Reznor v. MacLary

9 Del. 241

• Court: Supreme Court of Delaware
• Decided: June 5, 1871
• Status: Published

Opinion

Bates, Chancellor,

read his opinion announced in the case below.

This case draws into question the validity of a release under seal by the defendant, Reznor, of a judgment held by him against the complainant, Maclary for $1633.33, recovered in the Superior Court at the Oct. T. 1869.

Thatthe release was executed and delivered, and is in due form, is not disputed; but the defendant insists that it is invalid upon two grounds ; (1) that it was without consideration ; and (2) that it was obtained by fraudulent misrepresentation.

The first of these grounds of defence, viz; the want of consideration, has been heretofore argued and disposed of upon the motion made to dissolve the injunction for want of equity in the bill. Part payment of a debt is not a sufficient consideration to support an executory promise to discharge the debtor, and were this the case of an agreement to release remaining still in fieri, the defence of want of a valid consideration would be available. But this being a release under seal, complete in its terms and duly executed, it needs no consideration to support it beyond what the seal imports. It would be effectual even, had it been wholly gratuitous and without payment of one cent by the debtor. This point is more fully stated and the authorities cited in the opinion given upon the motion to dissolve.

The other defence, and the one mainly relied upon at the hearing, was fraud in obtaining the release. And the fraud was alleged to have been twofold, viz; misrepresentation by Maclary as to his means of payment, and the concealment by him of the fact that an execution had been levi ed to an amount sufficient for the whole debt. These two charges admit of separate consideration.

1st. As to the;, alleged fraudulent misrepresentations. The facts materia®' to this point are these. The notes of Eidgely and Maclary upon which the judgment was recovered, being one for $500, at 4 months, the other for $1000, at 8 months, both dated Oct. 21, 1867, matured,the former in Feb. 1868, the latter in June of that year. Beznor took no steps toward their collection until the 3rd of April 1869, when by a telegram he invited Maclary to visit him in Philadelphia, with a view to a settlement. His inattention to the notes until that date is explained in his answer by the fact that he had been informed and supposed that both Eidgely and Maclary were insolvent, and further that he did not know where Maclary then resided, the latter having left Maryland, in which state Beznor had last known him; that being about this time informed that Maclary was residing at Clayton in this State, he sent the telegram with a view to obtaining some settlement of the notes. Maclary promptly responded by calling on Beznor in Philadelphia, and thereupon Beznor voluntarily offered to take $1000 cash, in full settlement. This offer, as the answer shows, was not induced by any representations then made by Maclary as to his means, nor even by any solicitation on his part. It was made, as Beznor states, in view of the information he had previously received that Eidgely and Maclary were insolvent, and also upon his considering that even if they were not wholly insolvent, he might be put to expense, delay and risk in the collection. So being anxious to stimulate Maclary to prompt effort, and to save something without further delay or risk, he proposed to accept the $1000 in full, intending thereby to make a liberal and tempting offer. Maclary, however, did not then accede to it. Whether, as he alleges, the offer remained a standing one subject to his further consideration, or whether, as the defendant insists, it was then rejected and withdrawn, is not material. There was no further negotiation until October 1869, when some correspondence ensued, caused doubtless by the institution of the suit, but resulting in nothing. Soon after a judgment being recovered, execution was issued and levied Nov. 3id 1869, upon a stock of merchandize valued at $2500, in Maclary’s possession at Clayton, where he was in business as a merchant. The levy quickened Maclary’s diligence, for having induced the Sheriff to defer closing the store until the 9th of Nhvember, by undertaking in the meantime to give security for the forthcoming of the goods, he .repaired to Philadelphia on the 8th of November, and in an interview then held with Reznor, the latter again assented to accept $1000, with the costs and his attorney’s fee, in full discharge of the judgment. Whether his proposal to do so was, as before, voluntary,or whether induced by any representations on the part of Maclary made during that interview does not appear, nor is this material. A check was given by Maclary for $200, and a meeting appointed at Clayton on 'the 10th of November, to carry out the settlement. On the day appointed, Reznor attended at Clayton, where he received another check for $300, and a note under seal at 4 months for $500, making up the $1000 to be paid, and thereupon the release was executed.

