 104, 110; Kingsbury v. 420, affirming 6 Daly 531; Yerkes V. Kirwan, (Super. Ct. 1878) 43 Super. Salomon, (Sup. G. T. 1877) 11 Hun Ct. 451, affirmed 77 N. Y. 612 mem. 471 „o,,v ,i ._ J. , ■„ ,. i ,nn.T.T, -,« 53. story v. Salomon, (1877 71 49. Bigelow V. Benedict, (1877) 70 j^_ ^ ^gO, affirming 6 Daly 531; N. Y. 202, affirming 9 Hun 429. See ^^^^.^ ^ Tumbridge, (1880) 83 also Peabody v. Speyers, (1874) 56 j^^ y gg^ affirming 8 Abb. N. Cas. N. Y. 230. 291. See also Yerkes v. Salomon, 50. Story v. Salomon, (1877) 71 (Sup. G. T. 1877) 11 Hun 471. N. y. 420, 422. 54. See the following section. 57 898 NEW YORK LAW OF CONTRACTS [§ 590 a market for them, is Tanwilling to enter into an absolute obliga- tion to deliver, and therefore bargains for an option which, while it relieves him from liability, assures him of a sale in case he is able to deliver; and the purchaser may in the same way guard himself against loss beyond the consideration paid for the option, in case of his inability to take the goods. There is no inherent vice in such a contract. "^^ So an agreement by which one of the parties undertakes to sell for the other for a certain price a quantity of a commodity, such as grain, is not necessarily illegal as a gambling contract. In such a case, though the party under>- taking to make the sale takes the hazard of a market which will permit performance, and of liability for damages in case of default, yet the contract does not necessarily import that the parties are speculating on the ability of the party to make the sale, with a view simply to the payment of a sum to represent the difference between the price fixed and the market value at the time fixed.'"' § 590. Intent to Settle without Completion of Sale Gen- erally.^ If neither of the parties to a contract of sale for future delivery or option to sell or purchase intends that the sale shall be completed, but instead intends merely to pay the differences according to the rise or fall of the market, it then becomes a wagering contract and illegal." And the Stock Jobbing Act in expressly declaring unlawful wagers on the future price of govern- ment bonds or corporate stock did not impliedly sanction con- 55. Bigelow v. Benedict, (1877) 70 (Sup. G. T. 1895) 86 Hun 436, 67 N. Y. 202, 205. State Rep. 627, 33 N. Y. S. 898; Ball 56. Watson v. Blossom, (Sup. G. T. v. Davis, (Sup. G. T. 1886) 1 State 1888) 18 iState Rep. 726, 4 N. Y. S. Rep. 517; Rockwood v. Oalcfleld, 489. See also Kurz v. Fish, (Sup. (Sup. G. T. 1886) 2 State Rep. 331; G. T. 1890) 33 State Rep. 674, 11 Kenyon t. Luther, (Sup. G. T. 1888) N. Y. S. 209. 19 State Rep. 32, 4 N. Y. S. 498; 57. Bigelow v. Benedict, (1877) 70 Mackey v. Rausch, (Sup. G. T. 1891) N. Y. 202; Story V. Salomon, (1877) 39 State Rep. 232, 15 N. Y. S. 4, 71 N. Y. 420; Hurd V. Taylor, (1905) affirmed 133 N. Y. 602, 30 N. B. 181 N. Y. 231, 73 N. E. 977, revers- 1149; Cassard v. Hinman, (Super, ing 93 App. Div. 605 mem., 87 N. Y. S. Sp. T. 1851 ) 14 Super. Ct. 207, af- 1137; Brooks V. People's Bank, (Sup. firming 14 How. Pr. 84, on second 1920) 192 App. Div. 541, 183 N. Y. S. appeal 19 Super. Ct. 8, 14; Nichols 243; Yerkes v. Salomon, (iSup. G. T. v. Lumpkin, (Super. Ct. 1884) 51 1877) 11 Hun 471; Peck v. Doran, Super. Ct. 88, 7 Civ. Pro. 1; Fleet v. etc., Co., (Sup. G. T. 1886) 46 Hun Weinberg, (City Ct. Tr. T 1887) 2 454, 11 State Rep. 792, 27 Wkly. Dig. City Ct. 421; Cyrus v. Portman, 399; Dwight v. Badgley, (Sup. G. T. (Marine Tr. T. 1879) 1 City Ct. 1891) 60 Hun 144, 38 State Rep. 112, Supp. 1. 14 N. Y. S. 498; West v. Wright, § 590] ILLEGALITY 899 tracts for the sale of other propersty for future delivery where it was the intention of the parties to settle on the diiferenee in the market price.^* In regard to the legality of this class of wager- ing contracts, Andrews, J., says: " Contracts of this kind may be mere disguises for gambling, and where an optional contract for the sale of property is made, and there is no intention on the one side to sell or deliver the property, or on the other to buy or take it, but merely that the difference should be paid accord- ing to the fluctuation in market values, the contract would be a wager within the statute. ' ' ^' Though the sale is an exchange transaction, the rules of which require the actual delivery of the merchandise or other property sold, this will not prevent it from being considered a wagering contract if in fact the parties did not intend a bona fide sale but merely a settlement in accordance with the rise or fall of the market price.*" The mere fact that one of the parties to the contract may intend that the contract shall be settled without a completion of the sale will not render the contract illegal as a wager if a bona fide purchase or sale was contemplated by the other party .^'^ And where a broker is employed to purchase or sell stocks or the like on margin, the fact that the principal intends to close his account with the broker by ordering a resale or repurchase does not render the contract of employment illegal so as to preclude the principal from suing the broker, or vice versa ; *^ and this is true where an actual purchase or sale by the broker is contemplated, though it is the understanding of both the broker and his principal that the account between them 58. Cassard v. Himnan, (Sup. Sp. affirmed 202 N. Y. 603 mem., 96 N. E. T. 1857) 14 Super. Ct. 207, affirming 1131; Botts' v. Mercantile Bank, 14 How. Pr. 84. (Sup. 1915) 170 App. Biv. 879, 156 59. Bigelow v. Benedict, (1877) 70 N. Y. S. 700; Brookg v. People's N. Y. 202, 206. Bank, (Sup. 1920) 192 App. Div. 541, 60. Mackey v. Eausch, (Sup. G. T. 183 N. Y. S. 243; Frost v. Clarkson, 1891) 39 State Rep. 232, 15 N. Y. S. (Sup. 1827) 7 Cow. 24; Dwigtt v. 4, affirmed 133 N. Y. 602, 30 N. E. Badgley, (Sup. G. T. 1891) 60 Hun 1149. 144, 38 State Hep. 112, 14 N. Y. S. 61. Zeller v. Leiter, (1907) 189 498; Amsden v. Jacobs, (Sup. G. T. N". Y. 361, 82 N. E. 158, reversing on 1894) 75 Hun 311, 58 State Rep. 196, other grounds 114 App. Div. 148, 99 26 N. Y. S. 1000, affirmed 148 N. Y. N. Y. S. 624; Fuller v. Municipal Tel., 762, 43 N. E. 985. etc., Co., (Sup. 1907) 117 App. Div. 62. Earl v. Howell, (City Ct. G. T. 352, 102 N. Y. S. 154, affirmed 192 1884) 14 Abb. N. Qas. 474; Cunning- N. Y. 546 mem., 84 N. E. 1113; ham v. Stevenson, (Sup. G. T. 1884) Springs V. James, (Sup. 1910) 137 20 Wkly. Dig. 82. App. Div. 110, 121 N. Y. S 1054, 900 NEW YORK LAW OF CONTRACTS [§ 591 is to be SO closed,^' and though the usual margin is not put up by the principal.** If, however, no bona fide purchase or sale is contemplated by the parties, but the broker is employed merely to negotiate for his principal a gambling contract, and this is done, the contract of employment is illegal and neither party can maintain an action thereon.*^ And if the parties do not con- template any purchase whatsoever by the broker, but a settle- ment between them in accordance with the rise or fall in the market, the broker in fact acting as the seller, the commission charged being merely his gambler's percentage, the transaction is without question an illegal gambling transaction.** § 591. Proof of Intention. — An illegal intent will not be presumed, and there is therefore no presumption that it was the intention of the parties to settle in accordance with the rise or fall of the market, and to invalidate the contract the party attack- ing its validity and alleging that such intent existed must prove it ; *'' and this is true even though the parties do in fact come to a settlement, in the transaction in question, on the basis of the difference in the rise or fall of the market price.*' And as a general rule the question of intention is one of fact for the deter- mination of the jury.*' Though the contract is in writing parol proof of the intention of the parties as to the completion of the sale is admissible; this 63. Hurd v. Taylor, (1905) 181 24; Lewis v. Wilson, (Sup. G. T. N. Y. 231, 73 N. E. 977; Earl v. 1888) 50 Hun 166, 169, 19 State Rep. Howell, (City a. 6. T. 1884) 14 742, 2 N. Y. S. 806; Peck v. Doran, Abb. N. Cas. 474. See also Newman etc., Co., (Sup. G. T. 1890) 57 -Hun V. Lee, (Sup. 1903) 87 App. l>iv. 116, 343, 32 State Rep. 405, 10 N. Y. S. 84 N. Y. S. 106; Eggleston v. Rum- 401; Dwight v. Badgley, (Sup. G. T. ble, (Sup. G. T. 1892) 49 State Rep. 1891) 60 Huii 144, 38 State Rep. 112, 373, 20 N. Y. S. 819. 14 N. E. 498; Rockwood v. Oakfield, G4. Earl v. Howell, (City Ct. a. (Sup. G. T. 1886) 2 State Rep. 331, T. 1884) 14 Abb. N. Cas. 474. 335; Bottum v. Scott, (Sup. G. T. 65. See infra, section 636. 1887) 11 State Rep. 514, affirmed 120 66. Hurd v. Taylor, (1905) 181 N. Y. 623 mem., 23 N. E. 1152; Lugar N. Y. 231, 73 N. E. 977, reversing v. Caney, (City Ct. G. T. 1887) 12 93 App. Div. 605 mem., 87 N. Y. S. State Rep. 171, affirmed 120 N. Y. 1137. 647 mem., 24 N. E. 1102; Kingsbury 67. Bigelow V. Benedict, (1877) 70 v. Kirwin, (Super. Ct. 1878) 43 N. Y. 202, affirming 9 Hun 429; Story Super. Ct. 451, affirmed 77 N. Y. 612 V. Salomon, (1877) 71 N. Y. 420, af- mem. firming 6 Daly 531; Harris v. Tum- 68. Story v. Salomon, (1877) 71 bridge, (1880) 83 N. Y. 92, 99; N. Y. 420, affirming 6 Daly 531. Brooks V. People's Bank (Sup. 1920) 69. Brooks v. People's Bank, (Sup. 192 App. Div. 541, 183 N. Y. S. 243; 1920) 192 App. Div. 541, 183 N. Y. S. Frostv.Clarkson, (Sup. 1827) 7 Cow. 243. § SW] ILLEGALITY 901 does not infringe the general rule which forbids the introduction of parol evidence to vary or contradict a written agreement.'" A party to the transaction may testify directly as to his own inten- tionj'i and as a step to proving its illegal character the party seeking to enforce the contract may be asked on cross-examina- tion as to whether he intended to complete the sale.^^ One party, however, is not competent to testify as to the intention of the other party.'' As proof of an illegal intent on the part of one of the parties is only a step toward proving that the transaction was illegal, a similar intent on the part of the other party being also essential,'* it is not error to refuse to permit the defendant to testify to his illegal intent where his counsel expressly dis- claims any intention to prove a similar intent on the part of the other party.'^ The illegal intent of a party may be shown by cir- cumstantial evidence.'^ Conversations between the parties at the time of the making of the contract are material as tending to show their intent." And where there have been a large number of similar transactions between the parties the course of dealing and settlements on the market difference may be shown, as this is evidence tending to prove that the same intent existed in regard to the transaction in question.'* 70. Peck V. Doran, etc., Co., (Sup. Hun 144, 38 State Rep. 112, i4 N. Y. G. T. 1890) 57 Hun 343, 32 State S. 498. Rep. 405, 10 N. Y. S. 401; West v. 73. Dwight v. Badgley, (Sup. G. T. Wright, (Sup. G. T. 1895) 86 Hun 1891) 60 Hun 144, 38 State Rep. 112, 436, 67 State Rep. 627, 33 N. Y. S. 14 N. Y. S. 498. 898; Cassard v. Hinman, (Super. Ct. 74. See the preceding section. Sp. T. 1857) 14 Super. Ct. 207, affirm- 75. Amsden v. Jacobs, (Sup. G. T. ing 14 How. Pr. 84, on second appeal 1894) 75 Hun 311, 58 State Rep. 196, 19 Super. Ct. 8, 14. 26 N. Y. S. 1000, affirmed 148 N. Y. 71. Zeller v. Leiter, (1907) 189 762 mem., 43 N. E. 985. N. Y. 361, 82 K E. 158, reversing 76. Zeller v. Leiter, (1907) 189 114 App. Div. 148, 99 N. Y. S. 624; N". Y. 361, 82 N. E. 158; Dwight v. Dwight V. Badgley, (Sup. 6. T. 1891) Badgley, (Sup. G. T. 1894) 75 Hun 60 Hun 144, 38 State Rep. 112, 14 174, 58 State Rep. 585, 27 N. Y. S. N. Y. S. 498, on second appeal 75 107; Kenyon v. Luther, (Sup. G. T. Hun 174, 58 State Rep. 585, 27 N. Y. 1894) 19 State Rep. 32, 4 N. Y. S. 498. S. 107; Kenyon v. Luther, (Sup. G. 77. Zeller v. Leiter, (1907) 189 T. 1894) 19 State Rep. 32, 4 N. Y. S. N. Y. 361, 82 N. E. 158, reversing 498; Hentz v. Miner, (Sup. G. T. 114 App. Div. 148, 99 N. Y. S. 624. 1892) 46 State Rep. 636, 18 N. Y. S. 78. Kenyon v. Luther, (Sup. G. T. 880. 1894) 19 State Rep. 32, 4 N. Y. S. 72. Yerl^es v. Salomon, (Sup. G. T. 498. But see Dwight v. Badgley, 1877) 11 Hun 471. See also Dwight (Sup. G. T. 1891) 60 Hun 144, 38 •/. Badgley, (Sup. G. T. 1891) 60 State Rep. 112, 14 N. Y. S. 498. 902 NEW YORK LAW OF CONTRACTS [§§592,593 § 592. Recovery of Money Lost Generally; Common Law Rule. — In the absence of statute authorizing such an action, the gen- eral rule which denies relief from or the enforcement of an illegal contract" applies fully to an illegal gambling contract and pre- cludes the loser from recovering the money lost in ease he has voluntarily paid it to the winner.^ If an employee or the like misappropriates money of his employer and loses it at illegal gam- ing, the winner acquires no title thereto as against the employer irrespective of whether he knew that the money was misappro- priated or not, and the law will imply a promise by him to repay it to the employer. *"• § 593. Statutory Liability of Winner Generally. — There are two provisions in the Revised Statutes (1 Rev. Stat. p. 662, §§ 9 and 14) which are brought into the Penal Law, as regards the right to recover money lost at gaming. In one it is provided in general terms that " any person who shall pay, deliver or deposit any money, property or thing in action, upon the event of any wager or bet prohibited, may sue for and recover the same of the winner or person to whom the same shall be paid or delivered. " *^ In the other it is provided that ' ' every person 79. See infra, section 641 et seq. 1915) 170 App. Div. 879, 156 N. Y. S. 80. Eucfcman v. Pitcher, (1848) 1 700; Conway v. Conway, (Sup. Sp. N. Y. 392, 400, 4 How. Pr. 443, 8 T. 1893) 4 Misc. 312, 24 N. Y. S. 261. N. Y. Leg. Obs. 177; Meech v. Stoner, 82. Penal Law, § 994; 39 McKin- (1859) 19 N. Y. 26, 27; M'CuUum v. ney's Cons. Laws, p. 368. Gourley, (Sup. 1811) 8 Johns. 147; This provision, in ao far as a wager Visoher v. Yates, (Sup. 1814) 11 on a horse was concerned, is not im- Johns. 23, reversed on other grounds pliedly repealed by the Percy-Gray 12 Johns. 1 (sub nom. Yates V. Racing Law (Laws 1895, ch. 570, Foot); Weyburn v. White, (Sup. G. § 17), which imposes on a person T. 1856) 22 Barb. 82; Wilkenfeld v. making or recording a bet or wager Attic Club, (Sup. Tr. T. 1911) 74 on certain race courses liability to a Misc. 543, 134 N. Y. S. 507. ■civil action, at the hands of the per- Where A delivered to B two firkins son betting with him, for the amount of butter, and agreed that if P was of the wager, whioh liability is ex- elected governor of the state B should pressly denominated a penalty and is pay a certain price for the butter, declared to be exclusive of all other otherwise he was to pay nothing, penalties prescribed by law for the and P was not elected, it was held acts specified in the section. Mendoza that A had no right of action against v. Rose, (Sup. App. T. 1904) 44 Misc. B for the butter. M'Cullum v. Gour- 241, 88 N. Y. S. 938; Mendoza v. lay, (Sup. 1811) 8 Johns. 147. Levy, (Sup. 1904) 98 App. Div. 326, 81. Caussidiere v. Beers, (App. 90 N. Y. S. 748. Nor is it repealed, 1865) 2 Keyes 198, 1 Abb. App. Dec. as regards a wager on a horse race, 333; Gilpin v. Daly, (Sup. 1890) 24 by the provision (see Penal Law, Abb. N. Gas. 216, 11 N. Y. S. 6. See § 987; 39 McKinney's Cons. Laws, also Botts V. Mercantile Bank, (Sup. p. 364) making the racing of animalB SM] ILLEGALITY 903 who shall, by playing at any game, or by betting on the sides or hands of such as do play, lose at any time on sitting, the sum or value of twenty-five dollars or upwards, and shall pay or deliver the same or any part thereof, may, within three calendar months after such payment or delivery, sue for and recover the money or value of the things so lost and paid or delivered, from the winner thereof. ' ' *' These two provisions are not cumulative merely but relate to different kinds of gambling, and where a person seeks to recover money lost at a game of cards or the like he must bring himself within the latter section.** And to recover for money lost at cards more than twenty-five dollars must be lost at one sitting.*" The fact that the bet was made with the intent on the part of the loser to sue for the recovery of his money in ease he lost does not affect his right to recover,'* nor the fact for a wager or stake a misdemeanor, and providing for a forfeiture to the state of tlie animal raced and the money or other property staked or ■bet. French v. Matteson,. (Sup. Sp. T. 1901) 34 Misc. 425, 69 N. Y. S. 869. 83. Penal Law, § 995; 39 McKin- ney's Cons. Laws, p. 370. It is fur- ther provided in this section that: " In case the person losing such sum or value shall not, within the time aforesaid, in good faith and without collusion, sue for the sum or value so by him lost and paid or delivered, and prosecute such suit to, effect without unreasonable delay, the over- seers of the poor of the town where the offense was committed may sue for and recover the sum or value so lost and paid, together with treble the said siun or value, from the win- ner thereof, for the benefit of the poor." 84. Wilkenfeld v. Attic Club, (Sup. Tr. T. 1911) 74 Misc. 543, 134 N. Y. S. 507; Langworthy v. Broomley, (Sup. Sp. T. 1864) 29 How. Pr. 92; Arrietta v. Morrissey, ( Com. PI. G. T. 1866) 1 Abb. Pr. N. S. 439; Rosen- feld V. Hendenson, (Sup. Sp. T. 1882) 5 Month. L. Bui. 2. See also Liebman V. Miller, (City Ct. G. T. 1897) 20 Misc. 705, 46 N. Y. S. 532. In Langworthy v. Broomley, (Sup. Sp. T. 1864) 29 How. Pr. 92, where an action was brought to recover money lost at a game of faro, Mor- gan, J., said: " If section 9 provides for this case, then section 14 is use- less, except to authorize the overseers of the poor to sue for and recover the money lost at play when the loss amounts to twenty-five dollars at one time or sitting, and the loser neglects to sue for it within three calendar months after he has paid it over to the receiver, as provided in section 15. Notwithstanding the close con- nection existing between the different species of gambling, it must be aS' sumed, I think, that the legislature has made provision for two classes of cases; one where parties bet or wager a sum of money upon some contin- gent event; and the other, where the parties play at a game, or bet on the sides or hands of such as do play. Section 14, if it means anything, re- fers to gambling where parties play at cards or dice, or some other game, not to wagers which parties make with each other upon contingent events, as upon the result of a horse race or of a presidential election." 85. Wilkenfeld v. Attic Club, (Sup. Tr. T. 1911) 74 Misc. 543, 134 N. Y. S. 507. 