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title to its source of supply. The project involved tapping the Laramie river in the state of Wyoming for water; but before the district was in condition to take water from the Laramie river the state of Wyoming brought an action in the United States Supreme Court to restrain the diversion of the waters of the stream. The action is still pending. If it is decided adversely to the state of Colorado, the entire project will fail. In the meantime, the prosecution of the work on the system is suspended, the interest coupons have been defaulted, and the bonds are of very little value. The same is true of the irrigation bonds of the North Sterling district.

Sufficient has been stated to show that material misrepresentations were made as to the bonds of both these irrigation districts. They induced the purchase of the bonds in question by the plaintiffs, who relied on the truth of the statements made. These actions seek the rescission of the two sales and a return of the bonds exchanged, and, in case such bonds cannot be returned, for a judgment for their value.

[1] The representations made by the defendants, the evidence tends to show, were largely induced by reports made their firm by residents of the state of Colorado on various features of the two projects, and upon which the defendants doubtless relied in drafting their circulars inviting purchase of the bonds. Mr. Warner, the defendants' agent, through whom the sales were negotiated, was called as a witness for the plaintiffs, and testified to the making of the statements alleged, substantially as claimed by the plaintiffs, and in this connection testified that at the time they were made he honestly believed them to be true, and they were made with no intent of defrauding the plaintiffs. The court has no occasion to question his testimony in that respect. The defendants' concern, for all that appears, is and was a reputable business house, and it is quite probable that in issuing the circulars it relied on information obtained from others. Nevertheless the circulars and statements made were false and untrue in the particulars stated.

It is contended on the part of the defendants that they acted in good faith, and invested millions of dollars of their own money in the securities, a portion of which were sold to the plaintiffs, and that, in order to recover, the plaintiffs must show, not only the falsity of the representations, but knowledge on the part of the defendants of their falsity, and that there is lacking in this case the latter element.

These actions are in equity to rescind the contracts of sale, and we are of the opinion differ materially from ordinary common-law actions for fraud and deceit. It may well be that in an action at law for fraud and deceit, accompanied with the right of arrest and a body execution, in order to entitle the plaintiff to the benefit of such remedies, they should satisfy the court of "scienter" on the part the defendants. Where, however, the action is one in equity simply to rescind contracts induced by false representations, we can discover no good reason why the rule invoked by the defendant should be applied. If we may assume that the defendants in this case were innocent of any fraudulent intent, and acted in good faith in negotiating the bonds sold, relying on the truth of the representations made, nevertheless, after their falsity became known, it would be a species of fraud on their part to retain

the fruits of the transactions. To permit such transactions to stand. would, in our opinion, be a denial of plain ordinary justice.

If these views of the law are not already fully established by the decisions of the courts, it is quite time they should be. It was said in Squiers v. Thompson, 73 App. Div. 556, 76 N. Y. Supp. 736, that:

"In equity the fraudulent intent of the defendants need not be proven, while at law such an intent must be established; and this is an additional reason why resort may be had to equity. See Cook on Corp. § 356."

This case was affirmed in 172 N. Y. 652, 65 N. E. 1122.

In Lyon v. James, 97 App. Div. 385, page 391, 90 N. Y. Supp. 28. the doctrine above laid down was recognized as the law, and an action in equity placing the parties in statu quo was sustained, although as to some of the defendants there was an absence of proof that they had been guilty of actual and intentional fraud. This case also was affirmed in 181 N. Y. 512, 73 N. E. 1126.

Cook on Corporations, § 536, speaking on the subject under discussion, says:

"A vendee may often have relief in equity by reason of misrepresentation Lased on mistake or innocent misstatements, where the common-law action of deceit would require more stringent proof. Actual fraud need not be proved in an action for rescission, where falsity of material representations is clearly proved. Moreover, the contract of sale may be canceled by a court of equity on the ground of a mutual mistake where the representations were innocently made."

The case of Hammond v. Pennock, 61 N. Y. 152, was one in equity to rescind a contract based on misrepresentation or suppression of the truth. Discussing the right of the plaintiff to relief, the court said (page 152):

"The case has thus far been considered as though the fraud requisite as a basis for rescinding a contract in equity is the same in nature as that demanded in a court of law in an action for damages for deceit. In equity, the right to relief is derived from the suppression or misrepresentation of a material fact, though there be no intent to defraud. Per Lord Romilly, in Peek v. Gurney, L. R. 13 Eq. 79, 113; Wilcox v. Iowa University, 32 Iowa, 367. This view has been applied to innocent misrepresentations in a prospectus, providing that they were of the essence of the contract. Smith v. Reese River Co., L. R. 2 Eq. 264; Kennedy v. Panama Co., L. R. 2 Q. B. 580. This doctrine is, substantially, grounded in fraud, since the misrepresentation operates as a surprise and imposition upon the opposite party to the contract. It is inequitable and unconscientious for a party to insist on holding the benefit of a contract which he has obtained through misrepresentations, however innocently made. Story on Eq. Jur. § 193, and cases cited; Perry on Trusts. § 171."

