Kaston v. Nathan Zimmerman & George Orlove & Co.

192 A.D. 511, 183 N.Y.S. 615, 1920 N.Y. App. Div. LEXIS 7507

• Court: Appellate Division of the Supreme Court of the State of New York
• Decided: July 2, 1920
• Status: Published

Opinions

Laughlin, J.:

The .ground on which the defendants moved for a dismissal was that the suit is in equity and the plaintiff's remedy is an action at law to recover his down payment under the contract for the purchase of the premises described in the complaint. The record does not show that the plaintiff made any request or suggestion that the action be retained and transferred to the calendar for the trial of issues by a jury, and it is not claimed on the appeal that the action should be retained as one at law. The complaint is plainly framed in equity and the cause was placed on the calendar for the trial of issues of fact by the court at Special Term and was there brought on to trial. In such circumstances, if he had no cause of action for equitable relief, it was proper to dismiss his complaint. (Hawes v. Dobbs, 137 N. Y. 465; Gosselin Corp. v. Mario Tapparelli fu Pietro, Inc., 191 App. Div. 580, and cases cited.) The relief demanded is the rescission, for false and fraudulent representations, of a contract, in writing, made between the defendant corporation and the plaintiff on the 22d of July, 1919, by which it agreed to convey the premises known as No. 442 East One Hundred and Seventy-second street, in the borough of The Bronx, to the plaintiff in consideration of the payment by the plaintiff of $40,000, $500 of which was paid when the contract was signed, and $9,500 was to be paid in cash on the delivery of the deed, and the balance by taking title subject to two mortgages thereon, or subject to one mortgage and a purchase-money mortgage for the balance, to be increased in that event by $500. The complaint also demanded, as incidental relief, a judgment against the defendants for the $500 down payment, together with interest, and $75 for plaintiff’s expenses in examining title, and that the plaintiff be adjudged to have a lien on the premises therefor and that they be sold to pay the same and the expenses of the sale and costs of the action, and that plaintiff have a deficiency judgment for any balance, and contained the usual prayer for such other and further relief as may be deemed proper. I deem it now well settled in this jurisdiction that if the purchaser has just ground for rescinding such a contract, he may either elect to rescind and bring an action to recover the money paid, or he may sue in equity for a rescission, and upon rescission, as incidental relief, recover, at least, the down payment, although he would not have a lien therefor. (Davis v. Rosenzweig Realty Co., 192 N. Y. 128; Bloomquist v. Farson, 222 id. 375, 380.) Where a complaint shows facts justifying equitable relief, plaintiff cannot be defeated on the ground that he has an adequate remedy at law unless that is pleaded as a defense. (Bloomquist v. Farson, supra; Baron v. Korn, 127 N. Y. 224; Hawes v. Dobbs, supra.) Here, however, the defendant failed to plead that plaintiff had an adequate remedy at law and, therefore, the only point presented for decision is whether the plaintiff alleges facts authorizing a court of equity to afford him any equitable relief.

I am of opinion that the facts alleged are sufficient to entitle the plaintiff to a rescission of the contract and as incidental relief to recover the down payment. The execution of the agreement and the down payment are alleged in the complaint and it is further alleged that at the time the agreement was made and prior thereto, the defendants and their agent and broker, acting for and. on their behalf, “ * * * represented and warranted to the plaintiff that the building erected upon the said premises which was five stories in height was divided into four four-room and one three-room apartments on each floor above the street floor, making a total number of 19 rooms on each of the floors above the street floor,” and that said representations and warranties were false and fraudulent and were known at the time they were made by the defendants and their agent and broker to be false and fraudulent, and were so made for the purpose “ of inducing the plaintiff to enter into said agreement ” and for “ the purpose of further inducing this plaintiff to rely upon the truth of such representations and warranties and thereby this plaintiff was induced to pay to the defendant company upon the execution of the said agreement, the said sum of Five hundred ($500) Dollars, as a deposit ” on the purchase price of the premises. It is further alleged that the building above the street floor was not subdivided or arranged into four four-room apartments, and one three-room apartment on each floor and was not divided into nineteen rooms on each floor as represented and warranted; but was divided into four three-room apartments and one four-room apartment on each floor and that the total number of rooms on each floor was only sixteen, instead of nineteen as so represented and warranted, and that said representations and warranties were material in that the rental value of the premises with sixteen rooms per floor is considerably less than it would be if there were nineteen rooms on each floor, and that the annual income from and the value of the premises were materially affected by said representations and warranties. The plaintiff further alleges that upon learning that said representations and warranties were untrue he demanded the return of the down payment and the rescission of the agreement, but that the defendants refused and still refuse to comply therewith in either respect; that the defendant Zimmerman was and still is the president of the defendant corporation and-owned a considerable portion of its stock, and was and is the manager and controlling factor of the defendant corporation and intended to act in person and for the corporation with respect to the execution of the contract, and had personal charge in behalf of the corporation of the execution thereof and of all negotiations relating thereto, and that the false representations and warranties were made by him personally to the plaintiff throughout the negotiations covering a period of several days prior to the execution of the contract. Under the rule of liberal construction applicable to the allegations of a complaint, especially when issue is joined thereon and the sufficiency thereof is not challenged until the trial, I am of the opinion that the complaint sufficiently shows that the plaintiff relied on the false and fraudulent representations and warranties in executing the contract, for it is expressly alleged that they were made for the purpose of inducing the plaintiff to rely upon the truth thereof and that he was thereby induced to make the down payment. He could not have been induced thereby to make the down payment without having been likewise induced thereby to sign the contract, for the two acts were concurrent. To be sure it is not specifically alleged that the plaintiff relied upon the false representations and warranties, but I think that is fairly implied from the allegation which is, in effect, that he was induced thereby to sign the contract and make the payment.

