
    Rose M. Urtz, as Administratrix, etc., of Richard M. Urtz, Deceased, Respondent, v. The New York Central and Hudson River Railroad Company, Appellant.
    Fourth Department,
    March 9, 1910.
    Fraud—release procured by fraud—remedies — action on original claim without rescinding release or tendering restitution — Statute of Limitations.
    One who has been induced by fraud to execute a release of a cause of action has three remedies: (1) He may rescind the agreement and prosecute the original ^ claim, but in. that case the money received for the release must be returned or tendered before action; (3) he may affirm the compromise agreement, retain the money received under it and recover damages for the fraud; (3) he may ask a rescission in equity, offering in the complaint to restore the money received if not entitled to retain it.
    A plaintiff who was induced by fraud to release a cause of action for negligence, and without rescinding the release or returning the money received, tries his action against the defendant as one for the original negligence, cannot recover although the complaint was based solely upon the theory of fraud. ■
    Irrespective of the defect aforesaid, an action for the original negligence cannot be maintained where two years had expired since the death of the party injured so that the Statute of Limitations had run.
    
      It seems, that in an action for fraud the plaintiff is not under the burden of showing that the claim compromised was valid.
    Appeal by the defendant, The New York Central and Hudson River Railroad Company, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk" of the county of Lewis on the 25 th day of June, 1909, upon the verdict of a jury for $2,500, and also from an order entered in said clerk’s office on the 4th day of May, 1909, denying the defendant’s motion for a new trial made upon the minutes.
    
      Henry Purcell, for the appellant.
    
      F. B. Pitcher, for the respondent:
   Williams, J.:

The judgment and order should be reversed and a new trial granted, with costs to the appellant to abide event.

The action was brought to recover damages for fraud in the compromise of a claim for. damages, resulting from the death of plaintiff’s intestate, caused by the negligence of the defendant. The compromise was made between the plaintiff and the claim agent of the defendant, one McCormick. The fraud alleged consisted of various statements made by McCormick.

The intestate was killed while driving a team across defendant’s tracks April 9,1906. McCormick, on hearing of the accident, wrote the widow expressing sympathy for Her misfortune and saying he would call upon her.in a few days and would then be able to advise her what could be done. He investigated the accident and reported it fully to Dwyer, chief claim agent of the defendant, among other things saying the widow claimed $10,000 for the death of her husband and the loss of the team, and advising the payment of $2,250 to the widow. The letter to the widow and the report to Dwyer bear the same date, April 12, 1906. Five day's later; April seventeenth, McCormick telegraphed Dwyer, asking what action was to be taken, and saying that attorneys were trying to get the case. Dwyer replied he, McCormick, might negotiate settlement on the best terms he could up to the amount he recommended in his report of April 12, 1906. The next day, April 18, 1906, McCormick called on the widow, told her he had not yet looked up the matter, was going to try to get the company to pay all he could, ■but did not know how much that would be. He had her make petition and bond for appointment as administratrix, which he had prepared, and' on April 20, 1906, she was duly appointed; "Without having any further negotiations with the widow, April 21,1906, he wrote Dwyer that lie had settled with her for $2,250 and inclosed a voucher to be approved of and signed by the officers of the company (and later by the widow), saying a Syracuse lawyer was after' the case and asking Dwyer to forward check' for the $2,250 as soon as possible.

The voucher received by Dwyer was duly approved and executed in behalf of the company, and April 27, 1906, a check for the money payable to the widow’s order, with the- voucher, was sent. McCormick. About April' 30, 1906, McCormick called upon the : Widow and then stated to her that he had investigated the accident and learned that her. husband was drunk at the time; that he was told before going on the track that the train was ■ coming, and to look out for it, and replied that he could take care of himself; that a train, could be seen by him before going on the track for half a mile either way; that the train was going about eight miles an .hour; that all signals were given ; that the company was not liable for the accident; that the team and wagon were worth about $300, -and as the defendant wanted to be liberal with her, he would pay her $500; that if she did not take that sum she would have to go to law and it would b.e several years before she got anything, and that the lawyers would take it all anyway. And then he counted down $500 in cash and urged her to accept it'. She, though demurring, finally accepted the money and executed the release. McCormick' forged the widow’s name on the check for $2,250, indorsed his own name on it, and put it to his own credit in his bank, and it was subsequently paid by the bank on which it was drawn. McCormick thus appropriated $1,750 of the money to his own use. He sent the papers back to the company and they understood the settlement had been made for the $2,250. The matter rested in this way for over two years, and then the company discovered what had really been done in this and many other settlements made by McCormick. He was indicted, pleaded guilty and was sent to prison for this and other transactions of a like nature and is now serving his term. The widow learned the real facts also as a result of the prosecution of McCormick and brought this action.

