Court Opinion

ID: 5255323
Source: CourtListenerOpinion
Date Created: 2022-01-06 18:26:02.147837+00
Date Added: 2024-06-11T08:28:00.386049
License: Public Domain

Smith, J. (dissenting):
The plaintiff and the two defendants were the owners of all the stock of the Falle Tobacco Company. Apparently the two defendants were active in the management of the company, while the plaintiff was not. There had been negotiations for the sale of all of this stock to the Tobacco Products Corporation. One of the defendants was the plaintiff’s brother and the other an old employee who had been taken into the business, in both of whom the plaintiff had full confidence. The defendants falsely represented to the plaintiff that the sale to the Tobacco Products Corporation had fallen through and that the negotiations had ceased, but that there was another customer in view, and that in order to consummate their sale to this other customer it would be necessary for the plaintiff to give to the defendants an option for the purchase of his 3,272 shares of stock at par and also an agreement that he would not engage in the tobacco and cigarette business for at least five years and that he would not use the name of Falk in connection with the manufacture or sale of tobacco or cigarettes. They further represented to the plaintiff that they were acting for the benefit of the plaintiff in the sale thereof and were not making any profit nor deriving any advantage out of the negotiations or the sale of said stock, and that they would pay to the plaintiff the entire consideration received by them for the same. Thereupon the plaintiff gave to the defendants an option to purchase his stock at par and an agreement not to engage in the manufacture or sale of tobacco for five years, nor to use the name of Falk in connection with the manufacture or sale of tobacco or cigarettes. The plaintiff then alleges that these representations by the defendants were false and untrue, that the negotiations with the Tobacco Products Corporation had not fallen through and that they intended at all times to sell the stock to the *841Tobacco Products Corporation, and finally did effect such sale at a price above par, for which they had received cash and securities, and that they refused to account to the plaintiff for the excess price above the par value that they had received for the stock. Plaintiff then asks as relief that the option agreement to sell the stock at par be rescinded and that the agreement not to engage in the tobacco or cigarette business for a period of five years be rescinded, and that the defendants account to the plaintiff for the proceeds of said stock and all profits derived therefrom, and for such other and further relief as might be just. The defendants have demurred on the ground that the allegations do not state facts sufficient to constitute a cause of action. The case is here on appeal from a judgment sustaining the demurrer.
Upon his complaint I think the plaintiff is entitled to equitable relief.
. First. He is entitled to the rescission of the contract of January fifteenth, not to engage in the tobacco business for five years under the name of Falk. He does not allege that that contract has been assigned to the Tobacco Products Corporation which purchased this stock, and in the absence of such assignment the agreement having been obtained by fraud, he would seem to me clearly entitled to a rescission thereof. This contract was obtained from plaintiff in order to make a sale to a third party. It is no answer to say that he may proceed to sell and await an action for an injunction or damages, and then assert his defense. The case is materially different from the case of a promissory note obtained by fraud where the maker may await an action thereupon and set up his fraud in defense. To engage in the tobacco business involves possibly an association with other parties and more or less of an expenditure of money only to find if that contract has been assigned to a bona fide purchaser of the stock that he is liable in damages for a violation thereof. This is clearly not such a contract as requires him to await an action for its breach. The very existence of the contract would embarrass him in forming relations with other parties for the manufacture and sale of tobacco under the Falk name, and plaintiff is entitled to its rescission, if it has not been assigned to a bona fide purchaser of the stock from the defendants.
*842Second. I think the plaintiff is entitled to further equitable relief. Between these parties there existed a relation of trust and confidence;* not only did they represent to him that the contemplated sale to the Tobacco Products Corporation had fallen through, but they also represented that to effect any sale he should give an option agreement to sell at par. This was given upon their assurance that they were acting in his behalf, without any advantage to themselves, and upon a promise to pay any sum above par which they might receive for the stock. The complaint here alleges that the stock was sold to the Tobacco Products Corporation, including plaintiff’s stock, for a valuable consideration consisting of securities and cash paid to the defendants. To my mind the plaintiff upon these facts is entitled to a decree declaring a constructive trust in the moneys and securities received by the defendants upon the sale of this stock. Plaintiff is not seeking to get back the stock. He has not made the vendees parties to this action and has alleged that they hold for a valuable consideration.
That the plaintiff has not an adequate remedy at law for the relief to which he is entitled seems to me to be apparent from the facts stated. In an action at law he can only recover the value of his stock in excess of the par value received for it, but he is entitled to more than that. He is entitled, if there be a constructive trust, to his share of the profits received over and above the par value. If those profits were received as alleged in the complaint in moneys and securities, he is, therefore, clearly entitled to an action in equity, first to declare the trust and, incidental thereto, to an accounting of the profits received. The learned counsel for the respondent recognizes the right of the plaintiff to recover the excess over the par value received by the defendants from the sale, and says that the. plaintiff may elect whether he will take them or take the value of his goods. I have never read in an action at law or for fraud that the plaintiff may elect as to his measure of damage. His right of an election comes before he has brought the action, whether he should proceed at law for damages under a fixed and unvarying rule of damages, or proceed in equity to declare a trust and for an accounting of the profits received. These views seem to me to be sustained by *843the cases of Schafuss v. Betts (94 Misc. Rep. 463; affd., 175 App. Div. 893); Hammond v. Pennock (61 N. Y. 145); American Sugar Refining Company v. Fancher (145 id. 552); McManus v. Durant (168 App. Div. 643). In the case of Schank v. Schuchman (212 N. Y. 356), which is strongly relied upon by the respondents, in reference to the facts of that case it is said: “ They do not need at this time the aid of equity. There is nothing at this time for equity to undo. There is no trust to be impressed; no accounting to be decreed; no fiduciary relation to be declared.” Defendants’ counsel in the brief says that plaintiff was not asked to impress a trust on the moneys and securities received for the sale of the stock. But that is the whole purpose of his action and need not be specifically asked.
If I am right in my view of the questions here presented, the plaintiff’s complaint is not objectionable to a demurrer that no cause of action is stated.
Judgment and order affirmed, with costs, with leave to plaintiff to serve an amended complaint on payment of costs in this court and in the court below.