#### Walter E. Lambert, Appellant, v. John B. Elmendorf, Respondent.

First Department,

March 20, 1908.

Sale of stock—fraudulent.representations as to condition of corporation — ignorance no excuse—trial — direction of verdict — damages.

One who in order to induce another to purchase corporate stock states that the corporation has acquired á large tract of land unincumbered and that the debts o£ the corporation do not exceed $5,000, when as a matter of fact the lands were mortgaged for over $39,000 and the corporation was otherwise indebted for over $100,000,, must be deemed to represent that he was conversant with the situation and thus made the representation on his own knowledge, and it is immaterial that he did not actually know the facts. Under the circumstances he is responsible for'the truth of the statements and the honesty of his belief is immaterial.

When in an action for damages the plaintiff testifies that he was induced to purchase corporate stock by the false representations aforesaid, and the defendant examined as a Witness in his own behalf states that he is not sure whether he made the representations of not, it is" proper for the-court'to direct a verdict for the plaintiff, for his testimony is corroborated by the refusal of the defendant to contradict him.

In such action the amount of damages is not a question for the jury where it appears that the plaintiff has rescinded the sale as induced by fraud, for in such case he is entitled to recover the amount paid for the stock, with interest, as for money .had and received.- ,

■ Appeal by the plaintiff, Walter E. Lambert, from an order of the Supreme Court, made at the Yew York Trial Term and entered in the office of' the clerk of the county of Yew York on the 6th day of January, 1908, setting aside a verdict theretofore rendered in favor of the plaintiff and granting a new trial of the action.

*Lewis 11.*Freedman, for the appellant. (

*George F. Honey,*for the respondent.

Ingraham, J.:

This action was brought to recover the damages sustained by the plaintiff by reason of certain fraudulent representations made b) the defendant to induce him to purchase certain shares of the capital stock of the Lakeside Cemetery Company of Buffalo. The repre*759sentations weré that the corporation had acquired and then owned a large tract of land of about 250 acres near the city of Buffalo, which was free and clear of all incumbrances, and that there were no claims existing against the corporation with the exception of a small floating debt which did not' exceed $5,000; that the corporation would in a short time pay dividends upon its stock. The defendant concealed from the plaintiff the fact that there was a mortgage upon the land amounting to over $29,000, and that there were other claims against the corporation greatly exceeding the sum of $5,000 and entitled to priority over the stock. The complaint then alleges that these statements and representations were false, fraudulent and untrue and known to the defendant to be so; that the plaintiff believed the representations and relied upon them and purchased fifty shares of the stock of the company for-$1,500; that on plaintiff’s discovering the falsity of the representations he rescinded the purchase and tendered back to the defendant the stock purchased and demanded repayment of the amount that he had paid. The answer was a general denial except as to the sale of the stock. The case came on for trial at Trial Term, and at the end of the testimony the court directed a verdict for the plaintiff for the full amount claimed. To this defendant, excepted, whereupon the court set aside the verdict and granted a new trial, and from the order entered thereon the plaintiff appeals.

The plaintiff testified that the defendant told him that the corporation had acquired a large tract of land near Buffalo which was an exceedingly “good thing;” that the defendant represented that the property was unincumbered and that the debts of the corporation did not exceed $5,000. It was then proved that in September, 1900, when the representations were made there was a mortgage upon the real estate of the corporation amounting to $22,750 ; that the corporation had taken the land subject to this mortgage, and that the total indebtedness of the cemetery in September, 1900, was $102,850, in addition to the mortgage. The defendant was called as a witness and testified that he did not know of the existence of any mortgage ón the real estate of the company; that he did not make any representations that the company was free and clear of incumbrances, to his knowledge, but that he was not sure. There can be no question but that'a verdict in favor of the plaintiff would *760have been sustained; and the only question presented is whether the court .was justified in directing a verdict "for the plaintiff on this testimony.

Thé action is based nppn the rescission of the sale of stock and a demand to recover back the consideration paid. The sale was induced by statements made by the defendant which related directly to the value of the stock, and which were false. What is necessary to justify a rescission of a sale of personal property is stated in *Garrett Co.*v. *Appleton (101*App. Div. 507; affd. on opinion below, 184 N. Y. 557), as follows: “ To rescind a contract upon the ground of fraud, as to recover damages upon the ground of fraud, *scienter*must be alleged and proved ; and while either the représen tation of a fact, knowing it 'to be false, madq with' intent to deceive, or representation of actúa,! knowledge of a fact when no- such knowledge exists and the fact is not true, is sufficient to support a cause of action, one of these conditions must be proved to exist . to sustain any action based upon fraud.” There was no evidence that the defendant knew this representation *to*be false at the time he made it, or that he made it with intent to. deceive; and in his testimony he expressly denied such knowledge. The representation, however, was that the property had been acquired by the corporation unincumbered except for a small debt; that it was. a perfectly safe investment which he himself was interested in, and that he was conversant with the whole sitúátion. It seems to me that this is in substance a representation that he knew the situation, and thus a representation that this fact as to the incumbrances upon the property of the corporation was of his own knowledge, which' brings the case within *Hadcock*v. *Osmer*(153 N. Y. 604). In that case the defendant made “ a-positive assertion of á material fact, with the intention that it should be acted upon and should induce the loan of the money. Yet he did not know the assertion, thus positively made for such an important purpose,- to be true, and he did not investigate or seek to discover whether it was true or not, although he had dealt -some with the Browns and had some information as to their circumstances. He intended, as the jury has found upon sufficient-evidence, that the lender should understand him as communicating his actual knowledge and not as "expressing his opinion, judgment or belief. Know*761ing that he did not know what he said he did, and what he intended to cause another to believe he did, lie took the responsibility of its truth and honesty of belief in the supposed fact, under such circumstances, cannot relieve Mm from the imputation of falsehood and fraud.”

The question then arises whether the court was justified in directing a verdict for the plaintiff. The proof of the representations of the defendant rests entirely upon the plaintiff’s testimony, and if the defendant had not been called as a witness 1 think the trial judge would have been required to submit the question to the jury. But the plaintiff having testified to the representation, the defendant was examined as a witness in his own behalf and, upon being asked whether he made such representations simply replied not to his knowledge, and that he was not sure whether he had made them or not. Upon such testimony a verdict for the defendant would have been clearly against the weight of evidence. Where a fact is testified to by a plaintiff as to a communication from the defendant, the plaintiff not at all impeached or contradicted, and where the defendant presents himself as a witness, but refuses to contradict the plaintiff’s testimony, the trial court is* justified in directing a verdict. It is the testimony of the plaintiff, corroborated by the fact that the defendant was examined as a witness in his own behalf and refused to .contradict the plaintiff, which justifies the court in assuming that the testimony which the defendant refused to contradict was true. There was no question of damages; as the plaintiff has rescinded the sale of the stock as having been induced by fraud, and he was then entitled to recover as for money had and received the amount that he had paid therefor, with interest, and for that amount the court properly directed a verdict for the plaintiff.

It follows that the order appealed from should be reversed, with ten dollars costs and disbursements, the verdict reinstated and j udgment directed upon the verdict, .with costs.

Patterson, P. J., Laughlin, Clarke and Houghton, JJ., concurred.

Order reversed; with ten dollars costs and disbursements, verdict reinstated and judgment directed on verdict, with costs.