The learned counsel for the respondents contends, however, that even if it be held that the complaint sufficiently shows, or will permit the reception of evidence to show, that these false and fraudulent representations and warranties were made by the defendants knowing that they were false and fraudulent and for the purpose of inducing the plaintiff to rely thereon in signing the contract and in making the down payment, nevertheless, he is bound by the contract and could not rescind it, and it cannot be rescinded by a court of equity for the reason that he should not have relied thereon but should have inspected the building and have ascertained the true facts before signing the contract or paying the money. That contention is made on the authority of decisions, so far as they are within this jurisdiction, relating to representations concerning matters and things not peculiarly within the knowledge of the vendor and of which the purchaser had equal knowledge or information or opportunity therefor with the vendor, and where he remained indifferent and did •not see and observe for himself matters and things which, were before him and open to his sight and observation. (See Harsha v. Reid, 45 N. Y. 415; Van Sant v. Perry, 174 N. Y. Supp. 658; Taylor v. Fleet, 4 Barb. 95; DeMilt v. Hill, 89 ; Long v. Warren, 68 N. Y. 431; Caton Business College Co. v. Hertel, 12 N. Y. Supp. 721; White v. Seaver, 25 Barb. 235.) The learned counsel for the respondents contends that on the authority of some of those decisions it is to be presumed that an inspection of the premises was open to the plaintiff and that he had the same opportunity for ascertaining the number of rooms as did the defendants, and that in failing to avail himself of such opportunity he was negligent and is, therefore, entitled to no relief. That may appear when the facts are fully developed on the trial, but it does not appear from the allegations of the complaint, and there is no presumption that he had free access to all the rooms so that he could count them himself if he should have done so provided he had the opportunity. Under the allegations of the complaint the plaintiff may show that he was given no time option and that if he wished to purchase he was required to accept the representations and warranties and to rely thereon and to sign the contract and to make the down payment then and there. If it should appear that those were the circumstances under which he relied on the false and fraudulent representations and warranties, or that there was any suggestion or inducement by defendants to lead him to refrain from making an inspection for himself, it is quite clear that he will be entitled to have the contract rescinded. The nature of the false representations and warranties is such as to render it improbable that the defendants expected that the plaintiff would inspect the premises, for an inspection would have disclosed the falsity of the representations and warranties. The reasonable inference from the allegations of the complaint is, therefore, that the representations and warranties were so made as to induce the plaintiff to rely thereon without ascertaining for himself the true facts. The representations and warranties, the falsity of which were known to the defendants and unknown to the plaintiff, were material for they concerned the value of the property. They did not relate to matters of opinion, but to facts peculiarly within the knowledge of the defendants and, therefore, the doctrine of caveat emptor is not applicable, and the plaintiff was under no obligation to verify such false and fraudulent representations and warranties, and his failure so to do does not deprive him of the right to have the contract rescinded for the falsity of the material misrepresentations of fact so fraudulently made and warranted, and the defendants are not entitled to hold and reap the benefits of the contract so induced. (Schumaker v. Mather, 133 N. Y. 590; Mead v. Bunn, 32 id. 275, 280; Baker v. Lever, 67 id. 304; Kountze v. Kennedy, 147 id. 124; Bradley v. Bosley, 1 Barb. Ch. 125; Hellman v. Strauss, 2 Hilt. 9; Hutcheon v. Johnson, 33 Barb. 392; Forster v. Wilshusen, 14 Misc. Rep. 520; Phillips v. Conklin, 58 N. Y. 682; Wright v. Deniston, 9 Misc. Rep. 79.)

Long v. Warren (supra), which is the principal authority relied upon by the respondents, was a decision by a bare majority of the court and it has since been materially modified, limited and restricted by decisions by the same court; and the true rule as now administered is that if the representations are not with respect to matters peculiarly within the party’s knowledge, and the other party has means readily available to him of ascertaining the true facts by the exercise of ordinary diligence, he must avail himself of such opportunity or he will not be heard to complain that he was induced to contract or enter into the transaction by the misrepresentations (Albany City Savings Institution v. Burdick, 87 N. Y. 49; Schumaker v. Mather, supra); but even that rule is not applicable where, as here, the facts were peculiarly within the knowledge of the defendants and they fraudulently made definite representations of material facts and warranted them to be true for the sole and only purpose of misleading the vendee, who did rely thereon. (Simar v. Canaday, 53 N. Y. 306; Heilman v. Strauss, supra; Forster v. Wilshusen, supra; Phillips v. Conklin, supra.)

It follows that the judgment should be reversed and a new trial granted, with costs to appellant to abide the event.

Clarke, P. J., Smith and Greenbaum, JJ., concur; Merrell, J., dissents.