Schweinler v. Earl

183 A.D. 673, 171 N.Y.S. 866, 1918 N.Y. App. Div. LEXIS 6123
CourtAppellate Division of the Supreme Court of the State of New York
DecidedJuly 11, 1918
StatusPublished
Cited by2 cases

This text of 183 A.D. 673 (Schweinler v. Earl) is published on Counsel Stack Legal Research, covering Appellate Division of the Supreme Court of the State of New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Schweinler v. Earl, 183 A.D. 673, 171 N.Y.S. 866, 1918 N.Y. App. Div. LEXIS 6123 (N.Y. Ct. App. 1918).

Opinion

Dowling, J.:

The action was brought to recover the sum of $20,750 damages based upon the rescission of a contract whereby plaintiff purchased for that amount 100 shares of stock of the National Nassau Bank, the rescission being based on fraud in that false and fraudulent representations were made to plaintiff to induce him to buy the stock, the representations being made by the defendant Earl personally, and by the other defendants (constituting the firm of Taylor, Smith & Hard) through said Earl as their agent. These representations were as follows: That the National Nassau Bank was then in fine condition; that it was sound, solvent and prosperous; that it was then and had been doing a fine business and making a great deal of money; that it was as good as the Bank of England; that the shares of its capital stock were of great value and easily worth more than $207.50 each; that the shares were a good investment, and that if plaintiff bought these shares for $207.50 each, he would get a fine investment and make a large amount of money therefrom. There are allegations of plaintiff’s reliance upon said representations, of [675]*675their falsity to the knowledge of defendants, of plaintiff’s election to rescind the purchase promptly on discovery of the fraud, and of his tender of the stock back to defendants, together with the dividends received by him thereon, and demand for the repayment of the sum of $20,750 with interest, which was refused. At the trial the complaint was dismissed as to defendant Earl, he having received none of the proceeds of the sale.

The plaintiff was a business man and president and controlling owner of a corporation engaged in the printing business. His corporation had been a depositor in the Nassau Bank from 1908 and plaintiff had considerable dealings therewith, including the discounting of the commercial paper of his company’s customers. In this way plaintiff came into personal relations with defendant Edward Earl, who had been for many years employed by the bank and who had become the president. Plaintiff came to regard Earl as his friend and banker and had implicit faith and confidence in him. He bought shares of stock on his advice, beginning as early as February 9, 1909, and plaintiff left his securities in the bank’s custody. In March, 1911, the bank became a National bank under the name of “ The National Nassau Bank of New York,” and Earl continued as its president and as a director thereof. On May 16, 1911, on the recommendation of Earl, plaintiff bought eighty half shares of the bank stock of the par value of $50 each, paying therefor $12,400, or at the rate of $155 for each half share. Plaintiff had bought a substantial amount of various stocks on Earl’s advice before the transaction in question and he apparently had unlimited faith in him, allowing his securities to remain in the vaults of the bank and apparently under Earl’s complete control. The. defendants other than Earl constitute the'firm of Taylor, Smith & Hard, stockbrokers and members of the New York Stock Exchange. Augustine J. Smith, one of the defendants, was elected a member of the board of directors of the bank on January 9, 1912. A few days thereafter an examination of the bank by the national bank examiner was begun, which showed it was in a very bad condition, doubtful and worthless commercial paper to the extent of $381,000 being carried on its- books as good assets, slow and unsatisfactory items amounting to [676]*676$276,000 more, and the examiner ordered that $300,000 of the bad assets be charged off as losses at once; that the remaining criticised items be eliminated before July 1, 1912, and that a further examination be had. Both Earl and Smith knew all about this examination and both were present on January 24, 1912, when the board of directors ordered the $300,000 charged off the books as losses. The joint examination by the clearing house examiner and the national bank examiner (begun April 9, 1912) showed slow assets of $592,780, doubtful assets of $396,214, and bad assets of $492,952, and $500,000 more of bad assets were ordered charged off at once. On April 22, 1912, the capital stock of the bank was increased from $500,000 to $1,000,000, and the par value of the shares from $50 to $100. During this time the stockholders generally received no notice of the real condition of the bank’s affairs. On May 16, 1912, $499,143.74 bad assets of the bank were sold to the defendants Earl and Smith, six other directors and four other stockholders, for the sum of $250,000 cash, of which Earl and Smith paid $25,000 apiece, Earl borrowing the money from Smith. The increased capital stock was sold to stockholders at $150 a share, and the $750,000 thus realized went, $500,000 thereof to the capital account and the remaining $250,000 to surplus. A third examination was made by the clearing house examiner in January, 1913, as a result of which Earl agreed to charge off from $30,000 to $50,000 of bad paper each six months out of the bank’s net earnings. The bank was in practically this same condition on March 6, 1913. On the morning of that day Earl was talking to defendant Smith over .the telephone, as he did every day, to ascertain the condition of the bank’s clearing house account as to debits and credits. What was said between them is a matter of importance, because it bears directly upon the plaintiff’s contention that Earl was the agent of the other defendants. Those defendants had dealt in the stock of this bank, and themselves at this time owned 100 shares thereof. Earl in his examination before trial had testified as follows: Now, Mr. Earl, how did you know on these occasions that Taylor, Smith & Hard had any stock to sell9 A. I knew that they bought the stock with the idea of selling it as brokers. Q. How did you know that? A. Because they said so. Q. Who [677]*677said so? A. Mr, Smith. Q. Said so to you? A. Yes. * * * Q. Did he say how much he had bought? A. They did not have to say that; I could look at the books and see; no; he did not say that. * * * Q. What did he say? A. He said he would be glad to take any stock that came along. He said ‘ Can you sell it for us? ’ And I said ‘ Yes. I have a great many orders for the stock.’ ”

Upon the trial Earl strenuously and repeatedly denied that Smith ever said to him, in words or substance, “ Can.you sell it for us? ” (referring to bank stock), but when finally confronted with his answer last above quoted, in which he swore that Smith said, Can you sell it for us? ” he was forced to admit that he had given the answer and that his answer to the question was substantially true. He testified again upon the trial: “ Q. Do you mean to say to this court here, under oath, that Mr. Smith did not ask you to sell for Messrs. Taylor, Smith & Hard their stock? A. I do; he did not ask me to sell any stock for Taylor, Smith & Hard. Q. Will you look at that question and answer? A. I see the question and I see the answer. Q. Now, then, after reading that, do you mean to say did not Mr. Smith ask you whether or not you could sell some of that stock for him? A. I do not know that he asked me could I sell stock for him. Q. What did he ask you? A. He asked me if he bought stock for customers could I place it for him. Q. Did he ask you whether you could sell stock for him? A. I do not recall that,he did. Q. Will you look at that question again? A. Go ahead. Q. Did he say ‘ Can you sell it for us? ’ A. No, he did not.”

And again he .swore under examination by plaintiff’s counsel: Q. Now, Mr. Earl, you know the occasion which your attention has been called to relates? A. I do. Q. On that occasion did Mr.

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Bluebook (online)
183 A.D. 673, 171 N.Y.S. 866, 1918 N.Y. App. Div. LEXIS 6123, Counsel Stack Legal Research, https://law.counselstack.com/opinion/schweinler-v-earl-nyappdiv-1918.