Bosley v. National Machine Co. — 25 N.Y. St. Rep. 575

Majority

p. 575

Lucia R. Bosley, Pl’ff and Resp’t, v. The National Machine Company and William M. House, Def'ts and App’lts.

(New York Common Pleas, General Term,

Filed June 3, 1889.)

Headnote

1. Contract—Rescission—Equitable action—Fraud.

The plaintiff having been induced by fraudulent representations to subscribe in 1880 for stock of the defendant company bv the other defendant, who is its president, brought this equitable action for a rescission of the contract of subscription, and an accounting. The f i aud was not discovered by plaintiff until sometime between December, 1887, and June, 1888. This action was commenced in July, 1888. Field (1), that the plaintiff was entitled to a rescission of the contract of subscription; to be relieved of all liability as a stockholder, and also to an accounting; and that a court of law could not give her full relief in either of these respects.

2. Same—Statute oe Limitations—Code Civ. Pro , § 382.

Held (2), that the action was not barred by the Statute of Limititations. The case falls within the provisions of subdivision 5, section 382, of the-Code, and the Statute of Limititations does not begin to run until the fraud is discovered.

3. Same—Exceptions to the running oe statute.

The cause of action under the facts proved in this case would have boon cognizable in the' court of chancery, under the law as it existed on December 31, 1846, and it matters not that it would also have been cognizable in a court of law. Under the former Code ($ 91, subd. 6), the exception to the running of the statute of limitations was confined to actions solely cognizable in chancery, but the present Code (subd. 5, § 382) has omitted this restriction, and now that section of the Code includes all cases formerly cognizable by the court of chancery, whether its jurisdiction was exclusive or concurrent with that of the courts of law.

4. Same—Adequate remedy at law.

That on the facts found, plaintiff could have obtained a money judgment in an action at law for her damages occasioned by the fraud, but such an action would have proceeded on the theory of the affirmance of the contract of subscription which she repudiates; or upon the theory of a rescission of the contract made before suit brought, which would have left her open to the attacks of third parties on her liability as a stockholder.

5. Same.

That the question is not whether she was entitled to a money judgment, but whether, on the facts, she was entitled to a money judgment only. She was not bound to rely on compensation in damages, if the facts warranted other relief, even though, as a part of the relief sought, a money judgment is also demanded. And the prayer for relief in the complaint does not determine the character of the action as to the question of fraud, but that must be determined by the facts stated in the complaint. The case of Butler v. Johnson (111 N. N., 204; 19 N. Y. State Rep., 85) distinguished.

p. 576

Appeal from a judgment of the special term, decreeing the rescission of a contract and the recovery of a balance found due the plaintiff on an accounting, etc.

Owillim & Meyers, for pi’if and resp’t; N. Quackenbos, for def’ts and app’lts.

The first question raised on this appeal is when the statute of limitations began to run against plaintiff’s cause of action. Appellants claim the action falls under subdivision 3 of section 382 of the Code, and that the statute commenced to run from the time the fraudulent representations were made, and the plaintiff was induced to subscribe for the stock of the defendant company in November, 1880. Plaintiff, on the other hand, contends that the action falls under subdivision 5 of section 382 of the Code, and that the statute did not commence to run until the discovery of the fraud, which was between December, 1887, and June, 1888.

The action was commenced in July, 1888.

In order to bring a case under subdivision 5 of section 382, three things must concur: First, the judgment' sought must be for something more than the sum of money merely; second, the ground of the action must be fraud; third, it must have been cognizable by the court of chancery as it existed December 31, 1846.

As to the last of these propositions, appellants do not contend that the old court of chancery would not have had jurisdiction of the action as the complaint is framed, but that the cause of action could also have been tried in a <court of law; in other words, that a court of equity would not have had exclusive jurisdiction. Such an argument would have been entitled to great weight under the .former Code (sec. 91, subd. 6), where the exception to the running' of the statute of limitations was confined to action solely cognizable in the court of chancery, but the present Code has omitted this restriction and the court of appeals (in Carr v. Thompson, 87 N. Y., 160 ) has held that the subdivision of section 382, under consideration, includes all cases formerly cognizable by the court of chancery, whether its jurisdiction was exclusive or concurrent with that of courts at law, when the other necessary conditions exist.

Appellants admit that the second of these conditions, namely, that the ground of the action is fraud, exists in this case, for their entire argument proceeds on the theory that the plaintiff had an adequate remedy at law by reason of the alleged fraud. Indeed they admit the- fraud by not seeking to review the findings of the jury or the court on that subject.