86. Moulton v. Westchester Racing Ass'n, (Sup. 1904) 95 App. Div. 276, 88 N. Y. S. 695, affirming 42 Misc. 90,4; NEW YORK LAW OF CONTRACTS [§ 594 that the loser does not part with the money or property bet until after the wager is determined." But where the stake won was an article of personal property which the loser retained in his possession, and wheai the event was determined against him pur- chased it from the winner, the loser cannot treat the sale of the property to him by the winner as a conversion by the latter and recover therefor.** Where the transaction takes the form of a purchase of stock or other commodities on margin, without any intention of either party to complete the sale, but instead, to settle on the difference in the rise or fall of the market, this con- stitutes a wager,*' and entitles a party to recover the money paid by him in the settlement of such a cont]a£t.*" No demand for a return of the money is required before bringing suit." § 594. Persons Liable Generally. — To render a person liable under the general provision he must be, as provided in the statute, either the "winner or person to whom the money is paid."^ And it would seem that where a gambling contract is in the form of a purchase or sale of stock or the like, with the intent merely to settle on the difference in the rise or fall of the market, and the action is brought against a partnership with which prior transactions had been had> a member of the firm who had retired therefrom at the time of the transaction in question cannot be held liable though the plaintiff had no notice of his retirement.'* So where the stake on the winning side is made up of contribu- tions by several persons, though the bet is made in the name of one^ the person in whose name the bet is made cannot be held liable as a winner for the entire stake but only to the extent that he was an actual winner, especially where the loser was aware 487, 84 N. Y. S. 871. The action in N. Y. S. 401; West v. Wright, (Sup. this case was brought under the G. T. 1895) 86 Hun 436, 67 State Rep. Percy-Gray Racing Law (Laws 1895, 627, 33 N. Y. S. 898. ch. 570, § 17). There is no reason 91. Mendoza v. Levy, (Sup. 1904) why the same principle should not 98 App. Div. 326; 90 N. Y. S. 748; apply where the action is brought Mendoza v. Rose, (Sup. App. T. 1905) under the general provision. 46 Misc. 614, 92 N. Y. S. 791. This 87. Lewis v. Miner, (Sup. 1846) 3 is also true where the action is Benio 103. against a stakeholder. See infra, 88. Lewis v. Miner, (Sup. 1846) 3 section 596. Denio 103. 92. West v. Wright, (Sup. G. T. 89. See supra, section 590. 1895) 86 Hun 436, 67 State Rep. 627, 90. McCarthy v. Meaney, (1905) 33 N. Y. S. 898. 183 N. Y. 190, 76 N. E. 36; Peck v. 93. West v. Wright, (Sup. G. T. Doran, etc., Co., (Sup. G. T. 1890) 1895) 86 Hun 436, 67 State Rep. 627, 67 Hua 343, 32 State Rep. 405, 10 33 N. Y. S. 898. § 594] ILLEGALITY 905 of the manner in which the stake on the winning side was made up, though he did not know the names of the several contributors who had received their share of the stakes.** Where a person engages in a game of cards, such as poker, in which there are a number of contestants, to entitle him to recover from another player money lost in such game he must establish with reasonable certainty the amount won from him by the player so Sought to be held liable; proof merely that the plaintiff lost money in a series of games in which the defendant was a participant and winner to an unestablished amount is insufficient as a basis for any recovery.'^ And this has been held true though the player sought to be held liable was the one known as the banker of the game, that is, the person who issues the chips with which the game is played, accounting to each player for the amount of money represented by the chips returned.*' The fact that a racing association permits a bookmaker to conduct his betting business on the grounds does not render it liable for moneys lost to the bookmaker, as the bet is not with the association nor is it in any sense the winner .*'' Like- wise a saloon keeper or the like in whose place a game of cards is played, but in which he does not take part, is not liable for money lost by one of the players.** "Where in a banking game " chips " or markers are purchased by the players from the person running the game, which are redeemed by the latter, a, person losing such markers to the banker is regarded as losing money so as to entitle him to recover the amount they represent!** 94. Zielly v. Warren, (Sup. 1819) it is all the plaintiff has a riglit to 17 Johns. 192. In this case Spencer, demand." Ch. J., says: "The defendant can- 95. Ransom v. Vermilyea, (CityCt. not be considered the winner of any Tr. T. 1887) 11 State Rep. 683. more than the sum he actually gained 96. Ransom v. Vermilyea, ( City Ct. by the event of the wager; no more Tr. T. 1887) 11 State Rep. 683. But ever came into his hands; the object see Johnson v. Clark, (Sup. App. T. of the statutes is to subject those 1898 ) 23 Misc. 346, 51 N. Y. S. 238. who shall bet upon horse-racing to 97. Moulton v. Westchester Racing punishment, criminally, and also to Ass'n, (Sup. 1904) 95 App. Div. 276, avoid the contract, and place the par- 88 N. Y. S. 695, affirming 42 Misc. ties in statu quo as to all the moneys 487, 84 N. Y. S. 871. won or lost on the race. Nominally, 98. Federkowitz v. Holoweak, (Sup. the defendant won the $150 furnished App. T. 1918) 168 N. Y. S. 4. by the plaintiff, but in point of fact 99. Meech v. Stoner, (1859) 19 he won only $34.50. Both parties N. Y. 26 (markers issued by banker stand in pari delicto; neither has in game of faro). See also Johnson a claim to any peculiar favor or in- v. Clark, (Sup. App. T. 1898) 23 diligence of the tioilrt; if the defend- Misc. 346, 51 N. Y. S. 238. ant is compelled to refund his gains, 906 NEW YORK LAW OF CONTRACTS [§ 595 § 595. Liability of Stakeholder; Common Law Liability. — At common law if the wager is such as to be detrimental to the public interest, and therefore illegal, an action cannot be main- tained by the winner to recover the stakes from the stakeholder in accordance with the wager contract.^ Nor, according to the view taken in our state independently of statute, can the loser recover the money or property deposited by him with the stakeholder, where no attempt was made to repudiate the wager until after the event had happened on which the wager depended, although the stakes remained in the hands of the stakeholder until after he was given notice not to pay them over to the winner.^ In this connection Parker, J., say^s: " The plaintiff does not seek to recover under the statute against betting and gaming, . . . but his counsel contends that, upon the facts proved, he was entitled to recover at common law. He claims that by the common law a party to a bet may rescind it and recover back the property, on giving notice to the stakeholder not to deliver it to the winner, at any time before it has been actually delivered. Such have undoubtedly beesa the English decisions. . . . But I understand it to be now well settled, in this state, that a party to a bet cannot recover back money or property deposited with a stakeholder, unless he gives notice not to pay it over, before the happening of the event on which the bet depends. . . . Such a contract, being against public policy, is void, and while it is executory, may be rescinded by either party. But aftesr the bet is lost or won, the stakeholder holding the property as the agent of the winning party, the contract is partially at least executed. Then the maxim, potior est conditio defendentis, applies, and the law will not relieve against an executed illegal contract. " ^ It was con- sidered otherwise, however, where the party to the wager, before the happening of the contingent event, withdrew from the wager and demanded the return of his stake.^ It seems that a promise by 1. Bunn V. Riker, (Sup. 1809) 4 177; Eggers v. Klussman, (Sup. Sp. Johns. 426; Rust v. Gott, (Sup. 1828) T. 1885) 16 Abb. N. Cas. 226. 9 Cow. 169. 3. Like v. Thompson, (Sup. G. T. 2. Yates v. Foot, (Ct. Err. 1814) 1850) 9 Barb. 315, 316. 12 Johns. 1, reversing 11 Johns. 23 4. Vischer v. Yates, (Sup. 1814) ( sub nom. Vischer V. Yates ) ; Fowler 11 Johns. 23, reversed on other V. Van Surdam, (Sup. 1845) 1 Denio grounds 12 Johns. 1 (sub nom. Yates 557, 560; Like V. Thompson, (Sup. G. v. Foot). See also Morgan v. Groff, T. 1850) 9 Barb. 315. See also Ruck- (Sup. G. T. 1848) 4 Barb. 524, 528, man v. Pitcher, (1848) 1 N. Y. 392, reversing 5 Denio 364. 402, 4 How. Pr. 443, 8 N. Y. Leg. Obs. § 596] ILLEGALITY 907 the winner to repay to the stakeholder the amount of the loser's stake, in case the loser does not sanction its payment to the winner, is enforceable. And where the loser deposited with the stake- holder money borrowed by him from the stakeholder for the pur- pose of making the bet, a promise by the winner to repay to the stakeholder, in consideration of his paying over the stakes, the amount so borrowed, if the borrower refused to pay it or a recovery could not be had therefor, was held' to be enforceable, Bronson, C. J., saying: " So far as relates to the money thus paid over to the defendant as a winner, the action is not against the policy of the statute, but the reverse. It disaffirms the wager, and advances the policy of the law. ' ' ^ § 596. Statutory Liability of Stakeholder. — ^An early statute which is brought into our Penal Law (see Penal Law, § 994; 39 McKinney's Cons. Laws, p. 368) ^ expressly authorizes a party to an illegal wager to recover from the stakeholder the amount deposited by him, irrespective of whether the stakes have been paid over to the winner or not.'' Where a broker is employed to negotiate for his principal a gambling contract in the form of a contract of sale for future delivery, he may be regarded as a stakeholder with respect to the money placed in his hands by his principal, so as to render him liable under the statute.' Where, after money has been lost at gaming, the loser deposits money with another to be paid over to the winner, the person with whom the money is so deposited is in no sense a stakeholder so as to render him liable to the loser.* The fact that the stake deposited with a stakeholder consisted of foreign bank bills the circulation of which as money was prohibited -by statute was held not to preclude its recovery.^" As the statute makes the stakeholder liable absolutely and in all events, no demand on him for a return of the money is necessary before the institution of the action for its recovery, especially where the stakes have been paid over by the stake- holder to the winner." The early statute (1 Rev. Law, p. 223, § 5) 5. Peck v. Briggs, (Sup. 1846) 3 Reg. Oct. 29, 1886. This case is re- Denio 107. ferred to and distinguished in Ean- G. 1 Rev. Stat. p. 662, tit. 8, § 9. som v. Vermilyea, (City Ct. Tr. T. 7. O'Maley v. •Reese, (Sup. G. T. 1887) 11 State Rep. 683. 1849) 6Barh. 658; Liebman v. Miller, 10. Ruckman v. Pitcher, (1850) 20 (City Ct. G. T. 1897) 20 Misc. 705, N. Y. 9, affirming 13 Barb. 556. 46 N. Y. S. 532. 11. Ruckman v. Pitcher, (1848) 1 8. Rockwood v. Oakfiftld, (Sup. G. N. Y. 392, 4 How. Pr. 443, 8 N. Y. T. 1886) 2 State Rep. 331. Leg. Obs. 177. 9. McGuire v. Mearls, N. Y. Daily 908 NEW YORK LAW OF CONTRACTS [§ 597 authorizing the loser to recover money lost at gaming, without rendering in express terms the stakeholder liable, was construed as entitling the loser to recover from the stakeholder where the latter paid over the stake after notice from the Joser not to do so.^^ Interest on the amount deposited by the plaintiff with the stakeholder is recoverable from the time of the demand for its repayment, or, if no previous demand is made, from the com- mencement of the action, even though the money was paid over by the stakeholder to the winner.^' § 597. Consent of Loser to Payment over by Stakeholder. — A recovery by the loser is authorized though the stakes have been paid over to the winner with the consent of the loser, given in fulfilment of the wager contract, and as money won by the winner." Thus where in an action to recover from a stakeholder money deposited with him by the plaintiff, on a bet on a cock fight, the evidence was that within fifteen minutes after ^Ehe termination of the fight the plaintiff told the defendant to " give up the money to Courtney [the other party to the wager] ; it was Court- ney's money," it was held error in the judge to submft to the jury, on this evidence, the question whether the plaintiff directed tlie money to be paid over as money won on the event of the cock fight, or whether, without regard to any wager, and as a voluntary gift or' gratuity, he should have instructed them as a matter of law to find a verdict for the plaintiff.^' In this connection Jones, J., says: " The payment of the money over to the winner by the consent and direction of the plaintiff constitutes the princi- pal ground of defense. It is claimed for the defendant that he is discharged thereby from all liability to return or pay back to the plaintiff the money thus paid by his order to the winner. The plaintiff is bound, it is said, by his own act, and is precluded and estopped by his consent and direction to the stakeholder to pay the stakes to the winner, and the payment over of the same by the stakeholder in obedience to such direction, from now claiming the money as being still his own, and coercing the payment of it by 12. Simmons v. Borland, (Sup. N. Y. 392, 4 How. Pr. 443, 8 N. Y. 1813) 10 Johns. 468; Allen v. Ehle, Leg. Obs. 177, on second appeal 20 (Sup. 1827) 7 Cow. 496; M'Keon v. N. Y. 9; Storey v. Brennan, (1857) Caherty, (Super. Ct. 1829) 2 Super. 15 N. Y. 524; Maihony v. O'Oallaghan, Ct. 299. (Super. Ct. 1875) 38 Super. Ct. 461. 13. Rucbman v. Pitcher, (1850) 20 15. Storey v. Brennan-, (1857) 15 N. Y. 9, 14, affirming 13 Barb. 556. N. Y. 524. 14. Eucfcman v. Pitcher, (1848) 1 § 598] ILLEGALITY 909 the stakeholder to himself. . . . The clear and obvious import of the language of the statute is that the payment of the stakes or deposit by the stakeholder to the winner does not discharge or exonerate him from his liability to pay the same to the loser, who has a perfect right, notwithstanding such payment to the winner, to recover the same from the stakeholder. There is no provision made or intimation given by the statute, that the con- sent of the loser to such payment, or his direction to the stake- holder to pay the same to the winner, shall give effect to such pay- ment as a discharge to the stakeholder or a bar to the loser's action against him. And in my judgment,, any construction of the statute which should limit and confine its application to voluntary payments of the stakes by the stakeholder to the winner, and allow such payment over, when by the order or with the consent of the loser, to be valid and effectual as a discharge to the stake- holder, and a defense for him to the action of the loser, would contravene the sense and policy of the statute, and materially impair the value of the provisions on which its successful opera- tion must depend."" § 598. General Nature of Statutory Liability. — The lia- bility under the general provision to return to the loser the money lost is said to be " in the nature of a penalty or forfeiture for the benefit of the party aggrieved. ' ' " The statute does not, how- ever, in the strict sense impose a penalty,^* and therefore the action is not required to be brought in the county in which the gambling transaction took place." And it has been held that the statutory right of recovery is so far contractual in its nature that it may be set up as a counterclaim.^" It is also held that an action to recover money lost at gaming is not an action fpr the wrongful taking, detention or conversion of personal property within the meaning of Code Civ. Proc. § 549, authorizing an order of arrest in such an action.^ IS. Ruckman v. Pitcher, (1848) 1 Arrieta v. Morrisaey, (Com. PI. G. T. N. Y. 392, 396, 4 How. Pr. 443, 8 1866) 1 Abb. Pr. N. S. 439. N Y Leg. Obs. 177. 19- Mendoza v. Rose, (Sup. App. T. 17. Weyburn v. White, (Sup. G. T. 1904) 44 Misc. 241, 88 N. Y. S. 938. 1856) 22 Barb. 82, 83. 20. McDougall v. 'Waning, (Sup. G. 18. Meech v. Stoner, (1859) 19 T. 1867) 48 Barb. 364. N Y. 26; Mendoza v. Levy, (Sup. 21. Tompkins v. Stoith, (Super. Ot. 1904) 98 App. Div. 326, 90 K Y. S. G. T. 1882) 48 Super. Ct. 113, 2 Civ. 748; Mendoza v. Rose, (Sup. App. T. Pro. 21, 62 How. Pr. 499, affirmed 89 1904) 44 Misc. 241, 88 N. Y. S. 938; N. Y. 602 mem. See also Staub v. 910 NEW YORK LAW OF CONTRACTS [§ 599 § 599. Assignment of Right of Eecovery. — The authori- ties have not been in accord as regards the right of the loser to assign his statutory cause of action to recover money lost at gam- ing. In quite an early case in the Supreme Court the view is taken that the action can be maintained only by the loser in his own name, and cannot be assigned so as to enable the assignee to main- tain an action in his own name.^^ In a later case, however, in the Court of Appeals, the assignability of the cause of action is upheld and the right of the assignee to sue in his own name is sustained. In this case Comstock, J., after referring to the common law rule and its modification by our statute, says : ' ' That statute declares that the ' person ' who has lost the money may recover it back if he sues within a specified time. In a literal and exact sense the statute gives the action, because without it the suit could not be maintained. Yet the clause does not so much create the right as it removes the difficulty which obstructed the remedy. The right in such a case rests upon the illegality and the voidness of the transaction; upon the absence of any just or" legal title in the defendant to the money or thing in controversy. . . . But the statute, it is said, gives the action to ' the person,' and not to his assigns or representatives. Upon the precise terms of the statute, this is so ; yet it is difficult to suggest any reason why the right to be asserted in such an action would not devolve upon the admin- istrator, and thus become a fund for the payment of debts or for distribution amongst the next of kin ; or why an assignee in bank- ruptcy or insolvency would not succeed to the claim and be able to enforce it for the benefit of creditors. The assignability of things in action is now the rule; nonassignability, the exception. And this exception is confined to wrongs done to the person, the repu- tation, or the feelings of the injured party, and to contracts of a purely personal nature, like promises of marriage. . . . The right to claim and sue for money or property lost in gaming is clearly not within the principles on which the exception rests. To take money from a person by gaming is, in a just sense, a wrong done to his estate. . . . Such a cause of action, according to all the analogies of the law, is capable of transmission and assignment."