Adams v. Clark

• Court: New York Court of Appeals Court of Appeals
• Writing for the Court: POUND
• Citation: Adams v. Clark, 239 N.Y. 403, 146 N.E. 642 (N.Y. 1925)
• Decision Date: 27 January 1925
• Parties: LILLIAN W. ADAMS, as Executrix of JULIA W. PAGE, Deceased, Respondent, v. PAUL R. CLARK et al., Appellants, Impleaded with Others.

239 N.Y. 403

146 N.E. 642

ADAMS

v.CLARK et al.

Court of Appeals of New York.

Jan. 27, 1925.

Action by Lillian Wegman Adams, as executrix of the last will and testament of Julia Wegman Page, deceased, against Paul R. Clark and others. From a judgment of the Appellate Division (208 App. Div. 827, 203 N. Y. S. 918), affirming a judgment of the Trial Term on a verdict for plaintiff, defendant Clark and another appeal.

Reversed, and new trial granted.

See, also, 119 Misc. Rep. 110, 195 N. Y. S. 529.

Appeal from Supreme Court, Appellate Division, Fourth department.

Arthur E. Sutherland, of Rochester, and Paul R. Clark, of Auburn, for appellants.

William J. Baker, and Grace F. Crampton, both of Rochester, for respondent.

POUND, J.

The action is based on a conspiracy to defraud. Plaintiff's testator, Mrs. Page (formerly Wegman), was the owner of a majority of the stock of the Wegman Piano Company, herein mentioned, which was a once prosperous concern in the city of Auburn, but was at the time of the transaction, although claiming to be solvent, in need of ready money and available working capital. The alleged purpose of the conspiracy was to destroy the value of her stock. The alleged plan of the conspiracy was that the Cayuga County National Bank should squeeze the piano company by discontinuing financial accommodations; that defendant Knapp should falsely and fraudulently represent that he would furnish necessary money to carry on the business, if the company were reorganized; that defendant Clark should falsely and fraudulently represent to Mrs. Page that reorganization through the formality of friendly bankruptcy proceedings was the only proper method; and that in order to make the proceeding possible it was necessary that a resolution of the board of directors be passed reciting that the corporation was unable to meet its immediate obligations, this admission being an act of bankruptcy, although not an admission of insolvency. Matter of Russell Wheel & Foundry Co. (D. C.) 222 F. 569.

It is alleged that Mrs. Page, believing and relying on the representations, consented to the adoption of the resolution, although it was against the interests of the corporation and her own interests, and that thereupon the corporation was put into bankruptcy, its assets dissipated, and the value of plaintiff's stock destroyed; that defendants had no intention of furnishing the necessary funds to carry on the business, and did not furnish such funds; that their purpose was to obtain control of the corporation.

Of the original defendants, William R. Payne, who was vice president of the bank, and a partner of Clark, and the defendant bank, were eliminated from the conspiracy on the trial, leaving Paul R. Clark and Alice Swaby Knapp, executrix of James M. Knapp, deceased, against whom plaintiff has obtained, judgment. Knapp, it is said, was the pretendedly friendly capitalist who was to furnish the money, and Clark was acting as the attorney for the Wegman Piano Company on the recommendation of the bank officials, but, it is charged, in bad faith and to bring about its destruction.

[1] The case was tried on the theory that, if Clark and Knapp made specific false affirmations to Mrs. Page of the arrangement under which the reorganization of the company was to occur, knowing that it was not so to occur, and damages resulted, the representations were actionable. Ritzwoller v. Lurie, 225 N. Y. 464, 122 N. E. 634. We may assume for the purpose of this appeal that the evidence was sufficient to go to the jury to the effect that the Wegman Piano Company was solvent, that the act of bankruptcy was obtained by the joint fraud of appellants, and that Mrs. Page was damaged thereby. If by reason of such fraud Mrs. Wegman's stock became valueless, she suffered an injury for which the tort-feasors were liable to her personally. General Rubber Co. v. Benedict, 215 N. Y. 18, 109 N. E. 96, L. R. A. 1915F, 617. Mrs. Page alleges that the value of her stock was $700,000, and that the same was rendered valueless by the fraud of defendants; the verdict of the jury was for $25,000.

It is contended by appellants that the bankruptcy proceedings were res adjudicata on the question of solvency (Gratiot Co. St. Bk. v. Johnson, 249 U. S. 246, 39 S. Ct. 263, 63 L. Ed. 587), or at least competent as bearing on the questions at issue. The learned trial justice held in effect that the regularity of the bankruptcy proceedings was not on trial; that their regularity might be assumed; that the question was merely whether the bankruptcy proceedings were initiated in fraud; that, while there was no attack on the regularity of the proceedings themselves, they were not res adjudicata on the question of the solvency of the company, because that question was not litigated. He therefore excluded as irrelevant the schedules, reports, and other proceedings in bankruptcy, which established for the purposes of the administration of the estate in bankruptcy that the company was insolvent, and that its assets were insufficient to pay creditors more than 10 cents on the dollar. He properly drew a distinction on the question of value between a live, going concern and the same concern in bankruptcy; but he further held that the adjudication in bankruptcy merely established the status of the corporation as a bankrupt, and gave the court jurisdiction to administer the estate as that of a bankrupt. The fraud, he held, was in the obtaining of Mrs. Page's consent to an act of bankruptcy; the fruit of the fraud was the bankruptcy, and defendants could not take advantage of their own fraud. The...