author: Davies, J. Mullin, J. Hogeboom, J.

text:
    John C. Smith v. William Countryman.
    If new matter set up in an answer as a defense is sham, or irrelevant, it is the duty of the plaintiff to move, on notice, to strike it out. If the new matter does not, upon its face, constitute a defense, the plaintiff should demur to it. He can not move, at the trial, to strike it out, on the ground that the facts stated do not constitute a valid defense to the action.
    A judge has no power to strike out pleadings, on the trial. All objections to the pleadings should be decided before the circuit.
    An executory contract for the sale of personal property, entered into upon false and fraudulent representations made by the purchaser, to induce the vendor to make the same, and upon the truth of which representations the latter relied, cannot be enforced. Whatever facts would enable a party to avoid a contract, are equally available to enable him to defeat one sought to be enforced against him.
    Upon a negotiation between 0. and W. for the sale by 0. of his crop of hops, W., to induce C. to sell him the hops, represented that he had purchased E.’s hops for the price of twelve and one-half cents per pound. 0. was ignorant of the price of hops, and was reluctant to sell; but relying upon this representation of W., and believing the same to be true, and having confidence in the prudence and judgment of E., he entered into an agreement with W. to sell him' his hops for twelve and one-half cents per pound. The statement as to the purchase of E.’s hops by W. being untrue; Held, that 0. was at liberty to refuse to fulfill the contract, on discovering the fraud, and that the law would not subject him to dam- . ages for the breach.

      Held, also, that in an action against C. for a breach of his agreement to deliver the hops, evidence of his belief in the representations made by W., as to his having purchased E.’s hops, and that he entered into the • contract relying on that representation, was properly received, and that the court did not err in refusing to strike out such evidence as being immaterial and constituting no defense.
    Any representation that affects the price of an article, in regard to which one party places confidence in the other, will, if relied on, and is false, and the party trusting to the representation is injured, render the contract void. Per Muliix, J.
    A vendor of property may put upon the purchaser the’ responsibility of informing him correctly, as to the market value, or ajyr other fact known to him, affecting the market price of the property, and if the purchaser answers untruly the purchase will be void, by reason of the fraud. The purchaser is not bound to answer, in such a case; but if he does, he is bound to speak the truth. Per Mullin, J.

      Appeal from a judgment of the Supreme Court in the fourth judicial district.

    The action is to recover damages for the breach of a contract to deliver a quantity of hops. The defendant agreed in writing with one H. R. Wood to sell and deliver to him, at the railroad depot at Fort Plain, all his crop of hops for the year 1860, put up in bales and delivered in good merchantable order, on the 20th of October in that year. Wood was to receive and pay for the hops twelve and a half cents per pound. The defendant’s crop that year amounted to 3,409 pounds. Wood -was ready and willing to receive and pay for them at the time and place agreed upon. The defendant neglected or refused to deliver them. Such hops were proved to have been worth, at the time they were to be delivered, thirty cents a pound; and the difference between the contract price agreed to be paid for them and the value at the time and place of delivery was $596.57, and which the plaintiff claimed as damages for the breach of the contract. The contract had been assigned to the plaintiff. The defendant set up, by way of defense, in his second answer, that, at the time of making the contract, he was ignorant of the price of hops and reluctant to make the agreement. That Wood represented to him that he, Wood, had purchased the crop of one Henry Elwood, a large and experienced hop-grower, at twelve and one-half cents per pound, and that he, the defendant, believing such statement, and having faith and confidence in the sagacity, prudence, and judgment of Elwood, entered into such agreement. He then alleges that the statement of Wood that he had purchased Elwood’s hops was false and fraudulent; ■ was made to deceive and defraud the defendant; and that, by such false and fraudulent representation, he, the defendant, was actually deceived and induced to enter into such agreement, which was very disadvantageous, as hops were then worth more than twelve and one-half cents per pound; and that, immediately thereafter, there was a great rise in the price of hops. On the trial, .the agreement was proved; the price of hops, at the time the delivery was to be made by the terms of the agreement, was twenty-eight to thirty cents per pound. The agreement bore date August 14th. The price of hops on that day was shown to be from twelve to twelve and a half cents per pound. Upon this proof the plaintiff rested his case, and the defendant moved for a non-suit, which was denied by the court, and the defendant’s counsel excepted. The plaintiff then moved to strike out the second ground of defense, above stated, for the reasons that the facts therein stated did not constitute a fraud; and that, if the representations were made as set forth in the answer, they were immaterial and constituted no defense to the action. The court denied the motion, and the plaintiff excepted. The defendant was then permitted to prove, and' did prove, the facts as set forth in the answer, except the averment therein that, at the time of the execution of the agreement, hops were worth more than twelve and one-half cents per pound, by himself and other witnesses, named Miller and Cronkhite. And it also appeared from the testimony that, at the time of the negotiation, Wood showed the defendant his book, wherein he had entered several contracts made by him with hop-growers for their crops at twelve and one-half cents per pound. That Elwood’s name was not on the book among those with whom contracts had been made. Wood was also sworn, and testified that he told the defendant that he expected to purchase Elwood’s crop of hops; and it was admitted on the trial that Wood had not purchased any hops of Elwood. The plaintiff moved to strike out the evidence given by the defendant and Miller and Cronkhite, so far as the same related to the representations made by Wood of the purchase of Elwood’s hops, as being immaterial and constituting no defense to the action; which motion was denied, and the plaintiff excepted. The defendant had testified that he had said to Wood, if, what he, Wood, had said was so, in regard to Elwood’s hops, he would enter into the contract with him. The defendant then added: “I did believe .the representa tion made that he had purchased Elwood’s hops.” Thi answer was objected to by the plaintiff’s counsel a improper and immaterial; bnt the objection was overruled. and the plaintiff’s counsel excepted. The defendant then testified, without objection, that he entered into the contract relying on that representation, and that, soon afterwards, ho ascertained its falsity. The jury found a verdict for tb defendant, and the judgment entered therein was affirmed at the general term. The three exceptions taken by the plaintiff on the trial to the rulings of the court, present the only questions arising for the consideration of this court upon this appeal.

