208 Mich. 15 | Mich. | 1919
The Duplex Power Car Company was organized in 1909, and exercised its corporate powers until its assets were sold to the Duplex Truck Company on November 20, 1916. There has been much litigation relative to its affairs. The facts in this case will be better understood by a reference to the cases which have been considered by this court: Hill v. Town, 172 Mich. 508 (42 L. R. A. [N. S.] 799); Town v. Duplex Power Car Co., 172 Mich. 519; Toles v. Duplex Power Car Co., 202 Mich. 224; and Garber v. Town, ante, 1.
The plaintiff was one of the patentees of the device for a 4-wheel drive which distinguishes the truck that the company manufactured; 2,500 shares of stock were allotted to him for his interest in the patent. Previous to February 21, 1913, he had by transfer reduced his holding to 1,743 shares. A suit had been brought by some Chicago parties to whom stock had been sold and the plaintiff made a party thereto. This had been settled by the defendant Town, who was then a stockholder in the same corporation. At a stockholders’ meeting, held on April 21, 1913, at which plaintiff was present, the record shows the following:
“Mr. Town as attorney in fact for the stockholders reported that he had effected a settlement with the defendants whereby upon the payment by him of the sum of fourteen thousand ($14,000.00) dollars they had assigned to him for the benefit of the complainant stockholders 6,885 shares of stock, together with the*18 mortgage held by Farlin H. Ball, as trustee, and all claims they might have against the company.
“Mr. Town reported that the expenses incurred in consequence of litigation, receivership and maintenance would approximate about ten thousand ($10,000.00) dollars, and that while there was sufficient.assets, if properly handled, to take care of this indebtedness, yet in his opinion the $10,000.00 expenses should be taken care of by the sale of stock to those who had pledged to pay their pro rata of this expense.
“Moved by R. A. Garber, supported by Brown, that complainant stockholders be asked to subscribe as much more stock as they now held, to liquidate these expenses, for which a double amount to that subscribed be issued them.
“Carried unanimously.
“Mr. M. Bollstrom stated that it would be impossible for him to pay for his quota of stock, and after some discussion he offered to shrink his- stock back to the complainant stockholders, to pay his pro rata of litigation and maintenance expenses.
“On motion duly made his proposition was unanimously accepted.”
Agreeably to such proceedings, plaintiff surrendered 582 shares of his stock to the corporation, and the other stockholders took additional stock as provided for in the minutes of such meeting. It is now the claim of the plaintiff that he was induced to make such surrender by the false and fraudulent representations of the defendant stockholders and that this transfer on his part should be set aside. We consider this claim at this time as it is entirely disconnected with the other questions presented. In disposing of it, the trial judge said*
“Without going into this claim with specific exactness, but passing on, it is only necessary to state that it is the judgment of the court.that the plaintiff has entirely failed to establish any fraud practiced upon him as to that settlement, or any wrong done to him in that matter. He was not asked to do more than he ought as matters then stood, and he did not do more*19 than he ought., Relief under this claim as asked for by plaintiff cannot and should not be granted.”
We have carefully read the testimony on which plaintiff relies. The value of the stock at that time was problematical, and, as plaintiff attended many meetings thereafter, being for a part of the time a director, and in no way questioned the good faith of the transaction until he filed the bill of complaint in this cause on March 21, 1917, we are content with the conclusion reached by the trial judge relative thereto. Lewless v. Railway Co., 65 Mich. 292, 303.
The stock involved in the litigation referred to (6,-885 shares) was transferred to the defendant Town as trustee and for some time thereafter voted by him as such. At the meeting held on April 21st, a board of directors was elected which included the defendant Town, and at a directors’ meeting, held on the same day, he was elected president of the corporation. It appears from the allegations in the bill of complaint, supported by the proofs, that thereafter Mr. Town was not only the executive head of the corporation but practically in charge and control of all its affairs.
In the summer of 1916, it became apparent that additional capital was needed to make the business a success.^ In September and October*, an effort was made to' interest certain Detroit and New York parties.
