Queen City Printing & Paper Co. v. McAden ( 1902 )

From the ruling of his Honor we understand he held that, taking McAden's evidence to be true, it was immaterial and insufficient to make out such a case of fraud as would rescind the contract of subscription, and in this we think there was error.

To constitute the fraud there must have been a representation, express or implied, false within the knowledge of Murrill, reasonably relied on by defendant, and constituting a material inducement to the contract. Adams Eq., 177.

From the evidence of McAden it clearly appears that the representations made to him by Murrill, and upon which he relied, were false; that they were material to the inducement, for otherwise he would not have signed the subscription list. The nature of the transaction shows that Murrill was speaking as of his own knowledge ("Murrill told me that Mr. Hiss had sent him to me"; "he (Hiss) is a large stockholder"; "I went to see Murrill again and repeated to me what I have just stated. . . . Murrill did not deny what I said"), and therefore the falsity of the representations must have been known to him. If this be so then the subscription was induced by fraud and voidable at the option of defendant, which he promptly repudiated without laches. Clark on Corporations, 283 et seq.; 1 Cook on Stock and Stockholders and Corp., sec. 151 and 161; Hendersonv. Lacon, Law Reps., 5 Eq. Cases (1867-'8), 248; Ross v.Estates Investment Co., 3 Law Rep., 682. The contention of plaintiff as to the failure to allege knowledge by Murrill of the falsity cannot be sustained. It is true that such (184) knowledge should have been expressly pleaded, for otherwise the answer would be demurrable, and the answer does not allege that Murrill knew that the representations he made were false; but plaintiff did not demur to it as he should have done (Code, sec. 248) had he desired to take advantage of such defects in the answer. So we have a defective statement of defendant's grounds of defense which must be deemed to have been waived under the principle well settled and fully discussed in Halstead v. Mullen, 93 N.C. 252; Knowles v. R. R., 102 N.C. 59; Ladd v.Ladd, 121 N.C. 118; Martin v. Martin, 130 N.C. 27. In those cases the exceptions were taken to defects appearing in the plaintiff's complaint, while in the case at bar they are taken to the allegations made in the answer, which sets up an affirmative defense with the burden of proof on defendant, and is subject to those rules which apply to a complaint. The facts relied upon as the basis of a defense must be set out in the answer with the same precision as is required in a complaint. Anderson v. Logan,105 N.C. 266; Rountree v. Brinson, 98 N.C. 107. The answer expressly alleges all the facts material and necessary to constitute the fraud, except that plaintiff knew that his representations were untrue at the time he made them to defendant, of which no advantage was taken by demurrer. Had plaintiff demurred to the answer, stating such defect as his grounds, it could have been easily remedied by amendment (Ladd v. Ladd and Martin v.Martin, supra,) had defendant been so advised.

As there will have to be a new trial, we deem it unnecessary to discuss the other questions raised in this appeal.

New trial.

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