^' Myers, (Sup. 1897) 16 App. Div. 476, N. Y. 26. See also McDougall V. 44 N. Y. S. 954. Walling, (Sup. G. T. 1867) 48 Barb. 22. Weyburn v. White, (Sup. G. T. 364; Zeltner v. Irwin, (Sup. App. T. 1856) 22 Barb. 82. 1897) 21 Misc. 13, 46 N. Y. S. 852, 23. Meech v. Stoner, (1859), 19 affirming 20 Misc. 398, 45 N. Y. S. 600] ILLEGALITY 911 And it is held that the further provision of the statute giving the overseers of the poor a right of action in case the loser does not, within the time limited, sue to enforce his right, does not affect the right of the loser to assign his cause of action.^* And this includes, it seems, the right to recover the amount lost from the stakeholder.'^ The assignment is not required to be in writing.^^ § 600. Wagers Made through Ag-ents; Who May Sue.— If the wager is made by an agent in his own name, his principal, in case the wager is lost, may sue for its recovery,^ and this is held true though the agent expressly stated to the other party to the wager that his principal was in no way connected with the trans- action.^ Ordinarily to entitle a person to recover under the stat- ute it is necessary that he should be in fact the actual loser, and his recovery is limited to the amount of his loss; ^ and it has been held that if the bet is made by an agent his principal must sue for its recovery and not the agent.^" Where the stakes on the losing side are made up by several persons, though the bet is made in the name of one, each contributor must sue for the amount of his own loss.^i It has been expressly so held in the Court of Appeals where penalty attaches in favor of the over- seers. In this legislation 'I can see nothing of mere privilege as distin- guished from the right of property and its ordinary incidents." 25. Bernstein v. Horth, (Sup. App. T. 1903) 85 N. Y. S. 263. 26. Bernstein v. Horth, (Sup. App. T. 1903) 85 N. Y. S. 263. 27. Ruckman v. Pitcher, (1859) 20 N. Y. 9, 12; Pulver v. Burke, (Sup. G. T. 1868) 56 Barb. 390. See also Vischer v. Yates, (Sup. 1814) 11 Johns. 23, reversed on other grounds 12 Johns. 1 (sub nom. Yates v. Foot). 28. Pulver v. Burke, (Sup. G. T. 1868) 56 Barb. 390. 29. Ruckman v. Pitcher, (1859) 20 N. Y. 9, affirming 13 Barb. 556. 30. Moulton v. Westchester Racing Ass'n, (Sup. 1904) 95 App. Div. 276, 88 N. Y. S. 695. 31. Pulver v. Burke, (Sup. G. T. 1868) 56 Barb. 390. But see Hay- wood V. Sheldon, (Sup. 1816) 13i Johns. 88; McKeon v. Caherty, (Sup. 1830) 3 Wend. 494, affirming 1 Super. Ct. 300. 1036, reversed on other grounds 25 App. Div. 228, 49 N. Y. S. 337 ; Bern- stein V. Horth, (Sup. App. T. 1903) 85 N. Y. S. 263. 24. Meech v. Stoner, (1859) 19 N. Y. 26. In this connection Corn- stock, J., says : " The substantive right is to recover back money, lost in gaming, to which the winner has acquired no title. This does not become a mere personal- privilege to 8Ue, in consequence of the shortness of the limitation. If the right is not asserted within the time, it is gone. The overseers may then sue according to the 15th section of the statute; but their action is not for the same cause. They may ' sue for and re- cover the sum or value so lost and paid, together with treble the said sum or value.' This action is not, like that of the loser, based upon the duty of restoring the money won, but is for a penalty intended to repress the vice of gaming. The statute first pro- vides for restitution between the par- ties, if claimed within a short period of time; if not so claimed, then the &12 NEW YORK LAW OF CONTRACTS [§ 601 the action is against a stakeholder to enforce his statutory liability, as the plaintiff should be permitted to recover only to the extent that he is beneficially interested in the stake.^^ In this connection Go'mstock, J., says : ' ' There is no rule or agency which entitles him {the agent] to maintain the action for the sums which belonged to his principals. An agent may, in many cases, sue upon express contracts made with himself by name. In this case the right of action, so far as any general principle is involved, rests upon the implied duty of restoring the money lost in an illegal wager, the contract or wager itself being entirely void. But this implied assumpsit or duty arises only in favor of those to whom the money in fact belonged, and therefore cannot be enforced in the name of another person to whom the obligation is in no sense due. If we look at the statute concerning ' betting and gaming,' we find nothing in its terms leading to a different conclusion. The lan- guage is that ' any person, who shall pay, deliver or deposit any money, etc., may sue ' . . . The statute . . . has done little if anything more than to remove these impediments in the way of a legal remedy for the legal wrong of retaining from the owner money or property the possession of which is thus acquired. Resti- tution is the policy of this enactment, and I feel quite clear in the opinion that the legislature did not design to withhold it from the person really entitled to it, and give it to another who may have no interest in the transaction. ' ' ^' § 601. Limitation of Actions. — To entitle the loser to recover under the provision relating to losers at any game, etc., action must be brought, as provided in the statute, within three months after payment.'* Under the other provision the time within which the action may be brought is governed by the general provision of the statute of limitation (2 Rev. Stat. p. 298, § 31; Code Civ. Prac. § 383, subd. 3), which requires " all actions upon any statute made or to be made, for any forfeiture or cause, the benefit and suit whereof is limited to the party aggrieved, or to such party and the people of this state, shall be commenced within three years after the offense committed, or the cause of action accrued, and not after. '"^ Consequently an action to recover 32. Euckman V. Piticher, (1859) 20 Wilkenfeld v. Attic Club, (Sup. Tr. N. Y. 9, affirming 13 Barb. 556. T. 1911) 74 Misc. 543, 134 N. Y. S. 33. Ruckman v. Pitcher, (1859) 20 507; Langworthy v. Broomley, (Sup. N. Y. 9, 12. Sp. T. 1864) 29 How. Pr. 92. 34. Hoytv. Cross, (1888) 108 N. Y. 35. Fowler v. Van Surdam, (Sup. 76, 12 State Rep. 814, 14 N. B. 801; 1845) 1 Denio 557; Ldebman v. § 602] ILLEGALITY 913 from the stakeholder money bet on an election is not required to be brought within the three months period fixed for the recovery of money lost at cards and other games.^* § 602. Form of Remedy and Pleadings. — To enforce the liability imposed by the statute the action must be based thereon and not one in form to enforce the illegal contract." Where in set- tlement of a claim for goods sold, the creditor allows as a deduction the amount of a gambling debt owing by him to a third person and assigned to the debtor, the creditor cannot, on the ground of the illegality of the debt so allowed as a deduction, sustain an action for the amount as for a balance of the price remaining unpaid; this is in effect a payment of the gambling debt, and any remedy the creditor may have must 'be to enforce the statutory right to recover as for money lost at gaming.^* Debt was regarded as a proper remedy under the early statute to recover from the winner or to enforce the liability of the stakeholder,^' though it was also held that a recovery could be had in an action for money had and received." And it has been held that the adoption of the Code form of procedure did not render insufScient the short form of complaint authorized by the Revised Statutes for the recovery of money received in violation of a statute." According to the better view the pleading must be special and the facts authorizing the recovery alleged.*^ If the count is special, as the right of the loser to recover the money lost is purely statutory, the complaint must allege all the facts necessary under the statute to authorize a recovery .^2 And as our statute has no application to wagers made Miller, (City Ct. G. T. 1897) 20 Misc. 40. O'Maley v. Reese, (Sup. G. T. 705, 46 N. Y. S. 532. See also Lang- 1849) 6 Barb. 658; Johnson v. Clark, worthy V. Broomley, (Sup. Sp. T. (Sup. App. T. 1898) 23 Misc. 346, 1864) 29 How. Pr. 92, 95. But see 51 N. Y. S. 238; Betts v. Bache, MeKeon v. Caherty, (Super. Ct. (Super. Ct. Sp. T. 1862) 22 Super. 1829) 2 Super. Ct. 299. Ct. 614, 14 Abb. Pr. 279, affirming 23 36. Liebman v. Miller, (City Ct. G. How. Pr. 197. T. 1897) 20 Misc. 705, 46 N. Y. S. 532. 41. Betts v. Bache, (Super. Ct. Sp. 37. Kockwood v. Oakfield, (Sup. G. T. 1862) 22 Super. Ct. 614, 14 Abb. T. 1886) 2 State Rep. 331. Pr. 279, affirming 23 How. Pr. 197. 38. Schmitt v. Howell, (Com. PI. 42. Arrieta v. Morrissey, (Com. PI. 1881) 10 Daly 290. G. T. 1866) 1 Abb. Pr. N. S. 439. See 39 Collins v. Ragrew, (Sup. 1818) also Moran v. Morrissey, (Com. PI. 15 Johns. 5; McKeon v. Caherty, Sp. T. 1864) 18 Abb. Pr. 131, 28 How. (Sup. 1816) 3 Wend. 494, affirming Pr. 100. I Super Ct. 300 See also Simmons 43. Wilkenfeld v. Attic Club, (Sup. V. Borland, (Sup. 1813) 10 Johns. Tr. T. 1911) 74 Misc. 543, 134 N. Y. 468; Allen v. Ehle, (Sup. 1827) 7 S. 507; Stannard v. Eytinge, (Super. Cow. 496. Ct. 1867) 28 Super. Ct. 90, 3 Abb. 58 914 NEW YORK LAW OF CONTRACTS [§ 603 out of the state, the complaint must allege the place where the wager was made, so as to show that the transaction was within the statute." Where the complaint is so drawn as to authorize a recovery under either of the two sections, the defendant is entitled to have it made more specific so as to show under which section a recovery is sought." "Where the complaint is for money lost at cards or the like, the defendant is entitled to require the plaintiff to state the amount lost at each sitting and the time of pajonent. It is not sufficient that these facts may be called forth by a bill of particulars.*^ The mere failure to refer to the statute authorizing the recovery has been held a formal defect at the most and does not render the complaint subject to a general demurrer.''' § 603. Money Borrowed for Gaming. — Where the act of betting is illegal, money loaned for the express purpose of being so used cannot be recovered by the lender, as the contract of loan is itself rendered illegal ; and this is especially true under our statute which renders void ' ' all contracts for or on account of any money, ' ' etc., bet or wagered.** And where the proprietor of a gaming house issued poker chips to his customer's to be used in a game of poker, and accounted to each player at the end of the game for the amount of money represented by the chips turned in by him, it was held that where chips were issued on credit, this was in the nature of a loan to be used for gambling and therefore the money could not be recovered.*' Where, however, a person after money has been lost by another to third persons at gaming loans him money with which to pay his loss, or pays such loss himself at the request of the loser, the lender may recover from the borrower the money so loaned or paid f but to bring a transaction within this rule there must be a bona fide loan to or payment at the request of Pr. N. S. 42, 33 How. Pr. 262; -Lang- 47. O'Maley v. Reese, (Sup. G.. T. worthy v. Broomley, (Sup. Sp. T. 1849) 6 Rarb. 658. 1864) 29 How. Pr. 92; Moran v. M'or- 48. Peck v. Briggs, (Sup. 1848) 3 rissey, (Com. PI. Sp. T. 1864) 18 Benio 107; Ruckman v. Bryan, (Sup. Abb. Pr. 131, 28 How. Pr. 100; Ar- 1846) 3 Denio 340. See infra, sec- rieta v. Morrissey, (Com. PL G. T. tion 633 et seq. as regards indirect 1866) 1 Abb. Pr. N. S. 439; Eggers illegality of contracts generally. V. Klussmann, (Sup. Sp. T. 1885) 16 49. Ransom v. Vermilyea, (City Ct. Abb. N. Cas. 226. Tr. T. 1887) 11 State Rep. 683. 44. Eggers V. Klussmann, (Slip. Sp. 50. Jacoby v. Heidelberg, (Sup. T. 1885) 16 Abb. N. Cas. 226. App. T. 1900) 33 Misc. Ill, 67 N. Y. 45. Arrieta v. Morrissey, (Com. PI. S. 146; Mann v. Spangehl, (Sup. App. G. T. 1866) 1 Abb. Pr. N. S. 439. T. 1916) 162 N. Y. S. 331. 46. Arrietta v. Morrissey, (Com. PI. G. T. 1866) 1 Abb. Pr. N. S. 439. § 604] ILLEGALITY 915 the loser; the courts will not permit the winner to use this device as a subterfuge for the evasion of the policy of the law." § 604. Securities for Money Lost at Gaming Generally. — A provision of the Revised Statutes (1 Rev. Stat. p. 663, § 16) which is 'brought into the Penal Law (see Penal Law, § 993; 39 McKinney's Cons. Laws, p. 367) is as follows: "All things in action, judgments, mortgages, conveyances, and every other security whatsoever, given or executed, by any person, where the whole or any part of the consideration of the same shall be for any money or other valuable thing won by playing at any game whatsoever, or won by betting on the hands or sides of such as do play at any game, or where the same shall be made for the repay- ing any money knowingly lent or advanced for the purpose of such gaming or betting aforesaid, or lent or advanced at the time and place of such play, to any person so gaming or betting afore- said, or to any person who during such play, shall play or bet, shall be utterly void, except where such securities, conveyances or mort- gages shall affect any real estate, when the same shall be void as to the grantee therein, so far only as hereinafter declared." This renders illegal and unenforceable all notes and other obligations given for money lost at gaming.^^ And where on the settlement and discontinuance of an action on a check given for a gambling debt, the defendant gave to the plaintiff another check for the same amount, it was held that no recovery could be had on the second check, if the defense that it was given for a gambling debt was duly pleaded.^' No recovery can be had on a note or other obligation if any part of the consideration therefor is money lost at gaming." It is immaterial that a note for money so lost is made payable to a third person at the express or implied request of the winner,*^ as where the winner employs an agent to collect cheeks given for the debt, and the loser executes his note to such agent on 51. Mann v. Spangehl, (Sup. App. Hams, (Sup. App. T. 1910) 122 N. Y. T. 1916) 162 N. Y. S. 331. See also S. 392. Jacoby V. Heidelberg, (Sup. App. T. 53. Moore v. Blanck, (City Ct. Tr. 1900) 33 Misc. Ill, 67 N. Y. S. 146. T^^l"") 71 Misc. 257, 129 N. Y. S. 52. Hollingsworth v. Moulton "54; Hollingsworth v. Moulton, (Sup. G. T. 1889) 53 Hun 91, 24 ^g^^ ^ ^^ Iggg^ 53 jj^^ gj^ 34 State Rep. 843, 6 N. \ . S. 362, af- g^ate Rep. 843, 6 N. Y. S. 362, af- firmed 119 N. Y. 612 mem., 23 N. E. firmed 119 N. Y. 612 mem., 23 N. E. 1143; Cunningham v. Gans, (Sup. O. n43, T. 1894) 79 Hun 434, 61 State Rep. 55. Anthony v. Layng, (Sup. G. T. 249, 29 K Y. S. 979; Pause v. Wil- 1877) 5 Wkly. Dig. 448. 916 NEW YORK LAW OF CONTRACTS [§ 605 the surrender of the checks.^* Negotiable paper given for a gam- bling debt is not enforceable in the hands of a third person even if he is a purchaser for value and in due course without notice of the character of the instruraent.^'' "Where a person to whom a debt for money lost at gaming is owing gives his accommodation note to the winner and receives from the loser the latter 's note as indemnity or security against liability on the accommodation note, the fact that the loser discounts the accommodation note and uses the pro- ceeds to pay the gambling debt does not prevent a recovery on the note given the accommodation maker, as the consideration for such note is not in whole or in part the gambling debt which was dis- charged by the payment.^* In an action on a note or the like given for a gambling debt the defense that it was so given must as a general rule be pleaded to be available.^' Ordinarily a court of equity will not interfere in favor of the loser to set aside securities given by him for the payment of gambling debts,^" but where the beneficiary in a life insurance policy taken out by her husband on his life joined with him in the assignment of the policy as security for a gambling debt of the husband, it was held that as the wife was not a particeps to the gaming transaction, a court of equity would, for her benefit, annul the assignment."^ § 605. Conveyances and Mortgages Given for Gambling Debts. — The Eevised Statutes (1 Rev. Stat. p. 663, § 17) provides that " when any securities, mortgages or other conveyances, executed for the whole or part of any consideration specified in the preced- ing paragraph [see preceding section] shall affect any real estate, they shall inure for the sole benefit of such person as would be entitled to the said real estate, if the grantor or person incumber- ing the same, had died, immediately upon the execution of such instrument, and shall be deemed to be taken and held to and for the use of the person who would be so entitled. All grants, cove- nants and conveyances, for preventing such real estate from com- 56. Lichtenstein v. O'Coimell, (Sup. 1105; May v. Burras, (City a. G. T. App. T. 1902) 38 Misc. 746, 78 N. Y. 1884) 13 Abb. N. Cas. 384. See infra, S. 1125. section 660 et seq. as to the necessity 57. Cunningham v. Cans, (Sup. G. to plead the defense of illegality T. 1894) 79 Hun 434, 61 State Rep. generally. 249, 29 N. Y. S. 979. 60. Benisch v. Mandelbaum, (Sup. 58. Hoyt v. Cross, (1888) 108 N. Y. 1913) 160 App. Div. 206, 145 N. Y. S. 76, 12 State Rep. 814, 14 N. E. 801, 91. 28 Wkly. Dig. 203. 61. Benisch v. Mandelbaum, (Sup. 59. Moore v. Blanck, (City Ct. Tr. 1913) 160 App. Div. 206, 145 N. Y. T. 1911) 71 Misc. 257, 129 N. Y. S. S. 91. § 606] ILLEGALITY 917 ing to, or devolving upon, the person hereby intended to enjoy the same as aforesaid, or in any way incumbering or charging the same, so as to prevent such person from enjoying the same fully and entirely, shall be deemed fraudulent and void." This provi- sion is brought into the Penal Law as part of section 993 (see McKinney's Cons. Laws, p. 367. Under this provision, where a bond and mortgage on lands owned by a wife are given to secure an indebtedness of her husband a part of which consists of a gam- bling debt, the bond and mortgage do not necessarily inure in toto to the benefit of the heirs of the wife. The mortgage and incident- ally the debt thereby secured to the extent of the value of the land, if this is less than the amount of the bond, will inure to the benefit of such heirs, but in so far as the bond exceedsthe value of the land no interest therein inures to their benefit but would be void. Consequently where the only relief sought against the husband is a deficiency judgment, he is an interested witness in proving that the consideration for the bond and mortgage was in part a gam- bling debt, and is an incompetent witness as to the transaction with the mortgagee where the action to enforce the bond and foreclose the mortgage is brought against husband and wife after the death of the mortgagee, by an assignee of the mortgagee's executors.