The plaintiffs, bankers in New York, contracted by cable with the defendant, a Swiss bank, for the purchase of Polish marks to be paid by the defendant to the plaintiffs or the plaintiffs' nominee at a bank at Warsaw, Poland. Aggrieved by unreasonable delay in the execution of the orders, they have given notice of election to treat the contracts as rescinded, and have sued for the recovery of the money paid with interest. The defendant has answered their complaint with denials and defenses. The question is whether there is anything of substance to be tried (Curry v.Mackenzie, 239 N.Y. 267, 270).
The first of three contracts was made on or about May 14, 1920. Its subject-matter was ten million Polish marks to be paid at Warsaw to one Stanislas Lesser, plaintiffs' nominee. The defendant gave an order by telegram to its Warsaw correspondent for the creation of the credit, but the order was disregarded. The plaintiffs rescinded in March, 1921, when they learned for the first time that payment had not been made.
The second contract, made on June 1, 1920, was for two million Polish marks to be paid to the plaintiffs at the Commerz Bank at Warsaw. There was failure of performance as late as May, 1921, when restitution was demanded.
The third contract, made on June 29, 1920, was for the same amount of marks as the second, the credit to be established in favor of the plaintiffs, once more at Warsaw, Poland. There was failure of performance as late as the following July.
Defendant insists that the plaintiffs' allegations of *Page 350 default are placed in issue, at least formally, by the denials of the answer, and that the supporting affidavits upon the motion for summary judgment do not establish the breach with technical precision. We are unanimous in holding that this issue is unreal. There is no need to determine whether the books of the Warsaw bank and the admissions of its officers would serve without more to charge the defendant with liability. Even if these were to be disregarded, enough would be left. We have the defendant's own letters which are instinct with the admission that its correspondent was at fault. More than this, we have the affidavit of its attorney which states in effect that the denials are merely formal and are to be interpreted and justified as conclusions drawn by the pleader from the affirmative defenses. The very object of a motion for summary judgment is to separate what is formal or pretended in denial or averment from what is genuine and substantial, so that only the latter may subject a suitor to the burden of a trial. The defendant is not aggrieved if we take it at its word.
Non-performance being proved, there remains the question of the remedy. The plaintiffs ask for restitution. The defendant would limit them to damages. Rescission, it is said, is inequitable because of silence and inaction. Banking at Warsaw was impeded by a state of war between Soviet Russia and Poland. The defendant did not repudiate its contracts, nor refrain altogether from some effort to perform them. Its plight is due in part to the default of some one else, its chosen correspondent. Out of this predicament, there have emerged in the defendant's view new equities and duties that might not call for recognition if the default had been intentional. In such a situation, the plaintiffs, it is said, should have investigated for themselves the state of Lesser's credits and their own within the territory of war, and given warning to the defendant whether they rescinded or affirmed. *Page 351
We think the right to restitution continues unimpaired.
