By the instrument under which the defendant acquired the business which formerly belonged to the firm of Gilmartin & Dewell, and as part consideration of the transfer, he assumed to pay all the indebtedness of the vendor firm.
It is conceded that the agreement of assumption ordinarily would be enforceable against defendant by the plaintiff, a creditor at the time of the execution of the agreement.
It is, however, claimed that the learned trial justice erred in excluding testimony proffered by the defendant tending to show that Gilmartin & Dewell did not transfer to defendant all the assets that had been agreed upon between them and defendant.
The undisputed facts show that, after knowledge of the *166alleged fraud, the defendant continued in possession of the business and never rescinded the contract of sale.
“The rule is that, where a fraud is perpetrated in procuring the execution of a contract, the party defrauded has an election of remedies. He may, after knowledge of the fraud, rescind the contract and recover hack that which he has parted with; or he may continue to perform on his part and maintain an action for such damages as he may have sustained by reason of the-fraud.” Pryor v. Foster, 130' N. Y. 171, 175, and cases cited.
As already observed, the defendant did not rescind; but, on the contrary, it appears that he had in effect, in one instance at least, recognized the continued existence of the contract by offsetting a claim asserted by Gilmartin & Dewell under the agreement, by showing a partial failure of consideration by reason of the nondelivery to defendant of all the assets purchased thereunder. Gilmartin v. Van Horn, 107 N. Y. Supp. 131.
It further appears that defendant has recognized the agreement, by settling at forty cents on the dollar with most of the creditors of Gilmartin & Dewell whose debts had been assigned.
But “ a creditor could not adopt the -agreement * * * made for his benefit without taking it subject to any assault ” which he who assumed could make upon its validity. Arnold v. Hichols, 64 N. Y. 117, 119.
It is true, as stated in -the case just cited, that the purchaser “ could not retain the fruits of the agreement and refuse on -account of fraud to bear its burdens;” but obviously this does not mean that the defendant in an action of this kind may not show to what extent he has suffered damages against Gilmartin & Dewell, for the purpose of entirely or partially defeating a recovery by plaintiff, as the facts might warrant. In the Arnold case, it is expressly stated that there was no allegation that the defendant “ had ever suffered any dam-age on account of the fraud alleged.”
The plaintiff’s right to sue is a derivative one and “ subject to the relation and equities of the original promisor and promisee.” Wheat v. Bice, 97 H. V. 296, 30-2.
*167The trial justice erroneously excluded all testimony tending to show what, if any, damages the defendant may have been entitled to offset by reason of the misrepresentations of Gilmartin & Dewell.
I concur in a reversal of the judgment.
Judgment reversed and new trial ordered, with costs to appellant to abide event.