Hasberg v. McCarty — 38 N.Y. St. Rep. 266

Majority

p. 266

Nathan Hasberg, Resp’t, v. John B. McCarty, App’lt.^[1]

(Court of Appeals, Second Division,

Filed June 2, 1891.)

Headnote

1. Fraud—Prompt disaffirmance necessary upon discovery.

What is due or requisite promptness of action to disaffirm a contract procured by fraud is somewhat dependent upon circumstances.

2. Same.

Where the injured party has realized nothing, and in January learned facts tendiug to stamp the transaction as fraudulent and charged it upon defendant, who seemed surprised and assumed not to have heard that such was the situation, and plaintiff did not commence his action until May, shortly after defendant’s return from a trip to Europe, Held, that it was not

p. 267

such a delay in disaffirming the contract as would confine him to an action for damages.

3. Same.

The fact that plaintiff continued in the service of the corporation to which by fraud he had been induced to transfer his property, after discovering the fraud and after the commencement of this action for an accounting, did not necessarily prejudice his right to disaffirm the contract by which he transferred it.

Appeal from judgment entered upon order of the general term of the court of common pleas of the city of Mew York, affirming interlocutory and final judgments in favor of the plaintiff.

The action was brought for an accounting of the partnership matters of the parties, and to annul for alleged fraud an agreement between them. They were partners in the mercantile business in the city of Mew York from February, 1875, until in January, 1884, when the defendant joined with two other persons in organizing a corporation known as the Marty & Hall Trading Company, Limited, to carry on the like business. In contemplation of such organization, and upon the suggestion and request of the defendant, an agreement in writing between them was executed by him and the plaintiff, whereby the latter transferred his interest in the merchandise of the firm to the defendant, and it was agreed that the defendant should transfer it to the corporation and receive the capital stock at par value for it; that the stock should be taken and held in the name of the defendant with power in him to vote on it and dispose of it as he should see fit, he to pay the plaintiff dividends when received upon it, and the proceeds of the sale in the event he sold the stock; and that the defendant should have the right, at any time, to deliver the stock to the plaintiff in full settlement of the claim of the latter for the goods. It was also provided by it that the plaintiff accepted the provisions of the agreement in full payment and satisfaction for the transfer of the merchandise. The corporation was created and the goods were transferred to it by the defendant. The capital stock of the company was $250,000, and was taken by the corporators pursuant to an arrangement between them that the capital stock should consist of the goods before mentioned at the price of $58,000, a certain patent held by the defendant at $5,000, and the good will of the business of his firm at $25,000, making $88,000, for which he should have that amount of the capital stock; that the other corporators should put in their stock of merchandise at $97,000, a certain patent at $20,000, the good will of their business at $25,000, and cash $20,000, making $162,000, for which they should have that amount of the capital stock. This was accomplished. And the plaintiff alleged that he was induced to enter into the agreement made by him by the representations (amongst others) fraudulently made to him by the defendant that the $250,-000 of capital stock would be based and issued upon that amount of cash paid in for the purpose. The court found that plaintiff’s agreement was obtained by fraudulent means on the part of the defendant, and determined that it was for that reason invalid as against the plaintiff, and that he was entitled to relief; and pursuant to interlocutory decree to that effect an accounting was had

p. 268

upon which final judgment was rendered in favor of the plaintiff for $36,193.62, and costs.

John H. V. Arnold, for app’lt; Nathaniel Myers, for resp’t.

The agreement of January 24, 1884, was apparently an obstacle in the way of the accounting sought by the plaintiff, and attention was by the evidence directed to the circumstances under which it was made. Whether or not any occasion existed for the charge that the plaintiff was induced to execute it by deceptive means, used by the defendant, was the subject of conflict in the evidence of the parties.

The testimony on the part of the plaintiff tended to prove that his consent to make the agreement and his execution of it were procured by false representations to and deceptive concealment from him by the defendant of facts material to the apparent purpose of the instrument. And the finding of the trial court that the plaintiff’s agreement was fraudulently obtained by the defendant, not being without evidence for its support, must, for the purposes of this review, be deemed conclusive. It is, however, urged that the plaintiff by delay lost the opportunity he otherwise may have had to rescind the contract. He was required to act with reasonable promptness, on discovery of the fraud, in disaffirmance of it to sustain his right to do so, and if, after such discovery, he accepted or received any benefit from the contract his only remedy remaining was for damages. Cobb v. Hatfield, 46 N. Y, 533 . It may be observed that the plaintiff took nothing except the expectant rights afforded by the terms of the contract, from which he realized nothing. He commenced this action in May, 1885, shortly after the defendant’s return from a trip to Europe. And, while the plaintiff’s evidence tends to prove that in January or February of that year he learned something of the facts in respect to the character of the capital represented by the stock, and about the same time called the defendant’s attention to in, the latter did not concede them, but seemed surprised and assumed to never have heard that such was the situation. What is due or requisite promptness of action to disaffirm is somewhat dependent upon circumstances. The defendant was not in any manner prejudiced by the omission of the plaintiff to take steps to disaffirm the contract two or three months before he commenced this action, and it may have been inferred from the evidence that the defendant was abroad half or more of that time. Then the treatment of the subject by him when his attention was so called to it by the plaintiff may have justified some hesitation or doubt on the part of the latter either as to the correctness of his information or of the culpability of the defendant in the matter. And it may be added that nothing appears requiring the conclusion that the plaintiff did anything in affirmance .of the contract after he received the information before mentioned. The fact that he continued in the service of the corporation thereafter and after the commencement of this action, did not necessarily prejudice his right to disaffirm. His service there was not pursuant to the contract or necessarily dependent upon it. It cannot, as matter of law, properly be held

p. 269

upon the evidence that the plaintiff’s right to disaffirm the contract was lost by any delay on his part

There is a matter of interest from February, 1875, allowed ,to the plaintiff upon $2,500, said to have been loaned by him to the defendant, and placed to the credit of the latter as capital in the firm. The time when that was done was not very clearly shown. And by a provision in a written agreement between the parties of date March 25,1884, the principal sum was presumptively adopted as the amount then due on account of that loan. The interest so allowed upon the $2,500 in excess of the interest from that date should be deducted from the recovery, and, as so modified, the judgment should be affirmed, with costs to the plaintiff.

All concur.