146 N.E. 642 | NY | 1925
The action is based on a conspiracy to defraud. Plaintiff's testator, Mrs. Page (formerly Wegman), was the owner of a majority of the stock of the Wegman Piano Company, herein mentioned, which was a once prosperous concern in the city of Auburn, but was at the time of the transaction, although claiming to be solvent, in need of ready money and available working capital. The alleged purpose of the conspiracy was to destroy the value of her stock. The alleged plan of the conspiracy was that the Cayuga County National Bank should squeeze the piano company by discontinuing financial accommodations; that defendant Knapp should falsely and fraudulently represent that he would furnish necessary money to carry on the business if the company were reorganized; that defendant Clark should falsely and fraudulently represent to Mrs. Page that reorganization through the formality of friendly bankruptcy proceedings was the only proper method and that in order to make the proceeding possible it was necessary that a resolution of the board of directors be passed reciting that the corporation was unable to meet its immediate obligations, this admission being an act of bankruptcy although not an admission of insolvency. *407 (Matter of Russell Wheel Foundry Co., 222 Fed. Rep. 569.)
It is alleged that Mrs. Page, believing and relying on the representations, consented to the adoption of the resolution, although it was against the interests of the corporation and her own interests, and that thereupon the corporation was put into bankruptcy, its assets dissipated and the value of plaintiff's stock destroyed; that defendants had no intention of furnishing the necessary funds to carry on the business, and did not furnish such funds; that their purpose was to obtain control of the corporation.
Of the original defendants, William R. Payne, who was vice-president of the bank, and a partner of Clark, and the defendant bank were eliminated from the conspiracy on the trial, leaving Paul R. Clark and Alice Swaby Knapp, executrix of James M. Knapp, deceased, against whom plaintiff has obtained judgment. Knapp, it is said, was the pretendedly friendly capitalist who was to furnish the money and Clark was acting as the attorney for the Wegman Piano Company on the recommendation of the bank officials, but, it is charged, in bad faith and to bring about its destruction.
The case was tried on the theory that if Clark and Knapp made specific false affirmations to Mrs. Page of the arrangement under which the reorganization of the company was to occur, knowing that it was not so to occur, and damages resulted, the representations were actionable. (Ritzwoller v. Lurie,
It is contended by appellants that the bankruptcy proceedings were res adjudicata on the question of solvency (Gratiot Co.St. Bk. v. Johnson,
On the undisputed evidence it appears that the piano company, while claiming to have assets largely in excess of its liabilities, was far from prosperous; that it was troubled in obtaining extensions of credit; that it needed and was seeking a large amount of new capital. Although the complaint alleges that the conspiracy had for its object the acquisition of the business of the Wegman Company by defendants, it does not appear that this purpose was accomplished or sought. Knapp was appointed first receiver and then trustee of the property of the bankrupt company. As such he received his fees. Clark was employed as attorney and also received fees, but the alleged purpose of the conspiracy did not otherwise fructify. It was a closely disputed question of fact whether the company was in a position to meet its outstanding obligations when the act of bankruptcy was committed, or indeed, whether it was solvent at the time. It might be inferred that unless it could get new capital or make new loans to take up old ones, the company could not long continue to meet its outstanding obligations when they became due, or remain in business or keep out of bankruptcy.
We thus come down to the substantial questions (a) did Clark and Knapp falsely and fraudulently say that the bankruptcy would be a mere formality to go through with in order to effectuate a reorganization; (b) did Knapp, acting with Clark, falsely and fraudulently say that, if the corporation was put through bankruptcy, he would furnish the necessary funds to rehabilitate it. Was there a false representation as to an existing fact,i.e., the mental state of the promisors, coupled with a false promise with regard to the future? (Adams v. *410 Gillig,
Although the trial justice charged the jury on this point, the bankruptcy proceedings, although not binding on the plaintiff, were at least competent and material evidence as bearing on the actual relation of the parties, the fraudulent purpose of defendants and the damages sustained by plaintiff. It is not altogether a question *411 of fair valuation. It is a question of legal liability for false representations. It is not altogether a question of dead property after bankruptcy has intervened. It is a question of a fraudulent purpose to break a promise. It is not a question of breach of contract. It is a question of tort liability merely. The fact that the company was wound up in bankruptcy at a great loss to its creditors, while not conclusive, has some bearing on the question whether Clark and Knapp deliberately set out to wreck a going, solvent concern and thereby damaged Mrs. Page, or whether the withdrawal of promised aid was due to their discovery of the true condition of things. Promises as to what would be done in the future may have been effective in producing the result complained of, but the distinction must be observed between a mere assurance that something will be done in the future and a present intention not to act on such assurance.
The judgments should be reversed and a new trial granted, with costs to abide the event.
CARDOZO, CRANE, ANDREWS and LEHMAN, JJ., concur; HISCOCK, Ch. J., and McLAUGHLIN, J., absent.
Judgments reversed, etc.