      A. Hees, for the appellant.
    I. The court erred in refusing to strike out the evidence of the defendant, and Miller and Cronkhite, as well as refusing to strike out the second defense set forth in the defendant’s answer, for the reason that neither of then» constitute or establish a fraud, or constitute a defense to the action.
    1. Admitting the representations testified to by the defendant Countryman and Miller, that he had purchased Ellwood’s hops at twelve and a-half cents per pound, if was simply the declaration what a third person had done, which was no reason why he .should do the same thing, and therefore does not constitute a fraud, or fraudulent representation to avoid a contract. Chancellor Kent, in his Commentaries (vol. 2, 8th ed. p. 634), says: “ The cases have gone so far as to hold that if the seller should even falsely affirm that a particular sum had been bid by others for the property, by which means the purchaser was induced to buy, and was deceived as to the value, no relief was to be afforded; for the buyer should have informed himself, from proper sources, of the value; and it was his own folly to repose on such assertions, made by a person whose interest might so readily prompt him to invest the property with exaggerated value. Fmptor emit quam mínimo potest; venditor vendit quam máximo potest.” On page 635: “The same principle was laid down in a late case in the K. B., where it was held that a false representation ■ by the buyer in a matter merely gratis dictum, in respect to which the buyer was under no legal pledge or obligation to the seller for the precise accuracy of his statement, and upon which it was the seller’s own indiscretion to rely, was no ground of action.” (See also Vernon v. Keys, 12 East Rep. 632; See. also Story’s Equity Jurisprudence, 4th edition, § 199; Davis v. Meeker, 5 John. R. 354.) Fraud is a question of fact for a jury, where there is any evidence tending to establish it. But whether the evidence tends to establish fraud or not, is always a question of law for the court. (Erwin v. Voorhees, 26 Barb. 127.) The authority relied upon by the defendant, on the trial, against striking out the evidence of the defendant, Miller and Cronkhite, will be found in 20th W. Y. R. 32 (Valton et al. v. The National Fund Life Assurance Company). The note is as follows: “A policy of insurance is avoided by a fraudulent representation in respect to a fact not material to the risk, if, in the judgment of the insurer, it be material in respect to inducements to undertake the risk.” It was upon this authority the learned judge who tried the cause denied the motion. It is insisted that the law of contracts of insurance and contracts of sale is different, and rests on different principles. The parties do not deal, in that instance, on the presumption of equal knowledge and vigilance as to the subject matter of the contract, and hence a different rule of law prevails. The insurer is essentially passive, and is known to act, and professes to act, upon the information of the assured. In an insurance contract, the special acts, as Lord Mansfield has observed (Carter v. Boehm, 3 Burr. R. 1905), upon which the contingent chance is to be computed, lie most commonly within the knowledge of the insured only. “The underwriter trusts to his representations,” and proceeds upon the confidence that he does not keep back any circumstance within his knowledge. (Lindenau v. Desbrough, 8 Barnw. & Cres. 386.) Though the suppression should happen through a mistake, without any fraudulent intent, the policy is void. The contract of insurance is formed upon principles peculiar to itself, and the common law maxim, caveat emptor. has no application. (See note, 2d Kent’s Com. 8th ed., p. 637; See also 3d Kent’s Com., 8th ed., 351 to 363— the law upon contract of insurance.)
    2. The false and fraudulent representations claimed to have been made by Wood, are immaterial, and constituted no fraud or defense to the action, as the evidence given on the part of the plaintiff shows that twelve and a half cents was the market price, and the highest price paid for hops by any one at the timp the contract was made; and the representations made, as insisted upon by the defendant, that he had purchased Ellwood’s hops at twelve and a half cents, that being the market price, and the highest price paid, and no evidence being offered or introduced by the defendant showing that hops were worth more than twelve and a half cents, worked no injury to the defendant, as he was receiving the highest market price for his hops.
    3. The representation of Mr. Wood that he had purchased Ellwood’s hops at the same price that he agreed to pay the defendant (to wit: twelve and a half cents per pound), was not such a false and fraudulent representation as to avoid the contract, as there was no misrepresentation as to market value or price paid. (See cases above cited.)
    4. There can be no fraud without damage, and the evidence shows the defendant was receiving by the contract the highest market price at the time the contract was made, and consequently he sustained no injury. In the case of Harris v. Ransom, (24 Miss. Rep. 504), the court say: “A party seeking to avoid a contract upon the ground of fraud, must not only prove the fraud, but that he has sustained injury from it.” Again, Coke, J.,'in 3 Bulstrode’s Reports, 952, says: “ Fraud without damage, or damage without fraud, gives no cause of action.” (See Note C, 2 Kent’s Com. 8th ed. 638.)
    5. The defendant can not now avail himself of the false representations made by Wood as to the purchase of E11-. "wood’s hops; as the proof shows' Ellwood was a near neighbor to the defendant, and he was bound to exercise ordinary prudence and discretion. The means were within his control to ascertain the truth or falsity of the representations; and if he failed to acquire such information, the failure is attributable to his own neglect and want of ordinary prudence as to those representations. (Davis v. Sims & Bates, Lalor’s Sup. to Hill & Denio, 235.) In such a case the rule, caveat emptor, emphatically applies. (Starr v. Bennett, 5 Hill, 303, 304, 305 and 306; White v. Seaver, 25 Barb. 242.) In the case of Van Epps v. Harrison (5 Hill, 67), which was for a false representation' as- to the situation of a farm, within ten hours’ ride of the plaintiff, Chief Justice Bronson says: “It will seem marvelous, if not wholly incredible, to those who did not live in the years 1835 and 1836, that men should purchase lands within ten hours’ ride of their residence, and agree to pay $32,000, without ever having taken the trouble to look at the property.” And again, on the same page, he says: “He trusted to the representations of the plaintiff in relation to the condition of the property, and the only question is whether the defendant must charge the loss upon his own folly, &c. The credulity of the defendant furnishes but a poor excuse for the falsehood and- fraud of the plaintiff, and he will have no just cause for complaint if he is held responsible for his misconduct.” The same doctrine is held in White v. Seaver (25 Barb. 235, 242); see also, Tallman v. Green (3 Sand. R. 441 and 442.)
    H. The court erred in admitting the evidence of the defendant: “I did believe the representations made that he had purchased Ellwood’s hops.” (Rich v. Jakway,
      (18 Barb. p. 357; Murray v. Bethune 1 Wend. 191, see page 196.)
    III. The defendant alleges, in his answer “that, by such false and fraudulent representations, he was actually deceived and induced to enter into said agreement, which was a very disadvantageous one, as hops were then worth more than twelve and a half cents per pound.

    1. This allegation would seem to be the gist of the whole answer. No evidence was given by the defendant to prove the truth of this portion of the answer; but, on the contrary, the sum of twelve and a half cents, the price agreed upon, was the highest market price; consequently, the agreement was not a disadvantageous one, as alleged in the answer, and this is the real injury complained of by the defendant.
    2. The defendant, in his answer, also alleges: “That he relied upon the representations of Wood that he had purchased Ellwood’s hops, who was a large and experienced hop-grower of that town, and that he had faith and confidence in the sagacity, prudence and judgment of said Ellwood, and was, therefore, induced to enter into said' agreement. This allegation is unsupported by any evidence given by the defendant. On the direct examination of the defendant, he testifies: “Ellwood had grown hops one year.” Jn his cross-examination he testifies: “In 1860 it was the first year that Ellwood grew hops ”—the same year the contract in this action was made. The defendant testified: “If Mr. Ellwood had sold his hops for six cents, I think I would have sold mine; if he had sold his hops for three cents, I think I would have sold mine.” It is submitted that the defendant presumes much upon the credulity of the court when he .alleges that he relied upon the skill, prudence and judgment of a man who never had, at the time the contract was made, grown a single pound of hops, and there is no evidence that Ellwood ever bought or sold any hops whatever. The defendant himself testified that he (the defendant) had been a hop-grower for six years, and was well qualified to judge of the market value of hops; and that Ellwood’s skill and prudence, which he claims he relied upon, in that respect was no better than that of any other ordinary individual, who had never grown or bought or sold any hops.
    IV. His Honor, Justice James, in his opinion to sustain the judgment below, says: “ The jury having found for the defendant, the questions of fact presented by the issues must be regarded as settled in favor of the defendant.” His honor passes over, without remark, that those very issues were given to the jury under exceptions taken by the plaintiff.
    1. On motion of the plaintiff to strike out the second defense set up in the defendant’s answer, for the reaso:, that the facts therein.set forth do not constitute a fraud.
    2. That if the representations were made as set forth in the defendant’s answer, they are immaterial, and constituir4 no defense to the action.
    3. In admitting the evidence of the defendant, “ / entered into the contract, relying on that representation;- “ I did believe the representation made, that he had pui chased Ellwood’s hops,” which was objected to by th*> plaintiff’s counsel, and overruled by the court, to whicf, ruling the plaintiff, by his counsel, then and there excepted . Justice James, in his opinion, has fallen into another erroi. He says: “The defendant at first declined, and to induce him to contract, Wood asserted that one Ellwood, an extensive hop grower, and a person in whose judgment and opinion Wood Imew the defendant had great confidence, had contracted with him,” &c. The case shows an entirely different state of facts. Ellwood was not an extensive hop grower; that was the first year he ever grew hops, and so the defendant testified. The case shows Wood was a stranger to the defendant, and also a stranger to Ellwood, nor did Wood know that the defendant knew Ellwood, or that he, Ellwood, was a near neighbor to the defendant,, until the time of making the contract. The defendant examined Wood’s book containing the names of the persons with whom he had purchased hops, and with the prices; so the defendant testified. His honor cites the case of Watson v. Palson (7 S. & E. 585), as authority to show “if a man • tell an untruth, knowing it to be such, who acts accordingly, and thereby sustains damage, the party making the false statement is liable for the deceit, even though he intended no fraud in making the representation.” Also the case of Pollhill v. Walter (3 B. & Ad. 114), holding the same doctrine. That principle is so familiar that it hardlyneeded areferen.ee to those authorities, but, unfortunately for his honor,, those authorities do not reach the case in hand. There was no misrepresentation as to price; the defendant got the highest market price for his hops, and consequently sustained no damage. •

      S. & R. Earl, for the respondent.
    I. The evidence, as to the defendant’s belief in the truth of Wood’s representation that he had purchased Ellwood’s hops, objected to by plaintiff, was competent, and the exception was not well taken, (Seymour v. Wilson, 4 Kernan, 567; Pope v. Hart, 35 Barb. 630; Bush v. Lathrop, 22 N. Y. 549, 550; Griffin v. Marquardt, 21 N. Y. 121; Forbes v. Waller, 25 N. Y. 430.)
    II. The exceptions to the refusal of the court to strike out the second defense in the answer were not well taken.
    1. A party cannot properly, at the circuit, without any prior notice, move to strike out any portion of a pleading. This defense was not sham or irrelevant within the meaning of section 152 of the code; and, if it was irrelevant, the motion to strike it out should have been brought on on notice. The remedy of plaintiff, if the alleged fraud constituted no defense, was to demur, under section 153 of the code. The plaintiff not having made such motion nor demurred, the pleading must stand as part of the record.
    2. The evidence of the defendant and of Miller and Cronkhite, which the plaintiff moved to strike out, was taken without objection. Hence the court had no right to strike it out. If the court had the right, it was not bound to do it; it was a matter of discretion. (Hall v. Earnest, 36 Barb. 585.) Hence we submit that none of the plaintiff’s exceptions were well taken; and, as this court cannot look into the evidence to see if the verdict was warranted by it, the judgment must be affirmed.
    III. But if the main question is here for review, then we submit that the fraud alleged and proved was such as to avoid the contract and constitute a defense to the action.
    1. Frauds are of infinite variety, and it is impossible to lay down any general rule as .to what representations will avoid a contract, which will cover all cases. Each case will depend upon its own circumstances. (2 Parsons on Contracts, 266; Chitty on Contracts, 681.)
    2. For the same reason it is impossible to reconcile the decided cases involving questions of fraud and the numerous dicta on the subject of fraud that are to be found in the books.
    3. The general rule, founded in natural justice and equity, is that a party has the right to avoid a disadvantageous executory contract, which he has been induced to enter into by the false and fraudulent representations of the other party. To this rule there are some exceptions.

