Court Opinion

ID: 5213807
Source: CourtListenerOpinion
Date Created: 2022-01-06 16:18:31.519877+00
Date Added: 2024-06-11T08:27:24.516597
License: Public Domain

Scott, J. (dissenting):
This action is brought by the plaintiff to rescind a subscription of $20,000 to the preferred stock of the defendant corporation, and to recover the amount Of such subscription from the corporation and the individual defendants, who were its directors and who signed a prospectus which induced plaintiff to subscribe, and which he now says contained fraudulent misrepresentations. The complaint asks and the judgment has awarded plaintiff a lien on the property of the company for the amount of his subscription. We are all agreed that he is not entitled to such a lien, and the case, therefore, resolves itself into one for the recovery of damages for false representations. The individual defendants organized the defendant corporation for the purpose of erecting and maintaining a cold storage warehouse in the city of blew York. The defendant Bartlett was the active promoter of the enterprise, the defendant De Selding being a real estate agent, and the defendant Tubby an architect. The defendant Bartlett having found a plot of land which he deemed suitable made a contract to purchase it from the owner, one Roche, for the sum of $550,000. This contract was executed on March 14,. 1906, and provided that title should pass on July 12, 1906, $200,000 to be paid in cash and the balance, $350,000, to remain on . bond and mortgage. The defendant corporation was incorporated .on June 8, 1906, and on June 11, 1906, Bartlett assigned to it his contract with Roche, and all his interest in the property. On July 12, 1906, the time for closing title was extended to September 10, 1906, and Roche promised to further extend it if necessary. Roche also agreed to a reduction of the amount to be paid in cash. Finally title was passed on October 8, 1906, $60,000 being paid in cash, and the balance by the assump*686tion of a mortgage then on the property, and the placing thereon of a further mortgage. Bartlett himself took the deed of the property and executed the bond and mortgage, and simultaneously conveyed .title by deed to the defendant corporation. Boche held a policy of title insurance issued by the Lawyers’ Title Insurance Company, and defendant corporation upon acquiring the property procured a like policy.
In July, 1906, the prospectus which the plaintiff considers fraudulent was prepared and issued. ‘ A copy of it found its way to Paris and came into plaintiff’s hands, and he, on September 29,1906, cabled $20,000 to Bartlett as a subscription to the proposed stock. Bartlett paid it over to the defendant corporation, and it formed a part of the $60,000 paid to Boche on the delivery of the deed by him. Since this is simply an action for false pretenses it may not be amiss to keep clearly in mind the essential- elements of such an action. They are nowhere better stated than by Judge, Andrews in Brackett v. Griswold (112 N. Y. 454): “ The essential constituents of such an action have been understood from the time such actions were first maintained. They are tersely stated by Church, Ch. J., i\\ Arthur v. Griswold [55 N. Y. 400], viz.: 6 Bepresentation, falsity,-scienter - deception and injury.’- There must have been a false representation, •known to be such, made by the defendant, calculated and intended to influence the plaintiff, and which came to his knowledge, and in reliance upon which he, in good faith, parted with property or incurred the obligation which occasioned the injury of which he complains.”
The prospectus of which plaintiff complains stated the organization of the defendant company with an authorized capital stock of $2,500,000, of- which. $1,000,000 is six per Cent cumulative preferred ' stock, and $1,500,000 common stock. Then follows the statement which the plaintiff characterizes as false and of which he complains, as follows: “The company has purchased the block of land bounded by West, Duane, Washington and Beade Streets, in the Borough of Manhattan, New York City, 270x70 feet, containing about 18,900 square feet.” The- fact is that when this prospectus was issued and when plaintiff saw it, the company had acquired and held a valid, enforcible contract of purchase of the lot described. The sole foundation for the judgment appealed from is .that it .is inaccurate to say that a company or person has purchased.a piece *687of land, when in fact he or .it has only entered into a contract for its acquisition, but has not yet actually taken title. Such a construction is contrary to the common use of the word “ purchase,” and is contrary to its definition by the lexicographers. The plaintiff indeed goes even further and insists that the statement that the company had “purchased” the land is equivalent'to a statement that it had not only actually acquired title, but had paid the whole purchase price in cash, By no possible construction can the word be given so restricted a meaning when used with reference to the purchase of real estate. As words are used in common parlance a statement that the company had “ purchased ” the land was fully justified by proof that it held an enforcible contract for its acquisition, which in fact ripened into complete ownership a few days after plaintiff’s subscription had been received. If the only question was that the word “purchase” was prematurely and inaccurately used it would be immaterial in view of the company’s subsequent acquisition of the title. The plaintiff’s insistanee that the prospectus represented that the property had been wholly paid for, if sustained by the language, would be material. On this subject we are referred to another part of the prospectus, which it is claimed supports the plaintiff’s contention in this regard, but which, to my mind, completely refutes it. The part referred to is headed “ Cost,” "and gives an estimate of the cost of the proposed warehouse, and of the manner in which .that cost is to be met. It reads as follows :
“¡Net cost of land................................ . $550,000
“The.cost of the building, fully equipped and ready for business, including carrying charges during
period of construction, will not exceed........... . 1,200,000
“ Office, legal, organization and administration
expenses, including working capital.............. 100,000
$1,850,000
“ Of this amount it is planned to raise by
first mortgage.. ^.................... $1,000,000
“ And from the sale of preferred stock at
par.............................. 850,000
$1,850,000
*688“ The common stock will be distributed in part to subscribers .to the preferred stock, under the plan outlined below, and the remainder to Mr.- Bartlett and assoeiáfces in payment for their interest in the property and in the various contracts, leases and agreements made by them and for the organization and development of the business.”
An examination of this statement should have shown to any one that the land had not- been paid for, but that it, with the building, were to be paid for in part by a $1,000,000 mortgage, and in part by the sale of preferred stock. The amount of preferred stock to be sold at par plus the proposed mortgage exactly equaled the estimated cost of the building including the price of the land. Much stress is laid upon the use of the word net with reference to the cost of the land. It seems to be argued that “net’’means “ cash,” and should be read as a representation that the land had been paid for in cash. I am unable to see any foundation for such a contention. The meaning of the word “net ” in such conjunction is perfectly clear. It means the total or complete cost. To read it as a representation that the whole cost had already been paid, and that none, of tlie money derived from stock subscriptions was to be devoted to payment for the land, would be wholly inconsistent with the detailed statement of estimated cost and the proposed method of raising the necessary money! - In my opinion the statement that the company had “purchased” the property was not false, and if it was it was immaterial, because the result was the same as if it had actually acquired title to the property when plaintiff subscribed. The plaintiff got exactly what the prospectus promised him except that the hopeful anticipation of the consummation of a profitable venture failed of realization. - '
In my opinion the judgment should be reversed.
Judgment modified as stated in opinion; and as modified affirmed, with costs to plaintiff. Settle order on notice.