Phillips v. Potter and Another

7 R.I. 289

• Court: Supreme Court of Rhode Island
• Decided: September 6, 1862
• Status: Published

Opinion

Bullock, J..

This is an action of debt, upon bond with condition. The breach assigned is the non-performance by the defendants of their obligation to pay $1500 in six months from the date of the bond. The defendants, by their third and fourth pleas,, aver that this obligation was procured by the fraud, covin and misrepresentation of the plaintiff, setting forth wherein the fraud, &c., consists. The plaintiff replies, that in this action the defendants are estopped from setting up this defence; to which replication they demur. The demurrer therefore raises the question of the sufficiency of the pleas and of the replication.

It is an admitted principle, that in general a party is estopped to deny that which he hath solemnly affirmed under seal. Exceptions to this general principle may be found, as well-established as the rule itself. Thus a trustee, after^ conveyance to his cestui gxie tmst, is not estopped from setting up an older, and after acquired title; or a lessee, from denying the title of his lessor, after the relation has ceased, or áffcer he has been evicted by a title paramount. There is another class of cases, admitted exceptions to the rule above stated, as when the deed is fraudulently read' to an illiterate person ; when a false deed is substituted for the real one ; or, when from the imbecility of age, the weakness of disease, or like causes, the covenantor or obligor is not legally competent to contract. These cases proceed upon the acknowledged principle, that the instrument is^otf the deed of the party executing it; that it is á nullity; and that there is nothing by which he may be estopped. So .when the consideration of a deed is illegal, the party claiming under it is not permitted to enforce it, either at law or in equity, because it contravenes good morals or sound policy. The question here is, whether, at common law, the case of actual fraud forms an exception to this general rule, that' an obligor is estopped to deny his own sealed acknowledgment, as against the obligee ; in other words, whether, when the party who has practiced a fraud, seeks to enforce his own fraudulent contract against the party upon whom the fraud has been practiced, the party wronged can plead the fraud in b.ar of the action, or is estopped because the contract is under seal. That one who has practiced fraud shall not derive any advantage from it, is a rule of the common law coeval with the law itself. In the earliest of the reports may be found adjudged cases where not only bills of sale of goods and chattels, but grants and feof ments of lands, and judgments of court are set aside upon this principle. Wood’s Inst. 299, and cases there cited; 2 Roll. Abr. 23, 549; 3 Dyer, 294, a, 295, b; 6 Cro. Eliz. 86; Skin. 357, pl. 4. These cases were ruled upon the obvious doctrine that the practice of fraud, or covin, in the procuring of a contract, was against sound morals and good conscience, and courts of law uniformly refused to lend their aid to enforce such contracts. Of the various early acts of parliament relating to this subject, the purpose was to define a new remedy rather than to establish any new right. The leading statute of 13 Eliz. c 5, did not import any new rule into the common law. Its object was rather to declare what the common law was, and what it had been. Lord Coke, in two .different references to this statute, says, “ it appeareth,” by its enacting clause, “ what the law was, before the making of this act.’-’ Coke Lit. 290, title Release, 76, title Escuage. “ All deceitful practices in defrauding another are condemned by the common law,” and this “ without • the express provision of any act of parliament.” 2 Bac. Abr. 594. Of the like opinion was Lord Mansfield, who, in Cadogan v. Kennett, Cowper, 434, says, “the rules and principles of the common law, as now universally known and understood, are so strong against fraud in every shape, .that the common law would have attained every end proposed by the statutes ” — 13 Eliz. c 5, and 27 Eliz. c 4. Thus, whether the rule, that fraud in the consideration of a contract vitiates it, rests upon the common law, or upon the statute, in either case it is equally affirmed.