Slow, the fraudulent misrepresentations relied upon as avoiding the release are contained in two letters from Maclary, dated respectively Oct. 23d and Nov. 2d, written shortly prior to the settlement. In the letter of Oct. 23rd he writes, “As you persist in having the money on those notes immediately, I can only say to you that to cancel those notes I will make to you a full and perfect title to those lots at Ridgely, which is the only property I own in this world, or, if you prefer, I will give you one hundred ($100) dollars in cash. You may choose between the two, which is the best I can do.” He adds in a P. S., “ You could hold those lots, or you could sell them for more than one hundred dollars, as you choose; I was offered that.” In the letter of Nov. 2d, writing of his desire to compromise, he says, “ I own nothing only as I wrote you sometime ago. I have sold my store sometime since, &c.

These representations were false, for Maclary at the time of writing these letters, was still merchandizing, and held a stock of goods valued at $2500, which had not, so far as any evidence shows, been sold by him, as was stated in his letter of the 2d of November, but were on the next day, 3d of November, levied on as his goods, and he gave a forthcoming bond for them.

Nevertheless, I am of opinion that these false representations do not, under the circumstances, avoid the release; and this for two reasons. In the first place, it does not appear that it was by Maelary’s statements that Reznor was induced to compromise the debt. His original offer, in April 1869, to accept $1000, in settlement, was made as the answer itself shows, under no inducement proceeding from Maclary,but was prompted by Reznor’s own distrust of the debt and his anxiety to avoid trouble, caused by rumors of the insolvency of Ridgely and Maclary. This belief of the insecurity of the debt, and his willingness to settle at $1000, continued to possess his mind ; nor can I see that the representations in Maclary’s letters made any impression upon him. The same distrust and anxiety for a settlement which prompted his first offer to accept $1000, was the continuing inducement to accept it at the last, and would have led to precisely the same result had Maclary written nothing about his means. But the other, and perhaps, upon the facts a less questionable ground for sustaining the .release, arises out of Reznor’s negligence in compromising the debt without inquiry of his attorney, who was cognizant of the levy, as to the condition and security of the claim. The most ordinary diligence in this respect would have brought full information of the levy.

The rule of law as to the effect of false representations is a clear and settled one. In order to avoid a transaction on account of them, three things are requisite. 1st, The misrepresentation must, relate to something material and substantial. 2d, The transaction sought to be avoided, must appear to have been induced by it. The party aggrieved must have been actually misled by it: and 3rd, His confidence must have been a reasonable one; as where the matters misrepresented are such as from their nature rest peculiarly in the knowledge of the party making the statement, or where there are fiduciary relations between the parties to warrant the trust reposed; or where the party misled is of such weak mental capacity as to be exempt from the requirement of ordinary diligence. Except in these cases, even betrayed confidence is not a ground of relief. Where no confidential relation exists, nor mental incapacity, and the means of information are open to both parties, a diligent use of which would have prevented the injury, Equity will not interfere. Vigilantibus non dormientibus leges subreniunt. 1 Sto. Eq. Jur. Sec. 191.

2d. The other circumstance of fraud relied upon as avoiding the release is that Maclary, pending the negotiation, did not disclose the fact that an execution had been levied on his goods to the full amount of the debt. But to this the obvious and conclusive answer is, that he was under no obligation to communicate these proceedings to Reznor. They were proceedings had under Reznor’s own process, directed by his attorney, and with respect to which it was his duty to seek information from his 'attorney. He was not warranted to rely, and in fact did not rely, upon Maclary. The duty of disclosing facts which may influence the adverse party to a transaction, springs either from some fiduciary relation between the parties, or from a trust understood to be reposed by one in the other about a matter of which the latter has peculiar means of information. But these parties were dealing at arms’ length, and the fact not communicated, to wit; the levy of the execution, was equally ascertainable by both. “The true definition “says Justice Story,” of undue concealment, which amounts to fraud in the sense of a Court of Equity, and for which it will grant relief, is the non-disclosure of those facts and circumstances which one party is under some legal or equitable obligation to communicate to the other, and which the latter has a right not merely in foro eonscientice but juris et de jure to know. 1 Sto. Eq. Jur. Sec. 207. 2 Kent. Com. 482, and note (a), 5th Ed'n.

Eulton, for the appellant.

