82 A.D.2d 368 | N.Y. App. Div. | 1981
OPINION OF THE COURT
The issues on this appeal are whether the facts present a basis for the exercise of so-called long-arm jurisdiction over the person of the nonresident defendant and whether plaintiff’s action for rescission of a contract upon the ground of fraudulent inducement is barred by the Statute of Limitations.
THE FACTS
The parties were married in 1956 and have four children. The defendant husband is a medical doctor. They moved to this country from Europe in 1960 and took up residence in Brooklyn, New York. The husband became an officer in the United States Air Force and his family moved with him to his assigned post in Illinois. While the parties were residents of that State, the wife obtained a decree of divorce from the Circuit Court for the Twentieth Judicial Circuit of Illinois, filed September 28, 1966, upon the ground of the husband’s adultery. The wife was awarded custody of the children and the decree contained the following provision regarding their support and alimony for the wife: “C. That child support for the four (4) minor children of this marriage shall be paid by the defendant through the Clerk of this Court to the plaintiff for the use and benefit of said children in the sum of Five Hundred ($500.00) Dollars per month and at the same time and in the same manner alimony shall be paid to the plaintiff in the sum of Two Hundred ($200.00) Dollars per month, said first payment of Seven Hundred ($700.00) Dollars to be due and owing on or about the first day of October, 1966. Said Seven Hundred ($700.00) Dollars monthly obligation shall continue until the defendant’s income from all sources after Federal Income Taxes equals Sixteen Thousand Eight Hundred ($16,800.00) Dollars per year whereupon, and immediately upon reaching said figure in any calendar year, child support and alimony shall be based on a percentage basis. After said Sixteen Thousand Eight Hundred ($16,800.00) Dollar income is reached,
In the summer of 1972 the parties executed an agreement which had the effect of modifying the provisions of the Illinois divorce decree by increasing the $700 monthly payments specified therein to $900 at first, and to $1,000 per month shortly thereafter. The agreement also contained, inter alia, a clause which provided for the adjustment of monthly payments at the end of each calendar year by an amount reflecting the increase in the United States Department of Commerce cost of living index. While the agreement thus increased payments to the wife, it did not contain a provision like the one in the divorce decree calling for the husband to pay her one half of his “after tax income”.
In 1978 the wife learned that her former husband had become very successful and that his 1972 income was more than she had been led to believe when she signed the agreement. On or about October 10, 1978 this action was commenced by personal service of a summons upon the defendant at his home in North Carolina. The complaint was served on December 4, 1978, seeking, in substance, to set aside the agreement dated August 14,1972 upon the ground that it was induced by fraud.
In 1972 the defendant’s after-tax income, for the first time, exceeded the $16,800 trigger figure specified in the divorce decree and his accountant wrote to the plaintiff informing her that based on defendant’s 1971 tax return he had $17,255.80 in after-tax income. The plaintiff then became entitled to one half the defendant’s after-tax income rather than the specified monthly payments of $700. The result was an increase of only $227.90 per year, from $8,400 to $8,627.90.
In the spring of 1972 the plaintiff made several telephone calls to defendant at his home in North Carolina seeking more money. Finally, she spoke to a New York lawyer who agreed, as an accommodation, to write to the defendant on her behalf despite the fact that she could not afford to employ him.
In mid-May, 1972, defendant, after receiving the letter from the New York lawyer, contacted an attorney named John I. McMahon, who was admitted to the Bar of the courts of Pennsylvania and had his offices in that State. McMahon testified at the hearing that he became acquainted with defendant in 1970 when he became general counsel to an investment advisory company then called Personal Money Management, Inc., which directed its efforts toward incorporating high income individuals such as doctors and establishing pension plans and “all the other things that go with a professional corporation.” It had a branch in North Carolina and Dr. Abbate became its client. Apparently, McMahon handled the establishment of a professional corporation for
Defendant spoke to McMahon by telephone and revealed that he had previously been married and divorced and that the former Mrs. Abbate had asked him to change the terms of the alimony and support provisions of the divorce decree. Defendant asked McMahon for help.
