
    Thomas Nelson, Respondent, v. Edward S. Hatch, Appellant, Impleaded with Lyman E. Warren.
    
      Attorney and client -r- contingent fee — agreement by a third person with the attorney to pay the disbursements of the action and share in the recovery —failure of the attoi’ney to perform the latter agreement—measure of damages where the com- ■ plaint in the action to which the contract related was dismissed.
    
    Hatch & Warren, a firm of attorneys who were engaged in prosecuting an action under an agreement with their client, which provided that the firm should fur- ■ nish the personal services of Warren-, pay the expenses of the litigation and receive thirty per cent of the proceeds, entered into a contract with one Nelson, by which the latter, in consideration of one-half of Hatch & Warren’s share of the .proceeds, agreed to advance §10,000 to the attorneys-for the purposes of the litigation, the first §5,000 to be advanced by a specified time and the second §5,000 to be advanced in such sums as might be desired by Hatch & Warren.
    After Nelson had advanced §7,000 under his contract, Hatch & Warren refused to advance moneys necessary to the diligent prosecution of the action, although they had in their hands funds applicable to that purpose. They also demanded of Nelson an additional payment of §1,000 under the contract when the expenses of the litigation did not necessitate such a demand, and upon his refusal to comply therewith notified him that the contract was terminated: Thereafter Warren withdrew from the firm and refused to take any further part in the conduct of the litigation. Hatch subsequently procured the action to be tried (but not by Wafren), and it resulted in a judgment that the client had no'cause of action.
    In an action brought by Nelson against Hatch & Warren to recover damages for a breach of the contract,
    
      
      Held, that Nelson’s failure to pay the §1,000 demanded by Hatch. & Warren did not justify them in electing to terminate the contract, as he was not obliged to pay the second §5,000 upon the arbitrary demand of Hatch & Warren, but only when the proper conduct of the litigation required it;
    That the refusal of Hatch to apply the money advanced by Nelson to the diligent prosecution of the action, and the attempted cancellation of the contract because of Nelson’s failure to pay the §1,000, and the refusal of Warren to perform his contract with the client, constituted a breach of the contract with Nelson, and absolved the latter from the necessity of continuing to perform it; That it could not be successfully contended that the measure of the plaintiff’s damages was the benefit to him of having the contract performed, and that as the action to which the contract related had resulted in a judgment of no cause of action the plaintiff’s damages were purely nominal;
    That, as the contract had been rendered impossible of performance by the action of the defendants, this rule of damages did not apply, and that, under the circumstances, the plaintiff should be permitted to recover the moneys which he had advanced under the contract and the expense which he incurred in connection therewith.
    Ingraham, J,, dissented.
    Appeal by the defendant, Edward S. Hatch, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 24th day of July, 1901, upon the report of a referee.
    In 1891 Lilyon B. Daniels, who claimed to be the widow of William B. Daniels, entered into an agreement with the firm of Hatch & Warren, attorneys, by which that firm, in consideration of a contingent fee of thirty per cent of the proceeds, agreed to prosecute an action on her behalf to establish her rights as widow in her alleged husband’s estate. Hatch & Warren agreed, among other things, to furnish the personal services of Lyman E. Warren and .to advance all moneys necessary for the prosecution of the claim.
    After the execution of this agreement Hatch & Warren entered-into a contract with one Nelson, by which the latter, in consideration of one-half of Hatch & Warren’s interest in the recovery, agreed to advance $10,000 for use in prosecuting the action.
    The action is brought to recover damages for the breach of the latter contract.
    
      William Rumsey, for the appellant.
    
      Thomas Darlington, for the respondent.
   Hatch, J.:

When this case was before this court upon the former appeal, it - was held that the action was one to recover damages for a breach of the contract, the subject of the action, and it having been determined by the referee before whom it was tried that it was an action to rescind the contract, we reversed the judgment and ordered a new trial. (56 App. Div. 149.) Upon the new trial, the plain tiff has recovered judgment for the damages demanded in his complaint.. The facts which appear upon the present trial are not essentially different from those which appeared upon the first trial, and as they have been fully stated in the case as reported upon that appeal, it is not essential that we again restate them in detail.

