Daniels, J.
This action was before this court in a preceding appeal from a judgment overruling a demurrer to the original complaint. That judgment was considered to be erroneous, for the reasons at the time assigned, and it was reversed, with liberty to the plaintiff to amend the complaint and bring in another party. Cohen v. Ellis, 4 N. Y. St. Rep. 721, 42 Hun, 660, mem. It was then considered that the representations relied upon and set forth would entitle the plaintiff to rescind the contracts made for the purchase of the bonds. But, as the defendants acted as agents for the construction company, that company, or its receiver, should be brought into the action in order to entitle the plaintiff to maintain it. Since that decision was made the complaint has been amended, and the North River Construction Company, the party at that time omitted, together with its receiver, have been added as defendants in the action. In this manner the objection which was then found to exist to the right of the plaintiff to maintain the action has been removed, but another and different objection is now presented to the ability'of the plaintiff—or of his executrix, he having died since the judgment—to maintain this action. The bonds which were purchased by the plaintiff were issued by the New York, West Shore & Buffalo Railway Company. After their purchase default was made by the company in the payment of its secured debts, and an action was commenced by the trustee in the mortgage given to secure the bonds to foreclose the mortgage and sell the mortgaged property. While this action was pending a scheme was set on foot through which the railway property should be sold for the benefit of the owners of the bonds, and a new company organized, to take the property under the sale from the committee appointed to purchase it, and this new company should issue bonds not exceeding in amount $50,000,000, bearing interest at 4 per cent., and $10,000,000 of capital stock, and such bonds should be secured by a mortgage upon the property, and guarantied by the New York Central & Hudson River Railroad Company, which company should take a lease of the property sold for a long term of years. Under this arrangement or plan the railway property incumbered by the mortgage for the security of the bonds issued by the New York, West Shore & Buffalo Railway Company was sold and purchased by the committee acting for the bondholders. And under their agreement and authority the West Shore Railroad Company was organized, the property conveyed to it, and the $50,000,000 of bonds issued by it. The lease agreed upon was also executed to the New York Central & Hudson River Railroad Company, and that company guarantied the bonds of the West Shore Railroad Company. These bonds issued and guarantied in this manner were, under the scheme, which had been adopted and acted upon, -to be exchanged at the rate of.50 cents on the dollar for the bonds of the New York, West Shore & Buffalo Railway Company, and a time was prescribed within which the exchange should take place, and after which it was not to be permitted. This exchange was to be made by a deposit of the bonds of the old company with Drexel, Morgan & Co.; and a sufficient number of bonds were so deposited to entitle the plan or scheme to be carried into execution. A circular was issued by this firm in July, 1885, informing the bondholders of the reorganization plan, and of the necessity for depositing their bonds, to receive in exchange this percentage of the new bonds of the West Shore Railroad Company. After this circular was received, and the plaintiff had obtained information concerning the terms which had been prescribed, he did deposit his 200 bonds of $1,000 each with Drexel, Morgan & Co., and received from them 100 bonds of $1,000 each, issued under the new organization and guarantied by the New York Central & Hudson River Railroad Company. These newly-issued bonds are stated to be of the value of $103,000, while the 200 bonds'issued by the New York, West Shore & Buffalo Railway Company would be of no greater-value, in any event, than the sum of $46,000. And it is proposed, in order to entitle the plaintiff to maintain this action, that the new bonds shall be surrendered up and accepted by [135] the defendants in place of the 200 old bonds received under, the original contracts for their purchase, and those contracts shall be rescinded, and the plaintiff permitted to recover the amount paid by him for the bonds and the stock delivered to him, accompanying the bonds.
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Daniels, J.