*^ Lotteries § 606. What Constitutes Lottery Generally. — A lottery as com- monly known and as defined by the statutes (see Penal Law, § 1370 ; 39 McKinney's Cons. Laws, p. 498) is a scheme for the distribution of property by chance among persons who have paid or agreed to pay a valuable consideration for the chance."' It never was essen- tial to constitute a lottery that the prizes should be in money. Whenever the scheme of distribution is such that if the payment of the prizes was in money it would be a lottery, it will be equally so although the prizes are payable in lands or in chattels."* Three elements enter into a lottery scheme: (1) a consideration, (2) chance, (3) a prize or some advantage of inequality which is in G2. Luetchf ord V. Lord, (1892) 132 Div. 73, 43 N. Y. S. 421, 12 N. Y. N. Y. 465, 44 State Eep. 625, 30 K E. Crim. 80, affirmed 152 N. Y. 640 859, reversing 57 Hun 572, 33 State mem., 46 N". E. 1150. Eep. 548, 11 N". Y. S. 597. 64. Almshouse v. American Art- G3. People v. Noelke, (1883) 94 Union, (1852) 7 N. Y. 228. See also N Y 137 1 N. Y. Crim. 495, affirm- Eeilly v. Gray, (Sup. G. T. 1894) 77 ing 29 Hun 461, 1 N. Y. Crim. 252; Hun 402, 407, 60 State Eep. 45, 28 People V. Wolff, (Sup. 1897) 14 App. N. Y. S. 811. &18 NEW YORK LAW OF CONTRACTS [§ 606 the nature of a prize; and if these three elements are present the transaction will ordinarily constitute a lottery.*^ A lottery includes, therefore, the form of gambling ordinarily known as * ' policy ; " ** the sale of tickets entitling the holder to admission to a theatrical performance or concert, and in addition to what- ever prize or gift may be awarded to its number ; ^ the sale of " prize candy " packages, in some of which are contained tickets calling for valuable prizes ; ^^ and it has even been held that a sale of gum for a penny a stick, each stick containing a number entit- ling the purchaser to a candy egg, large or small according to the number, is a lottery.^' It is also held that a scheme, under which the members of an association incorporated to promote and encour- age the fine arts are to contribute to the purchase of works of art for distribution among themselves by lot or chance, is a lottery.'" Pool selling on horse races, both of the " auction pool " and the " French pool " kind, is, according to the better view, considered in our state as a species of ordinary gambling or betting and not a lottery Ji The fact that the dominant purpose of a merchant is to increase his business will not prevent a scheme resorted to by him from constituting a lottery if the other elements of a lottery are present.'^ Where the scheme of a merchant, for the distribution of property by chance, is restricted to those who purchase goods from him, the purchasers are considered as paying a valuable considera- tion for the privilege of competing for the property to be dis- tributed,'^ even though the price of the article sold is the same to 65. Carl Co. v. Lennon, (Sup. hp. (Super. Ct. 1852) 7 Super. Ct. 614, T. 1914) 86 Misc. 255, 148 N. Y. S. 10 N. Y. Leg. Obs. 132. 375. 71. Reilly v. Gray, (Sup. G. T. 66. Wilkinson v. Gill, (1878) 74 1804) 77 Hun 402, 60 State Rep. 45, N. Y. 63, affirming 10 Hun 156; Almy 28 N. Y. S. 811. But see Irving v. V. McKinney, (Sup. G. T. 1886) 5 Brittou, (Com. PI. G. T. 1894) 8 State Rep. 267, 12 Hun 651 mem. Misc. 201, 58 State Rep. 836, 28 67. Negley v. Devlin, (Super. Ct. ^- "^- ^- ^^^' Ludington v. Dudley, Sp. T. 1872) 12 Abb. Pr. N. S 210. '^om. PI. G T. 1894) 9 Misc. 700, CO -R 11 -D 1 ,^o■r,^ ^a ''^ ^tate Rep. 115, 30 N. Y. S. 221. 68. Hull V. Ruggles, (1874) 56 See suora section 586 N. Y. 424, aifirming 65 Barb. 432, 1 ^^ supra section 586. Thomn fr P 18 72. People v. Lavm, (1904 179 Thomp. & C. 18. j^ Y. 164, 71 N. E. 753, 18 N. Y. 69. People v. Eunge, (Sup. G. T. Crim. 480. 1885) 3 N. Y. Crim. 85. 73. People v. Lavin, (1904) 179 70. Almshouse v. American Art- N. Y. 164, 71 N. E. 753, 18 N. Y. Union, (1852) 7 N. Y. 228, affirming Crim. 480, reversing on other grounds 13 Barb. 577; People v. American Art 93 App. Div. 292, 87 N. Y. S. 776. Union, (1852) 7 N. Y. 240. See also See also Hull v. Ruggles, (1874) 56 Bennett v. American Art Union, N. Y. 424. § 607] ILLEGALITY 919 those who enter into the contest as to those who do not.'* To con- stitute a lottery, some consideration must be given for the chance to win the prize. Therefore a scheme by the publisher of a news^ paper, for the purpose of increasing its circulation, under which cards bearing serial numbers were gratuitously distributed and a prize given to the holder of a card bearing the numbers drawn, if presented within a very limited time, such numbers to be published in the newspaper and the public advised to watch the papers for such information, but given access to the papers at certain adver- tised places without the necessity for purchasing them to obtain the information, — has been held not to constitute a lottery, as no consideration is given for the chance to win the prizes offered.''^ § 607. Chance as Affecting Distribution. — To constitute a lot- tery it is necessary, as provided in the statute, that the distribu- tion be by chance. Thus there is nothing savoring of a lottery in the sale of a commodity by a merchant with the privilege given the customer to select another article from a number in plain view. In this connection Peckham, J., says: " In the purchase of two pounds of coffee he purchases the right to choose a certain article of crockery from a counter in full view, and he gets no chance to obtain anything else. In all cases cited by the counsel in his very elaborate and painstaking brief, not one ease is found where it has been held that a lottery or anything in the nature of a lottery existed, unless there was added to the right to obtain some kind of property, in any event, the chance, near or remote, of getting some- thing in addition to it, of more or less value as the case might be. Here there is no chance, and consequently nothing in the nature of a lottery."'^ To constitute a lottery the distribution need not, however, according to the view taken in our state,, be by pure chance, and the fact that an element of judgment on the part of the contestants enters to some extent into the contest does not nec- essarily prevent the distribution from being one by " chance."" This is held true where a contest was open to the general public and the prizes were to be distributed to the persons estimating 74. People v. Lavin, (1904) 179 192 App. Div. 903 mem., 182 N. Y. S. N. Y. 164, 71 N. E. 753, 18 N. Y. 943. Crim. 480, reversing 93 App. Div. 292, 76. People v. Gillson, (1888) 109 87 N. Y. S. 776. See also Carl Co. N. Y. 389, 402, 16 State Rep. 185, 17 V. Lennon, (Sup. Sp. T. 1914) 86 N. E. 343. Misc 255 148 N. Y. S. 375. 77. People v. Lavin, (1904) 179 75. People v. Mail, etc., Co., (Sp. N. Y. 164, 71 N. E. 753, 18 N. Y. Sesa. 1919) 179 N. Y. S. 640, affirmed Crim. 480. 920 NEW YORK LAW OF CONTRACTS [§ 60§ most closely the cigars of all brands on which the government would collect taxes during a certain month, and the statistics as to the amount of taxes paid for other months were given as an aid.^* If, however, the dominant element is skill, though chance may to a minor extent enter into the contest, it is not to be regarded as a distribution by chance.'* Thus the award of a prize to the success- ful competitor in a horse race is not a lottery. As said by Martin, J. : " There is certainly a great difference between a contest as to the speed of animals for prizes or premiums contributed by others and a mere lottery, where the controlling and practically the only element is that of mere chance alone. A race or other contest is by no means a lottery simply because its result is uncertain, or because it may be affected by things unforeseen and accidental. ' ' '" So a " fish pond " game, which involves no element of chance but which calls wholly for the exercise of skill, is not a lottery, though the probabilities are that in most cases the ' ' angler ' ' will be unsuccessful, due to a want of skill.^^ § 608. Bonds for Money Borrowed with Prize Privileges; Determination of Maturity by Lot. — The view has been taken in our state that the scheme of a foreign government which has for its main object the obtaining of a loan is not a lottery within the meaning of our statute, because the purchaser of the bonds issued may receive, in addition to the amount of his loan with interest, a further sum or prize to be determined by lot or chance. Thus the Austrian government issued bonds obligating it to pay the prin- cipal, interest, and premium named, and in addition any sum which might be drawn by the holders of the bonds in accordance with the rules and regulations indorsed thereon. In an action to recover double the amount paid for one of such bonds the Court of Appeals refused to sustain a claim that the bonds were shares or interests in a lottery, Miller, J., saying: " The substance of the transaction relates to a loan of money to the government and the provision made for its payment. This is the main object and pur- 78. People v. Lavin, (1904) 179 107, affirming 4 App. Div. 82, 11 N. Y N. Y. 164, 71 N. E. 753, 18 N. Y. Crim. 279, 39 N. Y. S. 865. Nor is Crim. 480, reversing 93 App. Div. 292, a contest for a prize or purse given 87 N. Y. S. 776. by a third, person gambling. See 79. People v. Lavin, (1904) 179 supra, section 585. N. Y. 164, 169, 71 N. E. 753, 18 N. Y. 81. People v. Fuerst, (County Ot. Crim. 480. 1895) 13 Misc. 304, 69 State Rep. 80. People v. Fallon, (1897) 152 205, 34 N. Y. S. 1115, 11 N. Y. Crim. N. Y. 12, 46 N. E. 296, 12 N. Y. Crim. 413. § 608] ILLEGALITY 921 pose for which authority was given to issue the bonds, and they were disposed of evidently having this in view. The provision by which upon a certain contingency the holder of the bond might receive an additional sum was no doubt an inducement held out for the purpose of obtaining money on the same, but it did not constitute the main feature and the substance of the transaction between the government and the purchaser of the bond. It was a mere appendage and an incident to its main purpose by means of which the holder might by chance receive a larger sum than the principal and interest which the bond itself provided for. . . . It cannot, we think, be said that a loan made with a view of obtain- ing money to carry on the government of a nation, and which con- tains a provision by which the amount can be increased as to a portion of it upon a contingency named therein, constitutes a lot- tery scheme, and is in violation of the constitution and laws of this state prohibiting lotteries, and of the statute cited. " *^ A diif erent conclusion, however, has been reached in the federal Supreme Court as to the character of such bonds as a lottery scheme, and they were held to fall within the federal statute prohibiting the use of the mails in furtherance of a lottery or similar scheme. The court in this case attempts to distinguish the New York decision on the ground that the statute involved in that case referred to " illegal lotteries " and not to lotteries generally.*' 82. Kohn v. Koehter, (1884) 96 named, nor is it within the purview N. Y. 362, reversing 21 Hun 466. But of the statute or the intention of the see People v. Wolff, (Sup. 1897) 14 lawmakers. These bonds have been App. Div. 73, 43 N. Y. S. 421, affirmed issued by several of the governments 152 N. Y. 640 mem., 46 N. E. 1150. of other countries, and in no sense In Kohn V. Koehler, supra, '=an they be regarded a;s being withm Miller, J., also says: "The evils the inhibition of the statutes of this , , ' , , , ,i . J state which were intended to sup- attending a system of lotteries, and lotteries, and to prevent citi- against which the laws of this state ^^^^ ^^^^ indulging in this species are aimed, consist in the risk which ^j gambling. The bond in question people are willing to take in hazard- ^^^ ^^ evidence of debt and a public ing their money with a cl^ance of security of a foreign government, ex- losing the same without any or but posed for sale the same as other very little benefit or advantage what- securities upon which money is soever, and with but a remote pros- loaned, and its sale did not violate pect of gain. ... A government bond, the provisions of the statute already of the character of the one which is cited." This decision is followed in involved in this action, does not come California and a similar view taken within the mischief intended to be as to the character of a bond of remedied, or within the scope and this kind. Ex parte Shobert, (1886) purpose of the enactments against 70 Cal. 632, 11 Pac. 786. lotteries. Such an instrument is not 83. Homer v. United States, ( 1893 ) 922 NEW YOKK LAW OF CONTRACTS [§ 608 In the issuance of bonds it is frequently provided that a certain percentage of the entire issue shall he retired at their face value yearly or at some other recurring period, the bonds to be so retired to be determined by lot or chance. This redemption feature does not, it seems, render the scheme a lottery.^* But where the bonds so selected for retirement are to be retired at a far greater amount than their face value and accrued interest, this has been held to stamp the scheme as a lottery. Thus where a corporation proposed to issue bonds to run for four hundred and fifty years and bear interest at six per cent, two per cent of which was not to be paid until the maturity of the bonds, a provision that a certain percent- age of such bonds should be retired at recurring periods at their value at maturity with the two per cent of deferred interest, under which a hundred dollar bond selected for retirement would have a retirement value of one thousand dollars, this was held to stamp the transaction as a lottery.*^ And where noninterest-bearing securities are issued the determination by chance of the order in which they are to be paid will constitute the transaction a lottery.*^ A retail dealer in dry goods, to promote trade, offered for sale, at twenty-five cents each, certain " banks " numbered consecutively from 500 to 999, a record being kept of the name of each pur- chaser of a bank as sold, and each day the name of some one pur- chaser was selected or drawn by the merchant and the number of the bank corresponding to such name was displayed in the window of the plaintiff's store, one for each day. Then or thereafter the person whose number was thus displayed might select merchan- dise from plaintiff's stock of goods of the retail value of one dol- lar, and each purchaser's number would sooner or later be dis- played and each would sometime become entitled to select goods of the same value. It was held that the inequality in the value of the dollar 's worth of merchandise being dependent upon the chance of 147 U. S. 449, 13 S. Gt. 409, 37 U. S. Morris, (1878) 73 N. Y. 473. See (L. ed.) 237. infra, section 610. The word " illegal " as used in the 84. McLana;han v. Matt, (Sup.G. T. New York statute did not in fact 1^93) 73 Hun 131, 135, 56 State E«p. , „ „ 1, • iv J • • . 85, 25 N. Y. S. 892. have any bearing on the decision of ok nr t -i. i.t xi. /c /n m \ .^ ; , , ,, , 85. McLanahan V. Mott, ( Sup. Cr. T. our court, as it had been theretofore jggg) 73 jj„n 131, 56 State Eep. 85, held that the word " illegal " was in- 25 N. Y. S. 892. tended to refer to lotteries not author- 86. Carl Co. v. Lennon, (Sup. Sp. ized by the laws of our state, and T. 1914) 86 Misc. 255, 257, 148 in such sense illegal. Grover v. N. Y. S. 375. § 609] ILLEGALITY 923 present or future selection was enough to characterize the scheme as a lottery." § 609. General Legality of Contracts. — At common law lot- teries, which are a species of gambling, were legal, and contracts in regard thereto were valid and enf orceable,*' and some of our early laws expressly sanction certain lotteries. From quite an early date, however, statutes in our state have been enacted prohibiting the conducting of lotteries and the sale of tickets therein unless the lottery was authorized by law, and our constitution expressly prohibits the legislature from authorizing any lottery or the sale of lottery tickets (see 2 McKinney's Cons. Laws, p. 187).*' Our present laws make the conducting of lotteries and the sale of lot- tery tickets a criminal offense (see Penal Law, § 1370 et seq. ; 39 McKinney's Cons. Laws, p. 498 et seq) ; every grant, etc., in pur- suance of any lottery or for the purpose of aiding in any lottery is declared void (see Penal Law, § 1385; 39 McKinney's Cons. Laws, p. 509), and also all contracts, agreements and securities given on account of any lottery (see Penal Law, § 1386 ; 39 McKin- ney's Cons. Laws, p. 509). These provisions render all contracts and dealings in our state in respect to lotteries and the sale of tickets illegal, and no right of action can accrue to a party by reason of such contracts and dealings.'" Thus if a ticket in a for- eign lottery is sold in our state in violation of our laws, no action can be maintained in our courts by the purchaser to recover the prize drawn.'"- And where persons enter into a contract in our state for the joint purchase of tickets in a foreign lottery, and the 87. Carl Co. v. Lennon, (Sup. Sp. pired lottery grants, made by the T. 1914) 86 Misc. 255, 148 N. Y. S. legislature prior to the adoption of 375. the constitution, some of which were 88. McLanahan v. Mott, (Sup. G. T. still in force when the Revised Stat- 1893) 73 Hun 131, 135, 56 State Eep. utes were passed. These grants were 85, 25 N. Y. S. 892. finally surrendered by the holders in 89. This provision first appeared 1833, and by statute passed in that in the constitution of 1821. See year it was declared that at the close Reilly v. Gray, (Sup. G. T. 1894) 77 of tihe year "all and every lottery Hun 402, 408, 60 State Eep. 45, 28 heretofore granted or authorized N. Y. S. 811. The constitution of within this state shall absolutely 1821 (art. 6, § 11) prohibited there- cease and determine." (Laws of after the authorization of lotteries 1833, p. 484, § 1.) Grover v. Morris, in this state, and required the legis- (1878) 73 N. Y. 473, 475. lature to pass laws to prevent the 90. Thatcher v. Morris, (1854) 11 sale of lottery tickets, except in lot- N. Y. 437; People v. Ranson, (Sup. teries already provided for by law. G. T. 1886) 2 State Eep. 78. The exception wa« inserted for the 91. Thatcher v. Morns, (1854) 11 protection of persons who held unex- N. Y. 437. 924 NEW YORK LAW OF CONTEACTS [§ 610 purchase is made by one of the parties, he cannot be compelled to account to the other for any part of the prizes won and received by him, even though the purchase was made in the foreign state.'^ So an agent in whose hands lottery tickets are placed for illegal sale cannot be required to account to his principal therefor,^' and where persons engage in our state in the illegal business of con- ducting a lottery or the sale of lottery tickets, our courts will not aid either party to compel the other to account for the profits of such business.