In October, 1916, Town began negotiations with Louis Rowley, of Lansing, for the sale of the property of the corporation to certain parties living in that city. This deal was practically consummated on or about the 24th day of that month, though not reduced to writing until the 30th. On that day, Mr. Town entered into a written contract with Harry M. Lee and eight other Lansing citizens, who will hereafter be spoken of as the Lansing syndicate, for the transfer to such syndicate, when formally organized into a
Town represented that there were outstanding 15,-500 shares of stock in the car company, of a par value of $10 each, and the Lansing syndicate agreed to pay to the holders of such stock two shares of stock in the corporation to be formed by them for each share so held in the car company, or, at their option, $20 per share for such stock, being double the par value thereof, and to assume and pay all obligations and indebtedness of the car company. At the same time, the following agreement was entered into and signed by Mr. Town and all of the members of the Lansing syndicate :
“This agreement, made this. 30th day of October, 1916, between Frank P. Town of Charlotte, Michigan, party of the first part, and Harry M. Lee,.G. W. Hewitt, Harry F. Harper, Elgin Mifflin, W. H. Porter, E. S. Porter, J. Edward Roe, James H. Robinson and H„ E. Bradner, all of Lansing, Michigan, parties of the second part, witnesseth as follows:
“Whereas, the parties of the second part purpose and intend to organize a corporation for the manufacture and sale of motor power trucks, and it is their purpose and desire when said company is organized, to purchase all the property, franchises, rights, privileges, assets and good will of the Duplex Power Car Company of Charlotte, Michigan, and all its patents or rights in patents by license or otherwise; and
“Whereas, the party of the first part agrees to acquire possession and control of not less'than three-fourths of the outstanding stock of the said Duplex Power Car Company, and that when he so acquires the same, he shall deposit the same with some bank in Charlotte agreeable to second parties with proxies if so desired. First party also agrees that when he acquires such stock he shall use the same and its voting power either personally or by proper proxies to cause and procure a sale and transfer of all the prop*21 erty, franchises, patents, rights in patents, as aforesaid, business, good will, rights and privileges of the said Duplex Power Car Company to a corporation to be hereafter organized by the parties of the second part. Said new corporation to assume and pay all the debts and obligations of whatever nature of said Duplex Power Car Company.
“It is agreed by second parties that in consideration .and on condition that the said Town shall acquire said stock of said company aforesaid, and shall. use or cause the same to be used to procure or secure the sale and transfer of all of the property, rights and assets of the said Power Company as aforesaid, to said corporation to be hereafter organized by second parties, that said second parties will pay to the said first party at the option of said first party $75,000 in cash or an equal amount of the par value of the stock of said new corporation to be organized by second parties. Said money to be paid or said stock delivered within ten days after said new corporation is organized and said transfer made to it by said Duplex Power Car Company.
“It is agreed that this agreement shall not be binding upon any of the parties hereto until all of the parties named herein have signed the same.”
Both of these agreements were afterwards fully performed according to their terms. The $75,000 provided for in the latter was paid to Mr. Town.
The defendant Murray had been a director and secretary of the car company since February, 1915. On October 27, 1916, Dr. George Toles, of Charlotte, went to Murray for the purpose of purchasing some stock in the corporation. He gave him his check for $100 as down payment on 1,000 shares. Within half an hour thereafter, Murray informed Town by telephone and Town said to him that there was a deal on and no stock for sale. There was subsequently some personal talk between them that afternoon.
A certificate had been issued to plaintiif for his 1,161 shares on August 6, 1913. This he had assigned
On the morning of October 28, 1916, Murray went to Battle Creek to get in touch with plaintiff. His purpose was to secure an option on the 1,161 shares of stock. Not finding plaintiff on that day, he went there again on the 29th, and again on the 81st, at which time he met plaintiff. He inquired about Wurst, whom he knew to be the brother-in-law of plaintiff, and plaintiff brought them together at his home. After some negotiations, an attorney was employed by Murray and an assignment made by Wurst to Murray in which Wurst warranted that he was then the owner of the stock.' An option was prepared and signed by Wurst, giving Murray the right to purchase the 1,161 shares for $10 per share at any time within 15 days thereafter. Fifty dollars advance payment was made
Plaintiff in this suit seeks to recover the difference between the amount paid under the option and the value of these shares as turned in to the truck company. He claims that he was then the equitable owner of the stock and that Murray secured it in fraud of his rights as a stockholder.