The. obligation which the plaintiff assumed by the terms of his Contract was to advance for the purposes specified therein the sum. of $10,000, $5,000 of which was to be paid to Hatch & Warren between March 1, 1891, and May fifteenth of the same year, and of the remaining $5,000 it was to be advanced in such “ sums as may. be desired by the parties of the first part,” but no sum greater in amount than $1,000 of the last $5,000 at a time should be required to be paid by the plaintiff, and he was entitled to a notice of thirty days of an intention to draw such sum. Taking into consideration the object sought to be accomplished by the contract and the purpose of the parties thereunder, it is evident that it was contemplated that the first $5,000 .would create a fund, by virtue of which- the, defendants would be enabled to make necessary advances for the diligent prosecution of the action, which had then been begun and was pending in Colorado. We think the fair, construction of this contract, relating to the- payment to be made by the plaintiff thereunder, required the payment of the $5,000 within the time expressly stipulated, but that the second $5,000 was not required to be paid upon the mere arbitrary desire of Hatch & Warren, but that it: intended to provide that as the necessity of the ■ litigation required, Hatch & Warren had the right .to demand of the plaintiff payment of the additional $5,000 in sums of $1,000 each as should be required for the diligent prosecution of the action, and unless such sums were required for that purpose, there was no right upon .the part of Hatch & Warren to demand the same and no obligation on the part of the plaintiff to pay the same, although demand was made therefor, unless it was required to discharge proper obligations in connection with the prosecution of the action.

Concluding that this is the proper construction of this contract, the testimony is to be examined for the purpose of seeing if Hatch & Warren, or either of them, was guilty of any acts which constituted a breach of the same prior to the plaintiff’s refusal to make further payments thereunder, and whether he was excused from so doing. The testimony is undisputed that prior to November 23, 1891, the plaintiff had paid to Hatch & Warren the first $5,000 within the stipulated time, and had also advanced, upon the demand of the defendant Hatch, $2,000 of the second $5,000. At this time it appeared without dispute that the action brought by Mrs. Daniels was pending in the Colorado court and that the same, by reason of default in taking the proper proceeding and necessary steps, was in a condition where it could be dismissed, and was only saved from such result by the consideration and stipulation of the attorneys for the defendant therein ; that the reason for this condition rested in the fact that the attorneys representing Mrs. Daniels in Colorado had not been-furnished with sufficient funds to enable them to take the proper and necessary steps in protection of Mrs. Daniels’rights therein. . Of these facts the defendants were informed by the attorneys in Colorado, and one of them, Mr. Donnolly, had a personal interview with the defendant Hatch and requested that he make payment in the sum of $500 in order that such attorney might proceed with the action. Hatch refused at that time to make payment of such sum, or any other, and only paid in immediate' connection with the lawsuit, a small sum for clerk’s fees, and declined to pay more. As appears by the books of Hatch & Warren, there had been paid out up to and including the 30th day of September, 1892, the sum of $2,148.95. This sum was made up in part of $200 in cash for some undisclosed purpose, $423.04 to Warren and $1,0'T5 to Mrs. Daniels. There was at this time in the hands of Hatch, of the payments made by the plaintiffs herein, $4,851.05, ■ and there was no immediate pressing necessity for the advance of this sum at that time. On the contrary, a small proportion only was necessary to relieve the default of Mrs. Daniels in her action and for the orderly prosecution of the same. Under such circumstances, it is perfectly clear that it was the duty of Hatch & Warren to make the necessary advances; and.that the plaintiff could not be called upon to pay further sums until there was a necessity therefor. This being the .relative condition of the. parties at this time, Mr. Hatch*,, under date of thó '27th of February, 1891, made a demand, upon'the plaintiff for a. further payment of $1,000. The plaintiff was excused, from ■making this payment.and could not be-played in default, by refusal to.comply with the demand "for two. reasons, first, .there was no right in the defendants to demand the payment, under the terms of ■the contract, and, second, the plaintiff after the demand saw the ■défendant Warren and was informed by him that the money was not then wanted, and.that he need not make the payment at that time. In the face of. this condition, however, the defendants, under date of November 23, 1891, wrote that the plaintiff .was .in default by failing to pay the last sum demanded, and that.by reason thereof the contract with him. “ is canceled-—-has becomevoid and' of no further effect.” It is clear, therefore, that Hatch & Warren oh that date were guilty of a clear breach of the contract. First, for the reason that the defendant Hatch, who had the custody of the money, had refused to advance'the same for the'purposes for which it had been paid, and ■such refusal was in violation of the terms of the contract; second, for the reason that in violation- of its terms and when the plaintiff . was not in default, they notified him that they canceled the same and. elected'to treat it as: void and of no effect. These acts constituted. clear breaches of the contract by the defendants, and the plaintiff, by reason thereof, was absolved from a further fulfillment of the same.

