Court Opinion

ID: 5328474
Source: CourtListenerOpinion
Date Created: 2022-01-08 05:03:39.12618+00
Date Added: 2024-06-11T08:29:24.860051
License: Public Domain

Hill, P. J. (dissenting).
The defendants, Charles H. Platz and his wife, Elizabeth J. Platz, appeal from a portion of a judgment in plaintiff’s favor entered upon a decision made by a referee, wherein it was determined that, because of defendants’ fraud, she was entitled to have rescinded a contract made in May, 1919, where-under she transferred to these defendants seventy-six out of a total of one hundred and fifty shares of the capital stock of the corporate defendant. The report and decision of the referee contains the recital: “ The undersigned further reports that in pursuance of the stipulation of the parties hereto, the matter of an accounting herein is held for future determination.” Notwithstanding this, plaintiff has entered a judgment purporting to determine and adjust finally and fully all matters between the parties. It awards final costs of the action. The personal defendants appeal from so much of the judgment as directly or by implication determines that there shall be no accounting between the parties, and that plaintiff becomes the owner of the seventy-six shares without making restitution to defendants after and if an accounting discloses that equitably restitution should be made. There is a second appeal from an order denying defendants’ motion to.eliminate the item of costs from the judgment.
The corporate defendant was organized by plaintiff’s uncle to take over the business of buying and selling new and used books which he had conducted in Albany for many years. Upon the incorporation he became the owner of all the capital stock which upon his death in 1917 passed under his will to the plaintiff. The defendant Charles H. Platz was in his employ for several years *203up to 1913. In 1919 Platz was the owner of a book store also located in Albany, which was managed by his wife, the other defendant, while he devoted his time during the business hours of the day to his employment in the internal revenue department of the United States government. It was arranged between the parties that the plaintiff should transfer to Platz and his wife seventy-six shares of the capital stock of the corporate defendant. In return, Platz was to assume such 'management of the business as his work would admit. This he did, but plaintiff states, and the referee found, that he agreed to resign the government position soon after 1919 and devote all his time to the book business. His refusal to resign was found to be fraudulent and to justify plaintiff’s demand for recission. While defendant upon the trial denied that he agreed to resign, he does not appeal from the finding. It may be pertinent as bearing upon his equitable right to an accounting to mention that plaintiff says and it was found that he refused definitely and finally to resign and to devote all his time to the business in the year 1925. She, it seems, thereafter accepted for the corporation and for herself indirectly,' the benefits accruing from his continued management until 1930 when this action was brought.
He who seeks equity must do equity. Making more specific application of this oldest of the generic principles of equity, I quote from the opinion in Masson v. Bovet (1 Den. 69, 74): “ The party who would disaffirm a fraudulent contract must return whatever he has received upon it. This is on a plain and just principle. He cannot hold on to such part of the contract as may be desirable on his part and avoid the residue, but must rescind in toto, if at all. * * * To retain the whole, or a part only of what was received upon the contract, is incompatible with its rescission; and hence the necessity of restoring what had been received upon it.” Mr. Justice Holmes in Stoffela v. Nugent (217 U. S. 499) said: “ It is true that the defendant acted fraudulently and knew what he was about. But a man by committing a fraud does not become an outlaw and caput lupinum. * * * He may have no standing to rescind his transaction, but when it is rescinded by one who has the right to do so, the courts will endeavor to do substantial justice so far as is consistent with adherence to law.” The opinion in Gould v. Cayuga County National Bank (86 N. Y. 75) states (at p. 79): “ It is a general rule laid down in the text books and reported cases that a party who seeks to rescind a contract into which he has been induced to enter by fraud must restore to the other party whatever he has obtained by virtue of the contract. * * * He cannot retain any thing he received under the contract and yet proceed in disaffirmance thereof.” To supplement these citations by similar statements made more recently is unnecessary.
*204There have been transactions between these parties based on the 1919 contract for more than ten years. An accounting in relation to and in reconciliation of the respective charges and contributions is necessary. Without seeldng to catalogue the several items which should be considered, the evidence discloses that defendant with no consideration other than the transfer of the capital stock by plaintiff, mingled the books, mailing lists and all of the assets of the business which he owned in 1919 with those of the corporate defendant. During the entire period he has assisted in the management of the business. His wife, with plaintiff’s consent and approval, has worked actively in the store. A portion of her salary remains unpaid. Plaintiff has been paid a salary by the corporate defendant or has taken credit upon its books. The funds available for these salaries have been provided from the sale of books, some of which came from the defendants’ store. Plaintiff and defendants have had separate living quarters in the building belonging to the corporate defendant. There was no necessity for an accounting until the issue of the claimed fraud had been decided. Had the defendants prevailed on this issue, none would have been necessary at any time, but now under the pleadings it is not only proper but defendants’ right to an accounting and the incidental restitution for benefits the plaintiff and the corporate defendant have received, if any.
The judgment following the determination of the fraud issue should have been made interlocutory with the final award of costs in the final judgment following the accounting. The motion to eliminate costs from the judgment appealed from should have been granted. (Osborn v. Cardeza, 180 N. Y. 69; Twin Realty Corporation v. Glens Falls P. C. Co., 225 App. Div. 515.)
The judgment should be modified and in part reversed on the law and facts, with costs to the appellants, by striking therefrom the provision as to recovery of costs and by including a recital that the judgment is interlocutory, and a direction that an accounting be had between the parties and that the seventy-six shares of the capital stock of the corporate defendant now in the possession of the Albany county clerk be delivered to the plaintiff, upon the filing of a satisfaction of any judgment obtained by the personal defendants on the accounting. The order denying defendants’ motion to eliminate the item of costs from the judgment filed and entered should be reversed on the law and facts, with costs, and the motion granted.
Judgment and order affirmed, with costs, without prejudice to right to appellants to an accounting against Joseph McDonough Company.