The defendants filed a joint answer. They deny the right of plaintiff to maintain this suit for the reason that he had parted with his title to the stock. They deny that Murray had any knowledge of the deal with the Lansing syndicate, or in any way deceived plaintiff or Wurst in the purchase he made, and allege this stock was purchased because plaintiff was a disturbing factor in the affairs of the corporation, and claim that the option and purchase thereunder were made in the usual way, without any intent to gain an advantage over either plaintiff or Wurst. They admit that defendant Town assisted Murray in securing the money to pay for this stock by indorsing his note, and also admit that Murray distributed the shares thus purchased by him as before stated.
The trial court rendered a decree dismissing the bill, holding, as to this claim, that the deal by which Murray purchased the stock was a fair one and that as plaintiff had parted With his stock he was not a stockholder and had no standing in court in such a proceeding. From the decree rendered, plaintiff appeals.
There can be no question under the proofs but that plaintiff has always been the equitable owner of this stock. He made transfers to persons to whom he was indebted as security, and, at the time Murray procured the option on it, Wurst held it as security for an indebtedness of $250. The testimony of plaintiff as given on this trial and in a proceeding before Judge North at Battle Creek shows him to be an eccentric individual, very talkative, and not so careful in his statements as he might well have been. Notwithstanding the assignments of which the officers of the company had theretofore had notice, and of the fact that the certificate of stock assigned to E. E. Thompson was in the hands of the secretary at the time, the annual report, made as of August 31, 1916, and sworn to by the defendant Murray as secretary on October 30, 1916, listed this stock as belonging to plaintiff. The testimony (hereafter quoted) of both plaintiff and Wurst as to the statements made by Murray during the negotiation for the option clearly indicate that Murray then knew that the stock was the property of the plaintiff. We do not attach much importance to the expressions of warranty in Wurst’s assignment to Murray. Its purpose was evidently to secure a good and indefeasible title to the stock.
As before stated, plaintiff was unquestionably the equitable owner of the 1,161 shares, subject only to the lien of Wurst thereon for $250. He permitted
“An action of deceit to recover damages for fraud inducing the making of a contract is not based upon the contract but upon the tort. The action proceeds upon the theory of an affirmance of the contract alleged to have been fraudulently procured.”
While this right of action is included in equitable causes for which plaintiff seeks to recover in this suit, the prayer as. to this is that the defendants do pay to the plaintiff the difference between the amount paid by Murray and its value at the time of its purchase. Wurst received the amount due him out of the payment made by Murray on the option and had no further interest in the stock or in the transaction. Counsel for defendants say:
“No matter from what angle plaintiff’s conduct is viewed, he is clearly estopped from asserting title or ownership to the stock sold to Mr, Murray.”
The argument of counsel and authorities cited on this question are largely in support of the claim as stated. As has been observed, plaintiff is not claiming title to the stock. He affirms the sale and admits that title passed to Murray. But he insists that fraud
“There can be no estoppel unless a party is misled to his prejudice by the one against whom it is set up, and does material acts relying upon conduct well calculated to mislead him.” Murray v. Rugg, 116 Mich. 519.
“It is the well-settled rule in regard to estoppels in pais that the conduct complained of must have induced another to act to his disadvantage, and that his situation in consequence thereof has changed.” Gooding v. Underwood, 89 Mich. 187.
We fail to see, nor do counsel point out, in what way Murray has been prejudiced by the failure of plaintiff to assert his ownership of the stock at the time the option was given by Wurst. That Bollstrom is the plaintiff in this suit in no way enhances the damages or affects any defense defendants might set up. We therefore conclude that plaintiff was entitled to bring this action.
Had Murray knowledge of the fact that Town had closed the deal with the Lansing syndicate at the time he secured the option from Wurst? Both he and Town testified that he had not. Plaintiff claims that the circumstances surrounding the transaction lead to the conclusion that he had. We have read the record with care. There is no positive proof to sustain plaintiff’s claim, but it is the duty of the court to weigh the testimony and draw a fair and reasonable inference from what was done and said in reference to it.