      (a-.) It is said that the representations must be material. This is undoubtedly true. But all representations must be deemed material upon which a party relied and by which he was induced to enter into the contract; and whether the representations were material or not is generally a question of fact for the jury.
    (5.) It is said that the representations must be such as the party had the right to rely upon, and in which he had the right to repose confidence. This must depend upon the circumstances of each case.
    (c.) The representations must not be as to a fact that is equally open to the observation and inspection of both parties; for, as to such facts, it is said that both parties are presumed to act upon their own judgment^md information. Under this exception would come representations as to defects open to ordinary observation and inspection or discoverable by ordinary prudence, and as to márket value in cases where the knowledge of it is equally accessible to both parties.
    4. In this case the defendant brings himself within the rule qualified by all these exceptions.
    (a.) The representations were false.

      (b.) They were made with intent to deceive and defraud,
    (c.) They were material, inasmuch^ as they were relied > pon and induced the defendant to sign the contract. As ' -e was not posted as to the price of hops and the hop trade, ke had the right to rely upon the judgment and skill of bmother person whom he believed to be posted. They were representations, in one sense, affecting the value of hops and the chances of the defendant to make a favorable sale.

      (d.) The defendant had the right to rely upon the representations because they were as to a fact peculiarly within the knowledge of the person making them, and he had the tight to repose faith and confidence in him, because he asked him for the truth and informed him that he contracted relying upon what he said.
    (e.) The representations were of a fact not equally known-to both parties. Neither did both parties have equal facilities for learning or knowing the existence of the fact. The truth could only be learned from Wood or from Ellwood. It was not a fact like market value ordinarily accessible to all. It was a fact which the defendant could only learn by inquiry, and he- exercised all the prudence and foresight which the law requires, by inquiring of and relying upon Wood. He might not have been able to learn tho truth elsewhere. Besides, Wood refused Him time to inquire elsewhere, and thus compelled him to rely upon his representations as to the fact.

      (/.) The representations threw the defendant off from his guard, and prevented him from making inquiries, as to the price and value of hops, which he otherwise would have made.

      (g.) The defendant was not in fault for not ascertaining the falsity of Wood’s representations before he contracted,' because Wood, in order to perpetrate his fraud more effectually, refused' to give him an opportunity to see Ell wood.
    (/¿.) Suppose Wood had falsely said that he had just received a telegram that the market price for hops in New York was twelve and one-half cents per pound only, when in fact it was fifteen cents; or, suppose he had falsely said that the hop quotations in the New York papers for that day, which the defendant had not seen, were twelve and one-half cents per pound, when, in fact they were fifteen cents, and he had refused to give the defendant time to learn the truth as to his representations, and the defendant had been, by such representations, induced to enter into a contract at twelve and one-half cents, could it be said that such representations were not material, or that the defendant had no right to repose confidence in them ?
    (*.) The defendant was damaged by the representations, as he was induced by them to enter into a very disadvantageous contract. It matters not that he was to have the market value of hops at the time he signed the contract, as the contract, if valid, deprived him of the market value at the time he was to deliver them.
    5. Hence we say that the court below, in holding that the misrepresentations complained of constituted a legal fraud which rendered the contract void, violated no principle of public policy or rule of law. (Chitty on Contracts; 1 Parsons on Contracts, 461; 2 Parsons on Contracts, 264, et seq.; Story’s Eq. Ju. secs. 192, 200; Risney v. Shelby, 1 Salkeld, 211; Palsey v. Freeman, 3 T. R. 57; Watson v. Poulson, 7 Eng. Law and Eq. 585; Laidlow v. Organ, 2 Wheaton, 123; Benton v. Pratt, 2 Wend. 385; Sanford v. Handy, 23 Wend. 259, 268; Starr v. Bennett, 5 Hill, 303; Taylor v. Fleet, 1 Barb. 471; Bench v. Sheldon, 14 Barb. 66; Newbery v. Garland, 31 Barb. 121, 130; White v. Merritt, 3 Seld. 352, 356; Bronson v. Wiman, 4 Seld. 182; Haight v. Hayt, 19 N. Y. 464; Valton v. The National, &c. Assurance Co., 20 N. Y. 32, S. C. 17 Abb. 268; Hill v. Bush, 19 Arkansas, 522; Harwood v. Gould, 28 Vt. 524; Ives v. Carter, 24 Conn. 392; Pennock v. Filford, 17 Penn. 456; Oldham v. Bently, 6 B. Monroe, 428; Weatherford v. Fishbeck, 3 Scam. 170; Medbury v. Watson, 6 Metcalf, 246.) It is submitted, therefore, that the judgment should be affirmed.
   Davies, J.

If the new matter set up by the defendant; as constituting a defense, was sham or irrelevant, it was the duty of the plaintiff to have moved on notice to strike it out. (Code, § 152.) If the new matter did not, upon its face, constitute a defense, it was the duty of the plaintiff to have demurred to it. (Code, § 153.) The practice resorted to in this case, to correct the pleadings by motion at the trial is not warranted by the code, and should not be encouraged. The plaintiff, in substance, by his motion to strike out the second ground of defense, admitted the allegations of the answer, and the question was presented to the court in the same form as if he had demurred to the answer. A moment’s consideration will show how incongruous and inconvenient it is to reserve questions of law for argument and decision at the circuit. But assuming the question was properly raised there, then it is to be considered whether the new matter, set up in the answer, upon its face constituted a defense to the action. And the question to be decided is in substance the same, whether it is put on the motion to strike out that defense, or upon the motion to strike out the testimony which was given to establish it. In the first place it is to be borne in mind that the plaintiff in this action is seeking to enforce an executory contract, made and entered into by the defendant, as conceded by him, upon false and fraudulent representatioiis made by the plaintiff’s assignor, to induce him to make the same, and upon which it was admitted he, the defendant, relied. The statement of the proposition would seem sufficient to suggest the answer which the law should make. In the aspect we are now regarding the case, we are to take the statements of the defendant’s answer as true. They are that he was ignorant of the price of hops, and was reluctant to make the agreement with Wood, the plaintiff’s assignor; that Wood, to induce the defendant to sell him his hops and enter into the agreement, represented that he had purchased the hops of one Ellwood, a large and experienced hop grower, for the price of twelve and one-half cents per pound; and that, relying upon such representation, and believing the truth thereof, and having confidence in the prudence and judgment of Ellwood, the defendant entered into the agreement. That hops were, at that time, worth more than twelve and one-half cents per pound; that such representations were false and fraudulent, and made with the intent to deceive and defraud the defendant. It is now urged that it was the folly of the defendant that he relied upon these representations of Wood; that it was his duty to have made inquiry of Ell-wood, to ascertain the truth of the representations, before he entered into the contract. In other words, the defendant should have assumed that Wood’s statements, if not untrue, were at least doubtful, and that he is to suffer for having given them credence, while the party knowingly making the false representations is to reap the fruits of his fraud, because the party dealing with him did not distrust him. It was well observed by the court, in Van Epps v. Harrison (5 Hill, 63), that the credulity of the defendant furnishes but a poor excuse for the falsehood and fraud of the plaintiff, and the latter will have no just ground of complaint if he is held responsible for his misconduct. That was an action upon a bond given upon a sale of land by the plaintiff to the defendant, and as a defense to the action the defendant set up that the plaintiff falsely and fraudulently represented to him that he had just purchased nnd paid $32,000 for the land, when in truth he had paid but $16,000. And the court was of the opinion that the false affirmation concerning the price paid for the land furnished a good defense to the action.

