Higgins v. Crouse

Merwin, J. The defendant claims that the court erred in holding that this action was maintainable as an equity action. The court found that the transaction was entirely between defendant and plaintiff, and that it was not a purchase by plaintiff from the corporation, but from the defendant. The evidence sustains this view. That being so, an equitable action would lie. Bosley v. Machine Co., 123 N. Y. 550, 25 N. E. Rep. 990. It would have been appropriate for the plaintiff to have made the corporation a party. The relief granted would then have been more effectual. In its present form the judgment is in some respects unusual, and no precedent is cited to sustain it. The case of Cohen v. Ellis, 16 Abb. N. C. 320, referred to by plaintiff’s counsel, was afterwards reversed. Cohen v. Ellis, 4 N. Y. St. Rep, 721. Still the corporation, according to the facts found, had no interest in the matter. There were no outstanding assessments. No defect of parties was set up in the answer. If in other respects the theory of plaintiff was correct, it is not apparent that the defendant will be injured by the form of the judgment. But the defendant says there is no evidence of the present value of the stock, and therefore no proper basis for the finding of damages. Still, if a cause of action for rescission is made out, then, ordinarily, by way of damages, the party would be entitled to the return of his money, with interest. The main question upon this appeal relates to the statute of limitations. The plaintiff has been awarded relief under that provision of the Code of Civil Procedure (section 382, subd. 5) which provides that in an action to procure a judgment, other than for a sum of money, on the ground of fraud, in a case which on the 31st day of December, 1846, was cognizable by the court of chancery, the cause of action is not deemed to have accrued until the discovery by the.plaintiff, or the person under whom he claims, of the facts constituting the fraud. In the Code of Procedure, which was in force at the time of this transaction, and for more than six years thereafter, section 91 enumerated the cases in which action must be brought within six years; and subdivision 6 thereof was as follows: “An action for relief on the ground of fraud, in cases which heretofore were solely cognizable by the court of chancery; the cause of action in such case not to be deemed to have accrued until the discovery by the aggrieved party of the facts constituting the fraud. ” The defendant claims that the rule upon this subject is that the statute begins to run, not from the time when knowledge of the fraud was obtained, but from the time when, under the circumstances, knowledge ought, by reasonable diligence, to have been obtained; and reference is made to 2 Story, Eq. Jur. (13th Ed.) § 1521, note a, where the rule is so stated. The same is said to be the rule in 13 Amer. & Eng. Enc. Law, p. 730, and many cases are there cited. In Mayne v. Griswold, 3 Sandf. 464, it was held, under a similar provision of the Revised Statutes, (2 Rev. St., 2d Ed., p. 229, § 51,) that a bill for relief on the ground of fraud, which shows that the fraud was committed more than six years before the filing of the bill, must not only state, by way of anticipation of the defense of the statute of limitations, that the fraud was discovered within six years, but must also show that it could not, with reasonable diligence, have been discovered sooner. I find no other case in this state directly on the subject. A similar view, however, has been taken in other states, having asimilar statutory provision. Railroad v. Mayo, 67 Me. 476; Fritschler v. Koehler, 83 Ky. 78; Boyd v. Blankman, 29 Cal. 20; Parker v. Kuhn, 21 Neb. 413, 32 N. W. Rep. 74. The case of Township of Boomer v. French, 40 Iowa, 601, and Commissioners v. Smith, 22 Minn. 97, are in the same direction. The statutes on this subject are collated in the appendix to Angelí on Limitations. The reason of the rule, as indicated in some of the cases, seems to be that, as the time of discovery is generally entirely within the knowledge of the plaintiff or party in interest, and as, therefore, it is difficult or impossible for a defendant to negative or rebut the positive allegation on the subject, the discovery will be deemed to have been made or to ex 700 ist, when the plaintiff or party in interest, in the exercise of reasonable diligence, ought to have found out the facts constituting the fraud. In Angelí on Limitations, (section 187, 6th Ed.) it is said: “The presumption is that if the party affected by any fraudulent transaction or management might, with ordinary care and attention, have reasonably detected it, he reasonably had actual knowledge of it.” In Kirby v. Railroad, 120 U. S. 136, 7 Sup. Ct. Rep. 430, it is said: “It is an established rule of equity, as administered in the courts of the United States, that where relief is asked on-the ground of actual