Case ID: ad_138/html/0711-01.html
Source: Caselaw Access Project
Author: {"author": "Houghton, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

George T. Thompson, Respondent, v. James R. McLaughlin and Others, Appellants, Impleaded with Charles D. McLaughlin, Defendant.
    Third Department,
    May 4, 1910.
    Answer — action to charge directors of corporation with liability for issuing false reports — answer may be unverified — stay — failure to pay costs of motion — defendant may answer.
    In an action brought under section 31 of the Stock Corporation Law, making officers and directors of a corporation jointly and severally liable for damages sustained by one who became a stockholder upon the faith of false reports made by them, the defendant may serve an unverified answer although the complaint alleging their, fraud be verified. This, because section 665 of the Penal Law makes such act by a director or officer a misdemeanor.
    A verified pleading is an affidavit and is testimony, and thus, by virtue of article 1, section 6, of the State Constitution and section 837 of the Code of Civil Procedure, one cannot be compelled to verify an answer which tends to accuse himself of a (crime or a misdemeanor.
    The stay of proceedings effected by section 779 of the Code of Civil Procedure on a failure to pay moneys directed to be' paid by order, applies only to acts furthering the interest of the party in default by giving him some affirmative relief. His defense is not stayed, and hence, he may serve an answer although motion costs and the costs of an appeal remain unpaid.
    Appeal by the defendants, James R. McLaughlin and others, from an order of the Supreme Court, made at the Monroe Special Term and entered in the office-of the clerk of the county of Ontario on the 21st day of September, 1909, denying the said defendants’ motion to compel the plaintiff’s attorney to accept service of the respective answers of the several defendants.
    This case was transferred from the Fourth Department to the Third Department. (See 136 App. Div. 910.)
    
      
      John Colmey, for the appellant Martin.
    
      Wynkoop <& Rise, for the appellant John L. McLaughlin.
    
      Scott (& Fitch, for the appellant James It. McLaughlin.
    
      Christian cíe Thompson, for the appellant Park-hurst.
    
      Charles D. Ffewton, for the respondent.
   Houghton, J.:

The plaintiff brings this action against the defendants, who were directors and officers of the Lisk Manufacturing Company, Limited, to recover damages because he was induced by them to purchase, at a high price, the worthless stock of that corporation. A verified complaint was served setting forth that the defendants as directors and officers of such .corporation, for the purpose of inducing the plaintiff and others to buy its stock,.prepared, signed, circulated and published a false report of'its financial condition, and that believing such report to be true, the plaintiff purchased certain shares of stock which were of no value but which would have been worth the amount paid had such report been true.

Section 31 of the Stock Corporation Law (Laws of 1890, cha.p. 564, as aind. by Laws of 1892, chap. 688) provides that if any certificate or report made or public notice given by the officers or directors of a stock corporation shall be false in any material representation those officers and directors signing the same shall jointly and severally be liable' for the damages sustained by any person who shall become a stockholder upon the faith of such report, certificate or notice. The defendants deeming the action brought under this section, moved to strike out certain other allegations appearing in the complaint as irrelevant. The learned Special Term held such allegations pertinent to’a general action for fraud and deceit independent of any ’cause of action under the Stock Corporation Law, and denied the motion, with ten dollars costs. An appeal was taken from such order and it was affirmed, with ten dollars costs and disbursements: (132 App. Div. 948.) Thereupon, after the ten days within which the motion costs and the costs of the appeal were payable had expired, and without paying such costs, but within the time to which service of answer had been extended, the defendants served unverified answers denying generally the allegations of the complaint. The plaintiff’s attorney returned the answers with a written statement that he refused to accept service because they were unverified and also because the motion costs and the costs of the appeal from the order had not been paid. After the return of the answers the costs were tendered and refused. Thereupon the defendants moved to compel plaintiff’s attorney to accept service of the answers as made. The moving affidavits stated that the nonpayment of costs was an oversight, but the notice of motion did not specifically ask relief because of the mistake. The motion was denied and the defendants appeal.

Section 523 of the Code of Civil Procedure provides that where a pleading is verified each subsequent pleading, except a demurrer or the general answer of an infant by his guardian ad litem, must be verified, except “ where the party pleading would be privileged from testifying as a witness concerning an allegation or denial contained in the pleading.” An allegation charging fraud which does not amount to a crime does not come within such exception, and section 529 of the Code expressly declares that where such allegation is made the answer thereto must be verified.' Section 611, subdivision 3, of the Penal Code (now Penal Law, § 665, subd. 3) makes it a misdemeanor for any director or officer of any corporation to knowingly concur in making or publishing a written report, exhibit or statement of its affairs or pecuniary condition containing a material statement which is false. The complaint plainly charges the defendants with having made and published a material false statement of the pecuniary condition of the Lisk Manufacturing Company, Limited. It, therefore, charges them with the commission of a crime, namely, the misdemeanor of misconducting themselves as directors and officers of a corporation. In conformity with article 1, section 6, of the Constitution, the Legislature has provided that a witness cannot be required to give an answer which will tend to accuse himself of a crime or misdemeanor. (Code Civ. Proc. § 837.) A verified pleading is an affidavit (Code Civ. Proc. § 3343, subd. 11), and, therefore, testimony. The privilege of not testifying respecting acts which constitute a crime extends to a denial as well as confession of guilt, and, therefore, where the pleading alleges facts which constitute a crime a party so charged may answer without verification. (Matter of Peck v. Cargill, 167 N. Y. 391.) It does not change the situation that the plaintiff claims his action is for fraud and deceit.. ' He has chosen to allege facts which constitute a crime and thereby opened the door permitting the defendants to stand upon their privilege. The defendants, therefore, bad the right to serve, an unverified answer.

The remaining question is whether .the non-payment of the motion costs and costs of the appeal prevented them from so doing. We think it did not. ■ Section- 779 of the Code provides that'where costs of a motion or any other sum of money directed by .an order to be paid are not paid within the prescribed timé, all proceedings on the part of the party required to pay the same, except to review or vacate the Order, aré stayed without further direction of the court until the. payment thereof.” . In construing the extent of the stay prescribed by this section the courts have limited it to some onward movement in the action f urthering the interests of. the party in. default through giving him'some affirmative rélief therein, and have held that it does not apply to an act of self-defense on his part. (Tracy v. Lichtenstadter, 113 App. Div. 751; Mattice v. Shelland, 76 id. 236.) The service of an answer was an act of self-defense. If not served plaintiff would have the fight to take judgment by default. Courts are. careful to preserve the rights of the party to defend himself, and although a defendant in a divorce action be guilty ;of contempt of court in failing to pay the-amount of alimony ordered, his answer cannot be stricken out and he thus- be deprived of his defense as a punishment for his disobedience. (Sibley v. Sibley, 76 App. Div. 132.)

Our Conclusion is that, notwithstanding the' non-payment of the motion costs, the, defendants had the right to serve their answers. The' answers being properly unverified, it follows that the motion .to Compel acceptance of service should have been granted, instead of denied.

The order should be reversed, with ten dollars costs and disbursements, and motion to compel acceptance of service of answers granted.

All concurred.

Order reversed^ with ten dollars costs and disbursements, and motion to compel acceptance of answers granted, without costs.