It is true, as contended for by the counsel for the appellant, that the fraud which will vitiate a contract must be 1 aaterial, and that it must relate distinctly and directly to the contract, and must affect its very essence and substance.' Parsons, in his work on contracts, (2 Parsons, 267,) observes that there is no positive standard by which to determine whether the fraud be thus material or not, but that no better rule for deciding the question can be given than this: v If the fraud be such that, had it not been practised, the contract would not have been made or the transaction completed, then it is material to it.” Applying this rule to the case at bar, in the aspect we are now considering it, and the materiality of the representation is placed beyond all question. The defendant says: that, being ignorant himself of the value of hops, and knowing the prudence and judgment of Ellwood, he, in reliance on the representation that Ellwood had sold his hops to Wood at the price named, entered into the contract to sell his hops to him at the same price. Whatever facts would enable a party to avoid a contract, are equally available to enable him to defeat one sought to be enforced against him. Could this defendant, therefore, have sought the aid of a court of equity, upon the facts stated in his answer, to set aside this contract ? The authorities are abundant to show that he could. In Daggett v. Emerson (3 Story’s Rep. 733), Mr. Justice Story states the principles by which courts of equity can be governed in such cases in the following elegant and forcible terms, and these observations have peculiar force and significance as applicable to the present case. He nays: “It is equally promotive of sound morals, fair dealing and public justice and policy that every vendor should distinctly comprehend, not only that good faith should reign over all his conduct in relation to the sale, but that there should be the most scrupulous good faith, an exalted, honesty, or, as it is often felicitously expressed, uberrima fldes, in every representation made by him as an inducement to the sale. He should literally, in his representations, tell the truth, the whole truth, and nothing but the truth. If his representation is false in any one substantial circumstance going to the inducement or essence of the bargain, and the vendee is thereby misled, the sale is voidable, and it is usually immaterial whether the representa.tion be wilfully and designedly false, or ignorantly and negligently untrue. The vendor acts at his peril, and is bound by every syllable he utters or proclaims, or knowingly impresses upon the vendee, as a true or decisive motive for the bargain.” In Taylor v. Fleet (1 Barb. 471), the vendee sought the aid of a court of equity to set aside a conveyance and sale of real estate on the ground that the vendor had made a representation, in regard to the land, which was untrue; and the court held that, the vendee having ascertained that the representation was untrue, had the right to rescind the contract. . That, whatever may have been the motive of the vendor in making an erroneous representation respecting the land about to be sold to him, it is enough to entitle the purchaser to relief; that there was a misrepresentation of a matter of fact, material to the subject of negotiation, and which constituted the very basis of the contract. The court said: “The representation being untrue and influential, vitiated the transaction, whether such representation was wilfully and designedly false or ignorantly or negligently untrue.” (See also opinion of Mr. Justice Woodbury, 9 Law Rep. 160, Warner v. Daniels; Story’s Eq. Juris, §§ 192, 193; Hough v. Richardson, 3 Story’s Rep. 659; Bennett v. Judson, 21 N. Y. 238.)

In Neville v. Wilkinson (1 Bro. Ch. Rep. 546), Lord Chancellor Thurlow said: “It has been said here is no evidence of actual fraud on R., but only a combination to defraud him. A court of justice would make itself ridiculous if it permitted such a distinction. Misrepresentation of circumstances is admitted, and there is positively. a deception;” and he added: “If a man, upon a treaty for any contract, will make a false representation by means of which-he puts the party bargaining under a mistake upon the terms of the bargain, it is a fraud. It misleads the party contracting, on the subject of the contract.” In harmony with the doctrine of these eases is the principle laid down by this court in the case of Valton v. National Fund Life Insurance Co. (20 N. Y. 32). It was there decided that fraudulent representations made by the assured to the insurer, upon his application for a policy, though not material to the risk, yet material in the judgment of the insurer, and which induced him to take the risk, would avoid the policy. And this court held that a misrepresentation, although it did not affect the nature of the risk, yet was a fraud, because it induced a confidence, without which the party would not have acted. This principle covers the whole ground in controversy in the present action, and if applicable to the present case, is decisive of it. But it is urged, by the appellant’s counsel, that the law of contracts of insurance and contracts of sale are different, and rest on different principles. That the parties do not deal, in the former case, on the presumption of equal knowledge and vigilance as to the subject matter of the contract, and that hence a different rule of law prevails. It is true that in contracts of insurance all representations material to the risk, if untrue, avoid the policy, but representations not material rest on the ground of fraud, and therefore vitiate the policy on thát ground. This distinction was urged upon the attention of the court in the case of Moens v. Heyworth (10 Mees. & Welsby, 147). In that case the question was whether a contract for the sale of coffee, which was represented to be invoiced to the seller, was void, from the fact that such representation was untrue, and it was held that it was. Lord Abingee, Chief Baron, said: “The fraud which vitiates a contract, and gives the party a right to recover, does not in all cases necessarily imply moral turpitude. There may bé a misrepresentation as to the facts1 stated in the contract, all the circumstances in which the party may believe to be true. In policies of insurance, for instance, if an insurer makes a misrepresentation, it vitiates the contract. Such contracts, it. is true, are of a peculiar nature, and have relation as well to the rights of the parties as to the event. In the case of a contract for the sale of a public house, if the seller represent, by mistake, that the house realized more than in fact it did, he would b'e defrauding the purchaser and deceiving him, but that might arise from his not having kept proper books, or from non-attention to his affairs, yet as soon as the other party discovers it, an action may be maintained for the loss consequent upon such misrepresentation, inasmuch as he was thereby induced to give more than the house was worth;” and he further observed that “ the question of fact whether there was fraud or not ought to be decided by the jury from the circumstances of the case.” Parke, Baron, remarked: “ The case of a policy of insurance does not appear to me to be analogous to the present; those instruments are made upon an implied contract. between the parties that every thing material known to the assured should be disclosed by them. This is the basis on which the contract proceeds, and it is material to see that it is not obtained by means of untrue representation or concealment in any respect.” “In this case,” he says, “ the plaintiffs must prove a representation-by words or acts of that as true which was known to the defendants to be untrue, as in the cases of Polhill v. Walter (3 B. & Adol. 114), and Foster v. Charles (6 Bing. 696). In the same case Lord Tenterden laid down the rule that it is' not necessary to prove that the false representation was made from a corrupt motive of gain to the party making it, or a wicked motive of injury to the other party; it was enough if a representation is made, which the party making it knows to be untrue, and which is intended .by him, or which, from the mode in which it is made, is calculated to induce another to act, on the faith of it, in such a way that he may incur damage, and that damage is actually incurred.” In Foster v. Charles the same doctrine is reiterated, and. Para, J., quotes, with approbation, the remark of Chambre, J., in Tripp v. Lee (3 Bos. & P. 371), that it would be an absurdity in law to hold that if - a man draws another into a snare, the party suffering should have no remedy by action.

It is perfectly clear, therefore, from principle and authority, that if the plaintiff had demurred to the second ground of defense contained in the defendant’s answer, as not sufficient in law, the demurrer would have been overruled, and judgment given for the defendant. The judge therefore properly refused to strike out the second ground of defense as stated in the answer. . He also properly .refused to strike out the testimony which the defendant had adduced to sustain the answer. Such testimony proved every material fact contained in the answer, except the allegation that hops were at the time the defendant made the contract worth more than twelve and a half cents per pound. Such fact had no materiality in' excusing the plaintiff’s assignor, from the fraud practised upon the defendant. Non constat, that the defendant -would have entered into this contract if he had known that circumstance. The question here is, whether a contract obtained from a person by fraud and falsehood can be enforced against him by the party procuring it. I think clearly it cannot. It is undeniable that if it could have been enforced, if the defendant had fulfilled it, he would sustain thereby great damage; and it is no answer, for the plaintiff to say,, that the defendant might on that day have sold his hops either to Wood, or some one else, for the same price, if the fraud had not been practised. The defendant was at liberty to refuse to fulfil the contract on his part, as soon as he ascertained the fraud practised upon him, "and the law will not subject him to the damages which the plaintiff or his assignor may have sustained, from their inability to realize the fruits of this fraudulent act. The motion to strike out the defendant’s testimony was therefore properly denied.

The evidence of the belief of the defendant in the representation made by Wood was perfectly proper. It cannot be permitted to the plaintiff to object that the defendant credited the statement of his assignor. The defendant was not to assume it was untrue, and the law would have assumed that he gave credit, to the representation whether he had so testified to it or not. But this objection is wholly immaterial, as the defendant testified, without objection, that he entered into the contract relying on that representation, namely: the representation that he, Wood, had purchased Ellwood’s hops. This'shows beyond all controversy that he believed the representations to be true, and his statement that he so believed it was of no importance. The judgment appealed from should be affirmed.

Mullin, J.

The plaintiff’s counsel intended to raise on the trial the question whether, assuming the representations to have been made as alleged in the answer, they furnished any legal ground for declaring the sale void by reason of the vendee’s fraudulent representations ? But I think he has wholly failed to present any such’question.

