Case ID: abbn-cas_17/html/0001-01.html
Source: Caselaw Access Project
Author: {"author": "Barnard, P. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

FRANCIS v. N. Y. & BROOKLYN ELEVATED R. R. CO.
    
      New York Supreme Court, Second Department; General Term,
    September, 1885.
    Action to cancel conveyance fob fraud.—Corporation ; transfer of stock.—Infants.—Tender.—Rescission.
    The principle re-stated, that representations as to future events can not be a constituent of fraud in fact.
    A transfer of stock on the books' of a corporation by a father to his infant children, and the receipt by him. of the scrip therefor, is a complete gift of the stock to the children, so far as to permit the children to so elect at majority, even though the transfer is not accompanied by a delivery of the scrip to the children. In the case of an infant, an acceptance will be inferred from the beneficial nature of the grant.
    
    Before an action to rescind an agreement can be maintained on the ground of fraud, the plaintiff must tender the fruits of the agreement, and. if he has put this out of his power, his action fails.
    
    Appeal from a judgment for the plaintiff upon trial by the court.
    John Francis brought this action to set aside his conveyance, made to the New York and Brooklyn Elevated Railway Company, of the right of way past certain premises in the city of Brooklyn. He alleged certain fraudulent representations to induce the grant, which are sufficiently referred to in the opinions below.
    On the trial at special term, it appeared that the grant by plaintiff was in consideration of certain capital stock issued to him by the defendant company. Immediately on the receipt of this stock, the plaintiff caused the certificates therefor to be surrendered to the company, and requested it to issue therefor, other shares in the names of the plaintiff’s minor children. The certificates so issued in the names of the children the plaintiff receipted for in the children’s names and took away with him. Plaintiff proved on the trial that he never delivered these certificates to his children. A year after, the plaintiff tendered these certificates in the name of his children to the defendant, and requested back his deed and conveyance, on the ground that he had discovered that certain representations of defendant’s agents, by which he was induced to make the grant in question, were false and fraudulent. The defendant refusing to rescind, the plaintiff sued to annul the grant to the defendant.
    The trial at special term resulted in judgment for the plaintiff on the following opinion.
    Bartlett, J. —Whatever representations were made as to the time within which the defendant’s road would be completed were promissory in their character, and do not constitute an adequate basis for such suit as this ; but it seems to be established in this action by a preponderance of proof that the defendant procured from the plaintiff the conveyance of his easement as abutting owner on the street through which the elevated railroad was to run, by the represention that there was in the treasury of the company the sum of §20,000,000, with which to build the road. Both Mr. Francis and Mr. G-aynor, his counsel, swear positively that this statement was made. The consideration for the conveyance was to be stock of the defendant corporation. The value of this stock was of course largely dependent upon the present financial condition of the company. The representation was a material inducement to the plaintiff to make the grant. It was untrue in fact; and the plaintiff is entitled to have the conveyance which was so obtained set aside on that ground.
    I do not think he is precluded from maintaining his action by reason of the fact that he had caused the certificates to be made out in the names of his children. The gift to his children had never been perfected.
    The plaintiff must have judgment as prayed for in the complaint. Let findings be prepared in accordance with these views and be submitted for settlement.
    From the judgment at special term in favor of the plaintiff, the defendant appealed to the general term of the second department.
    
      Robert Ludlow Fowler, for defendant, appellant.
    —I. The plaintiff had reason to know that the alleged representations, if ever made, which is denied, were false in fact. He could not supinely rely on mere matter of opinion of the defendant’s agent (Upton v. Tribilcock, 91 U. S. 45). Courts of equity do not assist those who will not use their own senses and discretion, and plaintiff had notice of the facts (Ellis v. Andrews, 56 N. Y. 83, 86).
    II. Assuming, for argument only, that the alleged representations do constitute fraud, yet by the transfer of the consideration to plaintiff s children, he put it out of his power to rescind. He was bound to tender the stock back to defendant before he could sub to annul his grant, and to restore defendant to the 
      status quo it possessed originally (Bowen v. Mandeville, 95 N. Y. 237; Scovil v. Wait, 54 Id. 650). The transfer ■ of shares on the books of the company of itself divested plaintiff of the stock (N. Y. & N. H. R. R. Co. v. Schuyler, 34 N. Y. 30, 80; Williams v. Mechanics’ Bank, 5 Blatch. 59; Holbrook v. N. J. Zinc Co., 57 N. Y. 616). The receipt in the name of plaintiff’s children constituted plaintiff their trustee, and no delivery of the certificates was necessary to create a voluntary settlement of the stock by plaintiff on his own children (Grangiac v. Arden, 10 Johns. 293; Martin v. Funk, 75 N. Y. 134; Willis v. Smyth, 91 Id. 297). Though the transferees of stock are infants, the transfer is not therefore avoided: the transfer by plaintiff to his children may be avoidable at the infants’ majority, but meanwhile it is good (Matter of Lumsden, L. R, 4 Ch. App. 31; Dublin & Wicklow Ry. Co. v. Black, 8 Ex. 181; Matter of Ebbetts, 39 L. J. Ch. 158; Cork & Bandon Ry. Co. v. Cazenove, 10 Q. B. 935; N. W. Railway Co. v. McMichael, 5 Ex. 114, 121). The plaintiff having therefore divested himself of the consideration he received by this transfer of the shares, cannot restore the defendants to their original position, and his action must fail non obstante the fraud alleged (West Bank of Scotland v. Addie, L. R. 1 S. & D. 145, 165; Clarke v. Dickson, E. B. & E. 148; 27 L. J. Q. B. 223).
    