Defendant testified that in the spring of 1972 he had held some seven telephone conversations with his former wife concerning her request for more money and that, as a result of those conversations, he reached an agreement with her to increase monthly payments. During these conversations he told plaintiff that if they stayed with the old agreement things would probably get a lot better because he had just started his North Carolina practice. After he negotiated all the terms of the agreement on the telephone with his wife, he called McMahon and asked him to put those terms in the form of a legal document that would supersede the original divorce degree. He did not give McMahon authority to negotiate with plaintiff.
The plaintiff’s version of these telephone conversations was quite different from that of defendant. According to her, she called defendant in the spring of 1972 and told him that she was having financial troubles and needed more money. Defendant said that he could not help her and, although they spoke on the telephone about modifying the divorce decree, they always ended up arguing and they never agreed to anything.
Defendant testified that during these telephone conversations with plaintiff he never said that he was broke and could not afford to pay more. When plaintiff asked for more money, the only thing that he thought necessary was to reach agreement on “a fee that she could accept.”
In any event, when defendant called McMahon he “laid out” the financial terms of the agreement and McMahon suggested the cost-of-living escalation clause. McMahon could not recall whether defendant told him that he had reached agreement on those terms, but he assumed that there had to have been some prior discussion and that de
Thereafter, McMahon called the New York attorney who had written to defendant and, after ascertaining that that attorney did not represent Mrs. Abbate, he called her directly. He told plaintiff that he wanted to talk with her about her request to modify the Illinois divorce decree and they arranged to meet in New York City on August 14, 1972. McMahon then telephoned defendant and reviewed the terms of the new agreement with him. As the result of that conversation, or several conversations, a document was prepared and was sent to defendant in North Carolina for approval of its terms and for signature. Defendant returned the signed original and an unsigned copy. McMahon was then prepared for his previously scheduled meeting with plaintiff in New York City.
McMahon was extensively examined by counsel concerning his power to negotiate on behalf of defendant. McMahon did not specifically ask for the power to negotiate. He believed that, when he went to New York, if plaintiff disagreed about some minor point he could make a change, but as to the amount to be paid per month, defendant was firm.
McMahon was also questioned concerning what he knew about defendant’s income before he was to meet with Mrs. Abbate. He stated that Personal Money Management, Inc., the firm through which he had first dealt with defendant, had a rule that in order to become its client a doctor, or any other professional, had to have an annual income of at least $30,000. He did not then know the precise income of Dr. Abbate and he had assumed that defendant’s income was around $30,000.
On August 14,1972 McMahon took the train from Philadelphia to Pennsylvania Station in New York, arriving at about 1:00 p.m. He met Mrs. Abbate and they went to a restaurant “right off the lobby” of the station. After identifying himself, he said that he was going to explain the
“Q Did Mrs. Abbate do any negotiating with you?
“A Well, Mrs. Abbate was not pleased with the agreement, let’s put it that way, if you want to call it negotiating. She wanted more money, and my situation was that there was no more money to give her, that this was, in a nicer way than I’m saying it, more or less meant on a take it or leave it basis, this is the best deal you’re going to get from Dr. Abbate; and frankly I believed that at the time, because I know from my own experience in Pennsylvania she would not have gotten as much money based on what I thought his income was at that time” (emphasis added).
Plaintiff was very displeased with what McMahon was presenting for her signature, as she wanted more than the document provided. She was dissatisfied with the amount of the monthly payment. She wanted a provision requiring defendant to pay for graduate school for the children and a .provision requiring defendant to pay the medical and dental expenses for herself and the children. McMahon characterized his position as unyielding. He thought that the agreement was a “fair deal” for plaintiff because it amounted to almost 50% of what he believed defendant’s income to be for that year, which was more than she probably could have obtained under Pennsylvania law. He did not tell plaintiff to “take it or leave it” because he “was trying to dance around that”, but he “made it quite clear that * * * there was no more money”, meaning that no more money was being offered. When Mrs. Abbate asked for more he said something like “the man has already given you approximately 50 per cent of his income, and that’s the most you could get from any court, and here you don’t even have to go into court and you’re getting it.”
