App. Div.]

Fourth Department, July, 1911.

the sale of the bonds, there was a mere option, binding only upon the company; and while the jury found that the statement fairly meant either an absolute contract or a mere option, they further found that the plaintiff understood that it was an absolute contract for the sale of the bonds, which would result in the company having $5,000,000 in cash in the treasury, and that the statement was purposely so worded as to make it appear that there was a bilateral contract of sale; that $7,000,000 of the $17,000,000 of bonds had not been sold at private sale on a cash or property basis equivalent to the offer; and as to the representation that 413,030 shares of the United States Independent Telephone Company had been issued, it is not claimed that the stock had not been issued but that it had not been legally issued for money or property equivalent in value to cash; that the plaintiff had the right to believe that the $41,000,000 of stock represented $41,000,000 worth of property, and that the New York city franchise, which formed the basis for issuing the larger part of the stock, was of little value and in fact of no value for the purpose of carrying on a general telephone business. That franchise will again be referred to a little later.

As regards the statement relating to the Stromberg-Carlson Telephone Manufacturing Company and the report of the public accountants relating thereto, I think it was fairly a question of fact as to whether the statement fairly stated the business and condition of the company and whether the statement of the report of the accountants contained in the prospectus was a fair statement thereof. A material part thereof was omitted from the statement.

The most important representation, and out of which the most serious question arises upon this appeal, is the one relating to the New York city franchise. After stating that the New York Independent Telephone Company is incorporated under the laws of the State of New York, with an authorized capital of $50,000,000, the prospectus continues: "It owns a franchise in the City of New York, acquired under the advice of eminent counsel, under which it is its purpose to begin, as soon as practicable, and in the near future, the construction of an independent telephone system in that city."

Fourth Department, July, 1911.

[Vol. 146. This is an absolute statement of a right and of ownership thereof, carrying with it all that such a right implies. It is an absolute statement of a fact which is not true, as I understand the effect of the decision in the mandamus proceeding in Matter of New York Independent Telephone Company (133 App. Div. 635; affd., 200 N. Y. 527). The additional statement that the franchise was acquired under the advice of eminent counsel adds to rather than detracts from the force of the declaration.

That, however, is not all there is to the question. What is claimed on behalf of the defendants is, that they made the statement in good faith; that such advice was given (which is true) and that they had a right to rely upon that advice and did rely upon it, as is evidenced by putting their own money into the enterprise. I confess there is force in this contention, especially in view of the high standing of the lawyers upon whose opinion they relied.

But there is another side to that question. The prospectus does not tell all the facts relating to the franchise. When all the facts are stated, an investment in the bonds and stock does not appear so attractive. It may well be that the plaintiff would not have put his money into the enterprise had he known the situation as it was, and as the defendants actually knew it to be. He was not informed that the company itself had never obtained or made application to any governmental authority for such franchise, and that the only right it had was a right or franchise, which up to that time had been used for operating an electric burglar-alarm system within a limited area in certain districts in the city of New York by another corporation whose capital stock the promoters had acquired; nor the purposes for which that corporation had been organized; nor by what authority the right or franchise under which it was operating had been granted, nor the terms thereof; nor that legal proceedings were contemplated or would be necessary to obtain the necessary permits to occupy the streets and subways of the city; nor that the construction of the system depended upon securing the necessary capital, estimated at $47,000,000; nor was he told that the entire capital stock of the corporation which had been operating the electric burglar-alarm system was of the par value of $5,000, for which the promoters had

App. Div.]

Fourth Department, July, 1911.

paid $250,000, and that $41,000,000 of the $50,000,000 capital stock of the New York Independent Telephone Company had been issued therefor, and of the $41,000,000 of the stock of the New York Independent Telephone Company $39,000,000 had been turned over to the United States Independent Telephone Company for $38,597,500 of its stock and $1,278,000 of its bonds. With these additional facts the enterprise appears highly speculative to say the least. While the defendants of course had the right to hazard their own money in the enterprise, fair dealing required, as it seems to me, that the money of others should not have been taken without informing them fully of the nature of the hazard.

