175 A.D. 433 | N.Y. App. Div. | 1916
Lead Opinion
The action is for damages for false representations whereby the plaintiff was induced, as he alleges, to purchase stock in a mining company which proved to be valueless.
The respondent who made the representations was a director and the president of the corporation. Although the record of the trial is quite a long one there is, in the end, little substantial dispute as to the facts. The story is not an unfamiliar one.
The Ocean Wave Mining Company was organized to operate a mining property in Mexico. The respondent Villard acquired
In the year 1909 one Wolkenstein, also a stockholder in the company, was authorized to sell some of its treasury stock. Wolkenstein, although named as a defendant, was not served with process and did not appear at the trial except as a witness for the respondent. Villard, a person of some social prominence in the community in which he lived, signed and issued a prospectus giving the customary optimistic account of the properties and prospects of the company, and also sent to his friends and neighbors personal letters of similar import. Plaintiff was one of Villard’s neighbors. He was a musician by profession and evidently had little business training or experience. He owned a home of modest value. To him came Wolkenstein seeking to sell stock, and it was finally arranged that he should purchase from Wolkenstein stock of the par value of $16,000, giving therefor his home. This stock, as it turned out, was not treasury stock, but Wolkenstein’s own.
Plaintiff had received one of the letters sent out by respondent, and had also been shown the optimistic prospectus issued by Villard, but for further assurance, before completing the purchase of the stock, had called on Villard and inquired whether the statements contained in the letter and prospectus were true, and was assured that they were. Belying upon these statements and assurances he bought the stock, which soon afterwards became practically worthless.
The false representations charged are contained both in the prospectus and the letters, and read as follows: “The 100 ton stamp mill, the machinery for which has been delivered and paid for, will be completed and running within the next few weeks and will handle first the $400,000 worth of ore already delivered at the mill. Conservative estimates by competent mining engineers are to the effect that the ore beds are so large, as to supply all the ore that can be milled for years to come. The entire plant should be in complete operation within sixty days, and the Company will be able to at once begin the payment of dividends. ”
The respondent makes no serious claim that the statements made by him in the prospectus and the letters were in accordance with the facts. His whole defense is based upon the proposition that he believed the statements to be true when he made them, and that he based this belief upon information furnished him by engineers and others. This he claims to be a complete defense to this action for damages, and the sole question in the case is whether or not this claim to immunity is valid under all the circumstances of the case. The trial court held that it was, and submitted the case to the jury with instructions that plaintiff could not recover if Villard made the statements honestly, believing them to be true, such belief being justified by the evidence then in his possession. The accuracy of this submission was raised by numerous exceptions to refusals to charge propositions requested by plaintiff.
The respondent of course relies upon the general rule that scienter is one of the essential elements of such an action as the, present, and hence argues that it is incumbent upon plaintiff to show not only that the .representations were false in fact, but that respondent knew them to be false. That rule, however, is subject to some qualification. It is to be observed that respondent’s allegations as to the 100-ton stamp mill and the $400,000 worth of ore already delivered at the mill site are made positively, as of respondent’s own knowledge, without qualification, and of course carried unusual weight because made by the president of the company who presumably knew accurately
The necessity for careful accuracy of statement in cases like the present is even more pronounced when the person making the statement holds a position with regard to the matters concerning which the statement is made which imports or implies that he has exceptional knowledge on the subject. For this reason the tendency of the courts both in this country and in England is to hold promoters and directors of companies to a very strict accountability for the accuracy of their representations made with a view to inducing strangers to the enterprise to invest therein, and to refuse to extend immunity for false statements because the person making them believed them to be true, if in fact they were false; and this is but reasonable and just, for such promoters and directors have the means at command to ascertain the facts accurately, and the positions they hold with reference to the enterprise imply that they have knowledge when they undertake to make positive statements. In Ottinger v. Bennett (144 App. Div. 525; 203 N. Y. 554) the defendant was a director of a corporation which had declared And paid a dividend which it had not earned. The plaintiff, relying upon this as a representation by the directors who voted the dividend that the company had in fact earned the profit, bought some shares of its stock which afterwards declined in value and became practically worthless. It was held that the plaintiff had a good cause of action against one of the directors for damages for the deceit.
