Baker v. . Lever

Hiller, J. The referee held upon the trial that the sale of the stock at the price which the bond and mortgage was given to secure was fraudulent and void, and adjudged, that on payment of the market value of the stock at the time of the sale and interest and with defendant’s costs of the action, the bond and mortgage be delivered up and canceled. The intent to defraud follows as a necessary result of the decision, and as no appeal was taken from the judgment by the defendants it must be assumed that they acquiesced in the right of the plaintiffs to relief from the fraudulent contract. If entitled to any relief it was not a partial one but to an entire exemption from the fraudulent claim. A failure of the plaintiffs to do all which the law required in order to rescind the contract would be a complete bar to any recovery. The rule on this subject is well established, that when a sale is fraudulent the party defrauded has a perfect right to rescind the contract, and to be restored to his former condition in all respects, upon offering to return the property purchased promptly after the fraud is discovered. None of the authorities to which we have been referred hold that a delay to rescind until a discovery generally operates as a waiver of the right to rescind or as a confirmation of a fraudulent contract. While cases may perhaps arise where the circumstances attending the delay are such as to deprive the party of his right to rescind, after he has ascertained that a fraud has been perpetrated, this is not the general rule. It is quite sufficient that an effort to return the property is made after the discovery of the fraud. We have *309 a right to assume, in support of the judgment in this case, that the sale was fraudulent and void, that a proper offer was made in due season and that there was no loches in this respect. The referee has found that the plaintiff who purchased the stock had opportunities to and might have with reasonable diligence ascertained the situation of the company in time to have tendered or offered the return of the stock and while it had a market value, and he was guilty of loches by omitting to do so within that time. This was not enough to show knowledge of the fraud, and not sufficient to bar the right of the plaintiffs to avail themselves of it. It might well be that opportunities to ascertain the fraud would be of no avail to a person unfamiliar with the business transactions of corporations, as was probably the fact here, and the authorities do not hold that a mere want of diligence without knowledge of the fraud is sufficient to deprive a party of his legal right to rescind a fraudulent contract. Something more is required and courts will not for this reason alone avert the consequences of a fraudulent act. In Brown v. Post (1 Hun, 303), it was held that a person deceived by the fraudulent misstatements of another owes him no duty of active vigilance in the discovery of the fact that they are false, and that there is nothing in the law requiring him to be protected from the consequences of his wrong, because the person imposed upon did not suspect him, and adopt .some means to discover the imposition. This case was affirmed in this court on the opinion in the court below. (62 N. Y., 651; see also, Baker v. Spencer, 47 id., 562.) Knowledge of the fraudulent act is generally required, and bare suspicion is not enough. We have been referred to the dicta of judges where the doctrine is laid down that the rescission must be made after the party has had reasonable opportunity to discover the fraud, and that vigilance and care must be exercised. (Ross v. Tilterton, 6 Hun, 284; Septon v. Friltlock, 13 Alb. L. J., 27.) But these cases must be considered in connection with the facts there presented, and do not establish any general rule applicable to all cases. More especially are these decisions inapplicable where the judgment *310 sustains the allegation of fraud and gives partial relief on account of the same. It may also be remarked that the fact that the stock had a market value within four months after the sale is not material, so long as it was intrinsically worthless, and does not authorize a deduction by way of mitigating the loss of the party defrauded. (Hubbel v. Meigs, 50 N. Y., 480.) Under the facts presented, we think that there was no such want of diligence on the part of the party defrauded as entitled the defendants to the benefit of the market-value of the stock when sold, and the referee was wrong in allowing the same. Uor is there any ground for claiming that John J. Lever occupies the position of an innocent purchaser for value of the bond and mortgage, and that the right to rescind could not exist as to him. He paid no money, parted with no property and took the assignment without any pecuniary consideration and ostensibly as a gift. These facts do not impart a good title to him as a bona fide purchaser of a bond and mortgage given to secure the price of property upon a sale adjudged to be fraudulent. Even if such a defence might exist as to the whole cause of action it should not prevail here, where the plaintiff’s judgment is not assailed. It is not necessary in view of the discussion already had, to consider the defense of usury, and as the General Term were right in modifying the judgment of the court below, it must be affirmed, with costs. All concur. Judgment affirmed.