After Town secured the assignment of the stock from the Chicago parties to himself as trustee in 1913, he voted it at all meetings of the stockholders and thereby practically controlled the ¡election of the board of directors. While president, he exercised not only
“There are some changes being contemplated in the Duplex and no doubt in taking in more capital, our interests will be somewhat influenced by the new additional capital and it is proposed that we make settlement most satisfactory to ourselves in the way of cash for our stock, or stock in the new organization which no doubt will be the result of the change.
“If you will inform me what you desire for your stock by return mail or if you desire to take stock in the new organization please so state, and you will greatly oblige. Please inform me at your earliest convenience as we can get a good price for our stock at this time no doubt and- by stating what you desire for yours, we can then govern ourselves accordingly.”
The money to pay for plaintiff’s stock was secured by a loan, for which Town indorsed Murray’s note to the bank. When Murray got the stock, he issued new certificates therefor, as before stated, and out of the proceeds he paid the judgment Town had theretofore secured against plaintiff.
Under the rule as to the weight to-be given to circumstantial evidence, can these facts, all of which are admitted by Murray or are established beyond question, be true and it be said that he had no such knowledge? We cannot believe that any jury would so conclude, nor can we do so. We feel constrained to hold that at the time Murray secured the option from Wurst he knew all about the contract which Town had entered into relative to the sale of the assets of the company to the Lansing syndicate.
“Directors, of course, stand in a fiduciary relation to the corporation itself. They do not stand in that relation, however, when dealing with other stockholders for the purchase or sale of stock. In the purchase and sale of stock between stockholders there must be some actual misrepresentation in order to constitute fraud. Mere silence is not sufficient. The books of the corporation are open to all stockholders alike, and each may inform himself of the condition of the company.”
Counsel also cite 2 Thompson on Corporations (2d Ed.), § 1419; 8 Thompson on Corporations (2d Ed.), § 1419; 2 Machen on Corporations, § 1637; 1 Cook on Corporations (7th Ed.), § 320.
The reason for the rule thus stated is clearly summarized in the closing part of the quotation:
“The books of the corporation are open to all stockholders alike, and each may inform himself of the condition of the company.”
As applied to a going concern, whose records reveal the book value of the stock, and the good will and intangible assets of which are presumably as well known to one stockholder as another, there may be no hardship in so holding. But the proofs in this case present a different situation. The affairs of the corporation had not been prosperous for several years. Mr. Town testified that in 1913 one could not sell the
“A. On the way down to the bank I says, ‘How is business over there?’ ‘Why,’ he says, ‘It is pretty good.’ He says, ‘It ain’t as good as it ought to be, or as good as it can be made.’ He says, ‘They don’t seem to just manage the thing right to make it go shccessfully.’
“Q. Did he make any statement as to whom he was purchasing this stock for?
“A. He says — that was at the time he wanted the twenty-day option, he says, T have got a chance now to get the money for Maurice. Maurice and me have been pretty good friends, I always like Maurice well. I have got a chance now to get this money for him. A relative of mine from Ohio wants to take this stock over.’
“Q. Did he say anything about the value of the stock, whether that price he was paying was a fair price — a good price?
“A. Yes, sir, that that was a good price. He says, ‘It ain’t every day that you can sell stock at par.’ ”
It is apparent that Bollstrom’s suspicions were aroused when Murray approached him to buy. this stock. His relations with Town had not been friendly, and he knew that Town was the dominating power in the board of directors. He testified as to his conversation when he first met Murray on the 81st:
“He was waiting in his car on the street near our home in the morning, the approximate time that I expected to go down town between seven and eight in the morning. He hailed me. I did not play up to him very strong. He says, ‘I am not going to hurt you, I am here to do you good. I am a friend of yours. I have always been a_friend of yours.’ He asked me about the stock and i did not give a direct answer. I asked him what he wanted and he said he knew where that stock could be disposed of, and I asked him who wanted it. He said that didn’t cut any figure who wanted it, if I wanted to sell it. I said something about liking to deal with a person direct and told him to let me know who wanted it, and I would*31 look into it, and he said that could not be done because he had to make a deal that day or not at all, the deal would be all off. He just had that little time. I asked him how that was, or words to that effect. He said it was some out of town people that nobody knew any way, saying it did not matter if I wanted to dispose of it who it was, and I said I was going to know. He said it was a relative in Ohio. I knew he had relatives there and asked if they had the money. * * * I asked how much they wanted to pay for the stock and he asked how much I would take. I said I would have to look into it and the conversation along .that line went on. He suggested par and I expressed doubts because I did not get a clear explanation of what I wanted to find out. I expressed doubt whether I could get Mr. Wurst in that length of time. I was told it would be a very fine thing for me, again reiterating his friendship and I suggested they might put in writing what they would do and he said that could not be done because the deal had to be concluded that day or there would not be anything done. He said par might be paid, and I said I would see.”