The same rule obtains in Massachusetts. In Chatham Furnace Co. v. Moffatt (147 Mass. 403) the Supreme Court of that State said: “The charge of fraudulent intent, in an action for deceit, may be maintained by proof of a statement made, as of the party’s own knowledge, which is false, provided the thing stated is not merely a matter of opinion, estimate or judgment, but is susceptible of actual knowledge; and in such case it is not necessary to make any further proof of an actual intent to deceive. The fraud consists in stating that the party knows the thing to exist, when he does not know it to exist; and if he does not know it to exist, he must ordinarily be deemed to know that he does not. Forgetfulness of its existence, after a former knowledge, or a mere belief of its existence, will not warrant or excuse a statement of actual knowledge.” (Citing cases.)
It is urged upon the argument, though seemingly not very confidently, that the statements contained in the prospectus
We have to deal in this case with the facts that Villard, as president, director and stockholder-of the Ocean Wave Mining Company, for the purpose of inducing outsiders to purchase stock in the company, signed and circulated a prospectus and personal letters containing as positive statements certain misrepresentations of material facts relating to the property and equipment of the company; that he had no personal knowledge as to whether the matters so stated were true or false; that in making them he relied on information which he believed and had received from engineers and others, but he did not qualify his statements by saying in terms or in substance that he was saying only what he had been told and believed; that plaintiff
We are, therefore, of the opinion that the case was presented to the jury upon an erroneous theory, and that if submitted upon what we conceive to be the law applicable to the undisputed facts a verdict in favor of the respondent would have been against the evidence. In such a case we are not disposed, in the interest of justice, to inquire too closely whether or not the question was raised by proper exceptions. (Swift v. Poole, 172 App. Div. 10.)
Our conclusion is that the judgment and order appealed from must be reversed and a new. trial granted, with costs to appellant to abide the event.
Clarke, P. J., and Laughlin, J., concurred; Page and Dowling, JJ., dissented.
See 4th Eng. ed. with Am. notes (Dudley & Baylies).—[Rep.
Dissenting Opinion
The action was to recover damages for the sale of stock of the Ocean Wave Mining Company induced by alleged false and fraudulent representation contained in a prospectus and a circular letter signed by the defendant Villard as president of the
The case of Hadcock v. Osmer (153 N. Y. 604), relied upon by the majority of the court, correctly states the rule, which is entirely in harmony with Kountze v. Kennedy (supra). In the Hadcock case the defendant gave a general recommendation of credit, knowing that it was to be used to obtain a loan by which he was to benefit. In that recommendation he stated that the person seeking the loan was solvent, without knowing anything about his financial condition. The statement was, therefore, made by defendant “not knowing whether it was true or false and not caring what the fact might be, made it recklessly, paying no heed to the injury which might ensue.” (Kountze v. Kennedy, supra.) I cannot accept this rule as applying to the facts in the instant case, where after a personal investigation of the property, inquiry of those who had been familiar with the operation of the mine in the past, examination of reports by mining engineers and official smelter reports, the defendant had formed an independent conclusion as to the truth of a statement which he believed and acted upon himself.
Relief may be given by way of rescission in equity for fraudulent representation where scienter is not alleged or proved. (Canadian Agency, Ltd., v. Assets Realization Co., No. 1, 165 App. Div. 96, 102, and cases cited.) But, as shown above, scienter is a material fact which must be alleged and proved to entitle a party to damages in a common-law action for deceit. Because this element was lacking in many of the requests to charge, which otherwise were correct, the learned trial justice properly refused them. I have examined the record and find no reversible error. There is persuasive force in the respondent’s argument that the statement of the value of the ore in the dumps was a statement of opinion upon which an action would not lie. I prefer, however, to base my conclusion upon the ground that whether the statement was of an opinion or a fact, plaintiff having failed to prove that the statement was made with knowledge that it was false, or so recklessly made without knowledge or care of what the fact might be, as to charge the defendant with liability, and
Dowling, J., concurred.
Judgment and order reversed, new trial ordered, costs to appellant to abide event. Order to be settled on notice.