There are but three exceptions in the case. The first' is to the denial of the plaintiff’s motion to strike out the second defense, because, - 1st. The facts therein stated do not constitute fraud; and, 2d. The representations, if made as set forth in the answer, were immaterial and constituted no defense to the action. The second exception is to the admission of the evidence, on the part of the defendant, whether he believed the representations of the vendee that he had purchased Ellwood’s hops? The third was the exception to the refusal of the court to strike out the evidence of the defendant and the witness Cronkhite, so far as the same relates to the representations made by Wood of the purchase of Ellwood’s hops, as being immaterial and constituting no defense to the action.

I know of no authority authorizing a plaintiff to move at the trial to strike out an answer or defense. When parties go down to trial, it is the duty of the court to try the issues made by the parties. If the answer presents no defense, the plaintiff may demur dr move to strike out as sham or irrelevant. (Code, § 152, 154.) This motion must be made before the cause is brought on for trial, for the obvious reason that it must be made before the case can be said to be at issue; and, until after issue joined, the case cannot be noticed for trial.

It is competent for a plaintiff to lie by without demurring or moving to strike out, and on the trial object to the evidence offered in support of the answer or defense as not constituting a defense. And the court may in its discretion, reject it, or it may refuse to do so and leave the party to have recourse to some other way of presenting the question.

Under the former system the judge at' nisi prius had nothing to do with the pleadings. His duty was to try the issues presented, by the circuit roll, and it was for the court in banc to dispose of the questions of law arising from improper or defective pleadings. The circuit judge had not power to allow even an amendment of the pleadings.

The powers of the judge at circuit are now much more extensive, he being authorized to allow amendments as fully as the court might do at general or special term, and superadded to these powers a special term is held by the same judge with the circuit. But extensive as his powers áre, I think he has not the power on the trial to strike out pleadings. The party whose pleading is proposed to be stricken out, has the right to require that all objections to .the pleadings shall be decided before the circuit, so that he may know what he is called on to prove to support his own case and the causes of action or defense on which his adversary relies.

Judge Bronson, in Reynolds v. Lounsbury (6 Hill, 534), says: “A fault in the pleadings is not a proper ground for tendering a bill of exceptions. After the defendant had omitted to demur to the declaration, he could only take an objection to its sufficiency by motion in arrest of judgment or a writ of error.”

It was said by Barculo, J., in Fox v. Hunt (8 How. Pr. R 12), and by Cady, J., in Myatt v. Saratoga M. Ins. Co. (9 How. Pr. R. 488), and by Harris, J.. in Richtmyer v. Haskins (9 id. 481), that it was the correct practice at the circuit to lay out of the case all irrelevant allegations and immaterial issues in the case, and if the complaint does not contain a good cause of action, or the answer does not contain a defense, to direct judgment accordingly. I cannot concur with the learned judges, in their views of the practice, without some limitation. Section 148 of the code permits the defendant to raise, at any stage of the action, the objection to the complaint that it does not contain a cause of action. But section 153 of the code permits a demurrer to an answer containing new matter, wrhen upon its face it does not constitute a counterclaim or defense, and the plaintiff may demur to one or more of such defenses or counterclaims, and reply to the residue of the counterclaims.

If the plaintiff omits to demur to an answer or defense, it must, for the purposes of the issue, be deemed sufficient in law, subject to the power of the court to reject evidence ■which, if received, could not constitute a defense or counterclaim.

Where it was decided that parties were entitled to whatever relief the evidence given on the trial entitled them, without regard to the pleadings, the judge at the circuit would have had the power to conform the pleadings to the proof, aside from the provisions of sections 169 and 173 of the code. The learned judges to whom I have referred seem to have thought the course indicated by them to be not only proper but necessary, inasmuch as the code, as then construed, did not allow a demurrer to an answer, unless it contained a counterclaim. But since the amendment of section 153, in 1855, and especially since its amendment in 1857, permitting a demurrer to the answer without limitation, except that it should contain new matter, all pretense for interference with the pleadings at the circuit other than conforming them to the proof is at an end, and the rule laid down by Bronson, Justice, in 6 Hill, 534 (cited supra), is the only one that can be followed and not introduce into the practice at the circuit the uncertainty and confusion which prevails in justices’ courts, where an unlimited right of amendment exists, and where parties can not know, by the issue joined, what the issue will be that they will be required to try.

All the provisions of the code relating to the amendment and correction of pleadings contemplate that the steps necessary to make them sufficient shall be taken before the trial. This is absolutely necessary to prevent injustice, suspense and disorder in the trial of causes at the circuit.

Biit the learned judges to whom I have referred have not gone the length of holding that although they may disregard immaterial issues at the circuit they would do it by striking out pleadings.

" As I have already shown, it can be legitimately reached by excluding the evidence offered in support of such, an issue; but unless the case is a very clear one, the best course is to leave the party to his motion for a new trial, or an appeal.

If, however, the judge at the circuit had the power to strike out an answer or defense for insufficiency on the trial (a position I by no means admit), it would nevertheless rest in discretion, and would not be the subject of review. It would be discretionary, because the application was made at the circuit. The judge might with great propriety say to the counsel, that having omitted to demur, he must try the issue and seek his redress by some appropriate proceeding after verdict.

The exception to the admission of the defendant’s evidence that he believed the vendor’s statement that he had purchased of Ellwood, does not present any question as to the validity of the sale. ■

The objection to the evidence was that it was improper and immaterial, and was for the jury to pass upon from the terms of the contract and the conversation that took place. No suggestion was made as to the effect of it upon the validity of the contract. If the counsel designed to present such a question, h'e most effectually kept it from the attention of the court.

But the plaintiff has presented the question as to the competency of the evidence objected to.

I think it was competent, assuming the defense admissible (which we must do, in the absence of any legal exception to it); the effect of the representation upon the mind of the defendant was one which the jury'must pass upon; and, in order to find the sale void, must find on it in favor of the defendant. It was a material fact to be proved; the defendant was a' competent witness, and was, therefore, competent to prove it.

The oath of the defendant was by no means conclusive on the jury. They were bound to inquire, 1st. Whether the representation was made by the plaintiff; 2d. Whether it was such an one as would be calculated to impose upon a prudent, careful man; 3d. Whether it was in regard to a matter material to the defendant to know; and, 4th. Whether he believed it or was imposed upon by it. If the defendant should fail in establishing either of these propositions he would fail in his defense.

Under the former practice, when parties could not be witnesses‘in their own behalf, the jury had to draw their conclusions, as to the effect of the representation, from the materiality of the representation and the effect such a representation would naturally have on the mind of a prudent business man. It was an inference from all the facts. It was an issuable fact, and to be proved in the same way as other facts in the case. The defendant’s admission, whether as a witness or out of court and not under oath, that he did not rely on the representation, would have been conclusive evidence against him; and I know of no reason why, when he is a witness, he may not testify that he did rely on the representation made to him by the purchaser.' If he was too credulous, putting faith in a story in itself incredible, or without using that care and caution against imposition that it becomes every prudent man to exercise in dealing with another, he must suffer the consequences of his credulity. Because he may testify that he relied on the representation, will not entitle him to a verdict annuling the sale, unless the circumstances justified his trust.

But if the question was properly before us, whether the representation proved ivas such an one as being found to have been made, to have been relied upon and to have been untrue, authorized the court and jury to annul the sale, I am of the opinion that the sale was void, and the judgment should be affirmed.

Courts of law and equity are governed by the same principles in giving relief in cases of fraudulent misrepresentation. The only difference between them is that a court of equity will sometimes refuse to enforce specific performance of a contract, wThen a court of law might give damages for a breach of it. Story, in his equity jurisprudence, § 191, thus states the principles that guide a court of equity in giving relief in case of fraudulent representation: “If a representation is made to another person going to deal in a matter of interest upon the faith of that representation, the former shall make that representation good if he knows it to be false. To justify, however, an interposition in such cases, it is not only necessary to establish the fact of misrepresentation, but that it is matter of substance, or important to the interests of the other party, and that it actually does mislead him. For if the misrepresentation was of a trifling or immaterial thing, or if the other party did not trust to it, or was not misled by it, or if it was vague and inconclusive in its own nature, or if it was upon matter of opinion or fact equally open to the inquiries of both parties, and in regard to which neither could be presumed to trust the other; in these and the like cases there is no reason for a court of equity to interfere to grant relief on the ground of fraud/’

While courts have endeavored to compel parties to observe the most perfect good faith in their dealings, they have not gone the length of holding that every false statement made by one to the other in reference to the quality, condition or value of the property, annuls the contract. Some allowance has been made for the propensity men have to extol the quality, condition or value of that which they propose to sell, and to depreciate that which they desire to buy. Hence statements as to the value of property, its freedom from defects which he knows to exist, and which might by the exercise of reasonable diligence be discovered, do not if false vitiate the contract. These are matters in regard to which neither is supposed to trust the other, but each is bound to exercise his own senses and judgment in arriving at their value and condition. (Chitty on contracts, 681, 682, and notes; Sandford v. Handy, 23 Wend. 260; Starr v. Bennett, 5 Hill, 303; Haight v. Hayt, 19 New York, 464.)