Eventually McMahon persuaded Mrs. Abbate to accept the agreement as written. She signed it and he returned to Pennsylvania on the 5:30 or 6:00 P.M. train. Throughout this time they had been in the restaurant. He did not force her to sign and she was free to walk out of their meeting. During the time he was in New York he made no representa
After the agreement was signed, McMahon learned that Dr. Abbate’s 1972 income was far more than he had thought at the time. He examined the reports which had been filed in connection with defendant’s pension and profit-sharing plans and discovered that defendant’s salary in 1972 was in excess of $85,000. Had he known defendant’s true income at the time of his meeting with plaintiff, he would not have recommended that she sign the agreement. It was not a fair deal for plaintiff because under the divorce decree she was entitled to one half of defendant’s after-tax income, whereas under the agreement he prepared she was to receive, at most, only $12,000 per annum and some “peripheral” benefits.
After the agreement was signed, McMahon had contact with plaintiff from time to time, usually around the beginning of each year when the payments due thereunder were to be adjusted for increases in the cost of living, and when the parties disagreed about the new amount or the check was late in coming. In July of 1978 plaintiff called and asked to come and see him. When they met he told plaintiff that defendant was making more money and “that it was time for her to go out and get herself an attorney and to take it from there.”
The plaintiff, Mrs. Anne Abbate, testified in her own behalf that she met McMahon in a restaurant from approximately noon until late afternoon on August 14, 1972. They discussed a document which he had brought with him. She did not like all its terms, but McMahon essentially told her that it was either “sign it or leave it.” He tried to convince her to sign. She was not represented by counsel. She did not at that time know what defendant’s income was. Had she known that his income was, in fact, in excess of $80,000 she never would have signed. McMahon told her that defendant could not afford to pay her any more, that “this was a fair deal,” and that a court would not give her more. She asked McMahon what defendant’s income was, but he said that he did not know exactly. Although she wanted better terms, and during their discussion she tried to get them, McMahon
In 1978 her daughter called defendant’s office and spoke with defendant’s secretary who told the daughter that her father was at his farm. This was the first time that plaintiff learned that defendant had a farm. As a result, she became suspicious that she had been cheated and she called Mr. McMahon and arranged a meeting. They met at the end of June, 1978. After her telephone call, McMahon examined his files and discovered that defendant’s income had been in excess of $80,000 in 1972. McMahon told her to retain a lawyer. This was the first time she learned of his true income.
After her meeting with McMahon she called defendant and “I asked him why he never told me about the farm, and he said why should he. I wouldn’t have signed the papers if I knew everything that he owns, when it came down to that.”
Brazie Guy Abbate, the defendant, was called as a hostile witness by the plaintiff. He testified that his gross income in 1971, the year he moved from New York to North Carolina, was about $30,000 and his net after-tax income was $17,400. In September, 1971 he applied to form a professional corporation. He is, and was, the sole stockholder and sole doctor employed by the corporation. During its first fiscal year, from September 30, 1971 to August 31, 1972, the corporation had gross receipts of $174,000 and it paid him a salary of $98,420.
Defendant asserted that plaintiff knew what he was earning at the time the agreement was signed, explaining that his accountant had mailed her a letter “which at least gave her an idea of what our income was in 1971”. He admitted that he did not tell her what his 1972 income was, but claimed that she had never inquired. By September, 1972 his corporation was earning $15,000 per month as the result of professional services he rendered. The only other employee of the corporation at that time was defendant’s new wife, who had a salary of about $13,500. He never told plaintiff about the income of his corporation.
On cross-examination by his own counsel, defendant testified that he moved from New York to North Carolina in
Dr. Abbate asserted that he had complied with the terms of the Illinois divorce decree and had made timely payments “[w]hen money was available.” Mrs. Abbate had always made requests for more support. She initiated the discussions which led to the 1972 agreement now in question. Defendant was asked whether, during the discussions with plaintiff in the summer of 1972, he knew “for a certainty” what his corporation was earning, and defendant answered “I think I did.”
