Unckles v. Hentz , 43 N.Y.S. 749 ( 1896 )

Russell, J.

The plaintiff sues in fraud for damages sustained by the fraudulent representations of the defendants. Thé alleged fraud consists in the representations to the world by the defendants, trustees of the National Lead Trust, that that trust was a legal organization and legally entitled to issue certificates of shares. By means of such representations the plaintiff bought on the New York Stock Exchange 600 shares, of the par value of $60,000. He avers that said representations were untrue; that the trust was an illegal organization constituted in violation of the laws of the state of New York and had no.right to-issue certificates for shares, and asked judgment against the defendants for the sum of $60,000.

No averments of fact are alleged in the complaint as to the existence or nonexistence of acts' done, or represented by the defendants to have been done, which would have made the organization a valid one, but the whole tenor of the allegations, amplified in various forms of language, come down to the assertion of the representation of the legality of the combination in its presumably, completed state and the incorrectness of those representations. There is no deceit alleged as to the various steps taken to form the trust, and, therefore, the fraud, if it exists, consisted in a misleading assertion of the conclusive effect of the necessary, preliminary proceedings culminating in the supposed organization.

The assertion as to the validity of the association must be> therefore, a representation of a judgment derived from reasoning applied to undisputed facts. When such reasoning is directed to the question of legality, the conclusion formed becomes a question, of law. As such it is a primary rule that it cannot be made the basis of an action of fraud. Starr v. Bennett, 5 Hill, 303; 1 Bigelow on Fraud, 8, 9; Long v. Warren, 68 N. Y. 431; Smith v. Countryman, 30 id. 681.

It is only where a fraudulent design is conceived to unlawfully obtain property from a person, to whom the wrongdoer stands in a position of trust and confidence, that a fraudulent assertion of a legal position, known to the wrongdoer to be untrue, but used in the purposes of his fraudulent scheme, may aid in remedying the wrong done. , This is not such a case; nor is it charged here that the trustees knew their allegations of the validity and power to be false. In ordinary cases, even, where the fraudulent representations are of fact alone, such knowledge is usually deemed essential and, a fortiori, it must be so here for the assertion is as to the effect in law of a complicated business transaction. For aught that here appears the way was open for the plaintiff to obtain the advice of those skilled in the law, of which class we must presume there is no dearth in the city of Eew York, who could pronounce as well as the counsel of the trustees upon the validity of the trust agreement or the preliminary steps necessary to its formation. It is hardly just to hold the defendants liable for a mistaken legal opinion. The law is not as yet an exact science, notwithstanding the life-long labors and earnest zeal of judges of the Court of Appeals and justices of the Supreme Court, and even their opinions are not always deemed by their fellows-as absolutely conclusive of the legal conclusions réached.'

It may also be presumed from the display of the form of the certificate of shares, as set forth in the complaint, that the plaintiff had a view of the trust agreement, to which, as appears, he consented to be subject in regard to all of the provisions. If, in the absence of other allegations of the complaint, we may also presume that this trust agreement was the one basis upon which the-trust was formed, the. validity- of the organization must- also be deemed to have proceeded from the construction of law that the terms of that agreement violated the laws' of the state of New York. He, therefore, was not only aWare of all of the facts upon which the conclusion of invalidity depended, but was a consenting party to its terms and the procedure under it, which Would deprive him of a right to move the courts against his partners rathe illegal action. Unckles v. Colgate, 12 Hun, 119; S. C., 148 N. Y. 529.

The demurrers are sustained, with costs, with leave to amend" the complaint within twenty days, on the payment of costs. x

Demurrers sustained,-' with leave to amend complaint.