There is a distinction between rescission for fraud, which goes upon the theory that a contract is to be treated as non-existent for lack of true assent, and rescission for abandonment, which goes upon the theory that a contract is avoided for non-performance though valid in its origin. In the one situation, notice of rescission must follow promptly upon discovery of the fraud. This at least will be assumed, though there may be exceptions even here (cf. Ripley v. Hazelton, 3 Daly, 329;Wolf v. Nat. City Bank, 170 App. Div. 565, 570). "What promptness of action a court may reasonably exact * * * must depend in large measure upon the effect of lapse of time without disaffirmance upon those whose rights are sought to be divested" (U.S. Supreme Court, per STONE, J., in Barnette v. Wells-FargoNat. Bank, 270 U.S. ___). In the other situation, which in the view of learned authors is not properly to be characterized as an instance of rescission at all (Woodward, Quasi-Contracts, § 260; Anson, Contracts [Corbin's ed.], § 402, p. 465, note), notice may be given at any time within the period of the Statute of Limitations unless delay would be inequitable (Williston, Contracts, § 1469; Woodward, Quasi-Contracts, §§ 260-267;Richter v. Union Land Co., 129 Cal. 367, 374). Such inequity will result, for instance, if there is property to be returned, or if reliance upon apparent acquiescence will result in hardship or oppression. "Indeed it is probable that some element either of ratification or of estoppel is at the root of most cases, if not all, in which an election of remedies, once made, is viewed as a finality" (Schenck v. State Line Telephone Co., 238 N.Y. 308,312). Inaction without more is not tantamount to choice. If the defendant had promised to make delivery of cotton at a designated warehouse within a reasonable time, the plaintiffs would have been under no duty to rescind when first they discovered that delivery had been unreasonably *Page 352 delayed. They might postpone the election until their patience was exhausted by aggravation of the wrong (Trainor Co. v.Amsinck Co., Inc., 236 N.Y. 392; Murray Co. v. LidgerwoodMfg. Co., 241 N.Y. 455). In the absence of special circumstances, the rights of the parties are not different where the subject of the contract is a sale of foreign money, or, what is substantially equivalent, the creation of a foreign credit. Rescission is not barred because indulgence has been shown (Rose v. Foord, 96 Cal. 152, 155; Richter v. Union LandCo., supra).
Election presupposes knowledge, or at least the omission to fulfill some duty of inquiry from which knowledge would have followed. There is no claim by the defendant that the plaintiffs failed to rescind promptly after knowledge of the breach. The claim is merely that diligent inquiry would have brought knowledge to them sooner. The duty to make inquiry has a foundation, it is said, in custom. The answer pleads a custom whereby the purchaser of the foreign credit inquires within a reasonable time whether the credit has been established in accordance with the contract. Inquiry is addressed not only to the bank that is to open the account, but also to the beneficiary for whose benefit it should be opened. A supporting affidavit informs us that by the exactions of the custom a duty of inquiry rests upon the seller of the credit as well as upon the buyer, though the receipt of a debit note from the correspondent bank may dispense with further inquiry where there is no reason to suspect that performance has been withheld. The custom is assailed as unreasonable and in other respects invalid. We leave that question open. For the purpose of this appeal, we assume in favor of the defendant that in possible situations the failure of the buyer to make the prescribed inquiry will be a bar to restitution. We cannot doubt, however, that it fails of that effect where the seller has made inquiry for himself and ascertained the truth, or would have ascertained the truth if his own *Page 353 duty had been fulfilled. In the light of these principles, the three causes of action will be successively considered.
(1) The first cause of action is based upon the plaintiff's order of May 14, 1920, for ten million Polish marks to be paid to Mr. Lesser at Warsaw, Poland. In execution of that order, the defendant telegraphed its Warsaw correspondent, the Commerz Bank, on May 17, and on May 21 wrote a confirmatory letter. The letter reached its destination, but the telegram miscarried, and so the defendant was advised. Apparently this advice was delayed until July 16, for the defendant states that on that day, and at once upon being informed of the miscarriage of the first telegram, it telegraphed the Commerz Bank again to set up the credit, valued as of May 19. To this on July 20 it received an answer to the effect that since Lesser had no account with the bank, the order could not be executed beyond the value at the date of payment. There was a request at the same time for instructions as to the disposition of the interest. A few days afterwards (August 1) a moratorium was declared, and the credit was no longer available except for ten per cent monthly of the previous balance. On July 20, if not before, the defendant knew that the credit had not been established within a reasonable time after May 14. Then, if not before, it knew itself in default. With that knowledge, it gave no notice to the plaintiffs to inform them of its belated action. What was done even at that late day was ineffective and imperfect, but such as it was, the plaintiffs were not told of it. The defense is built upon the theory that the plaintiffs were subject to a continuing duty to inform themselves of what was going on, and that the defendant, admittedly in default, might rest on the assumption that this duty had been fulfilled. We think the theory will not hold.