The plaintiff had the choice of three remedies to establish what she claimed to be her legal rights.

First. She could rescind the compromise agreement and prosecute her original claim for negligence, but in that case she must before action begun return or tender back the money received by her, the $500.

Second. She could affirm the compromise agreement, retain the money received under it, and seek to recover damages for the fraud.

■Third. She could seek in equity to rescind the compromise agreement, and ask for equitable relief, offering in her complaint to restore the $500 if she was not entitled to retain it.

She elected the second remedy, and brought her action to recover damages for fraud, without returning the money received, the $500. Her complaint set out all the facts, and demanded judgment purely and simply upon this theory. If the trial had been conducted, and the recovery had upon the cause of action set out in the complaint, very likely the result would have been proper within the cases of Gould v. Cayuga County Nat. Bank (86 N. Y. 75 and 99 id. 333). (See Duquette v. N. Y. C. & H. R.R. R. Co., 137 App. Div. 412.)

There the plaintiff elected the first of the above remedies, and ’ was defeated upon the sole ground that he had not returned or tendered back the money received under the compromise agreement.

■ The court held expressly that there could be no rescission of the compromise agreement without such return or tender back, and so, long as that agreement stood it discharged forever the original contract and extinguished all right to any..balance due upon it. The plaintiff then brought a second action, electing the second of the above remedies, and the Court of Appeals held he could recover.

If this case had been tried and submitted to the jury on the ■theory of the second Gould case, it might be well to consider whether the facts were such as to entitle plaintiff to .recover under the law. laid down'in those cases, but it was. not so tried. It was tried as an action for the original negligence. It was so submitted to the jury and the recovery, was based upon that theory. There could be'no recovery upon such a basis for the reason above stated, and also because this action was not commenced within two years after the decedent’s death, and was, .therefore, barred by the Statute of Limitations. (Code Civ. Proc. § 1902.) Under the guidance of the trial court the plaintiff proceeded to give evidence of the accident and death tending to show the death was the result of the defendant’s negligence ; that the intestate was not guilty of contributory negligence, and the damages resulting to the widow and next of kin from his death, and the defendant gave its evidence relating to these issues. Evidence Was also given as to the settlement, the release and the alleged fraud practiced by McCormick in securing the compromise agreement. After counsel had summed up, thé court charged the jury and,.at the very beginning of the charge, stated that the action was brought to recover damages for the death of the intestate, and further- along said: “ The plaintiff can recover at your hands a verdict, if she shows to you by affirmative evidence that her husband met his death without any fault upon his part, and that the acts of commission or omission on the part of this defendant were the direct cause of the death complained of; and in addition to that, if she further shows that this settlement or release was obtained of her through' fraud and imposition, then she can recover * * * for damages, which I will charge you hereafter that she may he entitled to.” The court then discussed all these issues of negligence and fraud, and finally said: “ If you should find that this release is not operative, that this settlement was obtained by fraud, and also find ■* * * that the deceased was not guilty of negligence, * * * and that this defendant was guilty of *"* * negligence * * * which was the direct cause of the injuries and death, * * * then you- should reach the question of damages.”

The charge, then, as to damages was not damages' occasioned by the fraud, but those allowed under the statute (Code Civ. Proc. § 1902 et seq.) for the death of the intestate; that is, upon the original cause of action, which had been compromised, and upon the settlement of which the plaintiff had received the $500. At the close of the charge in- chief, the defendant took exceptions thereto, and especially to the statement in effect that if the case was one for a verdict in plaintiff’s favor as an action of negligence the plaintiff would not be deprived of her right to recover by the release if it was procured by fraud; in other words, that if the release was procured by fraud it was no bar to this action at law. upon the original cause of action — compromised — there having been no return en-tender back of the money received under the compromise agreement. Later, the court said with reference to the damages: “If you find a verdict in this case for the plaintiff you can make it $500 less than what you would [otherwise] make it. If you say you find a verdict for so much, why you can take $500 from it, so that the defendant cannot be injured by that performance; that is, through the release of their agent, who was unfaithful to them.”

