DOWLING, J. [1] The defendant's motion to dismiss the complaint herein was granted by the trial court before any evidence was introduced, on the ground that "there is not in this pleading sufficient to sustain the action." The complaint sets forth a cause of action in fraud, based on allegations that in April, 1911, defendant (with whom plaintiff had become acquainted while a customer of William P. Bonbright & Co., brokers, by whom defendant was employed as an assistant cashier), with intent to cheat and defraud the plaintiff, stated to him that

"he was about to enter into a brokerage business with his brother, Clason Graham, to transact the sale and purchase of stocks, bonds, and other securities on behalf of customers, and that said business was to be conducted along the lines of the business conducted by William P. Bonbright & Co., and that the defendant and his brother, Clason Graham, were both to devote all their time and energy to the operation of an office for the conduct of such business in New York City; that the defendant at that time stated to the plaintiff that Clason Graham and the defendant desired the plaintiff as a sllent partner in said business, and wished him to contribute the sum of $25,000 for that purpose, which sum the defendant represented to the plaintiff was to be employed as collateral for the carrying on of the said business."

It is further alleged:

"That Clason Graham never intended to enter into the business as had been represented to the plaintiff by the defendant, and that said Clason Graham never entered into said business," and that "the defendant never intended to nor ever carried on a business as a broker on the representation of which he received $25,000 from the plaintiff," but that defendant "used the $25,000, fraudulently obtained from the plaintiff as herein before set forth, solely for his own use."

It is further set forth that plaintiff on April 27, 1911, paid over the sum of $25,000 to defendant in reliance upon the latter's statements and representations, and that defendant and his brother, intending to cheat and defraud the plaintiff, appropriated the $25,000 to their own uses and did not engage in the business of stockbroking, but used the alleged copartnership agreement as part of the scheme to defraud plaintiff. Disregarding the superfluous matter in the complaint, there is sufficient to charge that defendant represented to plaintiff that he was about to engage with his brother in a line of business with the general character of which both he and plaintiff were familiar, that defendant and his brother were to personally give their attention to the business, that they desired plaintiff to contribute $25,000 thereto and become a silent partner therein, and that such sum was to be used in said business. Not only did none of these things come to pass, but it is charged that defendant never intended to carry on such a business as he represented he was about to engage in, and that his brother never intended to engage therein. I think that this set forth a cause of action against the defendant.

[2] Defendant claims that the only misrepresentations alleged were not of existing facts or conditions, but of future happenings or conditions. But this contention overlooks entirely the fact that the representations enumerated are representations of defendant's then existing intention to engage in business and to use plaintiff's money therein, and of his brother's then intention to become his associate in the bro

kerage business. As the rule is laid down in Laws of England, vol. 20, p. 660:

"The existence or nonexistence of an intention in the mind of a man at a given moment is as much a fact as the existence or nonexistence of any other thing. Any statement, therefore, of such existence or nonexistence, is a misrepresentation. The proof of falsity may be difficult, but this difficulty does not make the statement any the less one of fact.”

In Bigelow on Fraud, vol. 1, p. 484, it is said:

"To profess an intent to do or not to do, when the party intends the contrary, is as clear a case of misrepresentation and of fraud as could be made.”

In Adams v. Gillig, 199 N. Y. 314, 92 N. E. 670, 32 L. R. A. (N. S.) 127, 20 Ann. Cas. 910, defendant purposely, intentionally, and falsely stated to the plaintiff that he desired to purchase a portion of her vacant lot, located in a residence district, for the purpose of building a dwelling or dwellings thereupon. These representations were made with intent to deceive plaintiff, who relied thereupon and executed a conveyance to defendant. Defendant, while negotiating, intended to build, and immediately after the purchase proceeded to arrange for building, a public garage on the lot, the construction of which would greatly damage plaintiff's remaining property. In the course of his opinion Judge Chase said (199 N. Y. 321, 98 N. E. 672 [32 L. R. A. (N. S.) 127, 20 Ann. Cas. 910]):

"In civil actions relating to wrongs, the intent of the party charged with the wrong is frequently of controlling effect upon the conclusion to be reached in the action. The intent of a person is sometimes difficult to prove, but it is nevertheless a fact, and a material and existing fact, that that must be ascertained in many cases, and, when ascertained, determines the rights of the parties to controversies. The intent of Gillig was a material existing fact in this case, and the plaintiff's reliance upon such fact induced her to enter into a contract that she would not otherwise have entered into. We are of the opinion that a false statement made by the defendant of his intention should, under the circumstances of this case, be deemed to be a statement of a material existing fact, of which the court will lay hold for the purpose of defeating the wrong that would otherwise be consummated thereby."

*

The court called attention as well to the difference between representations of an existing intention (which is a fact) and those which are merely promissory and contractual in their nature, the latter being enforceable only under the rules relating to contracts.