If the plaintiffs ought to have inquired about the execution of their order within a reasonable time after May 14, 1920, the defendant, on its own statement of *Page 354 the custom, was charged with an equal duty. Perhaps it might fairly have been satisfied with a debit note from its correspondent, but the record makes it clear that this it did not get. When its correspondent gave notice that the telegram had miscarried, the defendant evidently understood that another telegram was necessary, but this it did not send till July 16. Assume, however, that the plaintiffs were delinquent in not informing the defendant of acts or omissions which the latter was under a duty to learn for itself. The fact still remains that on July 20, if not before, the defendant knew that the credit had not been set up as originally ordered, and that a reasonable time had long ago expired. It could not at this belated time attempt performance of its contract, and still rely upon a continued duty of inquiry on the part of the customers, as to whom it was already in default. If it wished the benefit of such inquiry thereafter, it should have told them what it was doing. The supposed custom did not mean that the plaintiffs must investigate continuously, within a reasonable time at first and again repeatedly thereafter. In particular it did not call upon them to inquire between July 16 and August 1, though if they had inquired even then they would have learned that part of the credit bargained for had been withheld to the defendant's knowledge. On August 1 came the moratorium, with prompt notice to the defendant that payment had been suspended. Nothing that could have been done by the plaintiffs thereafter would have made it any wiser. Neither for principal nor for interest was any credit tendered or established by the defendant's correspondent till April, 1921, or later. At that time restitution had already been demanded.
The argument is made that the defendant, though aware in July, 1920, that it was already in default, might reasonably infer from the absence of notice to the contrary that the time for the performance of the contract had been indefinitely extended. We find no basis for *Page 355 such an inference. The plaintiffs' order for the marks begins with the word "urgent," which in itself was notice to the defendant that prompt action was important. The conditions of the market, the rapid and violent fluctuations of exchange, gave notice to the same effect. Assent to an indefinite extension would have been precarious and extraordinary. There are cases in which such assent has been gathered from the acceptance, express or tacit, of acts of part performance from a party in default (Gen. Supply Construction Co. v. Goelet, 241 N.Y. 28). There are none where assent has been inferred as the result of acts of part performance unknown to the party wronged. From silence without more, the defendant might legitimately infer that the plaintiffs were either unaware of the default, in which event an inference of waiver was excluded, or aware of the default, in which event the inference was that they were standing upon their rights. As the sequel has developed, the inference of ignorance was the true one. The default was yet unknown. If, however, the defendant preferred to draw the inference of knowledge, there was nothing in the situation to inform it what the choice of rights would be. The alternative remedial rights appropriate to a breach were still in equilibrium. There was, indeed, an obvious expedient by which the defendant could have forced the plaintiffs to an election, if an election had been deemed important. It could have tendered payment of the marks, in which event choice would have been necessary between acceptance and rejection. Nothing of the kind was done. The mere transmission of the instructions to the Polish correspondent was not performance of the contract. Performance was not effected until payment had been made. The instructions were transmitted without notice to the plaintiffs, and transmitted at a time when the period of default was still measured by weeks. The defendant would have us hold that by this act without more it so altered its position as *Page 356 to impose upon the plaintiffs a duty of acceptance when payment was tendered at the end of a year. Condonation does not follow so easily at the will of the wrongdoer. Much is made of the argument that if rescission is permitted, the defendant will be a loser because of the depreciation of the mark. This is no concern of the plaintiffs unless they have induced the loss. It does not follow, however, that the loss would be any less if restitution were denied. Even in that view, there might still be reparation to the plaintiffs for any damages resulting from the postponement of performance. Richard v. American Union Bank (241 N.Y. 163) did not hold that upon sales of foreign money there cannot in any circumstances be a recovery of damages occasioned by delay. The case went upon the narrow ground that the pleader by the form of his complaint had excluded the conclusion that damage had been suffered. At all events, if depreciation of the mark involves a loss to be taken account of in determining whether rescission is inequitable because prejudicial to the seller, it is not to be disregarded as unreal in determining whether the denial of rescission is inequitable to the buyer. The defendant's plight is not due to the rejection by the plaintiffs of the tardy tender of performance. It is due to a default which the defendant should have known, and, knowing, have avoided.