^* In an action for the price of candy and silver- ware sold, it appeared that the candies were put up by the plain- tiff in packages known as " prize candy packages." In some of the packages were tickets, each with the name of a piece of silver- •ware on it. The intent of the parties was that the defendants were to sell the packages for more than the value, the purchaser taking the chance of getting a package containing, a ticket, in which case he was entitled to the article of silverware named, in addition to the package. It was held that the sale having been for the pur- pose of aiding a lottery the contract was illegal and the plaintiff could not recover.'' It is also held that the sale in our state of a grant by a foreign state of the right to maintain a lottery, the pur- pose and intent of the parties being that the purchaser should carry on the sale of lottery tickets in this state in violation of our laws, is illegal, and no action can be maintained thereon.'* The winner of a prize in a lottery which is delivered to him acquires title thereto, as against third persons, and may sue a third person for its subsequent conversion, and his right of action in this respect is not affected by the clause (see Penal Law, § 1384; 39 McKinney's Cons. Laws, p. 508) which provides for the forfeiture of any prize won for the use of the poor, sucb forfeiture to be enforced by the overseers of the poor.'^ § 610. Foreign Lotteries and Foreign Contracts. — The pro- visions of our present law are expressly made applicable to lotteries drawn out of our state, whether authorized by the laws of the state 92. Goodricli v. Houghton, (1892) partners engaged in an illegal busi- 134 N. Y. 115, 45 StaAe Rep. 763, 31 ness. N. E. 516, affirming 55 Hun 526, 29 95. Hull v. Ruggles, (1874) 56 State Rep. 905, 9 N. Y. S. 214. N. Y. 424, affirming 65 Bar,b. 432, 1 93. See infra, section 653. Thomp. & C 18. 94. Colton V. Simmons, (Snp. G. T. 96. People v. Ranson, (Sup. G. T. 1887) 6 State Rep. 608. See infra, 1886), 2 State Rep. 78. section 652, as to when the court 97. Zak v. Simpson, (Sup. 1915) will compel an accounting between 168 App. Div. 207, 153 N. Y. S. 1014- § 610] ILLEGALITY 925 where drawn or not. (See Penal Law, § 1382; 39 McKinney's Cons. Laws, p. 507.) Prior to this, however, our statutes were con- strued as referring to all lotteries not authorized by the laws of our state.'' Thus the earlier statute directed against the sale of tickets in lotteries not authorized by law was construed to render illegal the sale of tickets in foreign lotteries.^* And the provision directed against the publication of advertisements of " illegal lot- teries " was held to refer to lotteries not authorized by the laws of our state, and therefore to include an advertisement of a foreign lottery authorized by the law of a foreign state.^ It was also held that a lottery authorized by the laws of another state is to be con- sidered in our state as an " illegal lottery " within the meaning of the statute so as to authorize a recovery for double the amount paid for a ticket therein, the sale being made in our state.^ The early statute making it a misdemeanor to insure lottery tickets in " domestic lotteries authorized by law " was held, even prior to its amendment so as to extend it expressly to foreign lotteries, so to evidence the public policy of the state as to render illegal the insur- ance of foreign lotteries.^ Neither the provision of the Federal Constitution giving to Congress the power to regulate interstate commerce, nor the provision prohibiting the passage of any law impairing the obligation of contracts, precludes the state from pro- hibiting the sale within its jurisdiction of tickets in a lottery authorized by another state.* Our statutes do not aifect the valid- ity of contracts of this character made and to be performed in another state, and if valid under the laws of the state where made, they are not considered by our courts as so opposed to morality as to be unenforceable in our state.* Thus our statute directed against advertising lotteries applies only to advertising within our state, and while no action could be maintained on a contract 98. Hart v. People, (Sup. G. T. 1. Charles v. People, (1848) 1 1882) 26 Hun 396; People v. WoIfiF, N". Y. 180, How. App. Cas. 359, 4 (Sup. 1897) 14 App. Div. 73, 43 How. Pr. 292, affirming 3 Denio 212. N. Y. S. 421, 12 N. Y. Grim. 80, af- 2. Grover v. Morris, (1878) 73 finned 152 N. Y. 640 mem., 46 N. E. N. Y. 473. 1150; People v. Eanson, (1886) 2 3. Mount v. Waite, (Sup. 1811) 7 State Rep. 78; Colton v. Simmons, Johns. 434. (Sup. G. T. 1887) 6 State Eep. 608. 4. People v. Noelke, (1883) 94 99. Hunt V. Knickerbacker, (Sup. N. Y. 137, 1 N. Y. Crim. 495, affirm- 1810) 5 Johns. 327. Se« also People ing 29 Hun 461, 1 N. Y. Crim. 252. V. Sturdevant, (Sup. 1840) 23 Wend. 5. Thatcher v. Morris, (1854) 11 418; People v. Warner, (Sup. G. T. N. Y. 437; Kentucky v. Bassford, 1848) 4 Barb. 314. (Sup. 1844) 6 Hill 526. 926 NEW YORK LAW OF CONTRACTS [§ 611 for services in procuring a contract for advertising lotteries in newspapers published in our state, the statute does not render the contract illegal if it contemplates or includes only the publication of the advertisement of a foreign lottery in the newspapers of other states.^ In an action by the holder of a ticket to recover the prize won, the complaint must show that the ticket was not sold within this state in violation of our law, as our courts cannot, for the purpose of upholding the contract resulting from the sale of the ticket, presume that it was made in some other state/ § 611. Recovery of Money, etc., Paid for Lottery Tickets. — The Revised Statutes (1 Rev. Stat. p. 665, § 25; p. 667, § 32) contain two provisions with regard to the recovery of money or other prop- erty paid for a chance or ticket in a lottery which are brought into our Penal Law (see Penal Law, § 1383 ; 39 McKinney's Cons. Laws, p. 508). The first (1 Rev. Stat. p. 664, § 25) provides that " any person who shall have paid any money, or valuable thing, for a chance or interest in any such raffle or distribution, as is pro- hibited by the preceding sections, may sue for and recover the same of the person to whom such payment or delivery was made. ' ' The second (1 Rev. Stat. p. 667, § 32) provides that " any person who shall purchase any share, interest, ticket, certificate of any share or interest, or part of a ticket, or any paper or instrument purporting to be a ticket or share or interest in any ticket, or pur- porting to be a certificate of any share or interest in any ticket, or in any portion of any illegal lottery, may sue for and recover double the sum of money, and double the value of any goods or things in action, which he may have paid or delivered in consider- ation of such purchase, with double costs of suit. ' ' ' There is no discretion vested in the court as to whether the plaintiff is to be allowed to recover such double amount. This is an absolute right given him by the statute.' Where the sale of lottery tickets is made through an agent who receives the price and accounts to his principal therefor, the latter is liable to be. sued for double the amount paid for the ticket,^" and if the purchase is made by an agent his principal may recover.^ The right to sue for double the 6. Ormes v. Dauchy, (1880) 82 9. Grover v. Morris, (1878) 73 N. Y. 443, affirming 45 Super. Ct. 85. N. Y. 473. 7. Thatcher v. Morris, (1854) 11 10. Grover v. Morris, (1878) 73 N. Y. 437. N. Y. 473. 8. The word " illegal " preceding 11. Almy v. MoKinney, (Sup. G. the word "lottery" is omitted in our T. 1886) 42 Hun 651 mem., 5 State present statute. Rep. 267. § 612] ILLEGALITY 927 amount paid being restricted to the purchaser, it is not a qui tam action, and therefore the time within which the action is to be brought is not governed by the provision of the Code (see Code Civ. Proc. § 387) requiring " an action upon a statute for a pen- alty or forfeiture, given in whole or in part to any person who will prosecute for the same, " to be brought within one year.'^ The pur- chaser may unite or join in a single action claims based on separate purchases,^^ "but where it is sought in one action to recover on account of several separate and distinct purchases, the complaint should state with particularity the time, place, amount or cir- cumstance of each transaction, so as to notify the defendant with reasonable certainty of the extent and nature of his liability." As the action is not on the tickets or contract evidenced thereby, it is not essential, to entitle the plaintiff to recover, that he pro- duce on the trial the tickets purchased or account for their loss.'^ As the form of gambling commonly known as "playing policy " is a lottery, where tickets representing the numbers chosen are issued, the player may recover double the amount paid.'* And it is held that, as regards the sale of tickets in our state, a lottery authorized by the law of a foreign state is to be considered an " illegal lottery " so as to authorize a recovery for double the amount paid for such tickets, the intention of the legislature being to include in such term all lotteries not authorized by the laws of our state." An action to recover double the amount paid for a lottery ticket is neither an action to recover a fine or penalty nor one for the wrongful taking, detention or conversion of personal property within the meaning of Code Civ. Proc. § 549, authorizing an order of arrest in such actions.'* Contracts Affecting Marriage or Marriage Relation § 612. In General. — Marriage is favored by the law, and from an early date conditions subsequent, in conveyances or bequests, 12. Grover v. Morris, (1878) 73 16. Wilkinson v. Gill, (1878) 74 N. Y. 473. N. Y. 63, affirming 10 Hun 156. 13. Grover v. Morris, (1878) 73 17. Grover v. Morris, (1878) 73 N. Y. 473, 479. See also -Roediger v. N. Y. 473. Simmons, (Com. PI. Sp. T. 1872) 14 18. Staub v. Myers, (Sup. 1897) 16 Abb. Pr. N. S. 256. App. Div. 476, 44 N. Y. S. 954. See 14 Eoediger v. Simmons, (Com. PI. also Tompkins v. Smith, (Super. Ct. Sp T 1872) 14 Abb. Pr. N. S. 256. G. T. 1882) 48 Super. Ct. 113, 2 Civ. 15. Grover V. Morris, (1878) 73 Pro. 21, 62 How. Pr. 499, affirmed 89 N. Y. 473, 480. N- Y. 602 mem. 928 NEW YORK LAW OF CONTRACTS [§ 612 in general restraint of marriage, have been held inoperative as against the policy of the law.^' Reasonable conditions, however, designed to prevent hasty and imprudent marriages, and to sub- ject a child, the object of a testator's or grantor's bounty, to just restraint during infancy or other reasonable period, are upheld by the common law not only because they are proper in themselves, but because by upholding them the law protects the owner of property in disposing of it under such lawful limitations and con- ditions as he may prescribe.^"* The courts also denounce as against public policy contracts not to marry,^^ and in an action for breach of a promise to marry the view has been expressed that a promise by the defendant to marry the plaintiff "if he ever married " is illegal as in restraint of marriage, and that therefore no recovery can be had thereon though the defendant had married another woman.^ On the other hand, in regard to a contract for services in nursing an invalid son of the promisor until such son's death, an event which was expected to happen in a short time, it was considered, though not decided, that a stipulation by the promisee not to marry during the period of her services would not render the contract illegal.^* An agreement between unmar- ried sisters which requires each to make a will providing for her descendants, and in event of her death without leaving descen- dants, that all of her property shall go to the survivors, with the exception of a nominal provision in favor of her brothers and any future husband, is not illegal as designed or tending to restrain their marriage.^ In a case where a married woman sought to enforce a contract by a man other than her husband to support her infant child, and" it appeared that there had been no separa- tion between the woman and her husband, it was held that public policy precluded her from showing, for the purpose of establish- ing a consideration, that the defendant was the father of the child. In the course of the opinion of the court, per Brown, J., the fol- lowing statement is quoted with approval from an Illinois case: "A married woman will not be permitted to bastardize her own offspring born in wedlock. For reasons of public decency and 19. Merriam v. Woleott, (Sup. 22. Conrad v. Williams, (Sup. 1878) 61 How. Pr. 377. 1844) 6 Hill 444. 20. Hogan v. Curtin, (1882) 88 23. Fredenburg v. Biddlecome, N. Y. 162, 171. (Sup. G. T. 1883) 17 Wkly. Dig. 25. 21. Galushav. Galusha, (1889) 116 24. Kloberg v. Teller, (Sup. 8p. T. N. Y. 635, 641, 27 State Rep. 738, 1918) 103 Misc. 641, 171 N. Y. S. 22 N. E. 1114. 947. § 613] ILLEGALITY 929 morality a married woman cannot say that she had no intercourse with her husband and that her offspring is spurious. This pro- hibition does not only apply to her ■competency as a witness, but it is a rule of law governing any right of action which she may set up involving such bastardism of her own offspring born in wedlock. The presumption is that a child born in wedlock is legitimate, and this presumption the mother will not be heard to deny. ' ' ^^ Antenuptial contracts between persons about to be married, by which they attempt to fix the rights each shall have in the other's property, are not against public policy, and, when supported by a proper consideration and free from fraud, are upheld.^ § 613. Marriage Brokerage Contracts Generally. — Marriage brokerage contracts are contracts under which one party agrees to pay a consideration to the other for services in securing or promoting the marriage of the promisor. Contracts of this char- acter were to a limited extent upheld under the civil law.^' Under the common law, however, they are held illegal. The first controversy that iseems to have arisen in the English courts on the validity of this character of agreements is the case of Keene v. Potter, decided in 1700 and reported in 3 Levins 412. One T. entered into a bond to pay Mrs. P. £500 in three months after he should be married to Lady 0., a widow of great fortune. A suit in chancery was brought on the bond and the master of the rolls held the bond to be void. The Lord Chancellor reversed this decree. The ease was then taken by appeal to the House of Lords, where by a majority of that House the decree of the chancellor was reversed; they holding that agreements of this kind were of dangerous tendency. Since that case, the English courts have, 25. Hint V. Pierce, ( Sup. Sp. T. early period of the history of English 1912) 136 N. Y. S. 1056. jurisprudence, these proxenetae plied 26. Clark v. Clark, ISup. G. T. their vocation in that country, and 1882) 28 Hun 509. were tolerated. (Story's Equity juris. 27. See Crawford v. Eussell, (Sup. § 260.) The policy of the civil law G. T. 1872) 62 Barb. 92, 97, wherein seems to have been that all aid ren- Potter, J., said: "The civil law, as dered in encouraging and the estab- drawn from the Code of Justinian, lishment of marriages was for the allowed contracts of this kind to be good of the nation, and promotive of made by proxy; by marriage brokers, public morality; inasmuch as it dis- matchmakers, called proxenetae, who couraged fornication, adultery and were allowed to receive rewards for concubinage; that therefore, agencies their services, like other brokers, to a by way of matchmakers, brokage, certain limited extent. ( Code Just., proxenetae, were productive of good lib. 5, tit. 1', pp. 1, 6.) And at an rather than evil results." 59 930 NEW YORK LAW OF CONTRACTS [§ 6i4 with great uniforinity, followed the rule as declared in the House of Lords.^ This rule of the common law is followed in this country and has been adopted by our courts.^ " The doctrine," says Brown, J., " that marriage brokerage contracts are void is the outgrowth of the views and opinions of the English people upon the subject of the marriage relation, and the courts of Eng- land, for upwards of a century, have universally declared that the natural consequences of such agreements would be to bring about ill-advised, and, in many instances, fraudulent marriages, resulting inevitably in the destruction of the hopes and fortunes of the weaker party, and especially of women, and that every temptation in the -exercise of undue influence in ^procuring a mar- riage should, therefore, be suppressed. ' ' "* § 614. Enforcement of and Relief from Contract. — As a marriage brokerage contract is illegal it follows, as a general rule, that no recovery can be had for services rendered thereunder,'^ and if money is paid for future services of this character it would also follow that, if the parties are considered in pari delicto, the party paying the money cannot recover it back.'^ But where money was paid by a widow to one conducting a matrimonial agency, and the latter agreed to return the money if the men introduced by him were not acceptable to the former, it was held that the parties were not necessarily in pari delicto, and, if so, that public policy would -be advanced by permitting a recovery of the money paid, thus discouraging persons from engaging in such business and entrapping the unwary ; that therefore the case was not, as a matter of law, within the general rule that money paid on an illegal contract could not be recovered back.^' It has 28. See Crawford v. Russell, (Sup. 92. See also Leib v. Dobriner, (Sup. G. T. 1872)- 62 Barb. 92, 98. App. T. 1908) 60 Misc. 66, 67, 111 29. Duval V. Wtelknan, (1891) 124 N. Y. S. 650. N. Y. 156, 34 State E«p. 964, 26 N. E. 30. Duval v. Wellman, (1891) 124 343, 26 Abb. N. Oas. 250, approving N. Y. 156, 160, 34 State Rep. 964, 26 the view taken in the several lower N. E. 343, 26 Abb. N. Cas. 250. courts as to the legality of such con- 31. Crawford v. Russell, (Sup. G. tracts. See for reports of case below, T. 1872) 62 Barb. 92. (lOom. PI. G. T.) 14 Daly 515, 16 32. See Crawford v. Russell, (Sup. State Rep. 607, 1 N. Y. S. 70, (City G. T. 1872) 62 Barb. 92, 100. See Ot. G. T. ) 15 State Rep. 404, ( City Ct. infra, section 641 et seq. as to the Tr. T.) 15 State Rep. 384; Place v. enforcement and relief from illegal Conklin, (Sup. 1898) 34 App. Div. contracts generally. 