Case Name: Francis M. Eppley, Respondent, v. Arthur Kennedy, Appellant
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1909-03-05
Citations: 131 A.D. 1
Docket Number: 
Parties: Francis M. Eppley, Respondent, v. Arthur Kennedy, Appellant.
Judges: 
Reporter: Appellate Division Reports
Volume: 131
Pages: 1–5

Head Matter:
Francis M. Eppley, Respondent, v. Arthur Kennedy, Appellant.
First Department,
March 5, 1909.
Contract for sale of corporate stock and franchises construed — sale by stockholder not sale by corporation — pleading — allegations of fraud — conclusions — when evidence of fraud inadmissible — amendment at trial—reliance upon false representations essential.
A contract to purchase all the stock aud assets of a corporation awning railroad franchises for a certain sum in cash, part to he paid on delivery of the contract and various, installments at stipulated times, with.a provision that the whole should become due afl.er thirty days’ default in payment of any installment, should be construed to mean that the stock and assets were to he turned over to the purchaser only when he made the final payment, and not in parts proportional to the installments paid.
An agreement by an individual to sell all the stock and assets of a corporation owned or controlled by him is valid and not contrary to law, as a sale by a corporation of all its property and franchises, for the contract is not that of the corporation but of an individual.
An allegation that the franchises agreed to he sold “ were invalid and worthless ” is a mere conclusion of law, not constituting a defense to an action for the purchase price. Hence, it is not error to refuse to allow the defendant to show the invalidity of the franchises, for facts constituting fraud must he pleaded in order to allow the introduction of evidence of fraud.
-So, too, allegations that the franchises were “fictitious, invalid and illegal” are mere conclusions insufficient to raise an issue of fraud.
A plaintiff is not compelled to demur to affirmative defenses on the ground of insufficiency, but can raise the question at trial. This, because a defendant is bound to plead what he is compelled to prove as a defense..
A defendant whose allegations of fraud are mere conclusions should not be per-, mitted to amend at trial so- as to allege the facts, where it appears that all the facts were in his possession before service of the answer, and he proposed a settlement of the action. "
A party who has agreed to buy the franchises of a corporation cannot avoid the obligations of the contract on the ground of false representations by the seller where the evidence shows that before executing the contract he submitted .the question of the validity of the franchises to his attorney. Reliance upon false representations is a necessary element of such defense.-
Appeal by the defendant, Arthur Kennedy,, from a judgment of the Supreme Court in favor óf the plaintiff, entered in the- office of the cl'erk of the county of New York on the 5th day of December, 1907, upon the verdict of a jnry'-reudered'by direction of the court after a trial at the New York Trial Term.
George L. Shearer, for the appellant.
'G. U. Qrawford, for tile respondent.

Opinion:
Houghton, J.:
The defendant, by an-agreement in writing, agreed to purchase from the plaintiff all the stock and assets of a corporation known as the Essex Cross Railway Company', which corporation' held franchises for the construction of certain street railways in various towns in the State of New Jersey. The sum of $25,000 in. cash was agreed to be paid, $1,000 on delivery of the contract and various installments at. stipulated timesj with a provision that the whole should become due after thirty days' default in the payment of any installment. Certain other matters were agreed to not material to the present controversy.
Default was claimed to have been made in payment of the first two installments and this action was brought for the whole amount. On the trial the plaintiff tendered all the stock of the corporation . as well as the resignation of all the directors thereof, as stipulated by the contract. By his answer the defendant admitted the making of -the -contract and the failure to pay the installments but denied that they were due as alleged, or that the plaintiff liad authority to make the contract or that it was valid, and as his principal defense alleged that he was induced to enter into the contract by reason of false representations made by the plaintiff. The substance of the allegation of the answer in this respect is that the defendant was induced to execute the contract by reason of representations of the plaintiff that the franchises were in all respects valid and worth a large amount, and that he relied upon such representations and was. thereby induced to execute the contract, and that such representations were false and were known by the plaintiff to be false when made, and' were made with the intent to deceive, whereas " the franchises therein mentioned were invalid and worthless."