The question whether courts exercising common law, as contra-distinguished from equity jurisdiction, take cognizance of such cases when the contract is evidenced by a sealed instrument, is - one upon which the authorities are not agreed. That a party who has been defrauded usually invokes the aid of a court of equity, there is no doubt, because its course of procedure is more direct; thorough and searching, its remedies often more effective; and because, also, it tends to limit the number of actions. These are some of the reasons assigned by Blackstone; who, so far from admitting that in cases of fraud the jurisdiction of a court of equity is exclusive, says, that every kind of fraud is equally cognizable at law, and that some frauds are only cognizable there; 3 Bl. Com. 432, 37-39; and his-views are supported by the case oí Bright, ex., v. Eynon, 1 Burr, 390, where the frauii went,, it would-seem, as well to the consideration' as to the. execution of, a discharge, when Lord Mansfield distinctly laid down .the principle, “that courts of equity and, courts of law have-a'concurrent jurisdiction to suppress and relieve against fraud.” See also Cockshott v. Bennett, 2 T. R. 765., But the interposition of the former is.often necessary, for. the better..investigation of truth, and to give,more complete redress.-

. In Hayne v. Maltby, 3 T. R. 440, the question, whether fraud in the'consideration- of a sealed instrument, could be pleaded at law, in bar .of the action, arose • directly., . The action .-was covenant, for using - a-patent, otherwise than, agreed. The plaintiff demurred to the pleas 'of'the:defendant, and assigned, for reasons,' that the defendant yas estopped; by- his' covenant, to deny that the invention'was new,' or that the patentee,was not the inventor.. But the court, (Kenyon, 0.;J.,) without dissent, ruled .that when a party falsely pretends to have certain exclusive rights, .which, upon terms, he assigns to another, who', in -consideration thereof enters into the. covenant sued upon,'the party, sued is not estopped from setting up that the consideration of his .covenant was fraudulent and void; that the doctrine, of'estoppel does not apply to the party who has been cheated and imposed upon. - In this country, there has been a contrariety-of decisions upon this point. A number of cases were cited, -upon the argument; from the New 'York reports, in which the general doctrine is laid down, that at law, such fraud only as goes to-the'execution of a.specialty or to its illegality, can 'be set up in avoidance? An examination of the cases will show, we think, that in some of them, there was a mere failure of consideration; in others, the fraud did not reach to the substance.of the 'consideration, or to the essence of the contract,' but only to some collateral matter; In Belden et al. v. Davis et al. 2 Hall, Sup; Ct. 447, Oakley, J., expressly negatives the idea that fraud, as such, can be'pleaded as-a substantial and independent defence at law, to defeat a sealed instrument; because, he says, that when such an instrument is executed understandingly, and with a full knowledge of its import, its consideration cannot be impeached at law, except upon the ground of its illegality.

It is worthy of notice that no leading- English authority is cited in aid of these decisions. They all rest upon, or at least' refer to, the case of Dorlan v. Sammis, 2 J. R. 179 (n.), which was a writ of error from Queen’s county, and in reference to which it has been said, the question of fraud did not arise ; and this view of that case is strengthened by the fact, that the court, in giving their opinion, remark, that no authority can be found where a bond has been set aside at law, unless the consideration was void, or there had been fraud. In Stevens v. Judson, 4 Wend. 473, Savage, C. J., unwillingly defers to these decisions, and places the opinion of the court upon no other ground than it has been so decided, and adds, that he can see no reason why. The technicality of these decisions, and their tendency to multiply actions, influenced, no doubt, the legislature of that state subsequently to enact, 2 R. S. 40 6, 77, 78, that a' seal should only be presumptive evidence of a consideration; and opening a specialty to" all the defences at law of a simple contract. In Pennsylvania, the question, whether fraud, going to the substance of the consideration of a sealed instrument, can be set up in bar at law, could not, until a recent period, well arise, as the subject of a distinct and independent adjudication; because, under her system of jurisprudence, the courts exercised a mixed jurisdiction, and administered justice in each case as it arose, upon the blended principles of law and equity.

This point has also been considered in the Supreme Court of the United States. The views of that tribunal are entitled to great weight. In the case referred to, which was that of Hartshorn et al. v. Day, 19 How. 222, this question was not the material or leading question involved. Nelson, J., does say, that as a general rule, fraud in the consideration of a sealed instrument is not admissible at law to,avoid the obligation; but the reason he assigns is, the greater ease with which the rights and equities of all parties can be adjusted in a court of equity; and he indirectly limits the application of this rule to those states where the two systems prevail, assuming that such states have adopted ánd acted upon it as a settled rule of practice. The case at bar is also distinguishable from the case last referred to, in this, that in the latter case the contract had been, in part, executed.