See, also, Carr v. Nat. Bank & Loan Co., 167 N. Y. 379, 60 N. E. 649, 82 Am. St. Rep. 725; Garrett v. Halsey, 38 Misc. Rep. 438, 77 N. Y. Supp. 989; Tucker v. Osbourn, 101 Md. 613, 61 Atl. 321; Cahill v. Applegarth, 98 Md. 503, 504, 56 Atl. 794; Martin v. Hill, 41 Minn. 337, 43 N. W. 337; also the very recent case, Canadian Agency Company, Limited, v. Assets Realization Co., Impleaded, 150 N. Y. Supp. 758, decided by the Appellate Division of the First Department, not yet appearing in the official reports, citing many cases sustaining the views above expressed.

In the last analysis, the right of recovery in such a case rests on the fundamental proposition that, where one of two innocent parties must suffer, he must bear the loss who was instrumental in causing the damage. Assuming the defendants to be free from any intentional wrong in selling the bonds upon the representations made, nevertheless their representations caused the sales to be made, and they must be held liable for the consequences.

[2] There is another principle of law touching cases of this kind, which we think may properly be invoked to support a recovery in these actions. It is that the assertion of material things to be true, as though made from actual knowledge, if in fact such are untrue, constitute false and fraudulent representations sufficient to support an action for fraud and deceit. Rothschild v. Mack, 115 N. Y. 1, 21 N. E. 726; Kountze v. Kennedy, 147 N. Y. 124, 41 N. E. 414, 29 L. R. A. 360, 49 Am. St. Rep. 651; Hadcock v. Osmer, 153 N. Y. 604, 47 N. E. 923; Armour v. Insurance Co., 90 N. Y. 450; Kasprzyk v. Insurance Co., 79 Misc. Rep. 263, 140 N. Y. Supp. 211.

[3] Warner was the agent of the defendants. They received the benefits of the sales made by and through him, and are to be held to responsibility for Warner's representations, regardless of whether such representations were authorized by them or not. The law is succinctly stated in Taylor v. Commercial Bank, 174 N. Y. 181, 66 N. E. 726, 62 L. R. A. 783, 95 Am. St. Rep. 564, where the court said:

"It is an established principle of law that where a person acts for another, who adopts the fruits of his efforts, the latter must be deemed to have adopted the methods employed, as he may not, even though innocent, receive the benefits and at the same time disclaim responsibility for the fraud by means of which they arose."


See, also, Garner v. Mangam, 93 N. Y. 642; Krumm v. Beach, 96 N. Y. 398; Fairchild v. McMahon, 139 N. Y. 290, 34 N. E. 779, 36 Am. St. Rep. 701; Downey v. Finucane, 146 App. Div. 217, 130 N. Y. Supp. 988.

I am of the opinion the plaintiffs are entitled to judgment in these actions rescinding the contracts and directing a return to them of the securities delivered to the defendants, and the repayment of the money paid, or, if the defendants are unable to restore the consideration passed to them, then for a judgment for the value of what they turned over to the defendants. The plaintiffs are also entitled to recover the costs of the actions.

Let findings be prepared in accordance with the views above expressed.

KELLOGG v. MATCH SUPPLY CO. et al. (No. 1-3.)

(Supreme Court, Appellate Division, Third Department. January 15, 1915.) PLEADING ($294*)-VERIFICATION-NECESSITY-PRIVILEGE OF WITNESS-CON


Code Civ. Proc. § 523, excusing a verification where the party pleading would be privileged from testifying as a witness concerning an allegation or denial contained in the pleading, and providing that "a pleading cannot be used in a criminal prosecution against the party as proof of a fact ad

For other cases see same topic & § NUMBER in Dec. & Am. Digs. 1907 to date, & Rep'r Indexes

mitted or alleged therein," does not grant full immunity, and violates defendant's constitutional rights; and hence section 529, not excusing defendant from verifying his answer to a complaint charging him with "any fraud whatever affecting a right or the property of another," is invalid, where the answer is to a charge of a criminal offense, so that defendant therein need not verify his answer, in an action for damages for fraudulent representations inducing the purchase of stock, there being an allegation that defendants conspired to defraud plaintiff.

[Ed. Note. For other cases, see Pleading, Cent. Dig. §§ 885, 886; Dec. Dig. § 294.*]

Appeal from Special Term, Columbia County.

