DeVaughn v. Frank E. McGray Co.

222 A.D. 533, 226 N.Y.S. 474, 1928 N.Y. App. Div. LEXIS 8108

• Court: Appellate Division of the Supreme Court of the State of New York
• Decided: January 11, 1928
• Status: Published

Opinion

Hubbs, P. J.

This is an action to recover the unpaid balance of the purchase price of bonds sold by plaintiff’s predecessor, Securities Guaranteed Company, to defendant. The answer pleads an affirmative defense and counterclaims. It alleges that defendant purchased the bonds in question, relying upon the truth of false and fraudulent statements made by plaintiff’s predecessor concerning them and their value. It also alleges that the bonds were entirely worthless, but that, relying on the truth of the representations so made to it, defendant paid $110,000 upon the purchase price, accepted delivery, and afterwards resold all of them to its customers upon the same representations.

At the opening of the trial the court, on plaintiff’s motion and defendant’s admission of the allegations of the complaint, struck out the affirmative defense and counterclaims contained in the answer, and directed judgment in favor of the plaintiff for the full amount demanded in the complaint, with interest, upon the ground that the defendant had admitted in its answer that it had received from its vendees upon a resale of the bonds a sum in excess of that which it had paid for them, and had, therefore, sustained no damage, and had nothing to litigate except the alleged fraud; and that before the defendant could recover, it must establish both fraud and damage.

The learned trial court apparently overlooked the allegations of the answer that defendant had resold the bonds on the faith of the same false and fraudulent representations which induced defendant to purchase the bonds, and that defendant, upon the resale of the bonds, had made the same false representations to its vendees under express authority of its vendor so to do, thereby becoming liable in an action by its vendees to recover from it the money paid to it upon the purchase of said bonds.

The resale of the bonds by the defendant did not relieve the plaintiff’s predecessor from liability for its fraud. The defendant’s cause of action accrued when its contract was closed with the plaintiff’s predecessor and it accepted the delivery of said bonds and contracted to pay for them.

In the case of Fox v. Hirschfeld (157 App. Div. 364, 366), which was a fraud action, the court said: “ The cause of action was vested in the plaintiff the moment he executed the contract, and what he did with the contract or the property is wholly immaterial, since he performed it on his part, provided he has not assigned his cause of action.” (See, also, Clark v. Morgan County National Bank, 196 Fed. 709; Hubbell v. Miggs, 50 N. Y. 480, 492; 2 Williston Sales [2d ed.], 1539; 27 C. J. p. 5, § 116, p. 99, § 247.)

We think that it was error to strike out the defense and counterclaims contained in the defendant’s answer and direct judgment for the plaintiff. We are of the opinion, however, that the defendant cannot recover damages in this action for loss of profits and damage to its business, as alleged in the counterclaim. (Crain v. Petrie, 6 Hill, 522; Foster v. DiPaolo, 236 Ñ. Y. 132.)

The rule of damages in an action for fraud is stated in the case of Reno v. Bull (226 N. Y. 546) as follows: “ The purpose of an action for deceit is to indemnify the party injured. All elements of profit are excluded. The true measure of damage is indemnity for the actual pecuniary loss sustained as the direct result of the wrong. [Citing cases.] The plaintiff paid $5,000 for the stock purchased by him. If he were entitled to recover at all, it was the difference between that amount and the value of the stock which he received with interest from that time. He was not entitled to anything else. This is the rule not only in this State, but in the Federal courts.”

Under that rule the affirmative defense set up in the answer is sufficient and raises a question of fact and the counterclaim for the recovery of the money paid by the defendant to plaintiff’s predecessor upon the purchase of the bonds is a proper counterclaim.

The judgment and orders should be reversed upon the law and a new trial granted, with costs to the appellant to abide the event.

All concur. Present — Hubbs, P. J., Clark, Sears, Crouch and Sawyer, JJ.

Judgment and order denying motion for new trial reversed on the law and order striking out the counterclaims reversed in part, and a new trial granted, with costs to appellant to abide event.