The latter act constituting the breach is averred in the complaint as one of the grounds for the maintenance of this action. The complaint does not in terms aver a breach of the contract in the refusal by Hatch to pay the money as necessity required for the proper prosecution of Mrs. Daniels’ action. The' evidence, however, of such breach was given and stands undisputed in the record, and no objection was taken that it . was not admissible under the complaint; consequently, it may be considered by this court, and the ■complaint be deemed to be amended in order to give effect to the proof - as nobody is prejudiced or misled thereby. (Drexel v. Pease, 37 N. Y. St. Repr. 166; Bate v. Graham, 11 N. Y. 237.) It seems clear, therefore, that a breach of this contract was established by undisputed proof prior to the time when Warren withdrew from the prosecution of the action. But we are also of the opinion that this .action in withdrawing and refusing to perform his contract with Mrs. Daniels constituted a breach of the contract with . the plaintiff, and that by reason of it the latter was absolved from further fulfillment of its terms. The contract between the parties to this action is to be construed in connection with the contract between Hatch & Warren and Mrs. Daniels. By the terms of the latter, it was stipulated that Mrs. Daniels should have the personal service of Warren in the conduct of the litigation. It is clear that it could not be fulfilled in conformity with its terms unless Warren gave his personal service. The consideration for the plaintiff’s contract was the assignment of one-half of the interest possessed by Hatch & Warren therein; consequently, the plaintiff had the right to demand that that contract be fulfilled according to its terms. It may well have been the personal service of Warren in the conduct of that litigation, which was the inducing cause of plaintiff’s executing the" contract and entering into the engagement which he made. He was entitled to insist that it be performed in accordance.with its terms, and Hatch & Warren had contracted with him that it would.be so performed. The only way in which Hatch & Warren could avoid this result would be by the plaintiff’s consenting that it be otherwise performed. It was competent for him to waive performance by Warren; it was within his right to insist upon it. It is clear that he never waived any of his rights and at all times stood upon the fulfillment of the contract which he made. The defendant Hatch had no right to insist that the plaintiff accept performance by any other person. It may be his misfortune that without his fault Warren withdrew from the fulfillment of the contract and thereby made it impossible for him to perform the same, but the plaintiff is not to be prejudiced in any of his rights by such fact, nor can Hatch complain of such result because the plaintiff stands insisting upon his legal rights in the premises. It is entirely immaterial to any question which concerns the legal rights of the parties to this action that Hatch subsequently procured Mrs. Daniels’ lawsuit to be tried and conducted with vigor and skill. That was no concern of the plaintiffs as such act was not in fulfillment of the terms of his contract and he was not- bound to •accept the same as performance. Under date of October 1,. 1892, the plaintiff notified the defendants of their breach of the contract and ■demanded a return of the money which he had paid thereunder! At this time Hatch was in default under the contract in failing to advance the moneys as required thereby and his letter to the plaintiff canceling the same remained of record, unrevoked, and it was after that time that Hatch attempted to make fulfillment of the contract with .Mrs. Daniels. In no view, therefore, upon the undisputed proof, •can we escape the conclusion that Hatch and Warren were both guilty of a breach of the contract with the plaintiff at the time when he made his demand for the return of the money paid thereunder, and elected to treat the contract as terminated on account of the defendants’ breaches of the same. This was clearly within his legal rights, and by reason of the then condition he became entitled to have and recover such damages as he had sustained which might be properly recoverable.