There was also an exception to the charge that damages under the statute might be awarded for the death of the intestate. There is no escape from the proposition that this trial proceeded upon the theory of prosecuting the original cause of action, the release being-avoided by the finding of fraud in obtaining it. This cause of action, as we have already seen, could not be maintained so long as the compromise agreement stood, and it could only be gotten rid of by rescinding.it and returning or tendering back the money received under it, and this must be done before the action was commenced.

The trial cannot be sustained as a recovery for damages for the fraud in securing the release, because the question of damages for such fraud was hot submitted to or found by the jury. The theory of damages for such fraud may be appreciated by reading the opinion of Judge Finch in the second Gould case from which I quote, viz.: “ The $25,000 [the amount paid under the compromise agreement] obviously * * * was the agreed value of a disputed right of action, but an agreed value won out of Grould by a false and fraudulent statement of the facts upon which such value depended. If no falsehood had been told him that value would have been greater in his judgment and so in his demand as a term of the compromise made; and that such value was fixed at $25,000, and'no more was the direct product and result of the fraud. * *. * Gould did not ‘receive just what he contracted 'for,’ but contracting for the fair value of his disputed claim was induced by fraud to accept less than that fair value, and ^ * * he does ‘seek by this action to have that consideration made equal’ to what it would have been had no falsehood been told him. * * * There having been no rescission of the compromise agreement, that' must stand, and it discharges forever the original- contract and extinguishes all right to any balance due upon- it. * * * Such damages will compensate the fraud as make the compromise, which is to stand, an honest and fair one, instead of a dishonest and fraudulent one. . Damages which leave it to stand but purge it of ■ fraud are what should be recovered. What the. plaintiff sold and the defendants bought was not a conceded but a disputed claim. * * * Upon a false statement of the facts material to the probabilities of success, and so affecting vitally the value of the disputed claim in the compromise negotiation, the plaintiff was induced to take $25,000 for his resisted demand. If there had been no fraud, how much more would he have got in the compromise ? When we know that, we know the loss and can measure the indemnity. * * " A dispute ending in a compromise implies mutual concession and loss borne by each-party, and if the compromise is honest and fair, the loss thus resulting is beyond recovery by either against the other. But that portion of the loss of one which is put - upon him in excess by the fraud of the other, and is due solely to that fraud, may be recovered. * * * That, there is difficulty in ascertaining these damages is true, an'd much must be left to the sound judgment and good common sense of a jury, but that often occurs in actions ex delicto. ' The result will be that the plaintiff, affirming the compromise agreement and unable to recover the contract balance, is entitled in accordance with the general rule to have such compromise agreement made as good for him as it reasonably and fairly would have been if -only the truth had been told instead of a , falsehood asserted: When that is done the loss due to the fraud, and that only, is recovered; the true value of the disputed claim and not the false value; and so not at all the extinguished contract balance.” The rule where the action is for damages for fraud in the compromise agreement is made so plain by these quotations that it cannot be mistaken. I have quoted as briefly as possible and refer to report itself for a more detailed statement of the language used.

Of course, we can readily see that no such question of damages as- this was submitted to the jury in this case. The verdict was for $3,000, less $500, or $2,500. To recapitulate: This action was brought to recover damages for fraud in a compromise agreement. As such an action it very likely could have been maintained. It was tried, however, as an action of negligence, and submitted to the jury as such, the compromise agreement being found by jury fraudulent and void, and, therefore, no bar to a recovery upon the original cause of action, the one compromised.

This form of action could not be maintained, because the compromise agreement was not rescinded and money returned thereunder or tendered back before the action was brought. While the agreement remained unrescinded the original cause of action was absolutely discharged, and no action could be maintained thereon, and by reason of the Statute of Limitations. And certainly the action and trial could not be sustained as one for damages for fraud in the compromise agreement, because no such question of damages was submitted to or passed upon by the jury.

I further suggest. The court held no action could be maintained without proof by plaintiff of a valid claim to be compromised. This can hardly be true. All the plaintiff had to do was to prove that an accident occurred, a death resulted and then that a claim of liability on the part of the defendant was made.

It was a disputed, resisted claim that was compromised, not necessarily a valid claim. A compromise involved an uncertainty as to whether the claim could be enforced. If certainty existed a compromise would not ordinarily be made.

All concurred.

Judgment and order reversed and new trial ordered, with costs to appellant to abide event.  