This action was before this court in a preceding appeal from a judgment overruling a demurrer to the original complaint. That judgment was considered to be erroneous, for the reasons at the time assigned, and it was reversed, with liberty to the plaintiff to amend the complaint and bring in another party. Cohen v. Ellis, 4 N. Y. St. Rep. 721, 42 Hun, 660, mem. It was then considered that the representations relied upon and set forth would entitle the plaintiff to rescind the contracts made for the purchase of the bonds. But, as the defendants acted as agents for the construction company, that company, or its receiver, should be brought into the action in order to entitle the plaintiff to maintain it. Since that decision was made the complaint has been amended, and the North River Construction Company, the party at that time omitted, together with its receiver, have been added as defendants in the action. In this manner the objection which was then found to exist to the right of the plaintiff to maintain the action has been removed, but another and different objection is now presented to the ability'of the plaintiff—or of his executrix, he having died since the judgment—to maintain this action. The bonds which were purchased by the plaintiff were issued by the New York, West Shore & Buffalo Railway Company. After their purchase default was made by the company in the payment of its secured debts, and an action was commenced by the trustee in the mortgage given to secure the bonds to foreclose the mortgage and sell the mortgaged property. While this action was pending a scheme was set on foot through which the railway property should be sold for the benefit of the owners of the bonds, and a new company organized, to take the property under the sale from the committee appointed to purchase it, and this new company should issue bonds not exceeding in amount $50,000,000, bearing interest at 4 per cent., and $10,000,000 of capital stock, and such bonds should be secured by a mortgage upon the property, and guarantied by the New York Central & Hudson River Railroad Company, which company should take a lease of the property sold for a long term of years. Under this arrangement or plan the railway property incumbered by the mortgage for the security of the bonds issued by the New York, West Shore & Buffalo Railway Company was sold and purchased by the committee acting for the bondholders. And under their agreement and authority the West Shore Railroad Company was organized, the property conveyed to it, and the $50,000,000 of bonds issued by it. The lease agreed upon was also executed to the New York Central & Hudson River Railroad Company, and that company guarantied the bonds of the West Shore Railroad Company. These bonds issued and guarantied in this manner were, under the scheme, which had been adopted and acted upon, -to be exchanged at the rate of.50 cents on the dollar for the bonds of the New York, West Shore & Buffalo Railway Company, and a time was prescribed within which the exchange should take place, and after which it was not to be permitted. This exchange was to be made by a deposit of the bonds of the old company with Drexel, Morgan & Co.; and a sufficient number of bonds were so deposited to entitle the plan or scheme to be carried into execution. A circular was issued by this firm in July, 1885, informing the bondholders of the reorganization plan, and of the necessity for depositing their bonds, to receive in exchange this percentage of the new bonds of the West Shore Railroad Company. After this circular was received, and the plaintiff had obtained information concerning the terms which had been prescribed, he did deposit his 200 bonds of $1,000 each with Drexel, Morgan & Co., and received from them 100 bonds of $1,000 each, issued under the new organization and guarantied by the New York Central & Hudson River Railroad Company. These newly-issued bonds are stated to be of the value of $103,000, while the 200 bonds'issued by the New York, West Shore & Buffalo Railway Company would be of no greater-value, in any event, than the sum of $46,000. And it is proposed, in order to entitle the plaintiff to maintain this action, that the new bonds shall be surrendered up and accepted by [135] the defendants in place of the 200 old bonds received under, the original contracts for their purchase, and those contracts shall be rescinded, and the plaintiff permitted to recover the amount paid by him for the bonds and the stock delivered to him, accompanying the bonds.
It will be seen from this statement that the bonds which the plaintiff was induced to purchase by the fraudulent representations made the subject of the complaint have been wholly surrendered, and passed beyond his control, under the arrangement made to complete the foreclosure and form and organize the new company to take and operate the railway, which was incumbered as security for those bonds. They are no longer in his hands or under his control, but have been retired and extinguished as existing demands. And the point therefore arises, whether he may still insist upon the rescission of the two contracts made for the purchase of these bonds, by returning the newly-issued bonds, and recover from the defendants the purchase money paid for the old bonds. In answer to this position, which has been taken and maintained with great zeal and ability on the part of the plaintiff, the legal rule has been relied upon that, to entitle a party to rescind a contract because of the fact tiiat he was induced to enter into it by means of false and fraudulent representations, he must first return, so far as he may not be prevented from doing so by the action of the defendant, whatever he has received through the performance of the contract. This rule has been repeatedly asserted and often acted upon in