A. G. Hyde & Sons v. Lesser

Ingraham, J.:

The action is brought to recover the damages sustained by the plaintiff by the sale of certain goods and merchandise, induced by the false and fraudulent representations of the defendant as to the financial condition of a firm of which the defendant was a member. The answer, after denying the allegations of the complaint, sets up two separate defenses to which the plaintiff demurred. The first defense is that at the time of the purchase of the goods and the creation of the debt set forth in the complaint the defendant, with one Simon Lesser and Israel Lesser, were copartners in business, having the firm name of “ Lesser Brothers ; ” that the goods sold by the plaintiff were sold to the firm of Lesser Brothers as a firm, and that the merchandise so purchased was received by the firm of Lesser Brothers and charged to the said firm by the plaintiff, and that Simon Lesser and Israel Lesser, as copartners, are necessary parties defendants. For a second separate defense the answer sets up a discharge in bankruptcy subsequent to the delivery of the goods to the firm of Lesser Brothers and prior to the commencement of this action. The court below sustained the demurrer to both defenses.

■ The complaint alleges that the plaintiff’s assignor, relying upon statements made by the defendant as. to the financial condition of the.firm, did “sell and deliver to the said firm of Lesser Brothers, at their request, goods and merchandise, consisting of cotton goods, to the amount and of the value of $2,335.82.” If there was a defect of parties plaintiff, the defect appeared upon the face of the complaint, and the objection should have been taken by demurrer.

' (Code Civ. Proc. § 488, subd. 6.) It is only where the objection does not appear on the face of the complaint that it can be taken by-answer (Code Civ. Proc. § 498), and not having been taken by demurrer it was waived (Code Civ. Proc. § 499). The action, however, is not to enforce the contract of sale. The complaint alleges that upon discovering the fraud the plaintiff’s assignor elected to rescind the sale as void, and instituted proceedings to recover the possession of the goods sold, which had been obtained by means of, and relying upon, the fraud, and recovered goods of the value of $900, but was unable to obtain the remainder of the goods, and that by reason of the premises the plaintiff’s assignor wholly lost all of the said goods and merchandise so wrongfully taken from him by the said firm of Lesser Brothers, except the part replevied as aforesaid, to his damage in the sum of $1,423.90, with interest from the 2d day of October, 1896.

A cause of action based upon these allegations is to recover damages for the fraud, and not to recover for' the goods sold and delivered based upon any contract of the firm of which the defendant was a member. The rescission of the sale and the recovery of the goods, based upon the election to rescind, would prevent an action based upon the contract of sale, as that contract was rescinded by the vendors. Having recovered a portion of the goods, there only remained a cause of action for the damáges caused by the fraud, and that cause of action is what is here sought to be enforced. If the action had been to enforce, a contract of sale, then all of the partners would be necessary parties, as the contract was joint; but where the cause of action is based solely upon fraud of the defendant, and the recovery sought is the damages caused by su.eh fraud, the action is in tort, and can be maintained against any one responsible for the fraud. ■ It is' quite clear, therefore, that the first separate defense is insufficient.

The second defense is based upon a discharge in bankruptcy, and the court below held that this cause of action was not affected, by the. discharge. Section 17 of the Bankruptcy Law (30 U. S. Stat. at Large, 550), provides, that “a discharge in bankruptcy shall release a bankrupt from all of his provable debts, except such as * * * were created by his fraud, embezzlement, misappropriation or defalcation while acting as an officer, or. in any fiduciary capacity.” That the indebtedness here sought to be enforced was one created by the defendant’s fraud is clear, and was not discharged, unless the words “ in any fiduciary capacity ” in subdivision 4 qualify the entire subdivision of the section, so that the debt was discharged unless the debt Was created by the defendant’s fraud in a fiduciary capacity. Where a fraud has been committed there follows a liability of the guilty party for the damages created by the fraud. The phrase “ while acting as an officer, or in any fiduciary capacity,” has direct reference to a defalcation, and applies to a defalcation, and not to the former words in the subdivision, “ fraud, ” “ misappropriation,” or “ embezzlement.” This construction was affirmed in Frey v. Torrey (70 App. Div. 167; affd. on opinion below, 175 N. Y. 501). It was there said that the words “ fraud,” “ etribezzlement ”' and “ misappropriation ” are not qualified by the clause “while acting as an officer, or in any fiduciary capacity.” It is claimed by the learned counsel for the appellant that this case is not •an authority, as the money there sought to be' recovered ■ was obtained by fraud where a fiduciary relation existed; but in that case the plaintiff deposited with the defendant, a private banker, $150, which he sought to recover, basing his cause of action upon a fraud of the defendant in receiving deposits when he was hopelessly insolvent. No fiduciary relation exists between a bank and his customer, as by the deposit the customer becomes a creditor of the banker for the amount of the deposit. The decision in that case is a controlling authority.

It follows that the judgment appealed from must be affirmed, with costs.

Van Brunt, P. J., and O’Brien, J., concurred; McLaughlin and Hatch, JJ., dissented.