On September 25, 1979 Mr. Justice Young rendered a memorandum decision holding (1) that defendant was subject to in personam jurisdiction under CPLR 302 (subd [a], par 1) because he committed a tortious act in New York and (2) that because the case involved actual fraud, the Statute of Limitations ran from the date of discovery and plaintiff’s action was therefore not time barred. We affirm.
THE CAUSE OF ACTION
In order to decide both the jurisdictional and Statute of Limitations questions raised on this appeal, it is first necessary to determine the gravamen of plaintiff’s cause of action for rescission of the agreement. Plaintiff contends that she seeks to set aside that agreement on the ground of defendant’s actual fraud. Defendant contends that plaintiff’s claim is based solely upon constructive fraud. The difference between the two was recently explained in the case of Brown v Lockwood (76 AD2d 721, 730-731) as follows: “The law recognizes two kinds of fraud—actual or constructive. In order to sustain an action for actual fraud the plaintiff must prove: (1) that the defendant made a representation, (2) as to a material fact, (3) which was false, (4) and known to be false by the defendant, (5) that the representation was made for the purpose of inducing the other party to rely upon it, (6) that the other
In the case at bar plaintiff could not recover upon a theory of constructive fraud because no confidential relationship existed between her and her former husband or McMahon, who was defendant’s, and not her, attorney. Plaintiff must therefore establish the existence of a cause of action for actual fraud or she cannot recover on the merits, irrespective of the jurisdiction and Statute of Limitations problems. The key to this case is to be found in section 256 of the Restatement of Agency, Second, which neither of the parties have cited and which states:
“Knowledge of Principal When Agent Innocently Makes a Misrepresentation
“If a principal knows facts unknown to a servant or other agent and which are relevant to a transaction which the*379 agent is authorized to conduct, and, because of his justifiable ignorance, the agent makes a material misstatement of facts, the principal:
“(a) is subject to liability for an intentional misrepresentation, if he believed the agent would make the statement, or for a negligent misrepresentation, if he had reason to know the agent would make the statement.
“ (b) is not subject to liability in tort if he had no reason to know that the agent would enter into such a transaction, or if, after acquiring the information, he had no way of communicating with the agent” (emphasis added).
Comment b to this section states, in relevant part: “If a principal, knowing that an agent is about to conduct a transaction with inadequate or misleading information, intentionally withholds information from him for the purpose of enabling the agent honestly to misstate facts, the principal is subject to liability as for his own fraudulent statement if the agent subsequently does misstate such facts.”
The illustrations provided by the Restatement (§ 256) state, in relevant part:
“Illustration:
“1. Desiring to sell advantageously a machine which he knows to be dangerously defective, P places it in his sales room, believing that his salesman will represent it to be sound. The salesman does as expected and T, the buyer, relies upon the statement of the salesman. Because of the defect the buyer is hurt. P is liable in an action for deceit and also for wanton conduct causing physical harm. * * *
“Illustration,-
“2. P directs A to lease Blackacre as a home. P knows that A does not know that adjoining Blackacre is a bawdy house and does not tell him. If he refrains from telling A in order that A may make a statement that the neighborhood is good, P is subject to liability in deceit to one renting the house upon A’s assurance that the neighborhood is respectable” (emphasis added).
The facts adduced at the hearing would permit a
On August 14, 1972 McMahon traveled to New York and met with plaintiff. She was without counsel. She objected to the terms offered, but McMahon made several representations in order to induce her to sign. He told plaintiff that “there was no more money” and, although he
Defendant claims that his failure to disclose his income to plaintiff is not evidence of an intent to defraud, citing the following statement from Amend v Hurley (293 NY 587, 596): “ ‘The law requires disclosure to be made only when there is a duty to make it, and this duty is not raised by the mere circumstance that the undisclosed fact is material, and is known to the one party, and not to the other, or by the additional circumstances that the party to whom it is known, knows that the other party is acting in ignorance of it’ (Peoples’ Bank of City of New York v. Bogart, 81 N. Y. 101, 107). It is not fraud for one party to say nothing on the subject where no confidential or fiduciary relation exists and where no false statement or acts to mislead the other are made (Peoples’ Bank of the City of New York v. Bogart, supra; Dambmann v. Schulting [75 NY 55], supra)” (emphasis added).