But if the person selling shall use any. artifice to mislead the other and to prevent him from taking the necessary steps to inform himself, as to those matters in regard to which he is bound to exercise his own judgment, the contract will be held void, or a recovery had against him for the damages sustained by the person injured. (Hill v. Gray, 2 Eng. Com. Law Rep. 16; Mathews v. Bliss, 22 Pick. 48.)

Any representation that affects the. price of an article in regard to which one party places confidence in the other, will if relied on, and is false, and the party trusting to the representation is injured, render the contract void. (Bowring v. Stevens, 12 Eng. C. L. 157; Phillips v. Buck, 1 Vern. 227; Taylor v. Fleet, 1 Barb. S. C. R. 477; 1 Hilliard, on Vendors, 324, 325, 339, 340; Bench v. Sheldon, 14 Barb. 66; Vernon v. Keyes, 12 East, 632—Affirmed, 4 Taunt. 488.)

Applying these principles to the case before us, it will be found that the sale of the hops in question was fraudulent and void.

The verdict establishes, 1st. The making of the representation. 2d. Its falsity. 3d. That it was relied on by the defendant. The only other element to be established to render it fraudulent was its materiality.

As I have already remarked, whatever affects the price of the property that is the subject of the contract is materiaL

The defendant had raised hops for several years prior to the sale in question. He was unacquainted with the market price of them. It- was, therefore, due to himself to inform himself of the state of the market before entering into a contract of sale. Had he inquired of the purchaser as to the market price, and been misled by him, I am not prepared to say that the contract would not have been thereby rendered fraudulent. The inquiry was not as to the market price, however, but as to the price the purchaser was paying. The answer is not claimed to have been untrue. The defendant then inquired whether Wood had bought Ell-wood’s, and he was told that, if it was true he had purchased Ellwood’s at twelve and one-half cents per pound, he, the defendant, would sell his at that price. It appears that Ellwood had not raised hops until that year; hence his dealing in the article was not such as to make his opinion as to the price very important. But we all know that there are men in every community whose judgment as to the value of property, or whose intelligence and shrewdness in business, give great weight to their opinions in the estimation of their neighbors, and who, if they should sell all their property at a given price, would regulate the price for the same property throughout their neighborhood. Who that deals in stocks would not be governed, as to the price he would pay for a particular stock, by the opinion of an intelligent broker; or, as to the value of land, by the opinion of an intelligent, careful business man, whose interest it was to inform himself as to its value?

In this case it was not Ell wood’s opinion only that the defendant designed to rest upon, but upon the price actually received by him for similar property sold.

Had the defendant rested satisfied with merely inquiring whether Wood had purchased Ell wood’s hops, Wood might say that he did not and could not know that the sale by E. would influence the judgment of the defendant, and that his answer, therefore, might be false, without having reason to suppose it was causing injury to the defendant. But when told by the defendant that he sold at twelve and one-half cents per pound because E. had sold at that price, he was informed that his statement was relied on, and being untrue, as he knew it was, he was cheating the defendant. A purchase thus procured ought not to stand. (Fellows v. Gwyder, 1 Simons, 63.)

It is said that the defendant ought not to have trusted to Wood’s statement; that he had the opportunity to inquire and should have informed himself as well as to the market price as to whether E. had sold at twelve and one-half cents per pound.

The defendant, several times during the interview, proposed to Wood to wait until he could inform himself as to the price of hops. But Wood refused to wait—insisted on an immediate answer, and told the defendant that the price would probably fall as it had done some years before. The defendant was under no obligation to sell that day, but he wa& anxious to get the highest price for his property, and he took the only means he could, and make an immediate sale, to inform himself as to the market value of the property.

I do not doubt but that a vendor of property may put upon the purchaser the responsibility of informing him correctly as to the market value, or any other fact known to him, affecting the market price of the property, and if the purchaser answers untruly, the purchase will be void by reason. of the fraud. The purchaser is not bound to answer in such a case; but if he does he is bound to speak the truth.

. It is said by the appellant’s counsel, in his points, and by Justice Potter, in his dissenting opinion in the case, that the defendant has not sustained any damage, because he was paid the market valué of hops at the time the sale was made.

The evidence of the first witness was that the price of hops, .about the date of the contract, at Fort Plain, the place of delivery, was twelve to twelve and one-half cents per pound. But, he adds, hops were sold, as he understood, at twenty-eight cents at Fort Plain. He had heard that some were purchased for twenty-eight cents, but did not know the quality. The evidence as to the price being twenty-eight cents was not competent, but it was not ■ objected to, and the jury had the right to take it, and give it such weight as they deemed it entitled to.

If the jury were bound to act upon the legal evidence ' of value only, then it would follow that the defendant received for his hops the fair market price at the time of the sale, and he would have no right to complain. But the other evidence being in without objection, or any intimation to the jury that they might not act upon the hearsay of the witness as evidence of the market value, I think the jury had the right to ijnd that the defendant was induced by the misrepresentation to sell for less than the market price.

In any view of the case I think the judgment was rjght and ought to be affirmed with costs.

Hogeboom, J.

I assent, after some hesitation to the affirmance of the judgment in this case, but not without some misgivings as to the soundness of the legal propositions involved in such affirmance. As a general principle, the false affirmation which should be permitted to operate as the foundation of a cause of action or of a defense, should relate to a fact, and -not to a mere opinion; and to a fact directly bearing upon the subject matter of the contract, and not to one merely collateral and incidental thereto. As applied to the present case, there was no false statement in regard to the existing value or market price of hops, or as to the price that the buyer or-speculator was paying therefor; but there was a false statement—for so we must assume after a verdict of the jury in favor of the defendant—in regard to the fact that Wood had purchased the hops of Ellwood, a neighbor of the defendant. Ordinarily, such a fact could not be supposed likely to have any legal or perceptible bearing upon the negotiations of other parties; and yet, if ive assume that Ellwood had experience in the cultivation of hops, and judgment and skill as to their probable rise or fall in market, and that the defendant had not; if we assume, further, that Countryman had confidence in the skill, judgment and experience of Ellwood, more .than in his own, and would be likely to be governed by them in making a contract for himself; if we assume, further, that the article of hops was then as yet in a growing and immature state, and had not yet attained a fixed or determinate value in the market; and that its value, at the future period, when the hops would be ripe and cured and ready for delivery,-would be subject to much fluctuation from ordinary circumstances, such as the influence of the weather upon the crops, the demand for the article, and the condition of the money market; if we assume, further, that the proposed buyer was aware of the reliance which the defendant placed upon the skill, judgment and experience of Ellwood, and of the influence they were likely to have upon the mind of the defendant in inducing a sale of his hops, or the contrary; and that Wood, with such knowledge, falsely .and fraudulently represented that Ellwood had sold him his hops,. with the view of entrapping the defendant into a sale of his crop—■ all of which assumptions, I think, we are warranted to make from the verdict of the jury upon the facts of the case as presented in the testimony—I am inclined to think we are justified in concluding that, under the peculiar aspects of this case, the false representation of Wood was to a fact material to' the contract, inasmuch as it had a vital bearing and influence upon the mind of the defendant in inducing him to enter into it. Considered in that light, I am. on the whole inclined, though contrary to my first impressions, to regard the. defense to the action as well .founded in law and the judgment capable of being supported; but I do not wish to be regarded as extending the general principle beyond the just bearing of facts kindred to those which are presented in the present case.

With this explanation I assent to the affirmance of the judgment of the supreme court.

Denio, Ch. J. and Selden, J., were also for affirmance; .the latter on the ground stated by Davies, J., but expressing no opinion on the question of practice. Weight, Johnson and Ingbaham:, JJ., were for reversal.

Judgment affirmed.


source: Caselaw Access Project

author: Beomley, J.

license: Public Domain

text:
    In the Matter of the Accounting of Miner W. Tuttle, as Executor of Melvin G. Palliser, Deceased Executor, and William Dunkak et al., as Surviving Executors of Bernhard Zahn, Deceased, Appellants. Equitable Life Assurance Society of the United States et al., Respondents.
    Argued April 20, 1949;
    decided July 19, 1949.