Action by Mary E. Kellogg against the Match Supply Company and Charles M. Kellogg for damages in inducing plaintiff to purchase stock by fraudulent representations, in which the complaint alleged that defendants unlawfully conspired and confederated to defraud plaintiff. From an order requiring her to receive an unverified copy of the answer of the defendant Kellogg (87 Misc. Rep. 418, 149 N. Y. Supp. 591), plaintiff appeals. Affirmed.

Argued before SMITH, P. J., and KELLOGG, LYON, HOWARD, and WOODWARD, JJ.

Holmes, Rogers & Carpenter, of New York City (Charles P. Rogers, of New York City, of counsel), for appellant.

John C. Watson, of Albany (J. Sheldon Frost, of Albany, of counsel), for respondent.

PER CURIAM. The action is in substance one for fraud, and not for conspiracy. Green v. Davies, 182 N. Y. 499, 75 N. E. 536, 3 Ann. Cas. 310. Section 529 of the Code of Civil Procedure, which provides. that the defendant is not excused from verifying his answer to a complaint charging him with "any fraud whatever, affecting a right or the property of another," would, if valid, require this answer to be verified. Section 523 of the Code excuses a verification where the party pleading would be privileged from testifying as a witness concerning an allegation or denial contained in the pleading, and provides:

"A pleading cannot be used, in a criminal prosecution against the party, as proof of a fact admitted or alleged therein."

The provision quoted, however, does not grant full immunity, and therefore violates defendant's constitutional rights. Counselman v. Hitchcock, 142 U. S. 547, 12 Sup. Ct. 195, 35 L. Ed. 1110; People ex rel. Taylor v. Forbes, 143 N. Y. 219, 38 N. E. 303; People ex rel. Lewisohn v. O'Brien, 176 N. Y. 253, 68 N. E. 353. The language of the statute considered in the Counselman and Lewisohn Cases is as broad or broader than in the section of the Code under consideration. We therefore think that the provisions of section 529, above quoted, are not valid, where the answer is to a charge of a criminal offense. The defendant need not, therefore, verify his answer.

The order should be affirmed.

Order affirmed, with $10 costs and disbursements.

For other cases see same topic & § NUMBER in Dec. & Am. Digs. 1907 to date, & Rep'r Indexes

(165 App. Div. 697)


(Supreme Court, Appellate Division, Second Department. January 15, 1915.)


Where the negligence of decedent's fellow servant, who aided in constructing a scaffold by the fall of which decedent received injuries from which he died, contributed to the accident, there was no common-law liability on defendant for decedent's death.

[Ed. Note. For other cases, see Master and Servant, Cent. Dig. §§ 307, 352, 353; Dec. Dig. § 177.*]



Where decedent was killed by the fall of a portion of a scaffold as he and a fellow servant were engaged removing it, and it appeared that from the time of its construction it was unsafe, unsuitable, and improper, and not so constructed as to give proper protection to life and limb of workmen using it, and was so maintained by defendant until deceased was injured, in consequence of the improper and unsafe construction which was the proximate cause of such injury, plaintiff was entitled to recover for decedent's death under the provision of the Labor Law (Consol. Laws, c. 31) requiring the master to construct safe scaffolds, etc.

[Ed. Note. For other cases, see Master and Servant, Cent. Dig. § 207; Dec. Dig. § 116.*]


Where decedent received injuries from which he died by reason of the defective scaffold while assisting another servant to dismantle the same, his failure to comply with the direction of his foreman to use a ladder in the work bore on the question of contributory negligence only, which was a question for the jury.

[Ed. Note.-For other cases, see Master and Servant, Cent. Dig. §§ 1089, 1090, 1092-1132; Dec. Dig. § 289.*]

Appeal from Trial Term, Kings County.

Action by Dora Johnson, as administratrix of Charles Johnson, deceased, against the City of New York. From a judgment for defendant, plaintiff appeals. Reversed, and new trial granted.

Argued before JENKS, P. J., and BURR, THOMAS, CARR, and RICH, JJ.

Martin T. Manton, of New York City (Vine H. Smith, of New York City, on the brief), for appellant.

Frank Julian Price, of Brooklyn (Thomas F. Magner, of Brooklyn, on the brief), for respondent.

RICH, J. This appeal is from a judgment dismissing the plaintiff's complaint at the close of the evidence, in an action to recover for negligence. The deceased was a painter and expert rigger in the employ of defendant's bridge department, which was engaged in December, 1912, in painting the structural iron work of the Brooklyn Bridge where it crosses Main street in the borough of Brooklyn. To reach the iron work a swinging scaffold in two sections was constructed, about 30 or 35 feet above and across the street, of four spars, each

For other cases see same topic & § NUMBER in Dec. & Am. Digs. 1907 to date, & Rep'r Indexes

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