
    Amzi L. Barber, Appellant, v. George H. Kendall, Respondent.
    
      Rescission of a contract — suffering a judgment by default, based upon a contract, precludes, not as a bar, but by Ms acquiescence therein, a party from alleging that the contract was procured by fraud.
    
    In an action brought to rescind a contract under which the plaintiff conveyed to the defendant certain real estate, and to compel a reconveyance of the real estate upon the ground of fraud, the defendant answered denying the fraud, and also set up as a bar a judgment between the parties recovered by the plaintiff under the following circumstances: By the contract, made between the parties in September, 1890, the plaintiff agreed to discharge, before July 1, 1893, a mortgage on the lands conveyed by him, which he did not do, and in December, 1898, the defendant in the present, action brought an action against' the present plaintiff to compel him to do so, in which action the present plaintiff interposed an answer, admitting the agreement, charged that it was procured by fraud and prayed that it he decreed to be fraudulent and that it he canceled. Upon the trial of that action the defendant therein did not appear, and judgment was entered directing him to pay off the mortgage, which he subsequently did.
    The main question in the present action was whether the former judgment was a bar to this action, and it was decided that it was so.
    
      Reid, that the judgment in the first action was not a conclusive adjudication upon the issue of the defendant’s fraud; that the judgment having been obtained by default, the matters embraced in such issue had not been expressly litigated and determined;
    That as the plaintiff had asserted in his answer to the former action the same charges of fraud that he now made in the complaint in the present action, he, by acquiescing in the judgment in the former action, affirmed the contract and lost Ms right to subsequently rescind it (Bartlett, J., dissenting);
    That if a party defrauded elects to rescind a contract he must do so promptly after discovering the fraud, and if, with knowledge of the fraud, he to any extent carries out the contract or receives a benefit under it, Ms election is made and Ms right to rescind is gone.
    Appeal by the plaintiff, Amzi L. Barber, from a judgment of the Supreme Court in favor of the defendant, entered in the office of the clerk of the county of Richmond on the 6th day of August, 1895, upon the decision of the court rendered after a trial at the Richmond Special Term dismissing the complaint upon the merits.
    
      Wiles <& Johnson and William W. Wiles, for the appellant.
    Tyler, Pratt c& Hibbard and Charles A. B. Pratt, for the respondent.
   Cullen, J.:

This is an appeal from a judgment of the Special Term dismissing the plaintiff’s complaint on the merits. The action is to rescind a contract under which the plaintiff conveyed to the defendant certain real estate, and to compel a reconveyance by the defendant to the plaintiff, on the allegation that the plaintiff was induced to enter into the contract by false and fraudulent representations made by the defendant. The defendant answered denying the fraud, and also set up as a bar to the action a judgment between the parties, recovered by the plaintiff under the following circumstances: By the contract between the parties, made September 27, 1890, the plaintiff agreed to pay off and discharge, on or before July 1; 1893, a mortgage on the lands conveyed by him for the sum of $8,000. The plaintiff failed to pay off this mortgage, and in December, 1893, the defendant brought an action against the plaintiff to compel the latter to specifically perform his covenant in this respect. The plaintiff interposed an answer admitting the agreement, but charging that the contract was procured by fraudulent representations on the part of the defendant, and praying as relief that the contract be decreed fraudulent and void, and be canceled. The cause was brought on for hearing on the issues, and the defendant in that case failing to appear, judgment was entered that he specifically perform the contract, and pay off the mortgage, with which judgment he subsequently complied. When the present action came on for trial, to save time, the parties .agreed that the court should first determine whether the action was barred, or could be maintained, and that if the court held that it was not barred, the trial should then proceed. On this issue, the court decided in favor of the defendant, and the judgment appealed from resulted from that decision.

The respondent alleged in his answer, and maintains on this appeal, that the judgment first recovered is a conclusive adjudication on the issues of fact as to the fraud. We think this proposition incorrect. The general rule as to the estoppel of a former adjudication is well settled, and, so far as it is relevant to this case, is probably best stated in Pray v. Hegeman (98 N. Y. 351) : “ The estoppel of a former judgment extends to every material matter within the issues which was expressly litigated and determined, and also to those matters which, although not expressly determined, are comprehended and involved in the thing expressly stated and decided, whether they were or were not actually litigated or considered. * * * Whatever is expressly implied in the former decision is, for the purpose of the estoppel, deemed to have been actually decided.” In the first suit between these parties the issue of fraud was not tried or determined, for the plaintiff here failed to appear on the trial.