      James N. Vaughan for appellant.
    I. Every death duty without exception is an excise tax whether the form of the duty is ’ that of a legacy tax, succession tax, privilege tax or estate tax. Every death duty diminishes by the amount of such duty the value of the property to which a beneficiary of any kind accedes. This effect of the tax is most conspicuous in relation to an estate tax which is an indirect excise tax taking effect at the instant of death and before the title of any beneficiary to taxable property has been perfected. (United States v. Perkins, 163 U. S. 625; New York Trust Co. v. Eisner, 256 U. S. 345; Edwards v. Slocum, 264 U. S. 61; Y. M. C. A. v. Davis, 264 U. S. 47; Matter of Swift, 137 N. Y. 77; Matter of Penfold, 216 N. Y. 163.) II. The basic policy of the Federal Government is to collect the estate tax and to concern itself in no way with its ultimate impact. The State is authorized to decide (a) how the tax shall be apportioned, and (b) by what means assurance shall be had for giving effect to its principles of apportionment. (Riggs v. Del Drago, 317 U. S. 95; Fernandez v. Wiener, 326 U. S. 340.) III. In accordance with its recognized power to decide upon the ultimate impact or thrust of the Federal estate tax, the State of New York, chiefly by section 124 of the Decedent Estate Law, has provided a method for subjecting all taxable property within its jurisdiction to the burden of a fair contribution to the Federal estate tax. This legislative method reaches to the property in the hands of third parties. (Matter of Scott, 249 App. Div. 542, 274 N. Y. 538; Northwestern Mut. Life Ins. Co. v. Central Hanover Bank & Trust Co., 302 U. S. 721.) IV. The lienor in the first instance was the tax collector. Since the executors paid the tax they were subrogated to the lien rights of the tax collector, and may now require the insurer to make good the damage differed by the gratuitous transfer from the insurer to the beneficiary of the property subject to the lien which transfer was made without taking measures to protect the lien. (Detroit Bank v. United States, 317 U. S. 329; Fernandez v. Wiener, 326 U. S. 340; Heymann v. Viane, 252 N. Y. 159; Rosenberg v. McLaughlin, 66 F. 2d 271; Fischer-Hansen v. Brooklyn Heights R. R. Co., 173 N. Y. 492; Kortright v. Cady, 23 Barb. 490; Mutual Life Ins. Co. v. Newell. 78 Hun 293, 144 N. Y. 627.)

      Eugene T. O’Neill, Sterling Pierson, Leo D. Fitzgerald and Stuart McCarthy for the Equitable Life Assurance Society of the United States, respondent.
    I. Section 124 of the Decedent' Estate Law provides that an executor who has paid an estate tax upon property required to be included in the gross estate of a decedent may equitably prorate the tax among the “ persons interested in the estate ”. When it is so prorated, the apportioned tax may be collected from “ whomever is in possession ” of such taxable property, or from the persons interested in the estate. The respondent society is not a “ person interested in the estate ” of the decedent, nor does it have in its possession property belonging to such a person, and, payment of the policy proceeds having been made in accordance with the contract terms, respondent is subject to no further liability. (Matter of Buckman, 270 App. Div. 707, 296 N. Y. 915; Matter of Oppenheimer, 166 Misc. 522; Matter of Scott, 249 App. Div. 542; Matter of Sullivan, 185 Misc. 21; John Hancock Mut. Life Ins. Co. v. Helvering, 128 F. 2d 745.) II. The provisions of the Internal Revenue Code give neither the Federal Government nor the executor any right to collect from an insurer the proportionate share of a Federal estate tax resulting from the inclusion in the estate for tax purposes of the proceeds of a policy of insurance payable to a third-party beneficiary. (John Hancock Mut. Life Ins. Co. v. Helvering, 128 F. 2d 745; Marks v. Equitable Life Assur. Soc., 135 N. J. Eq. 339; Commercial Trust Co. v. Thurber, 136 N. J. Eq. 471; Matter of Sullivan, 185 Misc. 21.) III. An interpretation of section 124 of the Decedent Estate Law which would permit an executor who has paid an estate tax, as a result of the inclusion in the gross estate for tax purposes of the proceeds of life insurance payable to a third party, to collect thf prorata share of the tax resulting therefrom from the insurer would render the statute unconstitutional under the supremacy doctrine. (John Hancock Mut. Life Ins. Co. v. Helvering, 128 F. 2d 745; Riggs v. Del Drago, 317 U. S. 95; Matter of del Drago, 287 N. Y. 61; Matter of Scott, 274 N. Y. 538.) IV. The executors are not subrogated to the rights of the Government, for subrogation does not arise from payment of an obligation by the one primarily liable therefor, nor when, at the time of payment, the intent is to extinguish such debt. The insurer was not liable for the payment of the tax, and the executors received no right under subrogation, to collect the tax from the insurer. (Y. M. C. A. v. Davis, 264 U. S. 47; Edwards v. Slocum, 287 F. 651, 264 U. S. 61; Matter of Hamlin, 226 N. Y. 407; Farmers’ Loan & Trust Co. v. Winthrop, 238 N. Y. 488; Matter of Oakes, 248 N. Y. 280; Higley v. Commissioner of Internal Revenue, 69 F. 2d 160.) V. The proceeds of the insurance policy involved here were not taxable in 1937, when payment was made to the assignee, and those proceeds were improperly included in the gross estate for tax purposes. Under no theory of law can the insurer be held liable for a failure to withhold a portion of the policy proceeds for the purpose of paying the tax, since no tax was due. (Phoenix Ind. Co. v. Staten Island R. T. Ry. Co., 251 N. Y. 127; Matter of Tierney, 176 Misc. 675; Nichols v. Coolidge, 274 U. S. 531; Lewellyn v. Frick, 268 U. S. 238; Bingham v. United States, 296 U. S. 211; Commissioner of Internal Revenue v. State St. Trust Co., 128 F. 2d 618.) VI. No apportionment of the estate tax under section 124 of the Decedent Estate Law could be made against the insurance proceeds payable to the divorced wife of decedent because she received those proceeds as a contract creditor of the deceased and her right to those proceeds vested at the time the policy was assigned to her, at which time the proceeds were not taxable. (Matter of Strebeigh, 176 Misc. 381; Matter of Brokaw, 180 Misc. 490, 267 App. Div. 811, 293 N. Y. 555; Matter of Oppenheimer, 166 Misc. 522.)

      James D. Ewing and Eugene Z. Du Bose for Life Insurance Association of America, amicus curice, in support of respondents’ position.
    I. Under section 124 of the Decedent Estate Law, respondent insurer was not liable to the executors for the proportionate share of the Federal estate tax allocated to the policy, since that statute imposes no tax and since respondent insurer was not a “ person interested in the estate ” nor a person who “is in possession ” of taxable property within the meaning of that statute. Section 124 is not a taxing statute and the United States has no right of recovery thereunder to which an executor could be subrogated or succeed. (Matter of Buckman, 270 App. Div. 707, 296 N. Y. 915.) II. Section 124 did not confer upon the executors any right to proceed against respondent insurer which was not a person “ interested in the estate ” nor “ in possession ” of “ property required to be included in the gross estate.” (John Hancock Mut. Life Ins. Co. v. Helvering, 128 F. 2d 745; Crossman v. Rauch, 263 N. Y. 264; Latterman v. Guardian Life Ins. Co., 280 N. Y. 102; Holmes v. John Hancock Mut. Life Ins. Co., 288 N. Y. 106; Chase Nat. Bank v. United States, 278 U. S. 327.) III. The New York statutes expressly authorized an insurer to pay insurance proceeds as a death claim to the person entitled to receive them pursuant to its policy contract without delay and without incurring any liability for New York estate tax; hence section 124 of the Decedent Estate Law is not properly subject to a construction which holds such insurer as having paid at its peril as far as any Federal estate tax is concerned. (Matter of Hard, 261 App. Div. 192; Matter of Weiden, 263 N. Y. 107; Matter of Erdmann, 172 Misc. 806; Matter of Riegelmann, 178 Misc. 475.) IV. The relevant Federal statutes give neither the Federal Government nor the executors any right to proceed against the respondent insurer, under the circumstances here disclosed. The Federal estate tax is a charge upon the entire estate and is primarily and in the first instance an obligation of the executor; although the tax is a lien against the entire estate, it does not give the United States title to any particular property. (Riggs v. Del Drago, 317 U. S. 95; United States v. Woodward, 256 U. S. 632; Matter of Hamlin, 226 N. Y. 407.) V. Under the Internal Revenue Code, beneficiaries and not insurers are liable for the apportioned share of the Federal estate tax. (John Hancock Mut. Life Ins. Co. v. Helvering, 128 F. 2d 745; Marks v. Equitable Life Assur. Soc. of U. S., 38 A. 2d 833; Commercial Trust Co. v. Thurber, 42 A. 2d 571, 45 A. 2d 672; Matter of Sullivan, 185 Misc. 21.) VI. A construction of section 124 as giving the executors here the right to proceed against the insurer which paid the death claim pursuant to its contract prior to any determination of the tax would violate the “ supremacy ” clause in that it would result in the invasion of a field already pre-empted by Congress through the enactment of sections 826(c) and 827(b) of the Internal Revenue Code. (Riggs v. Del Drago, 317 U. S. 95; United States v. Texas, 314 U. S. 480; Frick v. Pennsylvania, 268 U. S. 473; Knowlton v. Moore, 178 U. S. 41; United States v. Snyder, 149 U. S. 210; Priedeman v. Jamison, 202 S. W. 2d 900.)
   Beomley, J.