He would in the first place remark that it was evidently most unreasonable to suppose that any creditor would consent to accept one thousand dollars in full satisfaction of a debt of sixteen hundred dollars, unless it was under a gross misapprehension of the actual ability of the debtor to pay the whole of it. But it was too clear and manifest in this ease to be controverted or denied, even, on the other side, thatReznor was solely induced by the false and fraudulent misrepresentations of Maclary as to his ability to pay it in full, and by his fraudulent concealment of the fact, that the speedy and entire payment of it had been absolutely secured by the recovery of the judgment on the notes and the levy of the execution upon his goods, to assent to such a composition of his claims against him.

His first objection to the decree, however, was that the Chancellor had erred in treating the complainant in the case below as virtually the respondent in it, and giving him all the advantages of that position, instead of holding him to the strict rule applicable to a complainant, which he in fact was in that court. He also erred in considering the settlement an executed, and not an executory contract between the parties, which it in truth was in the proper sense of that term: for although the release was signed, sealed, executed and delivered by Reznor to Maclary on the 10th of NTovember 1809, the contract itself under which it was made and entered into by them, remained in fieri, inasmuch as it was one entire contract and by the terms of it the costs of the suit upon the notes and the attorney’s fee were to be paid afterward. And being an executory, and not an executed contract, it was competent for the respondent in such case to show that there was no valid consideration received by him for it, anti, therefore, it was a mere nullity, so far as the equity of the bill was concerned. Whart. Law Aex. 208. 1 Bouv. Law Dic. 494. Lovelace v Cockett, Hob. 165. Geaug v. Swaine, 1 Ludw. 165. But even, if the release in this case constituted an executed contract, the facts proved, and particularly the letters from Maclary to Reznor, reiterating over and over again, his false and fraudulent assertion that he was utterly unable to pay over one hundred dollars on the notes, that he had no money and no property, except the lots at Ridgely valued at that sum, and that he had sold his store at Clayton, clearly showed by what repeated and systematic misrepresentations he had prevailed upon Reznor to accept the terms of the settlement, and which would avoid it. With the information which he had before received of his failure and insolvency, and without reposing any undue confidence in his honesty and veracity up to the time of that transaction, and the fraudulent developments which so soon afterward followed it, it was reasonable for him to credit such apparently frank and truthful declarations, so often repeated and re-affirmed in such a manner to him. But where a misrepresentation calculated to mislead a party is made to him, and upon the faith of which he acts, it is fraudulent and fatal, and even a conveyance obtained by it, will be set aside. Spry v. Raynell, 13 E. L. & E. R. 74. And could any one suppose that the appellant, after the recovery of the judgment upon the notes and the issue and levy of the execution on the goods of Maclary to the full amount of the entire debt and costs, would have assented to such an abatement of it, but for the artful and studied concealment of all knowledge or information in relation to them from him by the latter? The advantage which he thus took of him at the last moment, and the speed and haste with which he hurried it up, after having for months before cajoled, cheated and deceived him with false representations of his utter inability to pay any such amount, was a gross imposition and fraud practiced upon him, to which a parallel in point of-cunning and cool calculation, artifice and deceit, could scarcely be found to have ever been subjected to the investigation and redress of a Court of Equity. 1 Sto. Eq. Jur. Secs. 206, 191, 222. Martin v. Morgan, 5 E. C. L. R. 87. Lewis v. Gamage, 1 Pick. 346. Hunt v. Moore, 2 Barr 107. 1 Pr. Wms. 239.

Were this the case of a mere agreement to discharge the judgment remaining still unexecuted, a Court of Equity might, considering the advantage gained to be an uneonscientious one, refuse to enforce it upon a bill for specific performance; but the release having been executed, and being such as, under the circumstances,the court would not on a cross bill avoid, I feel obliged to give to it its legal effect.

Massey, for the respondent.