The question then is whether the defendant’s recovery necessarily negatived the plaintiff’s claim of fraud. Fraud, it is said, vitiates all contracts, still it does not make them void, but simply voidable, at the election of the party defrauded. The recovery of the first judgment necessarily affirmed the existence of the contract sued on, and also that the contract was, at the tune of rendering the judgment, a valid obligation binding upon both parties. This, however, is entirely consistent with the fact that the contract was induced by the defendant’s fraud. A contract remains a contract until it comes to an end; in the form of a truism, it is binding throughout its life. It is binding then until it is rescinded, unless it is terminated in some other way, * * * but fraud would not prevent it from coming into existence, and, of course, could not terminate it. * * * It is the allegation of the fraud in repudiation of the contract that constitutes the defence; that is, it is the rescission of the contract which constitutes the defence to the action; the fraud is only the ground of the rescission,” (Bigelow on Fraud, 78.)

So, also, it is elementary law that in case of a contract induced by fraud, the party defrauded has his election of remedies, and may either affirm the contract, and bring his action for damages, or may rescind the contract. Till rescinded, the contract is in full force and effect. Nor do we think that the fact that the plaintiff, in his defense in the first action, alleged fraud, increased the effect of the judgment. His defense, practically, was an equitable counterclaim to rescind the contract, and could have been the subject of an affirmative action on his part. His failure to appear on the trial could have no greater effect than the dismissal of his complaint, for the same reason, in his own suit in equity (Freeman on Judgments, § 270), or his total failure to defend the action.

Though the estoppel of the prior judgment is stated in the decision to be the ground of the dismissal of the plaintiff’s complaint, a reference to the opinion of the learned trial judge will show that he placed it on no such ground. He substantially held that the plaintiff, having asserted in his answer the same charges of fraud that are now made in his complaint, by thereafter acquiescing in that judgment, affirmed the contract and lost his right to subsequently rescind it. We are somewhat embarrassed in the disposition of this question from the fact that the decision signed by the justice does not proceed on that ground, probably from the inadvertence of the attorney in drawing it, and also by the terms of the agreement under which the case was tried in piecemeal, and which are possibly open to differences of construction We think, however, it was the intention of the parties that, if the first action and the judgment therein would for any reason, whether as an estoppel or otherwise, preclude the plaintiff from successfully maintaining the action, then judgment. should be rendered for the defendant without further proof.

In our judgment the position taken by the trial judge in his opinion was correct. If a party defrauded elects to rescind a contract he must do so promptly after discovering the fraud, and if with knowledge of the fraud he in any measure carries out the contract or receives a benefit under it his election is made and his right to rescind is gone. (Cobb v. Hatfield, 46 N. Y. 533.) “The party defrauded, by performing his part of the contract with a knowledge of the fraud, is deemed to have ratified it and is precluded thereby from subsequently disaffirming it,” though still retaining his right to damages for the fraud. (Whitney v. Allaire, 4 Den. 554.) Hence, if the plaintiff, after knowledge of the fraud, had voluntarily paid off the mortgage, he would have unquestionably lost his right to rescind. While we can find no direct authority in point, we cannot see why on principle it was not as much his duty to resist compulsory compliance with the terms of the contract, as it was to refrain from voluntary compliance. His duty on discovering the fraud was to repudiate the contract when and wherever it might be asserted, whether in hostile litigations against him or in proceedings on his own behalf. We do not see-that any oral evidence could have been given which would abrogate the election to affirm the contract which the pleadings in the earlier action showing plaintiff knew of the fraud, and the judgment therein necessarily imported, and, therefore, the judgment appealed from should he affirmed, with costs.

All concurred, except Bartlett, J., dissenting.

Bartlett, J. (dissenting):

I agree with Judge Cullen that the judgment in the former action was not a bar to the maintenance of the present suit. It seems to me, however, that the plaintiff’s acquiescence in that judgment is not so clearly established as conclusively to deprive him of the right to rescind. While he complied with the judgment, he may be able to show that he did so under circumstances of compulsion which prevent that compliance from being in any real sense an election on his part. I think a new trial should be granted;

Judgment affirmed, with costs.  