In this situation, the remedies available to the buyer are not affected by the supposed custom of diligent inquiry. The remedies are what they would be if the custom were expunged. So viewed, they include the privilege to elect between restitution on the one hand and damages on the other. The plaintiffs' situation may be no better than it would have been if they had learned at once of the default, but also it can be no worse. Postponement of election has no greater element of hardship where the subject of the sale is Polish marks than it has where the subject is any other article of commerce. In the one case as in the other, the buyer may believe that performance, *Page 357 even though it has been unduly postponed, will follow without much delay, and may be reluctant, while that belief persists, to crowd the seller harshly by announcing a rescission. The party in default rather than the one that is innocent, should bear the burden of any loss that is incidental to indulgence. There may be justice in a holding that will throw the loss upon the buyer where the seller has good reason to believe that his performance has been in order, if usage lays upon the buyer the duty of inquiry. There is none where a seller, knowing himself in default, makes a feint of performance after a reasonable time has gone by, and then washes his hands of the transaction without even an acknowledgment by his correspondent that the order has been filled, and indeed with notice through the moratorium that to fill it is impossible. Such aloofness and indifference do not comply with banking usages as the defendant has itself described them. Rescission is not inequitable against a seller so delinquent.
(2) The second cause of action is based upon the order of June 1, 1920, for two million Polish marks. The defendant admits that it waited till July 30, substantially two months, before ordering the Commerz Bank to credit to the plaintiffs the marks called for by this order. There would have been no good in the plaintiffs' making an inquiry before that time. The defendant knew from its own records that the credit had not been made. Rescission was not barred by its belated effort to perform, made without notice to the plaintiffs after it was already in default. If, however, the time for inquiry were to be computed from July 30, the result would not be changed. In that view the plaintiffs had a reasonable time thereafter to investigate and report. Long before the time was by, the defendant knew from the admissions of its own correspondent that the credit was ineffective. On August 3, 1920, the Commerz Bank had telegraphed the defendant that by reason of a moratorium, drawings *Page 358 were limited to ten per cent monthly of the previous credit balance. The defendant had full knowledge within a few days after telegraphing the transfer that its order would not be executed, and that the plaintiffs could not get the money. It telegraphed a protest to the Polish bank, and there it let the matter rest. It did not notify the plaintiffs, whose money it had received and held, that the credit was abortive. It did not take any steps to establish a larger credit. It was silent and inactive. Not till July, 1921, did it receive from its correspondent the debit note that should have been transmitted to it more than a year before. Its order was executed then for the first time, if ever executed at all. Now it comes forward with the plea that the plaintiffs, who knew nothing of these happenings, might by diligence have learned of them, and with such knowledge might have reported to the defendant what the defendant knew already. We see nothing inequitable in a holding that the plaintiffs were at liberty to rescind against a defendant so circumstanced when knowledge was thereafter gained. The inequity would be wrought if rescission were denied.
(3) The third cause of action is based upon the order of June 29, 1920. By telegram of June 29, 1920, confirmed by letter of July 2, the defendant notified the Commerz Bank to credit the plaintiffs with the marks called for by this order. No acknowledgment of this order was ever received or given. The defendant's witness as to custom informs us that in default of some acknowledgment the duty to inquire is on the seller as much as on the buyer. Inquiry, if made, would have disclosed the fact that no credit was ever entered. The defendant ignored its duty in that regard, though it had taken the plaintiffs' money for the service to be rendered. The consideration has failed, and it should pay the money back.
The judgment should be affirmed with costs. *Page 359