In our opinion this quotation from Amend v Hurley (supra) is inapplicable for two reasons. First, McMahon did make a misrepresentation to plaintiff as to defendant’s income. Second, defendant was under a duty to make disclosure. In Nasaba Corp. v Harfred Realty Corp. (287 NY 290, 295) the Court of Appeals held that where a com
Defendant argues that McMahon was an independent contractor and not his agent and, therefore, he is not responsible for the latter’s representations to plaintiff. The law is clear that the distinction between the two is that an independent contractor is a person who contracts with another to do something for him, but who is not controlled or subject to the control of the other in the performance of the work and is responsible only for attaining the desired result. An agent, on the other hand, is a person authorized by another to act on his account and is subject to the control of the principal as to the details of the work (2 NY Jur 2d, Agency, §8). Control is the key element. Here, defendant himself testified that McMahon was under his orders concerning the terms of the agreement and was directed to go to New York to gain plaintiff’s assent. The fact that under defendant’s view McMahon lacked authority to negotiate different terms does not make McMahon an independent contractor (a person with unfettered control over the work) but rather makes him a servant, which is
IN PERSONAM JURISDICTION
CPLR 302 states, in relevant part:
“Personal jurisdiction by acts of non-domicilaries
“(a) Acts which are the basis of jurisdiction. As to a cause of action arising from any of the acts enumerated in this section, a court may exercise personal jurisdiction over any non-domiciliary, or his executor or administrator, who in person or through an agent:
“1. transacts any business within the state or contracts anywhere to supply goods or services in the state; or
“2. commits a tortious act within the state, except as to a cause of action for defamation of character arising from the act”.
Paragraph 1 of subdivision (a) states that a court can exercise long-arm jurisdiction where the plaintiff’s cause of action arises out of the transaction of business by the defendant within the State. The question for determination then is whether defendant’s act in sending McMahon into New York to persuade plaintiff to sign the modification agreement constituted a transaction of business. We think it did.
There are a great number of cases on the question of what constitutes a transaction of business within the meaning of CPLR 302. Basically, the cases hold that in order to constitute a transaction of business in New York the defendant must have committed some act by which he purposefully availed himself of the privilege of conducting activities in this State, thus invoking the benefits and protection of our laws (Hanson v Denckla, 357 US 235, 253).
In our view the facts of this case make out the transaction of business in this State. Although the contract in question was not a separation agreement as in Kochenthal v Kochenthal (28 AD2d 117, supra) it was its equivalent, modifying as it did the support and alimony provisions of a divorce decree. As stated above the proof amply indicates that McMahon was defendant’s agent. In an apparent effort to show that this case involves only the execution of an agreement reached on the telephone and thus does not involve the transaction of business, defendant had expended a great deal of energy to demonstrate that McMahon lacked the authority to “negotiate” on his behalf because he had dictated inflexible terms to McMahon for inclusion in the agreement. The word “negotiate” does not merely mean
It is also contended that defendant is subject to long-arm jurisdiction under the “commits a tortious act within the state” language of CPLR 302 (subd [a], par 2). Determination of this claim requires that we decide the locus delicti, the place of the wrongful act, where intentional fraud is perpetrated by a principal through innocent misrepresentations by an agent under the theory set forth in section 256 of the Restatement of Agency, Second. Assuming that McMahon’s misrepresentation in New York, that “there was no more money”, was innocently made by him, defendant can be charged with intentional fraud for failing to correct his agent’s misapprehension of the true facts when he must have believed that McMahon would inevitably have to make that or a like misrepresentation in order to get plaintiff to sign. Although any fraudulent intent on defendant’s part had to have been conceived in his home State of North Carolina, it is our view that the locus delicti is the place of misrepresentation and not the place where the fraudulent intent was formulated. Accordingly, we hold defendant is also subject to the in personam jurisdiction of our courts for committing a tortious act in this State through the misrepresentations of his agent McMahon.