The question for decision in this case is whether an insurance company, which promptly paid the proceeds of a life insurance policy directly to the beneficiary on the death of the insured, is liable to the executor of the latter for that portion of the Federal estate tax attributable to the proceeds of such policy which were paid by the executor to the Federal taxing authority. The problem arises because the beneficiary, having squandered the proceeds of the policy, died destitute, before it was realized or determined that the proceeds of the policy should have been included in the gross estate for Federal estate tax purposes. The Appellate Division has reversed the Surrogate’s ruling that the carrier is liable for such tax. The issue thus presented involves the determination of whether section 124 of the Decedent Estate Law or any applicable provisions of the Internal Revenue Code (U. S. Code, tit. 26) authorize collection by the executors from the insurance carrier. Stated otherwise, the question is whether under either State or Federal law an insurance carrier is constituted a withholding agent for the collection of estate taxes so as to impose liability upon it for possible taxes assessable against the proceeds of policies paid over to a beneficiary.

Bernhard Zahn, the insured under a $50,000 policy issued by the Equitable Life Assurance Society of the United States, died in May, 1937. In July, 1937, Ada E. Zahn, beneficiary, received the entire proceeds of the policy. In 1940, upon a reaudit of the estate after a claim by the executors for refund of Federal estate taxes, the Treasury Department increased the gross estate by including therein the amount of the $50,000 policy and assessed a deficiency, on the authority of the ruling of the Supreme Court of the United States in Helvering v. Hallock (309 U. S. 106). The ruling was said to be applicable because the insurance moneys were payable to the executors of the insured’s estate in the event that the beneficiary predeceased the insured. The executors effected a compromise and paid the claim on May 31,1941. Thereafter they undertook a final settlement of their accounts and petitioned for an order directing payment by the proper parties of proportionate shares of estate taxes paid by the executors. Ada E. Zahn and Equitable were named in the alternative as holders of taxable interests. Ada E. Zahn had died, destitute, in 1940, having previously dissipated the funds of the policy received by her. It was not until the filing of the executors’ supplemental account and petition in 1945 that any formal action was taken to have that portion of the Federal estate tax allocable to the policy of life insurance charged against the insurance carrier.

The executors have appealed from the order of the Appellate Division on the ground that section 124 of our Decedent Estate Law and section 827 of the Internal Revenue Code compel a conclusion that Equitable is liable for the tax.

The purpose in enacting section 124 was to alleviate the burden of an entire estate tax falling on the residuary estate of a decedent and to provide statutory authority for an equitable apportionment of both Federal and State estate taxes as against all transfers of property included in the gross estate (Report of Comm, to Investigate Defects in the Laws of Estates, N. Y. Legis. Doc., 1930, No. 69, p. 197). Estate taxes are to be apportioned among the ‘‘ persons interested in the estate”. Generally such apportionment will be made before any distribution of funds by the executor, and no difficulty will be encountered in charging the prorata share of taxes to individual bequests. However, where property required to be included in the gross estate does not come into the possession of the executor, he must seek reimbursement of the proportionate share of taxes attributable to such property. The statute specifically provides for this contingency. In such cases the executor shall be entitled, and it shall be his duty, to recover the proportionate amount of the tax from whomever is in possession ” of the taxable property or from the persons interested in the estate ”. By reference to section 249-m of the Tax Law we are given the definition of persons interested in the estate ”. Such persons are those who may be entitled to receive or who have received any property or interest which is .required to be included in the gross estate of a decedent, or any benefit whatsoever with respect to any such property or interest ”.

The executors’ right to seek reimbursement from the insurance carrier under authority of section 124 depends upon whether the insurance carrier reasonably falls within one of the two classes of persons named in the statute. Under the facts of the instant case, the insurance carrier cannot be said to be either one in possession of the property or a person interested in the estate.

Section 124 in effect provides that an executor, after paying the Federal and State estate taxes, may apply to the Surrogate to have the amount of the tax so paid (unless the will of the decedent otherwise directs) equitably prorated among the persons interested in the estate to Avhom such property is or may be transferred or to whom any benefit accrues.” The second paragraph of section 124 reads in part as follows: In all cases in which any property required to be included in the gross estate does not come into the possession of the executor as such, he shall be entitled, and it shall be his duty, to recover from whomever is in possession, or from the persons interested in the estate, the proportionate amount of such tax payable by the persons interested in the estate with which such persons interested in the estate are chargeable under the provisions of this section, and the surrogate may by order direct the payment of such amount of tax by such persons to the executor.”

Since Equitable paid out the entire proceeds of the policy to the beneficiary in 1937, it is not now in fact “ in possession ” of any of the proceeds of the policy. According to the Surrogate, Equitable might be deemed still in possession on the theory that the proceeds were segregated into two separate funds at the moment of insured’s death (one for the payment of the tax, the other for the beneficiary) and Equitable failed to pay over to the proper party the fund segregated for payment of taxes. Under the Surrogate’s theory, the insurance company becomes in effect a Avithholding agent for the taxing authorities. Section 124 is an apportionment statute, not a taxing statute; collection by the executor or administrator is authorized merely to insure that apportionment will be accomplished. Alternative categories are described to insure prompt and equitable reimbursement of the executors. If the “ person interested in the estate ” is not in possession of the property, the statute authorizes collection from “ whomever is in possession ”. The period for determining possession ” is at the time when the executor seeks reimbursement. In Matter of Scott (249 App. Div. 542, affd. 274 N. Y. 538) we affirmed the holding of the Appellate Division that an insurance company could "be held liable for the proportionate share of the tax attributable to proceeds of insurance policies held on deposit by it. It was there thought that a sufficient change in the nature of the holding had taken place to justify an assertion, that the insurance company was “ in possession ” of the property though the funds had not been segregated from the general funds of the company. That case did not hold, however, that the funds on deposit with the company had been segregated so as to reserve a portion for taxes and the remainder for the beneficiaries.

Appellants urge that liability should be imposed upon the insurance company osa“ person interested in the estate ”, since it received ” the property and obtained a benefit ” upon, discharge of its obligation. Such an interpretation is an unnecessarily strained application of the statute and results in an unwarranted distortion of the definition. We hold that a “ person interested in the estate ” can only mean a person who has a beneficial interest in the estate and who expects to share, or has received a share of assets left by the decedent.

Since section 124 furnishes no authority for the executors’ attempt to recover from the insurance carrier, we must look therefore to the provisions of the Internal Revenue Code for any sanction for their action.

The Internal Revenue Code makes no provision generally for apportionment of Federal taxes assessed against an estate. The tax is upon the gross estate as such and is paid by the executor from the estate. He alone is liable to the Federal Government. The ultimate incidence of the estate tax is a matter of State law (Riggs v. Del Drago, 317 U. S. 95). However, the Federal statute specifically provides for recovery by the executor of taxes paid on proceeds of insurance receivable by a beneficiary other than the executor (U. S. Code [1940 ed.], tit. 26, § 826, subd. [c]). Under that section the executor shall be entitled to recover from such beneficiary such portion of the total tax paid as the proceeds, in excess of $40,000, of such policies bear to the net estate ” (emphasis supplied). It is clear that under this section a beneficiary of insurance proceeds is the only one upon whom liability is cast. Subdivision (b) of section 827 imposes personal liability for the proportionate share of unpaid taxes attributable to property not coming into the hands of the executor but liability under this section is limited to a “ transferee, trustee, or beneficiary ”. An insurance company is not a transferee or trustee and is therefore not covered by the statute. (John Hancock Mut. Life Ins. Co. v. Helvering, 128 F. 2d 745 [C. A. D. C., 1942]; Hughes v. Sun Life Assur. Co., 159 F. 2d 110 [C. C. A. 7th, 1946].)

There may be good reasons for making the insurance company responsible for the tax. There are equally good, if not more impelling, reasons why such a course would be undesirable. In view of the uncertainty of the amount of the tax until the entire gross estate is ascertained, a lapse of several years could ensue before payment might be made under a policy. The instant case furnishes a good example of the difficulties which might be encountered. Liability should be imposed, if at all, only upon clear and unmistakable statutory language to that effect.

The order of the Appellate Division should be affirmed, without costs.

Loughban, Ch. J., Lewis, Conway, Desmond, Dye and Fulp. JJ., concur.

Order affirmed.