It is earnestly insisted, however, that if there was a breach of the contract, névertheless, the proof shows that no damages beyond such ás are nominal have been sustained by the plaintiff. It is the claim of the learned counsel for the defendant Hatch that the measure of ' plaintiff’s damages is the benefit to him of having the contract performed,” and that this constitutes the measure of damage. On this hypothesis the claim is advanced that the actual result showed that Mrs. Daniels in fact had no cause of action or right in her husband’s estate, and that, therefore, the plaintiff could by no possi- ' Ibility take anything of advantage under his contract. It may be ■conceded that such rule of damage is the true rule if the means ■exist by which the measurement can be" applied. The rule, however, fails as applied to this action, for the reason that by the defendants’ acts the contract never could be performed, in consequence of which all basis for the measurement of damages upon any consideration of result which might have flowed therefrom is futile, and under such circumstances application of the rule is rendered impossible. In Friedland v. Myers (139 N. Y. 433) an action was brought for a breach -of contract in the lease of a building for a special purpose. The court held that ordinarily in case of lease the measure of damage would be the difference between the rent reserved and the actual value of the lease, but- that the damages were not limited to that sum, and the lease being for a special purpose, proof of damage under the rule would be practically impossible of ascertainment, and that á recovery could be had for other damages that were the proximate effect of the breach of the covenant so far as they were not speculative or uncertain .in character, and might be deemed to be within the fair contemplation of the parties when the lease was made and might have been foreseen as a, consequence of a breach of the covenant." The plaintiff therein was permitted to recover for his actual and necessary expenses incurred in preparing for the occupation of the premises, and that such item-properly embraced architect’s fees in making drawings for cases, counters and other necessary features required in the business, it appearing that this work was.done with the knowledge and assent of the defendant, and that his conduct throughout was such as to invite the expenditure. To the same effect is ' Bernstein v. Meech (130 N. Y. 354). That was an action to recover damages for the breach' of .a theatrical contract, where the compensation of the plaintiff was ■ to be fifty per cent of the gross receipts realized from the performances to be given. It was impossible to. determine what those' receipts would have been, and plaintiff was permitted to prove his expenses .in preparing for the fulfillment of the contract.. Hr. Justice Bradley, writing for the court, said: “ His loss also consistéd - of the expenses by him incurred to prepare and provide for such performance. While the plaintiff was unable to prove the value in profits of his contract, he was properly permitted to recover the amount of such loss as it appeared he had suffered by the defendants’.breach.” This rule has been uniformly recognized. (Dickinson v. Hart, 142 N. Y. 183.) The present case falls within the same principle. Here it was impossible to establish what the plaintiff’s damages were or would have been had the contract been fulfilled as it was rendered absolutely impossible of performance. But the plaintiff was permitted to prove the moneys which he advanced, and the expense which he incurred in connection with it." These defendants had knowledge of such expense and extent of the same because they received the money. Consequently the case falls squarely within the rule of the cases we have cited.

There is no other question which requires consideration. It follows, therefore, that the judgment should be affirmed, with costs.

Yak Brunt, P. J., O’Brien and Laughlin, JJ., concurred; Ingraham, J., dissented.

Ingraham, J. (dissenting):

. I am unable to concur in the affirmance of this judgment. The contract between the plaintiff and the defendants was made on the 27th day of February, 1891. By it the plaintiff agreed to pay under certain conditions $10,000, and in consideration thereof the defendants' sold, assigned, transferred and set over to the plaintiff an undivided half interest in and to a contract theretofore executed. between one Lily oh B. Daniels and the defendants, and of any and ■ all moneys and property that the defendants may derive or receive under said contract, except disbursements. The contract between the defendants and Daniels was annexed to the contract between the the plaintiff and the ' defendants, and by that contract Daniels assigned and transferred to the defendants thirty per cent of her undivided share of, and of her claim, right, title and interest in and to, certain property which had belonged to one W. B. Daniels, deceased^ and in or to any claim or chose in action against the said W. B. Daniels, or his estate; the defendants agreed to prosecute the claim of the said Lilyon B. Daniels against the estate of W. B. Daniels and to furnish “ the personal services of the said Lyman E. Warren, at any and all times when it shall be necessary, or when reasonably requested by the party />f the first part so to do.” This agreement also provided that the defendants, who were attorneys and . counselors at law, “ must assume to and do make provision for obtaining the money for the payment of any and all disbursements, that may be required by them and for carrying out this contract so long as they undertake and continue in the prosecution of the matters contemplated by the terms of this agreement. And the parties of the second part (defendants) shall have the right at any time to withdraw from the provisions of this agreement, and in such event shall be entitled to a lien upon the interests of the party of the first part in and to any of the real or personal estate in which she shall have.an interest as the widow of the. said W. B. Daniels to the extent of the disbursements of cash that shall have been obtained, advanced or loaned or paid out by the parties of the second part for the purpose of carrying out this contract.” This contract between Daniels and the defendants being annexed to the contract between the plaintiff and the defendants, the plaintiff is chargeable with knowledge of its terms.

It seems that in the year 1892 the defendants dissolved partnership as the result of a dispute. Whereupon Warren wrote to Mrs. Daniels a letter dated September 29, 1892, as follows:

“ The firm of Hatch & Warren has been dissolved. Under the provisions of the contract made with Hatch & Warren the said Hatch & Warren shall have a right at any time to withdraw from the provisions of that agreement. I hereby withdraw from the provisions of that agreement and declare the same terminated and ended. Very truly,
“LYMAN E. WARREN.”