On the trial evidence tending to show the invalidity of these franchises was excluded by the learned trial court on the ground that the defense of fraud and deceit was not properly pleaded, in that it did not state facts showing the invalidity of the franchises. Upon objection being made that the defense pleaded was insufficient to permit evidence of the invalidity of the franchises, the defendant asked leave to amend his answer by setting forth the facts which constituted the invalidity. To this the plaintiff objected and introduced in evidence a letter which the defendant had written to the plaintiff after the'service of the complaint in this action and before the service of his answer which showed that he knew all .the facts respecting the franchises, and in which letter he made a counter proposition to the plaintiff to accept a certain sum in cash and a certain amount of bonds in the proposed new corporation in settlement of the present controversy. Thereupon the trial court refused to permit the amendment and the trial proceeded without the defendant asking to withdraw.a juror, or that the trial be suspended for the purpose of permitting him to make a motion to amend his answer.
At the close of the evidence the trial court directed a verdict in favor of plaintiff, and from the judgment entered thereon the defendant appeals.
The defendant urges that by the terms of the contract delivery of the stock and assets should have been tendered when partial payment was due, and that the contract was contrary to law in that it provided for the sale by a corporation of all of its property and franchises. We think neither of these points is well taken. The proper interpretation of the contract is that the stock and assets of the corporation were to be turned over to the defendant when he had made his. final payment and notin proportional parts as payments became due. The plaintiff was selling the stock and assets of a corporation. The corporation itself was not selling its own property and franchises, and if the plaintiff owned or controlled all of the stock and assets he could sell them and such a sale was not a sale by the corporation itself.
The principal question is whether or not the defendant should have been permitted to introduce evidence tending to show the invalidity of the franchises in connection with his proof as to the alleged false representations of the plaintiff respecting them. We think the ruling of the trial' court was correct and that the defendant's plea as to fraudulent representations was insufficient to permit introduction of evidence on his part. The allegation that the franchises " were invalid and worthless " was a mere conclusion, and insufficient in law to constitute a defense or a cause of action. The burden of charging as well as prdving fraud is on the party alleging it, and facts constituting the alleged fraud must be set forth in order to entitle a party to introduce evidence of it. Mere conclusions of law are not enough. (Wood v. Amory, 105 N. Y. 278; Robinson v. Syracuse Rapid Transit R. Co., 100 App. Div. 214; Blumenfeld v. Stine, 96 id. 160; Booth v. Dodge, 60 id. 23; Woolsey v. Sunderland, 47 id. 86; Sbarboro v. Health Dept., 26 id. 177; Butler v. Viele, 44 Barb. 166; Masson v. Bovet, 1 Den. 69.) The words "fictitious," "invalid" and "illegal" are mere conclusions of law, and do not state facts sufficient to raise an issue of fraud (Knapp v. City of Brooklyn, 97 N. Y. 520; Cohn v. Goldman, 76 id. 284; New York & M. V. Transportation Co. v. Tyroler,, 25 App. Div. 161.) The plaintiff was not compelled to demur to the affirmative defense set up by the defendant, but could proceed to trial and then take advantage of the insufficient defense, because the defendant was bound to plead what he was compelled to prove. (Sbarboro v. Health Dept., supra; 20 Cyc. 106.) The defendant's answer being insufficient, the court properly excluded his evidence tending to show the invalidity of the franchises held by the corporation, the stock of which he had agreed to buy.
There is some question as to whether or not an appeal from the judgment alone, in the absence of the defendant asking for the withdrawal of a juror or the postponement of the trial for the purpose of permitting him to make a motion to amend his answer, brings up for review the question as to the propriety of the refusal of the court to allow the defendant to amend by alleging facts constituting the invalidity. Assuming, however, that that question is before us, we think there was no abuse of discretion. The defendant's letter shows that he had all the facts in his possession before he served his answer, and that he made a counter proposition for settlement of the present action. Under such circumstances, he should stand by the pleading which he chose to serve.
But if the defendant had been permitted to introduce the evidence which the court excluded it would have been unavailing to him, because the record shows that he submitted the whole matter of the franchises and their validity to his attorney, and thereafter executed the contract. In the absence of any evidence to the contrary, this would show an investigation on the defendant's part and non-reliance on any representations of the plaintiff if any were made. Reliance upon the false representations was a necessary element of defendant's defense in avoidance of the contract,- and with that lacking the other elements would be unavailing.
The rulings of the court in other respects we think were proper. The contract being valid and, as we interpret it, no tender being necessary upon maturity of partial payments, and the plaintiff having properly tendered on the trial the property agreed to be purchased, a direction of a verdict in behalf of plaintiff was proper and the judgment should be affirmed, with costs.
Ingraham, McLaughlin, Laughlin and Scott, JJ., concurred.
.Judgment affirmed, with costs.