Summary
In Thompson v. McLaughlin (138 App. Div. 711) the court held that an unverified answer was regular where the complaint, in an action to recover damages for fraud, charged the defendant and other officers and directors of a corporation with having made and published material false statements of the financial condition of the corporation, in reliance upon which the plaintiff purchased corporate stock.
Summary of this case from King v. TerwilligerOpinion
May 4, 1910.
John Colmey, for the appellant Martin.
Wynkoop Rice, for the appellant John L. McLaughlin.
Scott Fitch, for the appellant James R. McLaughlin.
Christian Thompson, for the appellant Parkhurst.
Charles D. Newton, for the respondent.
The plaintiff brings this action against the defendants, who were directors and officers of the Lisk Manufacturing Company, Limited, to recover damages because he was induced by them to purchase, at a high price, the worthless stock of that corporation. A verified complaint was served setting forth that the defendants as directors and officers of such corporation, for the purpose of inducing the plaintiff and others to buy its stock, prepared, signed, circulated and published a false report of its financial condition, and that believing such report to be true, the plaintiff purchased certain shares of stock which were of no value but which would have been worth the amount paid had such report been true.
Section 31 of the Stock Corporation Law (Laws of 1890, chap. 564, as amd. by Laws of 1892, chap. 688) provides that if any certificate or report made or public notice given by the officers or directors of a stock corporation shall be false in any material representation those officers and directors signing the same shall jointly and severally be liable for the damages sustained by any person who shall become a stockholder upon the faith of such report, certificate or notice. The defendants deeming the action brought under this section, moved to strike out certain other allegations appearing in the complaint as irrelevant. The learned Special Term held such allegations pertinent to a general action for fraud and deceit independent of any cause of action under the Stock Corporation Law, and denied the motion, with ten dollars costs. An appeal was taken from such order and it was affirmed, with ten dollars costs and disbursements. ( 132 App. Div. 948.) Thereupon, after the ten days within which the motion costs and the costs of the appeal were payable had expired, and without paying such costs, but within the time to which service of answer had been extended, the defendants served unverified answers denying generally the allegations of the complaint. The plaintiff's attorney returned the answers with a written statement that he refused to accept service because they were unverified and also because the motion costs and the costs of the appeal from the order had not been paid. After the return of the answers the costs were tendered and refused. Thereupon the defendants moved to compel plaintiff's attorney to accept service of the answers as made. The moving affidavits stated that the non-payment of costs was an oversight, but the notice of motion did not specifically ask relief because of the mistake. The motion was denied and the defendants appeal.
Section 523 of the Code of Civil Procedure provides that where a pleading is verified each subsequent pleading, except a demurrer or the general answer of an infant by his guardian ad litem, must be verified, except "where the party pleading would be privileged from testifying as a witness concerning an allegation or denial contained in the pleading." An allegation charging fraud which does not amount to a crime does not come within such exception, and section 529 of the Code expressly declares that where such allegation is made the answer thereto must be verified. Section 611, subdivision 3, of the Penal Code (now Penal Law, § 665, subd. 3) makes it a misdemeanor for any director or officer of any corporation to knowingly concur in making or publishing a written report, exhibit or statement of its affairs or pecuniary condition containing a material statement which is false. The complaint plainly charges the defendants with having made and published a material false statement of the pecuniary condition of the Lisk Manufacturing Company, Limited. It, therefore, charges them with the commission of a crime, namely, the misdemeanor of misconducting themselves as directors and officers of a corporation. In conformity with article 1, section 6, of the Constitution, the Legislature has provided that a witness cannot be required to give an answer which will tend to accuse himself of a crime or misdemeanor. (Code Civ. Proc. § 837.) A verified pleading is an affidavit (Code Civ. Proc. § 3343, subd. 11), and, therefore, testimony. The privilege of not testifying respecting acts which constitute a crime extends to a denial as well as confession of guilt, and, therefore, where the pleading alleges facts which constitute a crime a party so charged may answer without verification. ( Matter of Peck v. Cargill, 167 N.Y. 391.) It does not change the situation that the plaintiff claims his action is for fraud and deceit. He has chosen to allege facts which constitute a crime and thereby opened the door permitting the defendants to stand upon their privilege. The defendants, therefore, had the right to serve an unverified answer.
The remaining question is whether the non-payment of the motion costs and costs of the appeal prevented them from so doing. We think it did not. Section 779 of the Code provides that where costs of a motion or any other sum of money directed by an order to be paid are not paid within the prescribed time, "all proceedings on the part of the party required to pay the same, except to review or vacate the order, are stayed without further direction of the court until the payment thereof." In construing the extent of the stay prescribed by this section the courts have limited it to some onward movement in the action furthering the interests of the party in default through giving him some affirmative relief therein, and have held that it does not apply to an act of self-defense on his part. ( Tracy v. Lichtenstadter, 113 App. Div. 754; Mattice v. Shelland, 76 id. 236.) The service of an answer was an act of self-defense. If not served plaintiff would have the right to take judgment by default. Courts are careful to preserve the rights of the party to defend himself, and although a defendant in a divorce action be guilty of contempt of court in failing to pay the amount of alimony ordered, his answer cannot be stricken out and he thus be deprived of his defense as a punishment for his disobedience. ( Sibley v. Sibley, 76 App. Div. 132.)
Our conclusion is that, notwithstanding the non-payment of the motion costs, the defendants had the right to serve their answers. The answers being properly unverified, it follows that the motion to compel acceptance of service should have been granted, instead of denied.
The order should be reversed, with ten dollars costs and disbursements, and motion to compel acceptance of service of answers granted.
All concurred.
Order reversed, with ten dollars costs and disbursements, and motion to compel acceptance of answers granted, without costs.