On the thirtieth of September Mrs. Daniels wrote a letter to the defendants stating that she had received the letter from Warren, and that “in consequence of this letter and the refusal of Mr. Hatch and of Mr. Warren to carry out their contract I hereby notify you that such contract is annulled and terminated. I further notify you that from this date you cease to meddle with my affairs in any way, and to do any further act or thing either for or against me in this matter, as I have made other arrangements for transacting my business. " Very truly,

"“Mbs. L. DANIELS.” ,

In answer to this letter the defendant Hatch wrote to Mrs. Daniels acknowledging its receipt, claiming that Warren did not have the right to declare her contract terminated; and that Hatch & Warren had advanced a considerable sum of money' under the terms and conditions of the contract and were ready to do and perform all the terms and conditions of the contract. Nothing further seems to have been done by Hatch & Warren under the contract to the 10th day of February, 1893, when this action was commenced. Assuming, as we must, that this action was to recover the damages sustained by a breach of the contract between the plaintiff and the defendant, and assuming that there was evidence to justify a finding that there, had been a breach of their contract with Mrs. Daniels,' prior, to the commencement of the action, the, substantial question is. as to the measure of damages to which the- plaintiff was entitled. It- was proved without objection that subsequent to the commencement of the action the defendant Hatch, with the consent of Mrs. Daniels, did prosecute the action brought by Mrs. Daniels to recover her interest in the property of W. B. Daniels, deceased; that that action; was tried in the year 1893 and resulted in the defeat of. Mrs. Daniels^, and a judgment was entered which was subsequently affirmed.on appeal. . It was thus established that. Mrs. Daniels had no claim, against the estate of .W. B.. Daniels which was the subject-matter of the assignment by Mrs. Daniels to the defendants,, which Could be, enforced.. There.was no express obligation-in the contract between, the plaintiff and the defendants that the defendants would narry out the contract with Mrs. Daniels and continue to act for her in the prosecution of these claims. The plaintiff seems to have been willing to pay his money upon a transfer to him of one-half of. the amount.that the defendants would receive under their contract with Mi's. Daniels. So far- as I can see, the only agreement that the-defendants made with the plaintiff was that, they would act in. good, faith in carrying out the contract beween themselves and Mrs. Daniels and realize as much as possible in-their conduct of the prosecution of her claim against the estate of W. B. Daniels. Assuming that this, contract was broken and that Hatch & Warren failed to carry out that implied agreement, the damages that the plaintiff sustained in conse-. quénce of the breach of that undertaking was the amount that he could shqw that he would have received in case the agreement had been carried' out; but it seems to me that the plaintiff has failed to establish that any amount, could have been recovered upon the claim of Mrs. Daniels against the estate of W. B. Daniels, or that the plaintiff was entitled to more than nominal damages. It is true that Warren refused to take part in the prosecution of the claims against Mrs. Daniels, and that the contract with Mrs. Daniels provided that the defendants would furnish the personal services of Warren at any and at all times when it should be necessary or when reasonably requested by Mrs. Daniels, but so far as appears Mrs. Daniels never requested the defendants to furnish the services of Warren after his withdrawal from the firm; and she subsequently consented to Hatch’s proceeding to conduct the litigation with, his partner, Hr. Wickes, and such services were subsequently actually rendered and the claims prosecuted. Upon what basis it can be said, that the plaintiff sustained any damage by reason of any of the breaches of the contract relied upon I am unable to see. Nothing has ever been realized upon these claims, and- upon this record it must be assumed that • the claims were without foundation and of no value, and what the plaintiff obtained by his assignment was one-half interest of the defendants in certain claims which were not enforcible and from which nothing has been realized. Basing this action as it must be based upon a claim for the damage sustained in consequence of a breach of the contract by the defendants, it seems to me that the evidence conclusively established that the plaintiff sustained no injury by such a breach, as his interest in the contract between Mrs. Daniels and the defendants was valueless ; that nothing has ever been received, by them and no recovery has ever been had upon the claims of Mrs. Daniels of which the defendants were entitled to receive thirty per cent, one-half of which was assigned to the plaintiff.; This contract, between the defendants and Mrs. Daniels was one which upon its face was void for champerty, and the plaintiff, who is a lawyer, must be chargeable with knowledge of that fact. He paid his money upon the chance of obtaining an interest in a recovery, if one was had, upon Mrs. Daniels’ claims. As a consideration for the payment of that money he obtained an interest in a contract which could not be enforced, and which the subsequent events have shown to be of no value, and having made such a contract with his eyes open and taking the chances of a recovery of a large sum of money if the speculation had succeeded, I can see no reason why the court should interfere to allow him to recover back what he had paid, the speculation that he entered into having been unsuccessful.

I think the judgment should be reversed.

Judgment, affirmed, with costs.  