It is unnecessary to review the decisions in Massachusetts upon this point, because it was admitted at the argument, that, by repeated adjudications in that state,-it had been settled, that fraud and imposition in the consideration of-a sealed contract might be set up as a competent defence at law. It was said, this rule had its origin there, in the fact that the courts of that state did not exercise chancery poAvers. But we think a better reason may be found in the fact, that those,, courts have adhered, from the first, to the common law principle, that fraud vitiates every contract, or, at least,'that every such contract may be avoided, as well at law as in equity, and that, in cases of fraud, courts of law exercise concurrent jurisdiction with courts of equity. In the recent case of Partridge et al. v. Messer, 14 Gray, 182, where the question arose at law, whether a release procured by fraud might be avoided, the court state that such an agreement cannot be set up by the party who has committed the fraud, against the party who has been defrauded. To the same effect, is the case of Wedlake v. Sargent, 8 Eng. L. & Eq. 404, and of Mallalieu v. Hodgsons, 71 Eng. C. L. 689. In this last case, which was indebitatus assumpsit, the plea was, release, and the replication, that the release was obtained by fraud and covin. In D’Aranda v. Houston, 25 Eng. C. L. 316, which was debt upon a bond, the plea was, fraud, covin and misrepresentation in the consideration. In Evans v. Edmonds, 76 Eng. C. L. 777, the action was covenant; plea, that the defendant Avas induced to enter into the covenant by false and fraudulent misrepresentations; and in other cases that might be cited, we see this defence interposed without objection. It is true, that in Mann v. Ditchbourn, 1 M. & Rob. 460, and referred to in 80 Eng. C. L. 223, Lord Abinger refused to permit it to be made, but he expressly rests the decision upon his opinion of what the law should be, rather than of what the law is. The evidence having been rejected, the defendant moved for a new trial; and the court made the rule absolute, in order that the question might be distinctly raised, when it was held that the evidence was admissible.

Admitting that the cases may not all be reconciled, the result of them, we think, is, that when a party to a sealed instrument actually executes it, and is competent to execute it, and is not deceived as to its : actual contents,'he cannot avoid it upon the plea of non est factum, because it is his deed; and while also he is estopped at' law, from showing a-want of- consideration, or a different consideration from that actually contained in the contract, or fraud even in any matter collateral to the consideration, yet while the obligation remains executory,-and the- defendant specially pleads that it was procured by the'.'fraud, covin and misrepresentation of the plaintiff,: setting forth wherein such fraud consists, and thus showing to the court-that it reaches to the substance of the consideration, such a party is not,- by ány form of practice, or by any rules of technical law adopted or acted upon in this State, estopped from' availing himself of such a defence. This conclusion does not, of necessity, involve the decision that such an obligation is void. However courts may, at different times, have been divided in opinion, upon the question, whether fraud, going not to the execution but to the consideration of a deed, renders it void or voidable only, they all agree in this, that as between the original parties, the party wronged may, either at law or in equity, set up the fraud, and may avoid it at his election. In such cases, therefore, the distinction is rather formal and technical than substantial or real; while in questions involving the rights of creditors and bona fide purchasers, the distinction becomes of primary and controlling importance.

Here, the question is not, whether equity has jurisdiction, but whether its jurisdiction is exclusive. In many, perhaps in most cases of fraud, from the nature of its jurisdiction, the variety of its powers and remedies, as well as of the processes through which its remedies are enforced, a court of equity is the most fit instrumentality to adjust the conflicting rights and equities of all parties, meting out to each his own exact measure of equity; but it does not thenceforth follow, that when a party is sued at law upon an executory contract, and pleads to the action, that such contract is void, because of actual fraud in the very matter upon which his alleged promise rests, that he is estopped from so pleading, simply because the contract is under seal. It will be noticed, tbat there is nothing inequitable in allowing this defence in the case at bar, since our refusal to enforce the payment of the two sums of fifteen hundred dollars and of five hundred dollars will clear the condition of the bond of the only stipulation which the pleas aver, and the demurrer to them admits,' was procured by fraud.

The seventh replication to the third and fourth pleas is overruled, and the demurrer of the defendant sustained.