But it is urged that it is quite inconceivable that men of the high standing, such as some of these defendants are, would do intentional wrong. That is conceded, but if I am right in the view that all are legally liable under the circumstances for the fraud perpetrated by one or more of their more active associates, that suggestion loses its force. It not infrequently happens that persons of the highest standing are held liable for the torts of their agents. The very fact that there were connected with this enterprise men of integrity and good business judgment gave weight to the prospectus and enabled a seller to dispose of the stock and bonds the more readily.

We come now to the conduct of the trial. I think no prejudicial error was made in rulings upon questions of evidence; nor do I think that submitting the specific questions to the jury misled them, nor that some of their answers were inconsistent with others. I think it might have been better not to have submitted so many questions, but the trial judge did his best to secure the aid and co-operation of counsel in framing them, and, upon the whole, I think the jury showed a clear comprehension of the question submitted. It is true that three of the questions were left unanswered and an irrelevant suggestion was made at the end of their verdict; but that suggestion, evidently, was prompted by the best of motives. The jury was laboring under the difficulty of following what they regarded their plain duty and at the same time fearing that their verdict might cast an unjust aspersion upon some of the defendants.

Fourth Department, July, 1911.

[Vol. 146. Neither do I think the trial court erred in allowing but the six peremptory challenges to all of the defendants instead of six to each defendant. I think the provisions of the Code of Civil Procedure (Code Civ. Proc. § 1176), giving to each party six peremptory challenges, does not mean to each person a party to the action but to all the persons on each side of the controversy. There were but two sides to the controversy in this action; upon one side was the plaintiff, upon the other side the defendants. The interests of the several defendants were identical. They were not antagonistic or adverse to each other. There was no controversy between the defendants.

As regards the attorneys' misconduct in sending to the jury room after the jury had retired for deliberation, and in the absence of the presiding justice, a newspaper statement which had been ruled out, appended to an exhibit which the jury had called for, while that was highly improper and the explanation for so doing is quite unsatisfactory, we are not now dealing with the misconduct, except so far as it may have affected the result of the litigation.

I think, in view of the nature of the statement, the evidence which had been admitted upon the subject covered thereby and the positive instructions of the judge to disregard the same, we should affirm the order refusing to grant a new trial upon that ground.

I think the judgment and several orders appealed from should be affirmed, with costs.

All concurred, except MCLENNAN, P. J., who dissented, in a memorandum.

MCLENNAN, P. J. (dissenting):

I dissent on the ground that the evidence does not establish a cause of action for "fraud and deceit" against the appellants or either of them under the authorities. (Kountze v. Kennedy, 147 N. Y. 124; Lyon v. James, 97 App. Div. 385; affd., 181 N. Y. 512; Bell v. James, 128 App. Div. 241; affd., 198 N. Y. 513; Polhemus v. Polhemus, 114 App. Div. 781; Duryea v. Zimmerman, 121 id. 560; Thayer v. Schley, 137 id. 166.) On the further ground that reversible error was committed by the trial court in the admission and rejection of evidence,

App. Div.]

Fourth Department, July, 1911.

and further because the manner in which the jury disposed of the specific questions submitted to it, and the fact that at the close of the trial, which had lasted nearly three weeks, the jury recommended "the clemency of the Court for [the appellants] Messrs. Eastman, Sibley, Strong and Watson," very clearly indicate that the jury did not appreciate or understand the issues or the nature of the issues submitted to it for determination.

The judgment and order appealed from should, therefore, be reversed and a new trial granted, with costs to appellants to abide the event.

Judgment and orders affirmed, with costs.

In the Matter of EUGENE W. HARRINGTON, an Attorney and

Newly-discovered evidence offered by an attorney who had been disbarred for using certain letters in an improper way so as to secure an advantageous settlement of the claim of a client and then when he had secured more than the face of the claim appropriating the difference, examined, and held, insufficient to justify a rehearing of the charges.

APPLICATION by the respondent for a rehearing in disbarment proceedings.

Simon Fleischmann, for the motion.

Wesley C. Dudley, District Attorney, and Guy B. Moore, Assistant District Attorney, opposed.

KRUSE, J.:

An order disbarring the respondent attorney was heretofore made by this court (140 App. Div. 939), and a motion is now made for a rehearing upon newly-discovered evidence, contained in certain affidavits submitted upon this application.

The only newly-discovered evidence which is material or could