191, 54 N. Y. S. 532, affirming 23 33. Duval v. Wellman, (1891) 124 Misc. 40, 51 N. Y. S. 407; Crawford N. Y. 156, 34 State Rep. 964, 26 V. Rtissell, (Sup. G. T. 1872) 62 Barb. N. B. 343, 26 Abb. N. Cas. 250, re- § 615] ILLEGALITY 931 been held that where a woman, in pursuance of a previous agree- ment made with a marriage broker employed by her, after her marriage procures money and land from her husband, who is ignorant of the agreement, and pays the broker his stipulated fee by turning over the money and giving a mortgage on the land to him, a suit is maintainable by the husband to recover such money from the broker and to annul the mortgage ; that although the property may have been turned over to the woman after she was married, in pursuance of a promise made at the time of the engagement, the whole transaction is vitiated by the conspiracy between the would-be wife and the marriage broker to. obtain the marriage brokerage fee from the husband.'* § 615. Besumptiou of Marital Relatians. — i Where on account of family controversies spouses have separated, a contract having for its object the bringing of them together and the resumption of marital relations is not contrary to public policy.'^ Thus where, after a wife had commenced an action for divorce, the husband agreed, in consideration of the dismissal of the action and the resumption of the marital relations, to pay a certain amount for the benefit of the wife, it was held that the contract was not versing 14 Daly 515, 16 State Eep. 607, 1 N. Y. S. 70, which reversed 15 State Eep. 404, reversing 15 State Rep. 384. In this case Brown, J. ( 124 N. Y. 162), said: "The question in this and kindred cas«s, therefore, must always he whether the parties are equal in guilt. Ohviously cases might arise where this would clearly appear and where the court would be justified in so holding as a matter of law, as where there was an agreement between two, having for its purpose the marriage of one to a third party, the parties would be so clearly in pari delicto that the courts would not aid the one who had paid money to the other, in the promotion of the com- mon purpose, to recover it back. Such a case would partake of the character of a conspiracy to defraud. So if two parties entered into a partnership to carry on such a business as de- fendant conducted, the courts would not lend their aid to either to enforce the agreement between them. But where a party carries on a business of promoting marriage as the defend- ant appears to have done, it is plain to be seen that the natural tendency of such a business is immoral and it would be so clearly the policy of the law to suppress it and public interest would be 80 greatly promoted by its suppression, that there would be no hesitation upon' the part of the courts to aid the party who had patronized such a business by relieving him or her from all contracts made, and grant restitution of any money paid or property transferred." 34. Place v. Conklin, (Sup. 1898) 34 App. Div. 191, 54 N. Y. S. 532, affirming 23 Misc. 40, 51 N. Y. S. 407. 35. Adams v. Adams, (1883) 91 N. Y. 381, affirming 24 Hun 401; Som- mer v. Sommer, (Sup. 1903) 87 App. Div. 434, 84 N. Y. S. 444; Rodgera V. Rodgers, (Sup. 1919) 186 App. Div. 77, 174 N. Y. S. 24. See also Smith v. Smith, (Sup. G. T. 1885) 35 Hun 378; Friedman v. Bierman, (Sup. G. T. 1887) 43 Hun 387, 6 State Eep. 402, 25 Wkly. Dig. 526. 932 NEW YORK LAW OF OONTRACTS [§ 615 against public policy, Eapallo, J., saying : ' ' "We are unable to perceive on what ground the arrangement can be regarded as against public policy. It tended to restore peace and harmony between husband and wife, and renew their conjugal relations. Agreements to separate have been regarded as against public policy, but it would be strangely inconsistent if the same policy should condemn agreements to restore marital relations, after a temporary separation had taken place. While the law favors the settlement of controversies between all other persons, it would be a curious policy which should forbid husband and wife to compromise their differences, or preclude either from forgiving a wrong committed by the other. ' ' ^* And as regards the legality of an agreement between spouses condoning an adultery, Smith, J., said : " It is argued by the defendant 's counsel that if a husband can bind himself to pay money to his wife in consideration of her condonation of his adultery, a wife can do the same in like case, and that to uphold such contracts would lead to an intoler- able condition of domestic life. But what objection can there be to allowing a husband who has been unfaithful to make a settle- ment upon his wife; or an erring wife, if she has a separate estate, to transfer a reasonable part of it to her husband, as a condition of being forgiven and the former relations being restored? Is it supposed that such an arrangement would carry with it the seeds of future discord between the parties, and for that reason should not be sanctioned by the courts? The same objection might be urged against all those agreements which the law has upheld for centuries, by which a husband, either before or after marriage, settles an annual income upon his wife or creates an estate for her separate use. We think this ground of defense untenable. " ^' In an earlier case, however, which involved a con- tract directly between the spouses, which for this reason was invalid, Learned, P. J., said: " To enforce a promise by a hus- band to pay money to his wife, in consideration of the condona- tion of adultery, would, I think, be a violation of rules of law and principles of public policy. ' ' ^ Where after the commence- ment by a wife of an action for a judicial separation, in considera- tion of its dismissal the husband agreed to resume marital rela- 36. Adams v. Adams, (1883) 91 38. Van Ord«r v. Van Order, (Sup. N. Y. 381, 384, affirming 24 Hun 401. G. T. 1876) 8 Hun 315, 317. See also 37. Adams v. Adams, (Sup. G. T. Armstrong v. Armstrong, (Sup. Sp. 1881) 24 Hun 401, 403. T. 1886) 1 State Rep. 529, 532. § 616] ILLEGALITY 933 tions, and that, if he should again cease to live with or support her, she should become vested with certain rights in his property, it was held that the contract was not against public policy; that in so far as it contemplated a future separation, it did not offer an inducement to the wife to fail to perform her duties, as such performance was an implied condition to her right to enforce the contract. " The obligation," says Hatch, J., " rested upon the plaintiff to perform faithfully the marital obligations which devolved upon her, and if she failed in these respects it consti- tuted a perfect defense to any action to enforce the contract, for thereby she would be enabled to take advantage of her own wrong. " '' It is the duty of a wife, where the husband has given her no cause for a separation, to live with him, and an agreement by her to do so is one only for the performance of her duty, and for this reason may be invalid, it would seem, for want of con- sideration." And if a conveyance is made by a husband to induce his wife to resume conjugal relations and on the faith of her promise to do so, the fact that her promise was made in bad faith and without any intention to perform constitutes, it has been held, such a fraud as will entitle the husband to have the conveyance set aside.*"- § 616. Dissolution of Marriage; General Rule. — The Domestic Eelations Law (Dom. Eel. Law, § 51; 14 McKinney's Cons. Laws, p. 70) provides that " a husband and wife can not contract to alter or dissolve the marriage." This in so far as it affects the validity of a contract which has for its object or the tendency of which is to dissolve the marriage relation by holding out an inducement to one of the parties to obtain or permit the other to obtain a divorce is but a recognition of the common law rule which 39. Sommer v. Sommer, (Sup. cord for the purpose of enaWing the 1903) 87 App. Div. 434, 84 N. Y. S. wife to secure the property rights 444. Laughlin, J., however, dissented thus agreed to be given* and was, on the question as to the validity of therefore, a constant menace to do- the agreement, saying: "The aban- mestlc peace." donment of her action constituted a 40. Jones v. Jones, (Sup. Sp. T. good consideration for any unoondi- 1903) 40 Misc. 360, 82 N. Y. S. 325. tional agreement for the payment of 6ee supra, section 325 et seq. as to money that the wife saw fit to exact, the performance of an existing duty I regard the agreement in advance as a consideration, for the settlement of any future dlf- 41. Jones v. Jones, (Sup. Sp. T. ference that might arise between- hus- 1903) 40 Misc. 360, 82 N. Y. S. 325. band and wife after resuming marital See supra, section 168 et seq. as to relations as against public policy, in when an existing intention not to that it was calculated to produce dis- perform a promise constitutes fraud. 934 NEW YORK LAW OF CONTRACTS [§ 616 denounced such contracts as against public policy ; *^ and this is true where the divorce sought is a limited one, a mensa et thoro or judicial separation." As said by Hardin, P. J., quoting with approval from a Michigan case: " Public policy is interested in maintaining the family relation, the interests of society requiring that such relation be not lightly severed, and that families shall not be broken up for inadequate causes or from unworthy motives ; and where differences have arisen which threaten disruption, pub- lic welfare and the good of society demand a reconciliation, if practicable or possible, and for these reasons a contract which tends to prevent such a reconciliation is void. ' ' ** The fact that the illegality of the agreement does not appear on the face of the contract does not prevent the party against whom it is sought to be enforced from showing the fact in defense."^ "While an agree- ment by a husband, who has instituted an action for divorce in another state on the ground of desertion, to pay the wife a cer- tain annual sum if she will not defend the action, is illegal, still if the substance of the agreement is incorporated in the decree of divorce, the court having jurisdiction of the parties and the subject matter, the decree cannot be, on that account, collaterally 42. Murray v. Narwood, ( 1908 ) 192 nishing an inducement to the wife to N. Y. 172, 84 N. E. 958, reversing on secure la divorce) ; Levine. v. Klein, other grounds 119 App. Div. 875 (City Ct. Tr. T. 1908) 58 Misc. 389, mem., 104 N. Y. S. 1135; Schley V. Ill N. Y. S. 174; Williams v. Igel, Andrews, (1919) 225 N. Y. 110, 121 (City Ct. Tr. T. 1909) 62 Misc. 354, N. E. 812, reversing 171 App. Div. 952 116 N. Y. S. 778; Levine v. Klein, mem., 156 N.Y. S. 1144; Train V. Da- (Sup. App. T. 1909) 65 Misc. 498, vidson, (Sup. 1897) 20 App. Div. 577, 120 N. Y. S. 196; Daggett v. Daggett, 47 N. Y. S. 289; Van VIeck v. Van (Chan. Ct. 1835) 5 Paige 509. See Vleek, (Sup. 1897) 21 App. Div. 272, also Galusha v. Galusha, (1889) 116 47 N. Y. S. 470; France v. France, N. Y. 635, 641, 27 State Rep. 738, 22 (Sup. 1903) 79 App. Div. 291, 79 N. E. 1114; Jones v. Jones, (Sup. Sp. N. Y. S. 579; In re Brackett, (Sup. T. 1903) 40 Misc. 360, 361, 82 N. Y. 1906) 114 App. Div. 257, 99 N. Y. S. S. 325. Compare Whitcomb v. Whit- 802, affirmed 189 N. Y. 502 mem., 81 comb, (Sup. G. T. 1895) 92 Hun 443, N. E. 1160; Lake v. Lake, (Sup. 1909) 36 N. Y. S. 607. 136 App. Div. 47, 119 N. Y. S. 686; 43. Van Vleck v. Van Vleck, (Sup. Forster v. Cfentoni, (Sup. Sp. T. 1897) 21 App. Div. 272, 47 N. Y. S. 1897) 19 Misc. 222, 44 N. Y. S. 241, 470; In re Brackett, (Sup. 1906) 114 reversed on other grounds 19 App. App. Div. 257, 259, 99 N. Y. S. 802, Div. 306, 46 N. Y. S. 118, 4 N. Y. affirmed 189 N. Y. 502, 81 N. E. 1160. Annot. Cas. 375; Trust Co. of America 44. Van Vleck v. Van Vleck, (Sup. v. Nash, (Sup. Ct. App. T. 1906) 50 1897) 21 App. Div. 272, 275, 47 N. Y. Misc. 295, 98 N. Y. S. 734 (holding, S. 472. however, that the agreement in ques- 45. Train v. Davidson, (Sup. 1897) tion could not be construed as fur- 20 App. Div. 577, 47 N. Y. S. 289. § 617] ILLEGALITY 935 attacked in an action in this state to enforce payments in accord- ance therewith.*' An independent contract between a wife and a third person is not affected by any illegality which may taint a distinct contract between the spouses .promotive of a divorce.*^ § 617. Application of General Rule. — As a general rule an agreement by a husband to pay his wife a consideration con- tingent on her procuring a divorce from him is held illegal and unenforceable by her after a divorce has been procured ; ** and this is especially true where the husband as a part of the transaction agrees to furnish the wife cause for divorce and to aid her in the proof of past and future adulterous acts on his part, and the purpose of the divorce is to enable the wife to marry another person.*' The same is true as to an agreement by a third person, charged by a husband with having had illicit relations with his wife, to reimburse the husband for expenses he may be put to in an action by his wife for a divorce which the husband agrees not to defend.^" Where one of the parties to a contract to marry is married already and the contract is to be consummated when he or she procures a divorce, it is illegal ; ^^ and, a fortiori, a promise to a woman that if she will leave her husband and pro- cure a divorce from him and cohabit with the promisor, the latter will marry her after she procures her divorce and make certain pecuniary provisions for her, is illegal.®^ Contrary to the view taken in other jurisdictions,^' it has been held by a divided court that a contract the consideration of which is an agreement by a wife to withdraw her appeal from a decree against her for a divorce is not necessarily against public policy. " "We are cited," says Bijur, J., in this connection, "to no cases in which, after decree entered, the bare agreement of one of the parties to abandon 46. France v. France, (Sup. 1903) 50. Murray v. Narwood, (1908) 192 79 App. Div. 291, 79 N. Y. S. 579. N. Y. 172, 84 N". E. 958, reversing on 47. Recknagel v. Steinway, (Sup. other grounds 119 App. Div. 875 Sp. T. 1901) 33 Misc. 633, 641, 68 mem., 104 N. Y. S. 1135. N. Y. S. 957, modi-fied as to other 51. Williams v. Igel, (City Ct. Tr. matters 58 App. Div. 352, 69 N. Y. S. T. 1909) 62 Misc. 354, 116 N. Y. S. 132. 778. 48. Schley v. Andrews, (1919) 225 52. Forster v. Cantoni, (Sup. Sp. N. Y. 110, 121 N. B. 812, reversing T. 1897) 19 Misc. 222, 44 K Y. S. 171 App. Div. 952 mem., 156 N. Y. S. 241, reversed on other grounds 19 1144; Lake v. Lake, (Sup. 1909) 136 App. Div. 306, 46 N. Y. S. 118, 4 N. Y. App. Div. 47, 119 N. Y. S. 686. Annot. Cas. 375. 49. Train v. Davidson, (Sup. 1897) 53. See Divorce and Separation, 9 20 App. Div. 577, 47 N. Y. S. 289. R. C. L. p. 257. 936 NEW YORK LAW OF CONTRACTS [§ 618 an appeal, or even refrain from appealing, has been held invalid, as necessarily part of a scheme of collusion, or as an element of encouragement to the dissolution of the marriage relation. On the other hand, the spirit of the decisions, in this state at least, appears to point to the opposite conclusion. " °* But where a man had obtained a decree of divorce in a foreign jurisdiction, it was held in a recent case that a subsequent contract under which he agreed to pay the wife a consideration if she would refrain from attack- ing the validity of the decree was against public policy.^^ The mere fact that a contract shows that the possibility of one of the parties thereto procuring a divorce from the other was in the con- templation of the parties, and that provision is made for certain contingencies which might result therefrom, does not render the contract illegal if it does not as a fact extend or offer an induce- ment to such party to procure a divorce.^* § 618. Agreements as to Alimony. — In matrimonial actions brought in good faith, the parties may relieve the court by agreement, contingent on the result, of the duty of fixing the amount of alimony. Such an agreement openly made and sub- mitted to the court is not against the policy of the law, but is in conformity with the general rule which favors ending litigation by agreement when possible." "Of course," says Clarke, J., in this connection, " an agreement based upon promise or understanding to institute an action to dissolve the marriage would be against public policy, as is an agreement to separate made while the parties still live together. But after the fact, simply as a short cut to settling one of the subsidiary issues, there can be no objection to an agreement as to alimony so submitted. " ^^ The court will not, however, as a matter of course recognize such an agreement, but 54. Bloom V. Bloom, (Sup. App. T. 57. Levy v. Levy, (Sup. 1912) 149 1912) 134 N. Y. S. 581, citing Doeme App. Div. 561, 133 N. Y. S. 1084; V. Doemie, (Sup. 1904) 96 App. Div. Werner v. Werner, (Sup. 1912) 153 284, 89 N. Y. S. 215; Dodge V. Dodge, App. Div. 719, 138 N. Y. S. 633; (Sup. 1904) 98 App. Div. 85, 90 N. Y. Hammerstein v. Equitable Trust Co., S. 438; ScUesinger v. Klinger, (Sup. (Sup. 1913) 156 App. Div. 644, 141 1906) 112 App. Div. 853, 98 N. Y. S. N. Y. S. 1065, affirmed 209 N. Y. 429, fi45. 103 N. E. 706; Burnha-m v. Bumham, 55. Guggenheim v. Guggenheim, (Sup. Sip. T. 1916) 97 Misc. 199, 162 ('Sup. Sp. T. 1917) 168 N. Y. S. 209. N. Y. S. 840. 56. Trust Co. of Amerieg, v. Nash, 58. Hammerstein v. Equitable (Sup. App. T. 1906) 50 Misc. 295, 98 Trust Co., (Sup. 1913) 156 App. Div. N. Y. S. 734. 644, 647, 141 N. Y. S. 1065. 619] ILLEGALITY 937 may examine into the matter to see that it is not made the vehicle of a collusive divorce.^* In several instances our courts have been called on to determine the validity of an agreement by a wife with her attorney to pay him for his services a part of the alimony which may be awarded her by the court. In most jurisdictions agreements of this kind are held illegal as tending to promote divorces, and this view has been approved by our courts,*" and in fixing the manner in which a provision for temporary alimony is to be paid, it has been held error for the court to give effect to such an agreement." As has also been pointed out, if such an agreement is concealed from the court it would tend to the perpetration of a fraud on the court in the exercise of its discretion in fixing counsel fees and temporary alimony.'^ § 619. Separation Agreements; Continued or Immediate Separation. — .Prior to the legislation which gives to a married woman general power to contract (see Dom. Eel. Law, § 51; 14 McKinney's Cons. Laws, p. 70), if husband and wife had separated and were living apart, a valid agreement could be made through a trustee for their continued separation and the payment by the husband of an allowance for his wife's support. Such contracts are not illegal as against public policy.^ And it is immaterial 59. Daggett v. Daggett, (Chan. Ct, 1835) 5 Paige 509. 60. Van Vleck v. Van Vleck, (Sup 1897) 21 App. Div. 272, 47 N. Y. S 470; Van Vleck v. Van Vleck, (Sup 1897) 21 App. Div. 631, 47 N. Y. S 472; In re Brackett, (Sup. 1906) 114 App. Div. 257, 99 N. Y. S. 802, af- firmed. 189 N. Y. 502 mem., 81 2Sr. E, 1160. 