Case Name: John J. Zimmele, Respondent, v. American Plaster Board Company and George W. Sessions, Appellants, Impleaded with The Eastern Plaster Board Company and Another
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1896
Citations: 1 A.D. 327
Docket Number: 
Parties: John J. Zimmele, Respondent, v. American Plaster Board Company and George W. Sessions, Appellants, Impleaded with The Eastern Plaster Board Company and Another.
Judges: 
Reporter: Appellate Division Reports
Volume: 1
Pages: 327–330

Head Matter:
John J. Zimmele, Respondent, v. American Plaster Board Company and George W. Sessions, Appellants, Impleaded with The Eastern Plaster Board Company and Another.
Rescission of a contract for the purchase of corporate stock — a failure to demand it, for a long time after the discovery of the alleged fraud, waives the right to rescind — misjoinder of parties defendant.
The right to disaffirm a contract is waived when the defrauded party does any act which unequivocally treats the contract as subsisting after the facts, giving the right to rescind, have come to his knowledge; as for instance when, after the discovery of the condition of the corporation whose stock he has been, induced to purchase, as he alleges, by reason of false representations in respect to it, he neglects to disaffirm his purchase. The law' requires disaffirmance at the earliest practical moment after the discovery of the fraud.
Upon the trial of an action which proceeded upon the theory of a disaffirmance of a contract upon the ground that it had been induced by fraud, it appeared that the plaintiff was the superintendent and general manager of the Eastern Plaster Board Company; that he entered into its service on the loth of September, 1830; that on November 7, 1890, he was induced to buy certain shares of its stock, as alleged, by false representations; that the purchase was made from the American Plaster Board Company of which another defendant, George Vi. Sessions, was president; that the money in question was paid to Sessions in his capacity as president; that the plaintiff became entirely familiar with the affairs of the Eastern Plaster Board Company and remained in its employment nearly two years before he left it and before he disaffirmed the agreement for the purchase of its stock.
Held, that his disaffirmance came too late ;
That his action, for the restoration of the money paid for the stock, could not be maintained against the defendant Sessions, jointly with the corporation of which he was president, since the action was in the nature of one for money had and received and he obtained nothing under the contract sought to be rescinded.
Appeal by the defendants, the American Plaster Board Company and George W. Sessions, from a judgment of the Supreme Court in favor of the plaintiff and the defendant, The Eastern Plaster Board Company, entered in the office of the clerk of the county of New York on the 24th day of August, 1895, upon the verdict of-a jury rendered after a trial at the New York Circuit, and also from an order entered in said clerk’s office on the 10th day of ‘June, 1895, denying the defendants’ motion for a new trial upon the minutes.
Francis Forbes and Charles T. Haviland, for the American Plaster Board Company, appellant.
James L. Bishoj), for George W. Sessions, appellant.
Robert B. Iloneyman and A. Shiland, Jr., for the respondent.