In Edgington v. Fitzmaurice, Law Reports 29 Chancery Division, 459, a prospectus had been issued by the directors of the Army and Navy Provision Market, Limited, which, among other things, set forth the objects for which an issue of £25,000 of debentures was to be made, such an enabling the society to complete alterations and additions to its buildings, to purchase its own horses and vans, and to develop its arrangements for obtaining a fresh supply of fish from the coast. Cotton, L. J., said in relation to the part of the prospectus in question. (page 479):

"It was argued that this was only the statement of an intention, and that the mere fact that an intention was not carried into effect could not make the defendants liable to the plaintiff. I agree that it was a statement of intention, but it is nevertheless a statement of fact, and if it could not be fairly said that the objects of the issue of the debentures were those which were

stated in the prospectus, the defendants were stating a fact which was not true; and if they knew it was not true, or made it recklessly, not caring whether it was true or not, they would be liable."

In the same case Bowen, L. J., said (page 482):

"But when we come to the third alleged statement I feel that the plaintiff's case is made out. I mean the statement of the objects for which the money was to be raised. These were stated to be to complete the alterations and additions to the buildings, to purchase horses and vans, and to develop the supply of fish. A mere suggestion of possible purposes to which a portion of the money might be applied would not have formed a basis for an action for deceit. There must be a misstatement of an existing fact; but the state of a man's mind is as much a fact as the state of his digestion. It is true that it is very difficult to prove what the state of a man's mind at a particular time is, but if it can be ascertained it is as much a fact as anything else. A misrepresentation as to the state of a man's mind is therefore a misstatement of

fact."

See, also, Kley v. Healy, 127 N. Y. 555, 28 N. E. 593; Fox v. Duffy, 95 App. Div. 202, 88 N. Y. Supp. 401; Jones v. Jones, 40 Misc. Rep. 360, 82 N. Y. Supp. 325.

The judgment appealed from will therefore be reversed, and a new trial ordered, with costs to the appellant to abide the event. Order filed. All concur.

STIMPSON V. MINSKER REALTY CO. et al.

(Supreme Court, Special Term, New York County. June 18, 1915.) 1. DAMAGES 77-LIQUIDATED DAMAGES-CONSTRUCTION OF CONTRACT. Whether a provision shall be construed as providing for liquidated damages, and not for a penalty, depends on the intention of the parties and the nature of the transaction.

[Ed. Note.-For other cases, see Damages, Cent. Dig. § 156; Dec. Dig. ~~ 77.]

2. DAMAGES

81-LIQUIDATED DAMAGES-BREACH OF COVENANTS IN LEASE. Where the parties to a lease expressly stipulated that a sum deposited by the lessee as security for performance of his covenants should be retained by the lessor as liquidated damages in case of a breach by the lessee, because the parties could not estimate in advance the actual damages caused by such a breach, and where the circumstances surrounding the making of the lease showed that such damages were not ascertainable, the lessor was entitled to retain the sum deposited on breach of the tenant's covenant to pay rent.

[Ed. Note. For other cases, see Damages, Cent. Dig. § 177; Dec. Dig. 81.]

3. DAMAGES

81-LIQUIDATED DAMAGES-BREACH OF COVENANT IN LEASE. Where such lease was for a term of 10 years, with an option for a further term of 11 years, and the sum deposited was $72,000, or one year's rent, there was no such disproportion between the deposit and the possible damages "apparent on the face of the contract" as would preclude the deposit from being liquidated damages.

[Ed. Note. For other cases, see Damages, Cent. Dig. § 177; Dec. Dig. 81.]

Action by Henry C. S. Stimpson, as receiver of the People's Theater Company, a domestic corporation, against the Minsker Realty Company and others. Complaint dismissed.

For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

Abraham H. Sarasohn, of New York City, for plaintiff. Breed, Abbott & Morgan and Herman Joseph, all of New York City, for defendant Minsker Realty Co.

Max D. Steuer, of New York City, pro se.

COHALAN, J. Plaintiff, as receiver in sequestration proceedings, sues to recover the sum of $72,000 deposited as liquidated damages under the terms of a written lease, less the amount due when the tenant was dispossessed. The action was brought in equity, because under the terms of the lease the deposit was made a lien on the demised premises, subject, however to prior mortgages, and the relief prayed for includes the foreclosure of the lien. It appears that on the 20th day of March, 1911, the defendant Louis Minsky by an instrument in writing leased to Joseph Edelstein, Max R. Wilner, and Bores Thomashefsky, as tenants, a building to be erected on the premises at the southwest corner of Chrystie and Houston streets for a term of 10 years, to begin when the building permits should have been issued, and with the privilege to the tenants to renew the same for an additional term of 11 years. Pursuant to provision second of the lease. the tenants agreed to and did deposit as security for the performance of all of its terms, and as liquidated damages in the event of a breach thereof, the sum of $72,000, which the parties expressly stipulated was to be liquidated damages. The landlord subsequently assigned his interest in the lease to the defendant Minsker Realty Company, and the tenants assigned their interest to the People's Theater Company, a corporation of which they and two others, one Adler and one Kessler, were the only stockholders, officers, and directors. The building was erected and the People's Theater Company entered into possession of the premises. On or about May 7, 1914, a final order was made in favor of the landlord, awarding the possession of the premises to it for nonpayment of rent on the part of the People's Theater Company. The question for determination is whether or not, under the provisions of the lease and on account of the failure of the tenant to comply with the terms thereof, the defendants are now entitled to retain as liquidated damages the deposit of $72,000.