61. Van Vleck v. Van Vleck, (Sup, 1897) 21 App. Div. 272, 47 N. Y. S 470. 62. Van Vleck v. Van Vleck, (Sup 1897) 21 App. Div. 272, 47 N. Y. S 470. G3. Carpenter v. Osborn, (1886) 102 N. Y. 552, 7 N. E. 823; Pettit v. Pettit, (1887) 107 N. Y. 677 mem., 12 State Rep. 463, 14 N. E. 500, 1 Silv. App. 555, affirming 27 Wkly. Dig. 574, 22 Wkly. Dig. 364 ; Galusha V. Galusha, (1889) 116 N. Y. 635, 27 State Rep. 738, 22 N. E. 1114, modi- fying on other grounds 43 Hun 181, 4 State Rep. 399; Duryea v. Bliven, (1890) 122 N. Y. 567, 34 State Rep. 205, 25 N. E. 908, affirming 14 State Rep. 881; Winter v. Winter, (1908) 191 N. Y. 462, 84 N. E. 382, affirming 115 App. Div. 899 mem., 101 N. Y. S. 1149; Hughes V. Cuming, (Sup. 1899) 36 App. Div. 302, 55 N. Y. S. 256, re- versed on other grounds 165 N. Y. 91, 58 N. E. 794; Greenleaf v. Blakeman, (Sup. 1889) 40 App. Div. 371, 58 N". Y. S. 76, affirmed 166 N. Y. 627 mem., 60 N. E. 1111; Lawson v. Law- son, (Sup. 1900) 56 App. Div. 535, 67 N. Y. S. 356; Reardon v. Woerner, (Sup. 1906) 111 App. Div. 259, 97 N. Y. S. 747; Barnes v. Klug, (Sup. 1908) 129 App. Div. 192, 113 N". Y. S. 325; Bpence v. Woods, (Sup. 1909) 134 App. Div. 182, 118 N. Y. S. 807; Levy v. Levy, (Sup. 1912) 149 App. Div. 561, 133 N. Y. S. 1084; Green- field V. Greenfield, (Sup. 1914) 161 938 NEW YORK LAW OF CONTRACTS [§ 619 that there was no legal cause for a judicial separation ; the causes leading to the prior separation as well as their gravity are not a factor in determining the legality of the contract." Also, according to the better view, separation contracts which contem- plate an immediate separation, which takes place, are held free from the objection that they are against public policy.^^ That this rule was well settled at quite an early date, although the courts followed it reluctantly, is well illustrated by the remarks of Chancellor Walworth: " It may well be doubted," he said, ' ' whether public policy does not forbid any agreement for a separation between husband and wife, except under the sanction of a court of justice; and whether it does not also require that such agreements should be limited to those cases where by the previous misconduct of one of the parties, the other is entitled to have the marriage contract dissolved, either wholly or partially, by a decree of the competent tribunal. ... It has, however, long since become '* the settled law in England that a valid agreement App. Div. 573, 146 N. Y. S. 865; Fleischman v. Furgueson, (Sup. 1916) 174 A(pp. Div. 310, 160 N. Y. S. 387, reversed on other grounds 223 N. Y. 235, 119 N. E. 400; Shelthar v. Greg- ory, (Sup. 1829) 2 Wend. 422, 424; Calkins v. Ix)ng, (Sup. Sp. T. 1855) 22 Barb. 97; Wallace v. Bassett, (Sup. Sp. T. 1863) 41 Barb. 92; Magee v. Magee, (Sup. Sp. T. 1874) 67 Barb. 487, 490; Mann v. Hulbert, (Sup. G. T. 1885) 38 Hun 27; Taylor V. Taylor, (Sup. S'p. T. 1900) 32 Misc. 312, 66 N. Y. S. 561 ; Doiver v. Doiver, (Slip. Tr. T. 1901) 36 Misc. 559, 73 N. Y. S. 1080; France v. France, (Sup. Tr. T. 1902) 38 Misc. 459, 77 N. Y. S. 1015, affirmed on other grounds 79 App. Div. 291, 79 N. Y. S. 579; Darling v. Carling, (Sup. App. T. 1904) 42 Misc. 492, 86 N. Y. S. 46; Trust Co. of America v. Nash, (Sup. App. T. 1906) 50 Misc. 295, 98 N. Y. S. 734; Randolph v. Field, (Sup. App. T. 1914) 84 Misc. 403, 146 N. Y. S. 247, reversed on other grounds 165 App. Div. 279, 150 N. Y. S. 822; Licht v. Licht, (Sup. App. T. 1914) 88 Misc. 107, 150 N. Y. S. 643; Landes v. Landes, (Sup. Sp. T. 1916) 94 Misc. 486, 159 N. Y. S. 586, affirmed 172 App. Div. 758, 159 N. Y. S. 230; Carson v. Murray, (Chan. Ct. 1832) 3 Paige 483; Guidet V. Brown, (Sup. Sp. T. 1877) 3 Abb. N. Cas. 295, 54 How. Pr. 409, 412; Dupre V. Rein, (Com. PI. Sp. T. 1879) 7 Abb. N. Cas. 256, 56 How. Pr. 228. See also Carl v. Carl, (Sup. S'p. T. 1917) 166 N. Y. S. 961. But see Friedman v. Bierman, (Sup. G. T. 1887) 43 Hun 387, 6 State Rep. 402, 25 Wkly. Dig. 526. 64. McCormack v. McCormack, (Sup. 1908) 127 App. Div. 406, 111 N. Y. S. 563. 65. Calkins v. Long, (Sup. 8p. T. 1855) 22 Barb. 97, 103; Carson v. Murray, (Super. iCt. 1832) 3 Paige 483. 66. Clark v. Posdick, (1889) 118 N. Y. 7, 27 State Rep. 750, 22 N. E. 1111, 28 State Rep. 449, affirming 13 Daly 500, 1 State Rep. 90 ; Hughes v. Cuming, (Sup. 1899) 36 Aipp. Div. 302, 55 N. Y. S. 256; Wallace v. Bas- sett, (Sup. Sip. T. 1863) 41 Barb. 92; Desbrough v. Desbrough, (Sup. G. T. 1883) 29 Hun 592; Reisehfleld v. Reischfleld, (Sup. Sp. T. 1917) 100 Misc. 561, 562, 166 N. Y. S. 898; Allen V. Affleck, (Com. PI. G. T. § 619] ILLEGALITY 939 for an immediate separation between a husband and wife, and for a separate allowance for her support, may be made through the medium of a trustee. And as many of the decisions which have gone the greatest length on this subject took place previous to the Revolution, they have been recognized here as settling the law in this state to the same extent. ' ' ^' While in some of the cases sustaining separation agreements it appeared that separation or divorce proceedings were pending between the parties at the time they -were made,^^ it is settled that this is not essential to the validity of the agreement.'' The fact that the agreement contains a pro- vision for visiting each other during sickness will not itself vitiate the contract. In this connection Chancellor Walworth says: 1882) 10 Daly 509, 64 How. Pr. 380. See also Winter v. Winter, (1908) 191 N. Y. 462, 471, 84 N. E. 382; In re Kopf, (Surr. a. 1911) 73 Misc. 198, 199, 132 N. Y. S. 719, 8 Mills 340; Roth v. Roth, (County Ct. 1912) 77 Misc. 673, 138 N. Y. S. 573; Winton y. Winton, (&up. Sp. T. 1916) 161 N. Y. S. 405. 67. Carson v. Murray, (Super. Ct. 1823) 3 Paige 483, 500. This is also the view taken by the federal Supreme Court in Walker v. Walker, (1869) 9 Wall. 743, 19 U. S. (L. ed.) 814, wherein Mr. Justice Davis said: " It is contended that deeds of separation between husband and wife cannot be upheld, because it is against public policy to allow parties sustaining that relation to vary their duties and responsibilities by entering into an agreement which contemplates a partial dissolution of the marriage contract. If the ques- tion were before us, unaffected by decision, it would present diffifculties, for it cannot be doubted that there are serious objections to voluntary separations between married persons. But contracts of this nature for the separata maintenance of the wife, through the intervention of a trus- tee, have received the sanction of the courts in England and in this country for so long a period of time that the law on the subject must 'be considered as settled." This case has been frequently cited and quoted from with approval by the Court of Appeals in later cases. See for instance Clark v. Fosdick, (1889) 118 N. Y. 7, 13; 27 State Rep. 750, 22 N. E. 1111, 28 State Rep. 449; Winter v. Winter, (1908) 191 N. Y. 462, 471, 84 N. E. 382. ' 68. See Pettit v. Pettit, (1887) 107 N. Y. 677 mem., 12 .State Rep. 463, 14 N. E. 500, 1 Silv. App. 555, wherein the court said : " It is •claimed to be against public policy because by its terms the wife agrees to live separate and apart from her husband. In the pending action for divorce, the plaintiff would have been entitled, if successful, to a decree of separation and a suitable allowance from the estate of -her husband for her support and maintenance. It is difficult to see how it could be in accord with public policy to award such relief, and yet against public policy for the husband to concede it in advance of the decree and as a compromise of the existing litiga- tion. Public policy does not turn on the question whether the husband fights out the quarrel to final judg- ment.'.' 69. Winter v. Winter, (1908) 191 N. Y. 462, 84 N. E. 382, affirming 115 App. Div. 899 mem., 101 N. Y. S. 1149. wo NEW YORK LAW OP CONTRACTS [§ 620 " The separation took effect immediately, and the parties do not appear to have lived or cohabited together as husband and wife afterwards. It is supposed by the appellant's counsel that the provision in the articles of separation for visiting each other in case of sickness was intended as a reservation of the right of occasional cohabitation by mutual consent. Even if he is correct in that conjecture, I do not see that it would -vitiate the contract. If such an arrangement had in fact been carried into effect by sexual intercourse after the separation, it might indeed have rescinded the agreement, notwithstanding the express stipulation to the contrary which was contained therein. ' ' '° Under the gen- eral rule denouncing agreements promotive of divorce, an agree- ment in the form of a separation agreement may be rendered illegal because its object is to induce or bring about a divorcQ between the parties.'^ Thus though spouses living apart may con- tract for a separation, and support to be furnished by the husband to the wife, yet if the agreement is made dependent on her pro- curing a divorce this will render it illegal.''^ And the same has been held true where the agreement to pay a certain amount toward the wife's support was a part of a larger agreement whereby the husband was to assist his wife to obtain a divorce by furnishing her proof of his past adulteries.''' § 620. Futitre Separation. — ^As distinguished from agree- ments for the continuance of a separation or for an immediate separation, the courts denounce as against public policy contracts contemplating a future separation on the happening of a con- tingency;''* to render the agreement valid there must be at least a present intention to live apart, followed by an immediate separa- 70. Carson v. Murray, (Super. Ct. N. E. 382; Poillon v. Poillon, (Sup. 1832) 3 Paige 483, 502. 1900) 49 App. Div. 341, 63 N. Y. S. 71. Train v. Davidson, (Sup. 1897) 301, affirming 29 Misc. 666, 61 N. Y. 20 App. Div. 577, 47 N. Y. S. 289; S. 582; Effray v. Effray, (Sup. 1905) Lake v. Lake, (Sup. 1909) 136 App. 110 App. Div. 545, 97 N. Y. S. 286, Div. 47, 119 N. Y. S. 686. See supra, 18 N. Y. Annot. Cas. 17; Gray v. section 616 ©t seq. as to agreements Butler, (Sup. 1907) 116 App. Div. promotive of divorces. 816, 102 N. Y. S. 106; Kaufman v. 72. Lake v. Lake, (Sup. 1909) 136 Kaufman, (iSup. 1913) 158 App. Div. App. Div. 47, 119 N. Y. S. 686. 892, 142 N. Y. S. 1048; Beach v. 73. Train V. Davidson, (Sup. 1897) Beach, (Sup. 1842) 2 Hill 260, 264; 20 App. Div. 577, 47 N. ^. S. 289. Whitney v. AVihitney, (Sup. Sp. T. 74. Galusha v. Galusha, (1889) 1895) 15 Misc. 72, 72 State Rep. 113, 116 N. Y. 635, 641, 27 State Rep. 36 N. Y. S. 891, affirmed 4 App. Div. 738, 22 N. E. 1114; Winter v. Win- 597, 73 State Rep. 881, 39 N. Y. S. ter, (1908) 191 N. Y. 462, 470, 84 1136; Edic v. Horn, (Sup. Tr. T. 620] ILLEGALITY 941 tion.'^ An agreement which is in fact one for a future possible separation cannot be sustained as an ordinary contract between spouses by which a husband undertakes to make a provision for his wife's future support J^ It has also been held, where the parties had while living together entered into an agreement looking to a future separation, and after a separation had taken place had entered into another agreement in pursuance of and in ratification of the prior one, that the later agreement is illegal as intended to carry out the previous illegal agreement." A bond and mort- gage, given to secure the payment of instalments to be paid under an agreement invalid because it contemplates a future separation, is unenforceable to the same extent as the agreement on which it is based.'* If the parties are in fact living apart the fact that the agreement is so worded as to imply a future separation does not render it illegal.'' The invalidity of agreements for future separa- tion is in no way due to the common law disability of husband and wife to contract with each other, but is based on public policy, and an executory agreement therefore is not rendered enforceable because it is entered into through the intervention of a trustee.^" 1903) 42 Misc. 26, 85 N. Y. S. 535, 14 N. Y. Annot. Cas. 242; Mont- gomery V. Montgomery, (Sup. Sp. T. 1918) 170 N. Y. S. 867; Armstrong V. Armstrong, (Sup. Sp. T. 1886) 1 State Rep. 529; People v. Mercein, (Chan. Ct. 1839) 8 Paige 47, 68. 75. Gray v. Butler, (Sup. 1907) 116 App. Div. 816, 102 N. Y. S. 106. (In this case the spouses continued to live together for six months and then separated.) See also Kaufman V. Kaufman, (Sup". 1913) 158 App. Div. 892, 142 N. Y. S. 1048. 76. Gray v. Butler, (Sup. 1907) 116 App. Div. 816, 102 N. Y. S. 106. 77. Edic V. Horn, (Sup. Tr. T. 1903) 42 Misc. 26, 85 N. Y. S. 535, 14 N. Y. Annot. Cas. 242; Allen v. Affleck, (Com. PI. G. T. 1882) 10 Daly 509, 64 How. Pr. 380. See also Florentine v. Wilson, (Sup. 1844) Hill & D. Supp. 303. 78. Boyd v. Boyd, (Sup. 1909) 130 App. Div. 161, 114 N. Y. S. 361. 79. Hughes v. Cuming, (Sup. 1899) 36 App. Div. 302, 55 N. Y. 8. 256, reversed on other grounds 165 N. Y. 91, 58 N. B. 794. See also Lawson v. Lawson, (Sup. 1900) 56 App. Div. 535, 67 N. Y. S. 356; Mc- Gean v. Parsons, (Sup. 1912) 150 App. Div. 208, 134 N. Y. S. 649; Chamberlain v. Cuming, (Sup. App. T. 1902) 37 Misc. 815, 76 N. Y. S. 896. Thus in Hughes v. Cuming, (Sup. 1899) 36 App. Div. 302, 55 N. Y. S. 256, it is held that an agreement executed by a husband and wife which provides that the parties " hereby do consent and agree to live separate and apart from each other during their natural life," and that it shall be " lawful for her, his said wife, at all times hereafter to live separate and apart from him," is not, when considered in connection with the fact that the husband and wife had separated prior to the exe- cution of the agreement, objection- able as being executory in its nature and providing for a future separa- tion. 80. Edic V. Horn, (Sup. Tr. T. 942 NEW YORK LAW OF CONTRACTS I§ 620 In a number of cases in the lower courts the view is taken that if the parties were living together at the time the agreement was signed, it is illegal as against public policy though it evidently intended an immediate separation, especially if it was not made through the intervention of a trustee.*^ According to the better view, however, as heretofore stated, the fact that the parties are living together at the time the agreement is made does not render it illegal, provided an immediate separation is contemplated and does take plaee.^ But if there are no grounds for a divorce or judicial separation, and the object of the agreement is to induce the wife or husband to consent thereto, the immediate object being to hold out an inducement to a separation which otherwise will not take place, it is then, it seems, against public policy though an immediate separation is contemplated.*^ The provision of the Domestic Eelations Law (Dom. Eel. Law, § 51; 14 McKinney's Cons. Laws, p. 70) authorizing husband and wife to contract with each other does not enlarge their power as affected by public policy, and any contract which would theretofore have been denounced as against public policy is still illegal ; ^ but as stated later it would seem that a contract of this character, which would 1903) 42 Misc. 26, 85 N. Y. S. 535, N. Y. 427, 22 State Eep. 708, 21 N. 14 N. Y. Annot. Oas. 242. E. 125; Levine v. Klein, (City Ct. 81. Whitney v. Whitney, (Sup. Tr. T. 1908) 58 Misc. 389, 111 N. Y. 1896) 4 App. Div. 597, 73 State Rep. S. 174. See also Effray v. Effray, 881, aflfirming 39 N. Y. S. 1136, 15 (Sup. 1905) 110 App. Div. 545, 546, Misc. 72, 72 State Rep. 113, 36 N. Y. 97 N. Y. S. 286, 18 N. Y. Annot. Cas. S. 891; Hungerford v. Hungerford, 17; Carl v. Carl, (Sup. -Sp. T. 1917) (Sup. 1897) 16 App. Div. 612, 614, 166 N. Y. Supp. 961. 44 N. Y. S. 973, affirmed on other 82. See the preceding section, grounds 161 N. Y. 550, 56 N. E. 117; 83. Hungerford v. Hungerford, Poillon V. Poillon, (Sup. 1900) 49 (Sup. 1897) 16 App. Div. 614, 44 App. Div. 341, 63 N. Y. S. 301, N. Y. S. 973 ; Maney v. Maney, ( Sup. affirming 29 Misc. 666. 61 N. Y. S. 1907) 119 App. Div. 765, 104 N. Y. 582; Maney v. Maney, (Sup. 1907) S. 541, 39 Civ. Pro. 168; Kaufman v. 119 App. Div. 765, 104 N. Y. S. 541, Kaufman, (Sup. 1913) 158 App. Div. 39 Civ. Pro. 168; Sunderlin v. Sun- 892, 142 N. Y. S. 1048; Florentine v. derlin, (Sup. 1908) 123 App. Div. Wilson, (Sup. 1844) Hill & D. Supp. 421, 107 N. Y. S. 979; Boyd v. Boyd, 303, 304; Gilbert v. Gilbert, (Com. (Sup. 1909) 130 App. Div. 161, 114 PI. Eq. T. 1893) 5 Misc. 555, 26 N. N. Y. S. 361; Kaufman v. Kaufman, Y. S. 30; Poillon v. Poillon, (Sup. (Sup. 1913) 158 App. Div. 892, 142 Tr. T. 1899) 29 Misc. 666, 61 N. V. N. Y. S. 1048; Florentine v. Wilson, S. 582, affirmed 49 App. Div. 341, 63 (Sup. 1844) Hill & D. Supp. 303; N. Y. S. 301. Tallinger v. Mandeville, (Sup. G. T. 84. Poillon v. Poillon, (Sup. 1900) 1888) 48 Hun 152, 15 State Rep. 49 App. Div. 341, 63 N. Y. S. 301. 652, affirmed on other grounds 113 §621] ILLEGALITY 943 have been valid if entered into through the intervention of a trus- tee, is now rendered valid though made directly between husband and wife.^^ The mere fact that the agreement recites that the parties were at the time of its execution living apart is not con- clusive of such fact, and for the purpose of proving the illegality of the agreement it may be shown that they were living together and continued to do so.^' § 621. Contract ■without Intervention of Trustee. — Prior to the legislative provision permitting husband and wife to con- tract with each other, a separation agreement made after the parties had separated, which was sustained in equity, was, as shown by the record, directly between the husband and wife with- out the intervention of any trustee ; *' but according to the better view, on account of the inability of husband and wife to contract directly with each other, the agreement was invalid unless made through the intervention of a trustee, especially if the parties were not at the time living apart.^* Since the provision of the Domestic Relations Law permitting husband and wife to contract directly vsdth each other, it would seem that any contract for separation and support which the spouses could have made through the intervention of a trustee they can now make without one ; and this has been so stated by the Court of Appeals, though the ease in question was one in which the parties had separated at the time the agreement was made. In this connection Vann, J., says: " In view of the legislation which permits husbands and wives to contract directly with each other, any contract for separation and support, which they could formerly have made by means of a trustee, they can now make without one. The only reason for resorting to a trustee was the ancient rule that a husband and wife were one person, but both the reason and the rule ceased to exist 85. See the following section. 