Opinion:
Barrett, J.:
This is not an action for damages for deceit. We agree with the respondent that the plaintiff is suing to recover " what he parted with " upon the theory of a disaffirmance. The complaint proceeds upon that theory in its averment that, upon learning of the fraud, the plaintiff demanded back his money, and offered to surrender all his claim upon the stock. The learned judge acted upon that theory with regard to the rule of damages, and tiie jury applied it by rendering a verdict for the amount paid with interest. Indeed, if the action had been for damages for fraud, the recovery would necessarily have been nominal, for the reason that the plaintiff gave no proof of such damages. Upon the plaintiff's theory, therefore, he could only recover from the actual recipient of his money. He averred that these recipients were the four defendants, but he wholly failed to establish that averment. He confused the two theories — damages for deceit, and moneys had and received under a contract rescinded for fraud. The defendant Otto was not served, and has not appeared. The complaint was dismissed as to the Eastern Plaster Board Company. That left the defendants, the American Plaster Board Company, a California corporation, and George W. Sessions. There was a verdict against both. Thus the jury have found that both the corporation and the individual contracted with the plaintiff, that they both sold him fifty shares of the stock of the Eastern Plaster Board Company, both made the false representations which are set out, and both received his money. This, of course, is senseless. There was no partnership or joint relationship between the two, the corporation and the individual. There was, in fact, no evidence in the case to justify the submission of Sessions' liability at all. He did not contract personally with the plaintiff. He acted throughout as the president of the appellant corporation. He was, it is true, the payee of the checks given for the price of the shares,* but he did not deposit these checks to his own credit, nor did he receive the money therefor. On the contrary, he indorsed these checks (one of them for $3,000, payable to his order as president) and turned them over to the treasurer of the Eastern Plaster Board Company, which apparently was satisfactory to the American Plaster Board Company, the owner of the stock. The learned judge in his charge said, without exception or question from any one, that the money was paid to, or in some way applied for the benefit of, the American Plaster Board Company, and the learned counsel for the respondent admits in his brief that the plaintiff's money vras paid and applied to the use of the American Plaster Board Company. At all events, these checks were received by Sessions for the American Plaster Board Company, and as its president. They were given in payment for stock owned by this corporation, and sold by it through Sessions as its president. And further, Sessions also received, as part of the purchase price, the plaintiff's note for $1,000, which he turned directly over to the American Plaster Board Company, and that company has held it ever since, together with the very shares in question, as collateral.
It is clear that Sessions had no individual relation to this transaction, and that he was held upon some loose and inaccurate notion coupling liability for deceit with the liability which follows rescission. In other words, because of alleged misrepresentations for which he might he liable in damages, he was held upon rescission to be liable for the purchase price, that is, for what his-principal and not lie had received.
The judgment against Sessions must be reversed. That, against the company should also be reversed for another reason. There was sufficient evidence with regard to the representations and their falsity to warrant the submission of the questions of fact upon that head to the jury. The evidence as to the plaintiff's reliance upon these representations is, however, quite unsatisfactory. Bnt there can be no doubt that the plaintiff failed to disaffirm the contract until long after he became fully acquainted with the facts upon which he ultimately predicated such disaffirmance. The rule is well settled that the right to disaffirm is waived when the defrauded party does any act which unequivocally treats the contract as subsisting after the facts giving the light to rescind have come to his knowledge, as, for instance, when, after the discovery of the state of things, he takes an active part in the affairs of the company. (Pollock on Contracts [Wald's Notes], 537.) The law requires disaffirmance at the earliest practicable moment after the discovery of the cheat. (Mason v. Bovet, 1 Den. 69; Baird v. The Mayor, etc., 96 N. Y. 567, 598 ; Cobb v. Hatfield, 46 id. 536.)
What were the facts here ? The plaintiff was the superintendent and general manager of the Eastern Plaster Board Company. He entered into the service of this company on the 15th of September, 1890, and he did not close the purchase of its shares until the seventh of the following November. He had the supervision of the manufacture, the ordering of and caring for material, the payment for labor and the filling of orders. He had a foreman under him and 125 employees. The company's establishment covered about ten and one-lialf acres of ground. This employment was undoubtedly one of the main inducements to the stock investment. The plaintiff exacted from the American Plaster Board Company an agreement to repurchase the shares in case he should lose such employment. Later, in March, 1891, he entered into a -written agreement with the Eastern Plaster Board Company, by which he was to have one per cent of its net profits in addition to his regular salary of $150 per month. He continued in the employ of the company until July, 1892. He admits that lie " gradually came to the conclusion," about a year after the agreement whereby he became superintendent, that things were not altogether as they were represented. The truth is that he became thoroughly acquainted with the condition of the company and of its affairs. He even attended the meetings of stockholders and there made important statements. It was long after he must have acquired full knowledge as to who these stockholders were that he made up his mind to claim a return of his money. It is clear that he took his chances throughout, and that his disaffirmance came too late.
The judgment should be reversed, and a new trial ordered, as to both defendants, with costs to each appellant to abide the event.
Van Brunt, P. J., Rumsey, Williams and Ingraham, JJ., concurred.
Judgment reversed and a new trial ordered as to both defendants, with costs to each appellant to abide the event.