[1, 2] Under the established rule of law in this state the question as to when a provision for liquidated damages shall in fact be construed as liquidated damages and not as a penalty depends upon the intention of the parties and the nature of the transaction. Caesar v. Rubinson, 174 N. Y. 492, 67 N. E. 58. In that case the court said:

"The circumstance that the deposit is described in the lease as liquidated damages for a breach of the agreement is not at all conclusive. The character of the deposit, whether liquidated damages or a penalty, depends upon the intention of the parties as disclosed by the situation and by the terms of the instrument. The deposit is not necessarily to be regarded as liquidated damages, although it is expressly so stated in the instrument. Whether it is that or a penalty depends upon the nature of the transaction and the intention of the parties. This has been frequently held in the case of an ordinary lease and where the amount was largely out of proportion to the damages suffered by the breach of the lease. Claude v. Shepard, 122 N. Y. 397 [25 N. E. 358]. * Where the language of such a provision specifying the amount of damages to be paid in case of a breach of the contract is clear and explicit to that effect, the amount is to be deemed liquidated damages when the actual 154 N.Y.S.-32

damages contemplated at the time the agreement was made are in their nature unascertainable with exactness and may be dependent upon extrinsic considerations and circumstances, and the amount is not on the face of the contract out of all proportion to the probable loss. Curtis v. Van Bergh, 161 N. Y. 47 [55 N. E. 398]; Ward v. Hudson River Bldg. Co., 125 N. Y. 230 [26 N. E. 256]."

It is my view that the intention of the parties as expressed in the written lease and as shown from all the surrounding circumstances was that the deposit was to be considered as liquidated damages, and in case of a default in the payment of the rent that the defendants would be entitled thereto. Feyer v. Reiss, 154 App. Div. 272, 138 N. Y. Supp. 964; Hochman v. Bollt, 152 N. Y. Supp. 1031. As the plaintiff mainly relies upon the case of Feinsot v. Burstein, 161 App. Div. 651, 146 N. Y. Supp. 939, affirmed 213 N. Y. 703, 108 N. E. 1093, and as the decisions of this state have sometimes conflicted in dealing with the question of liquidated damages, it will be necessary to consider these three cases in relation to the case at bar.

In Feyer v. Reiss, supra, the defendant retained the deposit. The wording of the lease was as follows:

"It being expressly understood and agreed that if the lessees surrender the said premises or are dispossessed therefrom prior to the expiration of this lease in 1914, then and in that event the said eight hundred ($800) dollars, together with any subsequent installments which shall be paid by the lessees as herein before provided, shall belong to the lessor as liquidated and stipulated damages, and the parties hereto agree to stipulate such deposit as liquidated damages because they cannot ascertain the exact amount of damage which the lessor would sustain in the event of any breach or violation hereunder."

In the lease under consideration almost identical words are used, as follows:

"Seventy-two thousand dollars shall remain as a deposit made by the parties of the second part with the party of the first part, which sum of $72,000 shall be as security by the parties of the second part to the party of the first part for the full, complete, and faithful performance of each and every of the terms of this agreement and lease upon the part of the parties of the second part, and it is hereby stipulated and agreed that it is impossible to estimate or determine what the damage would be that would be suffered by the party of the first part in the event of a breach of the covenants by the parties of the second part on their part of any of the terms of this agreement and lease, that said sum of $72,000 is hereby stipulated as liquidated damages to compensate the party of the first part in the event of such breach by the parties of the second part.”

In the Feyer v. Reiss Case the premises consisted of eight tenement houses already built, the lease ran for three years at an annual rental of nearly $8,000, and the deposit amounted to two months' rent, and the lease required the lessees to make all inside and outside repairs, and to surrender the premises, save ordinary wear and tear, in good condition. In this case the surrounding circumstances are stronger. When the lease was made the present theater was not in existence.

[3] Under the contract of lease a building costing $667,000 was erected, consisting of two theaters, seating, respectively, 2,400 and 1,600 persons, and an eight-story office building. A deposit of $72,000 was made before the theater was built and as an inducement to the