Case ID: misc_19/html/0128-01.html
Source: Caselaw Access Project
Author: {"author": "MoAdam, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Charles H. Boyer et al., Appellants, v. William B. Fenn, Respondent.
    (Supreme Court, Appellate Term,
    January, 1897.)
    1. Conversion — negotiation of note procured by fraud.
    On representations by defendant that he had a lease of certain premises and was about to organize a corporation to carry on the business of a restaurant thereon, plaintiffs were induced to take a part of the stock and. to give a note therefor on condition that it should not be negotiated until the stock was .delivered. It appeared that defendant had no lease and made no effort to organize the company, but did negotiate the note. Held, that an action for deceit and conversion would lie against him, in which an order, of arrest was proper.
    2. Corporations — Stock.
    An agreement on an executory purchase of stock that the note given therefor should not be valid until delivery of the stock, does not violate section 42 of the Stock Corporation Law.
    Boyer v.‘ Fenn, 18 Mise. Rep, 607, affirmed.
    Appeal by defendant from an affirmance by the General Term of the City Court of an order made at Special Term, denying a motion to vacate an order of arrest.
    A. 0. Shenstone, for appellants.
    J. Hampden Dougherty, for respondent. .
   MoAdam, J.

The defendant was arrested upon the ground of deceit and conversion under the following circumstances detailed in the record: About December 16,1 1895, the defendant represented to the plaintiffs that he owned a lease of premises Eos. 104 and 106 West Thirty-foUrth street; that the lease had yet five years and a half to run; that the annual rental was about $4,200 and that the lease was worth fully $10,000 in excess of the rent; that he was about to organize a corporation to carry on the business of a restaurant at said premises; that the capital stock would be ready for delivery in the early part of February, 1896; and he requested the plaintiffs to take $500 par value of such stock. The complaint alleges that each and all of these representations were false, and were known by the defendant to be false at the time he made them; that they were made with intent to deceive the plaintiffs and induce thern to give their note; that in reliance on the truth of such representations they did agree to take $500 of the capital stock of such a corporation, and then and there issued to the defendant their promissory note for $500, dated December 16, 1895, payable six months thereafter, the defendant giving a receipt therefor, wherein it was stipulated that the note should not be negotiated by him until the stock was actually delivered to the plaintiffs.

It is further alleged that on March 16, 1896, the proposed corporation had not been formed, and nothing whatever had been done towards forming it; notwithstanding which the defendant negotiated the note, and thereby wrongfully converted it to his own use.

- Frank Boyer, one of the plaintiffs, made an affidavit, which accompanies the complaint, in which he reiterates all the allegations of the pleading, and gives the substance of conversations had with the defendant, wherein the latter admitted that nothing had been done towards the organization of the company, and that , he had parted with possession of the note.

Francis W. Vosbtirgh, another affiant, states that the defendant made representations to him similar to those made to the plaintiffs, in an effort to induce him to take an interest in the proposed corporation.

Mr. Lawrence, one of the agents of the properly in question, states in his affidavit that although.he had had some negotiations with the defendant respecting a lease of the premises, none had been executed,'- and that said premises could not have been obtained at the rental stated by defendant.

The defendant moved to vacate the arrest on the original papers, and thereby admitted Lor the purposes of the motion that the facts charged' against him with the inferences legitimately flowing from them were true; and so taken, they fully justify the order appealed from. The representations were positively sworn to, and their falsity, is established by the affidavit of Hr. Lawrence and by the admissions of the defendant proven by Frank Boyer. The defendant must be held to have contemplated the natural consequences of his acts, and from these a fraudulent intent may be .inferred, because inconsistent with business dealing or innocence.

It is urged that the action is not maintainable because the note was given as a subscription to capital stock, which must be made in cash. Stock Corp. Law of 1892, § 42. The note was not given' on an original subscription to stock, but made payable to the order of the defendant and delivered on his agreement that it was to be of value only on the delivery of the sto.ck by him to the plaintiffs. Such an agreement did not violate the statute, for inferentially the defendant was in some legal manner to.obtain the stock, using the note for reimbursement. The defendant said that upon the formation of the corporation he intended to use the Thirty-fourth street property as its place, of business,, his purpose no doubt being to take stock in payment of his supposed equity, a course allowed by the statute (§ 42 of the act), and it was evidently part of this stock which the plaintiffs wer'e to receive as the consideration for their note.

The plaintiffs do not depend upon any illegal contract for a recovery,' and if the defendant intended to rely upon the defense of' illegality he was bound to interpose an answer pleading it (Milbank v. Jones, 127 N. Y. 370; 141 id. 347), and upon the trial that question could be satisfactorily determined; it cannot be on the present motion, which is tantamount to a demurrer.

Apart from the question of deceit is the one of conversion. The promissory note given by the plaintiffs had six months to run, and was presumably worth its face value. Potter v. Merchants Bk., 28 N. Y. 641; Griggs v. Day, 136 id. 152; Atkinson v. Print. Co., 43 Hun, 173; 3 Phil. Ev., C. H. & E. notes (6th Am. ed.) marg. p. 543.; 3 Pars. Cont. (7th ed.) bottom p. 210; Decker v. Mathews, 12 N. Y. 324; Walrod v. Ball, 9 Barb. 271. The defendant stipulated not to use the note until he first delivered the stock to the plaintiffs. FTegotiating the note so that . the plaintiffs must pay it to the holder when due' constitutes conversion and furnishes the plaintiffs with' an arrestable cause of action. Code, § 549.

Any distinct act of dominion wrongfully exerted over one’s property in denial of his right or inconsistent with it is a eon-version. Cooley’s Torts (2d ed.), 524. Thus it is a conversion to apply to another use notes executed for a specific purpose. Hynes v. Patterson, 95 N. Y. 1; Petrie v. Williams, 68 Hun, 589, 595; Laverby v. Snethen, 68 N. Y. 522; Badger v. Hatch, 71 Me. 562; Loomis v. Mowry, 8 Hun, 311; Western R. R. Co. v. Bayne, 75 N. Y. 1. Even the maker of a note who has paid it may maintain trover against the payee who, instead of surrendering it, wrongfully disposes of it, whereby the maker is compelled to make payment a second time. Buck v. Kent, 3 Vt. 99; Pierce v. Gilson, 9 id. 216; Murray v. Burling, 10 Johns. 172; Otisfield v. Mayberry, 63 Me. 197.

The case made out by the plaintiffs called for some substantial explanation from the defendant, and if he had any to offer he should have moved upon affidavits, instead of conceding, as he did, for present purposes the truth of the allegations made by the plaintiffs.

The order must be affirmed, with costs.

Halt, P. J., and Bisghoee, J., concur.

Order affirmed, with costs.