He was ready to admit the law as stated by the counsel on the other side, but the contract in this case was an executed, and not an executory contract. By it the judgment was satisfied, and Maclary was discharged and released from all liability under it. The first important fact in the case was the telegram from Reznor to him in the spring of 1869, and the object of it, which was the settlement of the notes. Maclary at once repaired to Philadelphia, and without any previous communication between them on the subject, Reznor then proposed to him to take ope thousand dollars in full satisfaction and payment of the two notes before any representation whatever had been made to him by Maclary, other than that he could not. pay that, or any other amount upon them, but he would have to wait the winding up of Ridgely & Dungan’s affairs. It was, therefore, evident whatever might have been the representations made to him, after that time by letter or otherwise, or whatever might have been the knowledge or information withheld from him by Maclary with regard to the judgment of the execution, they could, of course, have had no effect to induce him to accept such a composition, because it was his own voluntary offer and proposition made at the time. But why had such particular stress been laid on the alleged concealment of the recovery of the judgment on the notes, by Maclary at the time when the settlement of it was made and the release of it was executed and delivered to him by Reznor ? There wTas no foundation in fact for such an allegation, for the judgment was expressly named and recited in the receipt and release which he had executed, and, therefore, all the pretences and allegations contained in his answer that the existence of it was on that or any other occasion studiously and fraudulently concealed from him by Maclary, could in turn be stigmatized with more truth and justice, as both false and fraudulent. But even, if that had not been the case, he was bound to know, and would be presumed both in law and equity to have known, that there was such a judgment, and particularly of a judgment recovered in his own favor; and if he had not in point of fact known of it at that time, it would have been his own fault, and the fault of his attorney in the suit, and not the fault of his adversary in that as well as in this suit that he was not informed of it, whatever might have been his motive in such a case for withholding the information from him. So, of the execution and the levy upon it, for it was his own process, and he was bound to know of it.

The rules in equity as to fraudulent misrepresentation or concealment, were too familiar and well settled to admit of any dispute or misapprehension in regard to them. A misrepresentation being proved, the first rule is that it must appear to have been material, and that it did actually induce, deceive and mislead the party complaining of it, to his loss and injury in regard to the matter misrepresented. And a fraudulent concealment must be of something which the party withholding the information of it, was bound in equity and good conscience to make known to the other, but which he has not done to his like substantial detriment or injury. Adam’s Equity 397. 1 Story’s Eq. Jur. Sec. 191. But if Reznor was for any reason whatever entirely willing, and even anxious, to accept from Maclary alone after the failure and insolvency of the firm of which he was one of the members, one thousand dollars in full of his liability on the two notes, long before any of the alleged misrepresentations were made by him, and also long before the alleged concealment complained of as fraudulently practiced by him on Reznor, tried by the rules of equity which he had just stated, how could it be made to appear that he was in effect induced or misled by either of them, to his loss, or injury, if he made in the end no greater deduction in his demands after such alleged misrepresentations and concealment, than he was perfectly willing to make long before the occurrence of them ? To his own apprehension the inconsistency of his subsequent dissatisfaction and eager demand for more money, was susceptible of but one explanation only, and that was that he had always been entirely content in his own mind, even up to time of the settlement and when it was made and concluded between them, to accept from Maclary one tlious- and dollars in full satisfaction of the notes, so far, at least, as he was concerned, and all the dissatisfaction which he had since experienced and exhibited on the subject was but a change of mind and the result of a subsequent discovery entirely, when he learnt as he very soon after did from his attorney, what a good opportunity he had just missed of making him pay the whole amount of both the notes.

Fulton, replied.

Gilpin, G. J.,

announced the opinion of the court affirming the decree of the Chancellor. The contract of settlement between the .parties of which the receipt and release was a part, was an executed contract for the purposes for which it was entered into, and so far as it pertained to the extinguishment of the notes and the judgment recovered upon them against the complainant. And besides, it does not appear from any thing disclosed in the bill and answer, or in the facts proved or admitted in the case, even admitting all the misrepresentations made by him to Reznor, and the concealment of the judgment, execution and levy from his knowledge, to be all that they are alleged to have been by the respondent, that the latter was induced, or led by them to accept from Maclary one thousand dollars in full payment of the two promissory notes which he held against him and his former partner, Ridgely, amounting together to fifteen hundred dollars, because he had himself voluntarily offered in their first meeting together about the matter, and before any such misrepresentations had been made to him by Maclary, to settle them with him on that same basis. And it is but a matter of fair presumption to suppose upon all the facts disclosed in the case, that he continued of the same mind and disposition, and was ready and willing at any time afterward to settle them with him on that basis, until the settlement was so actually made between them on the 10th of November 1869, some six months after he had himself first proposed it to him. And we think this presumption is warranted - by the fact that when he came to settle the notes with him on that basis that day, he required Maclary to pay, in addition to the one thousand dollars, his costs of suit on the notes and attorney’s fee which had in the meantime been incurred by him on account of them. The decree in this case is, therefore, affirmed.