| New York Court of Common Pleas | Jun 27, 1894
The action is brought against two managing officers of a corporation to recover damages for false representations as to the financial condition and state of earnings of the company, relying upon which the plaintiff, a stockholder, availed himself of a certain alternative offer for the purchase of his stock made to him
The statements alleged, and here admitted to have been made, with regard to the actual condition of the corporation, were certainly of a nature to justify the action of the plaintiff in accepting the offer in the alternative mentioned, and that plaintiff was damaged by this acceptance clearly appears from the allegations. The pleading is not open to criticism with regard to the essential allegations of falsity and knowledge. For appellants, it is contended that there was no damage to plaintiff, for a true report as to the condition alleged to have existed at the time (actual insolvency) would have precluded plaintiff’s acceptance of the advantageous offer without fraud as against Moore; but this is not a tenable position in view of the nature of the action. Consistently with the established theory of an action for deceit, the damages are here claimed to have been sustained by plaintiff through his reliance upon the representations made. It does not appear that Moore’s offer was in any way connected with the representation, or that he knew of the report thus made, which appears to have been for plaintiff’s supposed enlightenment alone. The proposition is alleged to have been an independent one, coming unsolicited. Plaintiff was called upon to exercise an option, should he assent to this proposition, and, while so assenting, he made his election in reliance upon the defendant’s representations, and was thereby damaged, as subsequently appeared. He was not bound to so rely. He might, in disregard of the representations, have accepted the other alternative held out, and have obtained the sum now claimed, without any possible fraud on his part as against Moore. But by his reliance he was damaged in the difference noted, and the cause of action accrued. The false representations alone did not create this cause of action. Defendants having chosen to make such representations, their liability was suspended upon the plaintiff’s justifiable acts of reliance with the consequent damage as shown. Agents of a corporation are subject to the general common-law rule imposing upon a party making a false representation, whereby another is misled, a liability for its direct consequences. Mor. Corp. § 573. Plaintiff was not bound in any way to verify the report given him by defendants as directors, although it must be assumed that he had the opportunity. The corporation was organized under the laws of the state of Hew Jersey, and by the common law, which is presumed to
It is not necessary to discuss the allegations of mismanagement. That the complaint is to be upheld only upon the theory of an action for deceit appears to be conceded by the parties, and is clear upon •the reasons given at special term.
We find no force in appellant’s argument to the effect that a negative, and not a positive, act was done by plaintiff in reliance upon the representations, and that this was therefore not properly “action.” The argument is based upon the absence of any cases where the facts have disclosed a failure to perform a certain act as the basis of an action for deceit, but the point is without application in this case. The active exercise of an election is certainly to be taken as action, and this exercise, relying upon the representations, was the basis of plaintiff’s damage. It follows that the judgment must be affirmed, with costs; leave to defendants to answer upon payment of costs. All concur. .