litigations of this description by courts of justice. And, with unexceptional unanimity in all well-considered cases, the courts have adhered to the rule that, before an agreement which the party may be entitled in this manner to rescind, can be rescinded, he or it must offer or tender, by way of return to the other party, all that has been received under, or as the fruits of, the contract. Cobb v. Hatfield, 46 N. Y. 533; Sharpley v. Railway Co., L. R. 2 Ch. Div. 663, 685; Grymes v. Sanders, 93 U. S. 55; Graham v. Meyer, 99 N. Y. 611, 1 N. E. Rep. 143; Neblett v. Macfarland, 92 U. S. 101; Gould v. Bank, 86 N. Y. 75. The party proposing to rescind is not permitted to deal with or change the nature of the property received by him, and then insist upon the right to rescind by returning the article in that manner coming into his possession. This was considered in Nickel Co. v. Unwin, L. R. 2 Q. B. Div. 214, where the contract was not allowed to be rescinded, although it might have been done if the property to be returned had not been changed by the act of the plaintiff. The same rule was followed in McCrillis v. Carlton, 37 Vt. 139, when the defendant was not allowed to rescind a contract for the purchase of butter after he had sold the article so purchased. In Scovil v. Wait, 54 N. Y. 650, a quite similar decision was made in this state. And so it was in Snow v. Alley, 144 Mass. 546, 11 N. E. Rep. 764. This case underwent an elaborate examination and the conclusion already mentioned was reached and sustained by the court. And in Francis v. Railroad Co., 108 N. Y. 93, 15 N. E. Rep. 192, the plaintiff had received shares of stock from the defendant, which he afterwards surrendered, and new certificates were issued at his request to each one of his three minor children; and it was held by the court that this prevented him from rescinding the transaction. And it was there said that “the theory of a rescission is that the party proceeded against shall be restored to his original position. The plaintiff cannot rescind if he retains in himself, or withholds through another, any fruit of the contract. ” 108 N. Y. 97, 15 N. E. Rep. 193. It is no answer to the objection made that the bonds now offered to the defendants are more valuable than those held by the plaintiff at the time of the commencement of this action, for they are not the bonds received by him under his contracts of purchase, and the defendants ha-ye entered into no obligation whatever to accept the new bonds in the place and stead of those originally issued.
Allegations were made in the complaint to relieve the ease of this disability. They consist of statements that it was at the instigation and request of the [136] defendants Winslow, Lanier & Co. and' the construction company, and the defendant Green, that the circular of Drexel, Morgan & Co. was issued to him, containing the information relative to the reorganization and the surrender and change to be made in the bonds; and that he, believing that the defendants Winslow, Lanier & Co. had advised the exchange, was induced to make it. But these allegations are inferential in their nature,—not supported by any facts permitting them to be made. The facts, on the contrary, are that the plaintiff wrote to these defendants, stating that he should deposit the old bonds received from them, unless by the 20th of August, 1885, lie. was advised that a greater sum could be realized for them than by the.acceptance of the new bonds. To this they did not reply, with the exception of one of .the firm, and his answer was that any deposit which should be made by the plaintiff of the 200 bonds would be entirely on his own responsibility, and without any authority or consent on the part of this member of the firm. Neither .of .the others answered the letter written to them by the plaintiff, and neither consented in any manner to the exchange in the bonds for the purpose of af.feeting the relation in which they stood to the plaintiff in this action. What was done, and all that -appears to have been intimated, proceeded upon the fact that the plaintiff was the owner of the 200 bonds, and that it would be for his advantage as such owner, and not as plaintiff in this action, to make the exchange and receive the new bonds. It appears from the complaint .that these defendants have throughout denied all liability and all accountability to the plaintiff, as well as his right to rescind the original purchases, and in that manner entitle himself to the recovery of the money he had paid -for the bonds. Their action, so far as he was to be affected, was the same as it was with reference to the other owners of bonds issued by the New York, West Shore & Buffalo Railway Company. They were all alike supplied with the same information for them to act upon in making the proposed exchange, presenting the advantages'expected to arise from that exchange. Nothing whatever is shown to have transpired through what in this manner, was done and accomplished from which it can be assumed that these defendants consented that the new bonds might be taken under the reorganization, and those new bonds presented to the defendants or used by the plaintiff for the purpose of bringing about a rescission of the original purchases. In this respect the case presented by the complaint appears to be radically defective, disabling the plaintiff, as the facts have been made to appear, from rescinding the original purchases in the manner in which it is proposed that shall be done, and entitling himself to a recovery of the moneys paid for.the original bonds. The judgment, accordingly, should be affirmed, with costs, but with leave to the executrix, who has now been made a party to the action, to amend the complaint within 20 days, on payment of the costs of the demurrer, and of this appeal.
Brady, P. J., concurs.