113 N. Y. 427, 22 State Rep. 708, 21 86. Kaufman v. Kaufman, (Sup. N. E. 125; Gilbert v. Gilbert, (Com. 1913) 158 App. Div. 892, 142 N. Y. PI. Eq: T. 1893) 5 Misc. 555, 26 N. S. 1048. Y. S. 30; In re Smith, (Surr; Ct. 87. Pettit V. Pettit, (1887) 107 1895) 13 Misc. 592, 71 State Hep. N. Y. 677, 12 State E«p. 463, 14 N. 596, 36 N. Y. S. 820, 1 Gibb. 337; E. 500, 1 Silv. App. 555, as explained Lawrence v. Lawrence, (Sup. App. in Winter v. Winter, (1908) 191 N. T. 1900) 32 Misc. 503, 66 N. Y. S. Y. 462, 468, 84 N. E. 382. See also 393, reversing 31 Misc. 646, 64 N. Y. »e€ V. Magee, (Sup. Sp. T. 1874) S. 1113; Rogers v. Rogers, (Chan. 67 Baiup. 1911) 144 App. Div. 300, 1910) 124 N. Y. S. 645. 129 N. Y. S. 14; Ratohford v. Cay- 24. Crowe v. Liquid Carbonic Co., uga County Cold Storage, etc., Co., (1913) 208 N. Y. 396, 403, 102 N. E. (Sup. 1913) 159 App. Div. 525, 145 573. N. Y. S. 83; Nordone v. F. C. Aus- 25. Adler v. Wteis, etc., Co., (Sup. § 627] ILLEGALITY 861 that the seller may reserve to himself the right to elect, at the time of the delivery of the property, to take a chattel mortgage as security instead of relying on the security of a conditional sale.^^ Still, even after default, a waivel- by the purchaser of the rights conferred by the statute must be in the form of a contract and supported by a consideration, or his conduct must be such as to estop him from asserting his rights under the statute." " The decisions," says Seabury, J., in this connection, " construing the statute . . . have made it clear that a waiver of the provision of the statute- in the contract is invalid as contrary to public policy . . . and that a new agreement founded upon a new con- sideration made after a default under the contract is valid and enforceable. . . . The present case occupies a middle ground between these two decisions, and we are asked to hold that a mere consent or waiver not expressed in a contract is consistent with public policy. "We think that for us to so hold would materially weaken the protection which the statute was designed to afford to those within its provisions. . . . The legislature's purpose being to mitigate the possible harshness sometimes arising under such conditional sale contracts, we think that purpose would be fnistrated if a mere waiver or consent not in the form of a eon- tract, by a vendee then in default, could serve to take such con- tracts out of the protection of the statute. "When, after default, the parties enter into a new contract upon a new consideration, and attempt in good faith by such a contract to settle the differences between them, a different case is presented which is not within the protection of the statutes" . . . The same considerations of 1916) 218 "NT. Y. 295, 112 N. E. 1049; 184 App. Biv. 309, 311, 171 N. Y. Warner v. Zuechel, (Sup. 1897) J9 iS. 725; Montague v. Wanamaker, App. Div. 494, 46 N. Y. S. 569; Fair- (Sup. Sp. T. 1910) 67 Misc. 650, banks v. Nichols, (Sup. 1909) 135 124 N. Y. S. 805; Boschen v. Multi- App. Div. 298, 119 N. Y. S. 752; color Sales Co., (Sup. App. T. 1917) Leonard v. Montague, (Sup. 1913) 98 Misc. 637, 163 N. Y. S. 202. 155 App. Div. 506, 140 N Y. S. 562; 26. Nordone v. F. 0. Austin Drain- Seeley v. Prentiss Tool, etc., Co., age Excavator Co., (Sup. 1918) 184 (Sup. 1913) 158 App. Div. 853, 144 App. Div. 309, 171 N. Y. S. 725. N. Y. S. 48, affirming 216 N. Y. 687 27. Adler v. Weis, etc., Co., (Sup. mem., 110 N. E. 1049; Breakstone 1916) 218 N. Y. 295, 112 N. E. 1049, V. Buffalo Foundry, etc., Co., (-Sup. affirming 163 App. Div. 934, 147 1915) 167 App. Div. 62, 152 N. Y. N. Y. S. 1096, which reversed 66 S. 394, reversing 79 Misc. 496, 141 Misc. 20, 119 N. Y. S. 634; Cee Bee NY 8 159; Nyhoe v. Dall, (Sup. Cee Waist, etc., Co. v. Borenstein, 1915)' 167 App. Div. 225, 152 N. Y. (SUp. App. T. 1917) 164 N. Y. S. S. 650; Nordone v. F. C. Austin 703. Drainage Excavator Co., (Sup. 1918) 952 NEW YORK LAW OF CONTRACTS [§ 628 public policy which required us to hold that an express waiver in the contract was invalid impel us to the conclusion that a mere waiver made after default is equally offensive to the public policy manifested in the statute, and therefore not effective to take such a case out of the operation of the statute." ^^ *It is also held that a person in contracting a debt cannot agree with his creditor that in case of nonpayment and recovery of a judgment the creditor may levy execution on property exempt from execution Under the general laws of the state.^' War as Affecting Legality of Contract § 628. In General. — ^When a state of war exists between two countries the common law forbids all commercial intercourse between their inhabitants, and contracts entered into in contra- vention of this rule are illegal and unenforceable.'" "A state of war," says Church, C. J., " puts all the members of the two nations in hostility to each other, and pacific trading and inter- course are inconsistent with that condition ; but a more important reason is that ' it would counteract the operations of war, and throw obsfacles in the way of the public efforts, and tend to dis- order, imbecility, and treason. ' "^ And if a citizen of our country resides in and does business in the enemy's country, he occupies the quasi position of an alien enemy, and commercial intercourse with him is within the prohibition.'^ During our civil war the inhabitants of the territory under the control of the government of the Confederate States occupied the position of enemies as regards the rest of the inhabitants of our, country, except so far as distinctions were expressly made by the federal government, and general commercial intercourse between them was 28. Adler V. Weis, etc., Co., (1916) (Sup. 1817) 14 JohnB. 146; Oris- 218 N. Y. 295, 299, 112 N. E. 1049. wold v. Waddington, (Ct. Err. 1819) 29. Kneettle v. Newcomb, (1860) 16 Johns. 438, affirming 15 Johns. 22 N. Y. 249. 57; Seaman v. Waddington, (Ct. 30. Woods V. Wilder, (1870) 43 Err. 1819) 16 Johns. 510; Leftwich N. Y. 164; McStea v. Matthews, v. Clinton, (Sup. 1870) 4 Lana., (1872) 50 N. Y. 166, affirmed 91 176; United States v. Grossmayer, . Smith 170. S. 73. 62. Unckles V. Colgate, (1896) 148 64. Woodworth v. Janes, (Sup. K". Y. 529, 43 N. B. 59, affirming 72 1801) 2 Johns. Cas. 417; Young v. Hun 119, 55 State Rep. 522, 25 N. Beardsley, (Chan. Ct. 1844) 11 Paige Y. S. 672. See supra, section 641. 93. 62 97® NEW YORK LAW OF CONTRACTS [§645 " The judgment entered upon the confession occupies no better position. It has for its support an illegal consideration, which the court does not recognize and which it never hesitates to con- demn. To this extent I understand all the members of the court are in accord. Some of them, however, are of the opinion that the action being in equity, and each of the parties being equally at fault, they should be left where the court finds them. This is the general rule, but it applies only to contracts which have been fully performed. It does not apply where the contract remains in whole or in part executory. The agreement, confession and judgment must be considered together. They were each and all intended to accomplish a single purpose, namely, the payment to the respondent of two hundred dollars per month during her -life, provided she would obtain a divorce. The invalidity of one involves the invalidity of the others. In so far, however, as per- formance has been had, the general rule should be applied and the parties left where the court finds them, but to the extent that the judgment has not been collected, I think the court, out of its respect for the enforcement of the law, as well as on the ground of a wise and wholesome public policy, should interfere and pre- vent the arrangement being further consummated by the collec- tion of the judgment. This view is supported by cases in other states." 55 § 645. Locus Poenitentiae. — There are cases, or at least dicta, which assume, as regards illegal contracts, that there is a point or locus poenitentiae at which a party may recede from the con- tract and be entitled to the aid of the court.** And the view has been taken by Monell, J., that where persons contribute to a fund to promote a revolution in a foreign country, in violation of our neutrality laws, a contributor to such fund is entitled, if the unlawful purpose for which the money is contributed has been abandoned without any attempt to accomplish it, to the aid of •the court in recovering his share of the money contributed." This 65. ScMey v. Andrews, (1919) 225 Strait v. National Harrow Co., (Sup, K Y. 110, 121 N. E. 812, reversing ,Sp. T. 1891) 18 N. Y. S. 224, 232; 171 App. Div. 952 mem., 156 N. Y. S. Bailey v. Belmont, (Super. Ot. G. T. 1144. 1871) 10 Abb. Pr. N. S. 270. See ee. Tracy v. Talmage, (1856) 14 also Unckles v. Colgate, (1896) 148 N. Y. 162, 181; White v. Kuntz, N. Y. 529, 539, 43 N. E. 59. (Com. PI. 1885) 13 Daly 286, 293, 67. Bailey v. Belmont, (Super. Ct. affirmed on other grounds 107 N. Y. G. T. 1871 ) 10 Abb. Pr. N. S. 270. 518, 12 State Eep. 297, 14 N. E. 423; § 645] ILLEGALITY 979 principle, however, as a broad proposition, does not entitle a party, in pari delicto, who on his part has made a part payment in pursuance of the illegal contract with the expectation of deriving benefit therefrom, such benefit resting solely in the performance by the other party, to retrace his steps and, on the theory of a repudiation and rescission of the contract, recover the money so paid. ' ' There are, I concede, ' ' says Lott, C. J., in this connection, " dicta and declarations, in some of the elementary works, where the contrary rule or principle is, apparently, laid down without limitation or restriction; but it will be found that the cases cited to support them are of the nature or character to which I have above referred, and do not sustain the proposition or principle that a party to an illegal contract, capable of execution by the acts of the parties and in which he is in pari delicto, can, after part per- formance and execution, on a refusal by him to fulfil and perform what remains to be done, revoke and nullify what has been actually performed, and from which he sought or expected to derive bene- fit and advantage, and in fact may have done so, and claim a restoration or compensation therefor from the other party, on the pretext or ground that he has become repentant of his conduct at the particular time, when he is required by the terms of his con- tract to do some further act which, most probably, his interest or want of means, or apprehension of loss from its further prosecu- tion, induces him to repudiate. A mere refusal or neglect to ful- fil is not per se evidence of repentance, nor does it raise a pre- sumption that an entire fulfilment of a contract in violation of a law or of public policy, deliberately entered into and partially executed, is withheld or refused by a respect and regard for law and the public welfare. ' ' *' And any right which may be based on a rescission of the illegal agreement while the contract is execu- tory is lost if the party waits until the time for performance by the other has arrived and does not attempt to rescind until such party refuses to perform.*' Where a contract of sale is illegal the seller is not entitled, after a part performance, on the theory of a rescission and repudiation of the contract, to recover for the prop- erty so delivered.'" 68. Knowlton v. Congress, etc., grounds 107 N. Y. 518, 12 State Rep. Spring Co., (1874) 57 N. Y. 518. 297, 14 N. E. 423. 69. White v. Kiintz, (Com. PI. 70. Arnot v. Pittston, etc., Coal 1885) 13 Daly 286, affirmed on other Co., (1877) 68 N. Y. 558, reversing 2 Hun 591, 5 Thomp. & C. 143. 980 NEW YORK LAW OF CONTRACTS [§ 646 § 646. Persons Not in Pari Delicto; General Rule. — A distinc- tion is taken between those illegal contracts where both parties are equally culpable and those in which, although both parties have participated in the illegal act, the guilt rests chiefly on one. The maxim, ex dolo malo non oritur actio, is qualified by another, viz., in pari delicto melior est conditio defendentis. Unless there- fore the parties are in equal fault, in pari delicto as well as parti- ceps eriminis, the courts, although the contract is illegal, will afford relief to the more innocent party .''^ In this connection Selden, J., said in quite an early case: " It was insisted by the counsel for the receiver, upon the argument, that in no case would relief be afforded to any party to an illegal contract, unless he applied for such relief, or, at least, had elected to disaffirm the contract while it remained executory. This position cannot, I think, be sustained. It overlooks distinctions which are clearly settled. The cases in which the courts will give relief to one of the parties on the ground that he is not in pari delicto, form an independent class, entirely distinct from those cases which rest upon a disaffirmance of the con- tract before it is executed. It is essential to both classes that the contract be merely malum prohibitum. If malum in se, the courts will in no case interfere to relieve either party from any of its con- sequences. But where the contract neither involves moral turpi- tude nor violates any general principle of public policy, and money or property has been advanced upon it, relief will be granted to the party making the advance (1) where he is not in pari delicto; (2) in some cases where he elects to disaffirm the contract while it remains executory. In cases belonging to the first of these classes, it is of no importance whether the contract has been executed 71. Tracy v. Talmage, (1856) 14 Nat. Bank v. Cornell, (Sup. 1896) N. Y. 162, 181; Ford v. Harrington, 8 App. Div. 427, 75 State Rep. 242, (1857) 16 N. Y. 285; Richardson v. 40 N. Y. S. 850; Mount v. Waite, Crandall, (1872) 48 N. Y. 348, af- (Sup. 1811) 7 Johns. 434; Erie R. firming 47 Barb. 335, which reversed Co. v. Vanderbilt, (Sup. G. T. 1875) 30 How. Pr. 134; Duval v. Wellman, 5 Hun 123; Levine v. Klein, (City (1891) 124 N. Y. 156, 34 State Rep. Ct. Tr. T. 1908) 58 Misc. 389, 111 964, 26 N. E. 343, 26 Abb. N. Cas. N. Y. S. 174; Akers v. Mutual L. 250, reversing 14 Daly 515, 16 State Ins. Co., (Sup. Sp. T. 1908) 59 Misc. Rep. 607, 1 N. Y. S. 70, which re- 273, 112 N. Y. S. 254; Delisi v. Ficar- versed 15 State Rep. 404, which re- rotta, (Sup. App. T. 1912) 76 Misc. versed 15 State Rep. 384; Irwin v. 488, 493, 135 N. Y. S. 653; Anony- Curie, (1902) 171 N. Y. 409, 64 N. mous, (Super. Ct. Sp. T. 1856) 16 E. 161, reversing 56 App. Div. 514, Abb. Pr. 423. 67 N, Y. S. 380; Baldwinsville First § 647] ILLEGALITY 981 or not. " '^ It has been said that relief is not granted, in eases of' this character, on the basis of the express contract whicR is tainted with illegality, but upon the basis of an implied contract founded upon the moral obligation resting upon the defendant to account for the money or property received." § 647. Application of General Rule.— -The first cases in which the courts applied the principle that relief might be granted if the parties were not in pari delicto were naturally those where the contract was in violation of some statute intended for the special protection of the party seeking relief from some undue advantage taken by the other, because those were the cases in which the injustice of applying the same rule to both parties would be the most glaring.'* But it soon came to be seen that the principle was equally applicable to eases where the law infringed was intended for the protection of the public in general,'" and it has been said, in regard to a contract in violation of a statutory pro- hibition, that wherever the statute imposes a penalty upon one party and none upon the other they are not to be regarded as in pari delicto.'^ The early statute prohibiting, under a penalty, a banking corporation from issuing notes payable on time, was directed chiefly against the corporation, and it was regarded as the chief offender in case the statute was violated and not the party to whom the note was issued. It was therefore held that though a contract for the sale of property to a bank, otherwise valid, expressly provided for the issuance of the time notes of the bank in payment, the parties were not to be regarded as in pari delicto, and that where the contract had been executed by a delivery of the property to the bank and a delivery of the notes to the seller, the latter should be permitted to recover the value of the property.'' And where an attorney, in violation of the statute prohibiting an attorney, under a penalty directed against him only, to pay or agree to pay a consideration for placing a 72. Tracy v. Talmage, (1856) 14 76. Tracy v. Talmage, (1856) 14 N. Y. 162, 181. N. Y. 162, 183; Akers v. Mutual L. 73.' Tracy v. Talmage, (1856) 14 Ins. Co., (Sup. 8p. T. 1908) 59 Misc. N. Y. 162, 191. But see Irwin v. 273, 112 N. Y. S. 254. See also Ir- Curie, (1902) 171 N. Y. 409, 64 N". win v. Curie, (1902) 171 N. Y. 409, E. 161. 64 N. E. 161, reversing 56 App. Div. 74. Tracy v. Talmage, (1856) 14 514, 67 N. Y. S. 380; Mount V. N. Y. 162, 182; Eichardson v. Cran- Waite, (Sup. 1811) 7 Johns. 434. dall, (1872) 48 N. Y. 348. 77. Curtis v. Leavitt, (1857) 15 75. Tracy v. Talmage, (1856) 14 N. Y. 9, 94. N. Y. 162, 182. 982 NEW YOEIK LAW OF CONTRACTS [§ 647 claim in his hand for suit, contracted with the plaintiff to pay the latter S, percentage of the fees received if the plaintiff would induce third persons to place certain claims in his hands for suit, it was held that the plaintiff was not in equal fault with the attorney, and he should be permitted to recover from the attorney the agreed proportion of the fees received by the attorney.'* The same view has been taken as regards a contract for the employ- ment of an agent made by an insurance company for a longer period than twelve months in violation of the statute (see Insur- ance Law, § 98; 27 MeKinney's Cons. Laws, p. 169), which pro- hibits, under a penalty directed against the company or its officers acting for it in making the contract, life insurance companies from making such a contract; and an agent so employed has been permitted to recover the value of the services rendered.'' "Where money or securities are exacted colore officii, the party giving the securities or making the payment is not regarded as in pari delicto with the officer, but rather as the victim of the officer's exaction, and relief may be granted him.*" Also where one person paid to another, who conducted a matrimonial bureau, money which the latter agreed to return in case the former did not marry any of the persons introduced by the latter, it was held that the party making the payment was not in equal fault with the other, and she was permitted to recover the money so paid.*-"- Where, an 78. Irwin v. Curie, (1902) 171 N. was not intimated that the defendant Y. 409, 64 N. E. 161, reversing 56 could hold the money paid him, he- App. Div. 514, 67 N. Y. S. 380. cause the parties were in pari de- 7.9. Akers v. Mutual L.