In the case of Quadrozzi Concrete Corp. v Mastroianni (56 AD2d 353, app dsmd 42 NY2d 824) this court, in an opinion by Justice, now Presiding Justice, Mollen, clearly held that an action to obtain equitable relief upon the ground of actual fraud is governed by the Statute of Limitations contained in CPLR 213 (subd 8) and that, accordingly, the time within which the action must be commenced is to be computed from the time the plaintiff discovered the fraud or could with reasonable diligence have discovered it. Since the plaintiff in this case seeks the equitable remedy of rescission of a contract based upon actual fraud, our holding in Quadrozzi is controlling. The proof establishes that plaintiff discovered the fraud in 1978 and that she commenced this action in the same year. The record contains no evidence to suggest that plaintiff could, with reasonable diligence, have discovered it at an earlier date. Accordingly, her action was timely brought (see CPLR 203, subd [f]) and Special Term properly denied defendant’s motion to dismiss upon that ground.
Defendant argues, however, that the Quadrozzi case should not be followed here and that we should hold the plaintiff’s action time barred upon the basis of Curry v Chollette (57 AD 2d 604), decided by this court approximately one month after Quadrozzi (supra). Although in his Practice Commentaries Professor McLaughlin has opined that the decision in Curry was contrary to the rule announced in Quadrozzi (see McLaughlin, Supplementary Practice Commentaries, McKinney’s Cons Laws of NY, Book 7B, 1980-1981 Pocket Part, CPLR, C213:9, pp 82-83), it is our view that those cases are not in conflict. An examination of the record in Curry v Chollette (57 AD2d 604, supra) reveals that the plaintiff husband therein sought to set aside a separation agreement upon the ground that it was induced by fraud. The complaint alleged that at the time plaintiff signed the agreement he was in a rundown condition, was highly nervous and was suffering from alcoholism, that his judgment was consequently impaired and that defendant failed to properly explain the intent and import of the agreement to him. Our court concluded
Defendant next argues, in effect, that the Quadrozzi holding has been overruled by the decisions of the Court of Appeals in Matter of Paver & Wildfoerster (Catholic High School Assn.) (38 NY2d 669, 672) and Sears, Roebuck & Co. v Enco Assoc. (43 NY2d 389, 395), where it was held that the “ ‘general principle [is] that time limitations depend upon, and are confined to, the form of the remedy’ ”. Since in this case plaintiff seeks the equitable remedy of rescission, defendant argues that she should not be accorded the benefit of the discovery rule even though her case is based upon a claim of actual fraud. In Paver (supra, p 676), however, the court stated that the rule that the period of limitations is dependent upon the form of the remedy, is subject to “exceptions”. This case represents one of those exceptions. The general rule is that a cause of action accrues, and the Statute of Limitations begins to run, on commission of the wrong. In cases of actual fraud, however, the Legislature adopted the rule that the statute ran from discovery rather than commission because, in the absence of such a rule, a defendant who has been guilty of actual fraud might prevent the plaintiff from recovering by continuing the deception until the statute had run (see McLaughlin, The Discovery Provisions of Article Two of the CPLR and Other Problems With the Statute of Limitations, Tenth Ann Report of NY Judicial Conference, 1965, pp 97-98). The reason for the discovery rule is thus to be found in the nature of the wrong and not in the remedy by which the plaintiff has chosen to seek redress for that wrong. It therefore applies in cases of actual fraud whether the requested relief be legal or equitable in nature.
Hopkins, J. P., Lazer and Mangano, JJ., concur.
Order of the Supreme Court, Nassau County, dated September 25, 1979, affirmed, with costs.