      William J. Gaynor, for respondent, plaintiff.
    I. The fraudulent representations avoid the grant.
    II. The certificates never passed from plaintiff’s possession, and he could tender them back. He could sue for the fraud without tender (Horton v. Dorr, 19 Weekly Dig, 224).
    
      
       See Note on the Rights of a Beneficiary in a Life Policy, at p.2l, this vol.
    
    
      
      See Note on Rescission of Contracts, in 14 Abb. N. C. 301.
    
   Barnard, P. J.

There is a grave doubt whether or not the representation that the defendant had $20,000,000 in its treasury was ever made. There must have been a misunderstanding. The complaint avers no such fact. That is based upon a general charge that the stock was fully subscribed for to the amount required by law, and the requisite amount thereof actually paid in; that such facts were false. There is no proof of this except what is involved in the fact that $20,000,000 cash was in the treasury. The scrip contained on its face a statement that the capital stock was $5,000,000 only.

The complaint averred that the false statements therein averred as a basis for the action, were made by the president- and secretary of the company. Upon the trial, it was conceded that the president took no part in the negotiations for the right of way in Myrtle avenue. The case, therefore, under the finding, rests upon three witnesses and the probabilities of the case. The plaintiff and his attorney testify to the state'ment. The secretary testifies that he made no such representation.

It is to be assumed that the company had not obtained the consent of the common council or property-owners. The fact is inferenfcially stated by the secretary, and is not contradicted. It would be quite unusual that such a large sum would be in the treasury before it was known that any road could be built.

It would also be a fair inference that a secretary who had no interest to subserve should so state to the plaintiff if the fact was untrue ; it was so easily disproved. He knew the amount of the entire capital stock. There is no proof of any bonded debt. It is still more unusual that a bond could be negotiated until the road was an assured thing, having all necessary consents to its construction. It seems plain from the whole evidence, that the company had a merely formal organization, with no more means than was needed to incorporate it; that it was trying to get the consent of the common council and of the land-owners ; that, in pursuance of this plan, the company agreed to buy of the defendant a right of way in front of his lands on Myrtle avenue for $25,000 in stock, and that this, sum was to include the friendly aid of a large land-owner in getting others’ consent; that, if any representation was made, it was of future results when the road was, built, and that sufficient capital was at hand to build it, —meaning that there were men ready and willing to subscribe for and take either stock or bonds for that purpose. If $20,000,000 was mentioned, it was in this connection, and not as a statement of an existing fact.

The gift of the stock was an absolute one to the plaintiff’s children. He took the scrip to himself, and then surrendered it and took scrip back to his three infant children in their own names. This was a complete gift of the stock, so far as to permit the children to so elect when they arrived at the age of consent. The title was changed as to the plaintiff, and if the children were adults there would be no question but that the gift was completed. The donor had conveyed a title, and it was absolutely put out of the power of the donor to reclaim it.

The scrip was evidence of property only, and was good to evidence it for the donees, even if the same was not delivered to them. The books of the company would give the evidence also, and a transfer there, without any issue of scrip, would be sufficient to change the title (Holbrook v. New Jersey Zinc Co., 57 N. Y. 616; Rathbun v. Rathbun, 6 Barb. 98). In the case of an infant,.an acceptance will be inferred from the beneficial nature of the grant (Spencer v. Carr, 45 N. Y. 406; Jackson v. Bodle, 20 Johns. 184). If the title was changed to the stock, then the principle is universal, that until the stock is restored or tendered, bo action will lie to set aside the agreement, even if fraudulently obtained (Bowen v. Mandeville, 95 N. Y. 237).

The judgment should be reversed, and a new trial granted, costs to abide event.

Pratt and Dykman, JJ., concur.