These statements were denied by Murray, but on cross-examination he testified:
“A. I told them I thought I was paying enough for it.
_ “Q. In other words you told this man there at that time that you were paying them what you considered to be a good price for that stock?
“A. Yes, sir.
“Q. A fair price, and all it was worth?
“A. Yes, sir, I did so consider it.
“Q. You told them that was your opinion, didn’t you?
“A. Yes, sir.”
He further testified:
“Q. Did you tell them a syllable about it?
“A. Yes, there was something said about a deal; Mr. Bollstrom asked about the deal, asked what was doing, I didn’t know what to tell him. There wasn’t anything to tell him. * * *
*32 “Q.’'He asked you a question and you didn’t answer it?
“A. Yes, I answered it, there was not anything particular doing that I knew of.”
And again:
“I don’t recollect Bollstrom asking me in whose interest I was there. I did not tell him I had some people, relatives in Ohio, that would like to get this stock. My recollection there was no reference made at all to any one in Ohio that would like to buy this stock. I might have said something, but cannot remember, but don’t think I said that.”
Mr. Murray at this time was a director and secretary of the company in which plaintiff was, in equity, a stockholder. As such officer, he had information, not accessible to the stockholders generally from the records, that plaintiff’s stock was worth double its par value. He did talk about it and assured plaintiff and Wurst that they were making a good bargain in selling, getting a fair value for their stock. While, under the authorities on which defendants’ counsel rely, he might have remained silent and declined to advise with them about the value of the stock or the fairness of the deal, the statements which he did make were an inducement to them to sell the stock to him were false in fact, and known by him to be so, and must be held to have been relied op by plaintiff. Any less stringent rule would place it in the power of an officer of a corporation to take advantage of a condition known only to him, and of which the records would afford no information, by which the value of the stock had been greatly enhanced, and, by an assurance to the stockholder that the price offered was a fair one, secure to himself the shares of that stockholder at a price grossly inadequate, in view of the information possessed by him. We think the facts in this case bring it squarely within the rule laid down in Strong v. Repide, 213 U.
“If it were conceded, for the purpose of the argument, that the ordinary relations between directors and shareholders in a business corporation are not of such a fiduciary nature as to make it the duty of a director to disclose to a shareholder the general knowledge which he may possess regarding the value of the shares of the company before he purchases any from a shareholder, yet there are cases where, by reason of the special facts, such duty exists. The supreme courts of Kansas and of Georgia have held the relationship existed in the cases before those courts because of the special facts which took them out of the general rule, and that under those facts the director could not purchase from the shareholder his shares without informing him of the facts which affected their value.”
After a review of the facts, the court concluded:
“If under all these facts he purchased the stock from the plaintiff, the law would indeed be impotent if the sale could not be set aside or the defendant cast in damages for his fraud.”
Judge Peckham, who wrote the opinion, cites Stewart v. Harris, 69 Kan. 498 (77 Pac. 277, 66 L. R. A. 261, 2 Ann. Cas. 873); Oliver v. Oliver, 118 Ga. 362 (45 S. E. 232). These cases are very instructive on the general proposition here presented.
We cannot but conclude that Murray secured this stock by fraud and deception, and that plaintiff was damaged thereby. The amount of such damage was the difference between the sum Murray paid for the stock and its value at the time it was turned in to the Duplex Truck Company. The plaintiff is entitled to recover such amount from the defendant Murray.
The bill of complaint also contains in substance many of the allegations in the bill filed by Rolandus
The decree of the trial court dismissing the bill of complaint will be reversed and one entered in this court in conformity with this opinion. The plaintiff will recover costs of both courts against the defendant Murray.
