Opinion
Argued October 17, 1894
Decided October 30, 1894
Isaac H. Maynard for appellant. John A. Straley for respondent.
The judgment in this case awards equitable relief to the plaintiff, rescinding and declaring void for fraud a written contract made by the parties on the 16th day of March, 1891. By this contract the defendant sold to the plaintiff for $3,000 his business, fixtures and other property, including three upright pianos in his store or place of business in the city of New York. The plaintiff went into the possession of the store and the goods, having paid $2,500 of the purchase price, and soon after ascertained that he had been induced to enter into the contract and make the payment by means of grossly false and fraudulent representations as to the character and value of the property and the extent and magnitude of the business which the defendant transferred to him and the income therefrom. The fraudulent acts and representations of the defendant which induced the plaintiff to purchase and pay for the property are fully alleged in the complaint, and found by the court upon evidence entirely sufficient. In view of these findings we must assume, upon the consideration of the appeal, that the defendant in negotiating the sale deceived and defrauded the plaintiff. The judgment annulled the contract and directed the defendant to restore to the plaintiff the portion of the purchase price which was paid. In this state of the case there would be no question for our consideration, except for a peculiar clause which was inserted in the written instrument, which is the evidence of the terms and conditions of the sale, at the request and upon the suggestion of the defendant. That clause reads as follows: "It is expressly understood and agreed between the parties hereto that the said party of the first part has not, in any manner or form stated, made or represented to the said party of the second part, for the purpose of inducing the sale of the said business or the making of this agreement, any statements or representations, verbally or in writing, in respect to the said business other than that the said party of the first part has been engaged in the piano business in the city of New York since 1867."
It is urged by the learned counsel for the defendant that, as this stipulation was inserted in the writing, which is under seal and assented to by both parties, the action cannot be maintained. I assume that the fact that a seal was unnecessarily affixed to an agreement for the sale of personal property cannot affect the rights of the parties. Every defense is open to either party that would have existed in case the writing was unsealed. It appears that after the negotiations had been completed and the agreement drawn, the defendant stated, in the presence of the plaintiff, and the counsel for both parties present, that he wanted a clause of this character inserted. The plaintiff's counsel at first objected to it. The defendant's counsel suggested that it would make no difference, and the plaintiff consented that it might be put in. There is evidence in the case tending to show that the plaintiff voluntarily assented to this stipulation after having been advised by his counsel that it would have the effect of precluding him from subsequently alleging fraud in the transaction, even though it existed in fact. This provision is not a covenant in any proper sense of that term. Indeed, it can scarcely be considered as any part of the agreement at all. It does not relate in any manner to the subject-matter of the contract. It was a mere statement in the nature of a certificate as to a fact. It did not relate to the property or to the terms of the sale or the payments, but to the absence of all fraud from the transaction. The clause cannot be given any greater effect than if it had been written upon a separate paper after the execution of the contract and signed by the parties. The question now is whether it can be given the effect claimed for it by the learned counsel for the defendant, to preclude the plaintiff from alleging fraud in the sale and pursuing in the courts the remedies which the law gives in such cases. It cannot operate by way of estoppel for the obvious reason that the statements were false to the defendant's knowledge. He may, indeed, have relied upon its force and efficacy to protect him from the consequences of his own fraud, but he certainly could not have relied upon the truth of any statement in it. A mere device of the guilty party to a contract intended to shield himself from the results of his own fraud, practiced upon the other party, cannot well be elevated to the dignity and importance of an equitable estoppel. If the clause has any effect whatever, it must be as a promise or agreement on the part of the plaintiff, that however grossly he may have been deceived and defrauded by the defendant, he would never allege it against the transaction or complain of it, but would forever after hold his peace. It is difficult to conceive that such a clause could ever be suggested by a party to a contract, unless there was in his own mind at least a lingering doubt as to the honesty and integrity of his conduct. I assume that there is no authority that we are required to follow in support of the proposition that a party who has perpetrated a fraud upon his neighbor may, nevertheless, contract with him in the very instrument by means of which it was perpetrated, for immunity against its consequences, close his mouth from complaining of it and bind him never to seek redress. Public policy and morality are both ignored if such an agreement can be given effect in a court of justice. The maxim that fraud vitiates every transaction would no longer be the rule but the exception. It could be applied then only in such cases as the guilty party neglected to protect himself from his fraud by means of such a stipulation. Such a principle would in a short time break down every barrier which the law has erected against fraudulent dealing. It is argued that whatever may be said about the fraudulent character of the sale itself, this particular clause was a bargain fairly made and deliberately entered into by the plaintiff, with full knowledge of its purpose, scope and effect, and, therefore, the plaintiff should be held to abide by it. But it is not correct to say that even with respect to this clause the parties dealt with each other at arms length. The defendant, when suggesting it, had the advantage of his secret knowledge, that its statements were false, while the plaintiff, on the other hand, relying upon the truth of the representations made as to the extent and character of the business, was not upon his guard, but, assuming that the defendant had told him the truth, was readily induced to sign a statement which, upon such assumption, was obviously of no consequence. In fact it was but a link in the chain and the crowning act which was to secure to the defendant the full fruits of the fraud and thus enable him not only to overreach the plaintiff, but the law itself. This clause cannot be separated from the transaction in which it originated. It is tainted with the same vice and must share the same condemnation. As the chain can be no stronger than its weakest link, so this clause cannot be made to survive the rest of the transaction as a shield and protection to the defendant. I have not thought it necessary to cite authorities in support of these views, but cases are not wanting which by analogy, at least, sustain them, and by an application of the principles decided to the facts here, the foregoing propositions are legitimately deduced. ( Wilcox v. Howell, 44 N.Y. 398; Shapley v. Abbott, 42 id. 443; Hutchins v. Hebbard, 34 id. 24; Universal Fashion Co. v. Skinner, 64 Hun, 293; Crawford v. Lockwood, 9 How. Pr. 547; Kneettle v. Newcomb, 22 N.Y. 249; Broom's Legal Maxims, 622; Bigelow on Est. [4th ed.] 563; Smyth v. Munroe, 84 N.Y. 361; State v. Smelting Co., 106 U.S. 447.)
Much of the argument in support of the appeal rests upon the proposition that the defendant would not have assented to the sale without this clause, and as the plaintiff obtained such assent only by acquiescing in its insertion in the writing, he ought not now to be permitted to question it. Without inquiring what the result would or ought to be in case this assumption was correct, it is sufficient to observe that no such fact is found, and in the sense in which the defendant claims, it could not have been found from the testimony. While at the end of the transaction he did suggest that the clause should be inserted, and perhaps insisted upon it, yet to say that he would not have made the sale under the same circumstances without it, had the plaintiff refused his assent, is to assert a proposition that finds no support in the facts and circumstances of the case. No doubt the defendant wanted this provision in the contract, but the terms and conditions of the sale had been settled before it was suggested, and it was manifestly intended as a possible safeguard against the result of misrepresentation rather than a bona fide condition of the sale.
The judgment is right and should be affirmed, with costs.
All concur.
Judgment affirmed.