fraud, especially if such fraud has been concealed, time will not run in favor of the defendant until the discovery of the fraud, or until, with reasonable diligence, it might have been discovered.” The cases cited by the counsel for plaintiff to the point that the party defrauded owes no duty of diligence in discovering the fraud to the party who defrauded him do not relate to the statute of limitations. On the other hand, it is said in Upton v. Tribilcock, 91 U. S. 55, that parties who are shareholders, and claim to be relieved on the ground of fraud, must act with the utmost diligence and promptitude. Following, as I think we should, the case of Mayne v. Griswold, and the current of authorities in that line, the question here is whether the evidence authorizes the conclusion that the plaintiff, in the exercise of reasonable diligence, could not have discovered the facts constituting the fraud prior to six years before the commencement of this action. The main representation, and the one which is evidently the gist of the action, was, “We are putting down wells, with every prospect of success. ” The plaintiff testified: “I relied upon his statement that it was a big thing, and they were putting down wells and developing the property, and it was going to be a big thing.” The statement that it was a big thing, or going to be a big thing, was clearly a matter of opinion, and the plaintiff gave no evidence that the stock then was not readily selling at par. The fact as to wells was that in or before the June previous the two wells which they had dug had beén tested, and found non-producing, and had been abandoned, and in or before July the tools and machinery which they had purchased for the purpose of digging wells had been sold, and removed from the property. In other words, they had in November, 1865, stopped digging wells, abandoned those they had dug, and disposed of their tools and machinery. These were the facts upon which plaintiff based his claim; and the discovery of which led to the action. The plaintiff testifies that when, in February, 1866, he paid his note to defendant, and received his scrip, he said to defendant that he had heard some rumors that their prospects were not very good for getting oil, and he had no money to lose, and that defendant told him there was no truth in any such rumors, and reassured him that everything was just as he stated when the note was given; that he made no inquiry of defendant as to what property the company had, and made no inquiries of Blye, the secretary, when he got his certificate of stock; that about a year afterwards he asked defendant what the prospects were, and defendant replied that everything was all right; that he made similar inquiries of defendant several times prior to 1871, and then made up his mind that he had lost his money, and said nothing more about it. From 1871 to May, 1889, the matter rested. The plaintiff testifies that at the latter date he wrote the defendant to take back his stock and make him good; that he had been unfortunate in speculations, and bis health was poor, and he really wanted the money; that this was before he discovered the fraud; that the defendant came to see him, refused to pay him back, and claimed it was a business transaction, and. was all right and fair; that the next day, or within a few days, he discovered the fraud, through Mr. Blye, the secretary,—he giving him the information that the grounds were abandoned months before the negotiations between plaintiff and defendant, in November, 1865, and referring him to Mr. Potter for the particulars. Potter was the foreman in charge of the 701 digging of the wells. Plaintiff saw him a few days afterwards, and learned further particulars. The plaintiff, during all this time, was a business man in Syracuse, and the officers and corporators of the company were also there. The secretary and treasurer, Mr. Blye, and the foreman, Potter, were there. He at any time, apparently, could, by inquiry, have readily ascertained when the company stopped work. He, however, made no inquiries on the subject until May, 1889. He says that he was satisfied in 1871 that he had lost his money. He must have known that the company had prior to that time stopped. No dividends or assessments were made. Having made up his mind in 1871 that the company was a failure, he was then put upon inquiry as to whether his purchase was genuine. Nothing was then put in his way. His delay from that time to 1889 is not consistent with reasonable or ordinary-■diligence. The case furnishes no sufficient or any explanation. As the case stands before us, we think the evidence does not authorize the conclusion that the plaintiff, in the exercise of reasonable diligence, could not have found out the facts constituting the fraud prior to six years before the commencement of this action. This calls for a reversal of the judgment. Judgment reversed, and new trial ordered; costs to abide the event. All concur.