Kearney v. National Grain Yeast Corporation

• Decision Date: 03 April 1941
• Citation: Kearney v. National Grain Yeast Corporation, 126 N.J.L. 307, 19 A.2d 19 (N.J. 1941)
• Docket Number: 24
• Court: New Jersey Supreme Court
• Parties: LEO KEARNEY, PLAINTIFF-APPELLANT, v. NATIONAL GRAIN YEAST CORPORATION (A CORPORATION), SAMUEL BRASS, FRANK HALE AND HAROLD GOLDMAN, DEFENDANTS-RESPONDENTS

19 A.2d 19

126 N.J.L. 307

KEARNEY

v. NATIONAL GRAIN YEAST CORPORATION et al.

No. 24.

Court of Errors and Appeals of New Jersey.

April 3, 1941.

Appeal from Supreme Court, Bergen County.

Action by Leo Kearney against the National Grain Yeast Corporation and others to recover the damages which plaintiff claimed to have suffered as a result of a fraud which all of the defendants intentionally perpetrated upon him. From a judgment for defendants, the plaintiff appeals.

Judgment as to part of defendants affirmed, and judgment as to other defendants reversed and a venire de novo awarded as to them.

Whiting & Moore, of Newark (Ira C. Moore, Jr., of Newark, of counsel), for appellant.

Winne & Banta, of Hackensack (John J. Breslin and Walter G. Winne, both of Hackensack, of counsel), for defendants National Grain Yeast Corporation, Frank Hale and Harold Goldman.

Slavitt & Slavitt, of Newark (Arthur Slavitt, of Newark, of counsel), for defendant Samuel Brass.

PERSKIE, Justice.

We are asked to decide, amongst other things, whether plaintiff's release to the defendant corporation and to its president, Samuel Brass, which release plaintiff alleges was induced by the fraud of all the defendants, bars plaintiff's action at law for deceit against any or all of the defendants.

The plaintiff, Leo Kearney, and the defendants, Samuel Brass, Frank Hale and Harold Goldman, together with one George Porrazzo, agreed to form a corporation and orally agreed on the financial interest each party to the agreement was to receive in the proposed corporation. Pursuant to this agreement, the defendant corporation was formed and between December 1, 1926, and December 1, 1927, plaintiff advanced to it the sum of $43,055.59. Despite plaintiff's requests and demands, no stock in this corporation was ever issued or delivered to him nor was any other written evidence of his right in or against the corporation given to him.

On or about January 12, 1932, the plaintiff brought an action against the defendant corporation in the New Jersey Supreme Court to recover the $43,055.59 with interest. Plaintiff elected to treat the money so advanced as a loan to the corporation. During the pendency of this suit, plaintiff alleged, in substance, that each of the defendants fraudulently represented that the affairs of the corporation were in dire and hopeless condition and "that the financial condition of said corporation was so bad that his said claim against it was not worth five cents." Plaintiff further alleged that he did not learn of the fraud so practiced upon him until June, 1935, at which time, he learned that the corporation had been in a "flourishing condition" and was "suffering no financial reverses."

Believing and relying upon these false representations, plaintiff alleged that on or about February 15, 1932, he settled his cause of action against the defendant corporation for the sum of $26,024.15, executed a general release to the defendant corporation and to its president, Samuel Brass, and discontinued the action.

On or about June 29, 1936, plaintiff began an action in the New York Supreme Court against the three individual defendants, Brass, Hale and Goldman. Plaintiff, in that action, elected to treat his advancement of the $43,055.59 as an investment in the corporation. He alleged that the $26,024.15 which he received in settlement thereof, was, in fact, in payment of the sale of his interest in the corporation to the individual defendants and claimed that since the sale was induced by their fraud, he was entitled to damages. Defendants moved their motion for judgment on the pleadings. The court granted the motion on the ground that the plaintiff, having treated the transaction as a loan in his prior suit in New Jersey, was bound by his election and could not, in a suit in the New York court, treat it as an investment. Accordingly, judgment was entered in favor of the defendants.

On May 4, 1938, plaintiff instituted the present action in the Supreme Court of our State against the defendant corporation and against the defendants, Brass, Hale and Goldman. By this action plaintiff sought to recover the damages which he claimed to have suffered as a result of the fraud which all of the defendants intentionally prepetrated upon him.

Defendants' answer denied the wrongdoing charged. Additionally, it contained a reservation of the right to move at or before the trial for a determination of the legal effect of (a) the execution of the release, (b) the effect of the action in the New Jersey Supreme Court against the corporate defendant, and (c) the action in the New York court. Defendants also made a motion for judgment on the pleadings and for an order striking the complaint on the grounds (1) that the matters in dispute are res adjudicata as between the plaintiff and the three individual defendants because of the New York judgment, (2) that the release given to the corporate defendant released both the corporation and the individual defendants, and (3) that the damages claimed are speculative and incapable of ascertainment.

Judge Barbour, who sat below, held in substance as follows: that since the New York judgment was a judgment based on the pleadings, not on the merits, it was not res adjudicata, and since the New Jersey action (against the corporation) did not go through to a final judgment, the effect thereof depended entirely upon the release and the discontinuance thereof; that the provisions of R.S. 2:98—4, N.J.S.A. 2:98-4 (defenses to sealed instruments or a set-off founded thereon) were without application to the facts of the case at bar; that the fraud charged as to the financial condition of the defendant corporation as a result of which plaintiff released the corporation and its president, Brass, and discontinued his action, constituted fraud in the consideration and not in the execution of the release; and that since plaintiff would not be able, at law, to avoid the efficacy of his release if offered against him, plaintiff could not "bring an action sounding in fraud and deceit, based on the release itself, but must allege the same kind of fraud and deceit as (would constitute) a defense to an action on the original money loaned." Judge Barbour made no distinction, in his holdings, between the corporate defendant and the individual defendants—counsel and the judge treating all defendants as if they occupied the same legal status. Upon the stated holdings, judgment was entered in favor of all the defendants and against the plaintiff. From the judgment so entered, plaintiff appeals.

Did the trial judge reach a correct result? A brief analysis of plaintiff's theory of his cause of action will be helpful in reaching the answer to the posed question. Plaintiff stoutly maintains that he is not by this action seeking to recover the balance of the $43,055.59 which he loaned to the defendant corporation. He concedes that such an action, at law, would apparently be barred by the running of the statute of limitations and he further concedes that it would unquestionably be barred by the release. Rather does plaintiff...