The chief contention of the appellants is that the judgment sought is for a sum of money merely, and that her cause of action entitled her to no other relief. They are undoubtedly right in their contention that the prayer for re

p. 577

lief does not determine the character of the action, but that that must be determined by the facts stated in the complaint.

As far as they are material to the question under consideration, the facts so stated are that the defendant company is a domestic corporation; in November, 1880, the defendant House was, and still is its president, and a director and stock holder therein; that he was'the authorized agent of the company to procure subscriptions, and was engaged in procuring such subscriptions in November, 1880, which, when procured, were recognized by the company; that as such agent, House made certain representations to the plaintiff concerning the property, rights and franchises of the company, to induce her to become a stockholder therein; that all these represensations were material as affecting the value of the stock; that she believed them to be true, and by reason thereof she was induced to become a subscriber to the stock which she held at the time this action was commenced; that she received certain dividends thereon fór a time, but that subsequently no dividends were paid; that the representations made by House were false and were known to him to be false when he made them, and were made with the intent to deceive the plaintiff, and did deceive her; that she did hot discover the falsity of these representations until about December, 1887; that since she discovered the fraudulent character of the representations, she has done no act as a stockholder of the defendant company, or in ratification of the contract of subscription; that the company is not insolvent; that the stockholders are substantially the same as when she made her subscription to the stock; that prior to the commencement of this action she sought of the defendants a voluntary rescission of the contract of subscription, and tendered back the stock, and also the dividends received by her and the intérest thereon, but that this tender has been refused. Plaintiff, in her bill, then offers to return her stock, together with the dividends and interest thereon, and asks for an equitable rescission of the contract, on the ground of fraud, and for an accounting between the parties, and a judgment for any balance which may be found due her, and for such other relief as to the court may seem proper.

It is quite true, as appellants contend, that on these facts the plaintiff could have obtained a money judgment in an action at law for her damages occasioned by the fraud, but such an action would have proceeded on the theory of the affirmance of the contract of subscription which she repudiated, or upon the theory of a rescission of the contract for the fraud before suit brought, which would have left her open to the attacks of third parties on her liability as a stockholder.

p. 578

The question is not as appellants contend, whether she was entitled to a money judgment, but whether on the facts she was entitled to a money judgment only. She was not bound to rely on compensation in damages if the facts warranted other relief (Gould v. Cayuga County National Bank et al., 86 N. Y., 83 , 84; Same v. Same, 99 N. Y., 337 ), even although as a part of the relief sought, a money judgment is also demanded. Carr v. Thompson, (supra).

We think on the facts in this case, the plaintiff was clearly entitled to a rescission of the contract of subscription, thus relieving her from all liability as a stockholder, and also for an accounting, and a court of law could not give her such relief in either of these respects.

It follows that the three conditions contemplated in subdivision 5, section 382, concur in this case, and that the Statute of Limitations did not commence to run until the discovery of the fraud.

We have not overlooked Butler v. Johnson ( 111 N. Y., 204 ; 19 N. Y. State Rep., 85), so confidently relied on by-appellants, but we do not think it applies to this case; it decides that causes of action in which, before the adoption of the Code of Procedure of 1848, the subject was the same at law and in equity, and the remedy only was different, were not included within the ten years’ limitation (sec. 77), but were provided for by the preceding sections limiting actions at law; or, in other words, that the ten years’ limitation applied only to cases over which equity had before the Code exclusive jurisdiction. No such question arises here. The six years’ statute applies to this case, and the only question about it is when it commenced to run.

But appellants contend that even if the Statute of Limitations does not apply, then plaintiff’s loches in not rescinding the contract immediately on discovering the fraud must defeat her recovery. No such objection was taken on the trial as far as disclosed by the record, and if it had been, we do not think it could have availed the defendants. By the finding of the jury it appears the fraud was not discovered until between December, 1887, and June, 1888, and the action was commenced July 9, 1888. Meanwhile plaintiff had done nothing to affirm the contract or to show she had elected so to do. It is apparent from the allegations of the complaint that it would require some time to ascertain the facts to establish the fraud after suspicion was aroused, and sometime longer was doubtless consumed in the negotiations to rescind, without action, and we think due diligence in the matter has been established.

Besides, plaintiff owed the defendants no duty of active vigilance in discovering their fraud; she had a right to rely upon the truth of defendant’s representations. Baker v. Lever, 67 N. Y., 304 , 309.

Under the circumstances of this case, the complaint of

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the defendants that their fraud was not discovered soon enough, is entitled to little weight.

The judgment should, be affirmed, with costs.

Larremore, Ch. J., and Daly, J., concur.