Schanck v. Morris — 30 N.Y. Super. Ct. 658

Majority

p. 658

Elijah C. Schanck and John Romaine, plaintiffs, vs. John J. Morris, defendant.

Headnote

1. An action to recover the amount of the plaintiff’s subscription to the capital stock of an oil company, on the ground that such subscription was made in consequence of the false representations of the defendant, will not lie, where it appears that if the defendant did make false representations, it was without benefiting or intending to benefit himself.

2. In such a case it is the duty of the purchaser to investigate as to the true

• condition of the company, and ascertain whether the property is as described, by the person making the representations; and his failing to do so for several weeks, between the time of subscribing and the time of paying for the stock, will prevent him from recovering. In other words, there can, in such a case, be “ concurring negligence” on the part of the purchaser.

3. If, after discovering the falsity of the representations, the purchasers continue for several years to be a part and parcel of the company, and are among its directors, this will preclude them from recovering.

4. Where, in such an action, the plaintiffs made the defendant their witness, and his testimony, taken in connection with the other proof, went conclusively to establish a scheme in which all were equally to blame; Held, that it was a proper case for directing a verdict for the defendant.

(Before McCunn, J., at Trial Term,

November 13, 1868.)

This was an action to recover $6000, the amount of two thousand, shares at three dollars per share, of the ÍTew York and Pennsylvania Oil Company, subscribed for and paid by the plaintiffs in 1864. The plaintiffs allege that they were induced to invest the above amount in the aforesaid company through the false and fraudulent representations of the defendant. At the time of the investment •the plaintiffs were partners in the produce business in Washington market, and the defendant was a grocer in University place. The parties had done business together for several years. The oil speculation turned out like many other oil speculations of that period, a losing business both for the plaintiffs and the defendant; and this

p. 659

was one of the many attempts that have been made during the last two years to recover the losses in a court of law. The case occupied the court six days, and a large number of witnesses were examined on both sides. On the one hand the plaintiffs attempted to show that the defendant was one of the originators of the company; that it was a bogus concern from the start, and that those who invested in it did so on the false representations of the defendant; while, on the other hand, the defendant denied having made any false representations about the company, and alleged that he invested his own money in the company; that he received no pecuniary benefit from the plaintiffs’ subscription, and that he made no statements to the plaintiffs about it that he did not himself believe to be true, and made no effort to induce them to invest in it, but merely answered such questions, and gave such information as was asked for by the plaintiffs.

J. J. Parsons, for the plaintiffs.

Wm. Morton, for the defendants.

After the cause had been summed up by the counsel,—

decided to take it from the jury and direct a verdict for the defendant, on the ground that the plaintiffs had failed to prove such a clear case of fraud as would justify a submission of the defendant’s rights to the speculation of a jury.

The first question, said the judge”, that presents itself in this case, is whether there were false statements made by the defendant to 'the plaintiffs to induce them to part with their money, and whether the defendant was benefited by such false statements.

p. 660

Mrst. There is no dispute about the organization of the company.

Second. There is no dispute about the ownership of the land of the company, nor is there any dispute about the company’s owning five engines instead of twenty-eight, nor about there being some wells sunk. So that the only fraud the defendant could be guilty of was in saying the company had more engines than they actually had, and more wells sunk than were sunk, and it is upon these two propositions that the jury must pass, if at all.

Mr. Morris says he made no such representations. He says it was a time of great speculation, and that the plaintiffs were as anxious as he was to embark in such enterprises. ' It is also admitted that Mr. Morris received no pecuniary benefit from the transaction. ’ The stock which Holly set apart for him was set apart months after the representations made to the plaintiffs. How I shall hold that if Morris did tell a lie, and the result of that lie or the intention of Morris at the time was not to benefit himself, the plaintiffs cannot recover. Again, the evidence and the pleadings in this case show that several weeks elapsed from the time the plaintiffs subscribed for the stock before they paid the money; and I hold that it was the duty of the plaintiffs to investigate the true condition of the company, and ascertain whether the property was as' described by the defendant, and their not doing so, or their negligence in this respect, will prevent them from recovering; in other words, there can in such a case as this be ^contributing negligence.” Another reason that would prevent them from recovering is, that according to their own showing, after they had discovered these alleged untruths of Morris, they still continued to be a part and parcel of the company, and were among its directors. How, I hold that their doing so a number of years after

p. 661

they learned these facts, precludes their recovering; and, lastly, three years and a half having elapsed before this suit was commenced, and their efforts to settle with Morris in the meantime, do not recommend them to the court. Under all these circumstances, and in consideration of the fact that the plaintiffs made the defendant their witness, and as his testimony, taken in connection with other proof, goes conclusively to establish a scheme in which all are equally to blame, I must direct a verdict for the defendant, the exceptions to be heard in the first instance at the general term.