125 N.W. 1032 | N.D. | 1910
This is a suit in equity, commenced and tried in the district court of Richland county to obtain a judgment rescinding an exchange of plaintiff’s farm and personal property for defendant’s shares of stock in the United Fanners’ & Merchants’ Exchange Company of Abercrombie, a corporation. Defendant had judgment, from which plaintiff appeals, demanding a new trial of the entire case.
Epitomized, the pleadings state the following facts: That on the 15th day of November, 1906, plaintiff was the owner of the real estate described, being two half sections of land in Richland county, and of certain personal property consisting of horses, farming
The answer is a general denial, except as to matters admitted, and admits the ownership, but denies that the real estate was of the value of $30,000.; admits the existence of the corporation and defendant’s ownership of the 1,726 shares of the oar value of $10 per share and the exchange of the property and the incumbrances upon the real estate; alleges that defendant assumed and agreed to pay the same, and has paid about $1,040 thereon. The answer further alleges that at the time of such transaction the stock transferred was of the actual value of $10 per share, and that the corporation was solvent and possessed of resources largely in excess of its liabilities,- but that after the transaction between these parties such corporation became involved in financial difficulties, that though solvent, it 'was unable to meet its obligations as they became due, and as- a result made a deed of assignment of all its property for the benefit of its creditors, and was by such act involved in litigation in the bankruptcy courts of the United States,
The testimony taken is very voluminous. More than 1,000 pages of printed evidence have been carefully read, and many books of account belonging to the corporation, introduced as exhibits for the purpose of showing its condition at the time the transaction in question took place, have been examined. We are first met by a motion to strike out appellant’s statement of the case and abstract. As originally submitted, it was based on numerous grounds which have been reduced by respondent’s supplemental brief to two. It is contended that the motion should be granted by reason of the absence from the record now in this court of Exhibits 40 and 67, shown by the abstract to have been introduced in evidence at the trial in the lower court, and to have been referred to by witnesses in testifying in material particulars. The certificate of the judge who heard the case in district court shows that these exhibits were present and included in the record certified to this court. Neither
On the first witness for plaintiff being sworn defendant objected to the introduction of any evidence on the ground that the complaint did not state facts sufficient to constitute a cause of action, in that the facts alleged did not show fraud on the part of the defendant, and that no facts were alleged to establish confidential or trust relations between the parties, and because the facts alleged as tending to show fraud are not alleged to have been untrue. The trial court failed to rule on this motion. We discover no merit in it. Our discussion of the facts involved will disclose our reasons without extending them at this time.
The learned trial court found, so far as material to a determination of this appeal, that the land exchanged by appellant was of the value of about $30,000, and incumbered by mortgages aggregating about $14,000; that the personal property was of the value of about $2,000; and that at the time of the trade or exchange there was no relation of trust or confidence of any kind existing between the plaintiff and the defendant; and that there had never been dealings or relations between them of such character as to justify the plaintiff in reposing any trust or confidence in the defendant; and that there was nothing in the relations or dealings of said parties that would or did induce any belief or trust on the part of the plaintiff in the defendant; and that in making such trade each traded with the other upon an ordinary business footing; and that there was nothing in the relations or former dealings between the parties to lead the defendant to believe that plaintiff was dealing with him in reliance upon any trust or confidence entertained by plaintiff in defendant; and that the defendant was ignorant of any such trust or confidence, and that at the time of making the exchange defendant did nothing to prevent or dissuade plaintiff from fully investigating and learning the character and value of the property transferred to him by defendant, but, on the contrary, encouraged him to investigate its value and character; and that plaintiff relied upon his own knowledge and judgment of the value and character of the property received by him; and that the allegations of the complaint of false and fraudulent concealment and
We now proceed to consider the case upon its merits. We cannot review in extenso the great mass of evidence before us without unduly extending this opinion, and this would serve no useful purpose. The'plaintiff was born in Norway. At the time of the trial he had been in this country 21 years, and was 66 years old. He received a little schooling in Norway, but none in arithmetic and none in the English language, and cannot read or write English, and his understanding of the English language in conversation is very meager. He had never been in business or done anything except to farm. He knew nothing about bookkeeping, or how to conduct an investigation of complex book accounts. He had known the defendant for some years, and had done some business with him, but their social relations had not been intimate. He had reared eight children, of whom one son 21, and another 16, years of age were still at home, but neither of these sons desired to remain there and engage in farming. -The wife of the plaintiff was 62 years of age. He had a large amount of taxes to pay each year, as well as interest, and felt that they were getting old and unable to handle the farm business any longer. Those were the reasons for his desiring to trade his land for other property which could be handled more easily, and which would give him an income on which he and his wife could be supported. After the corporation known as the United Farmers’ & Merchants’ Exchange Company was organized he took 77 shares of its capital stock of the par value of $770, and was paid dividends thereon for the years 1904 and 1905 pursuant to the action of the directors at the annual meetings held in 1905 and 1906. He had attended these annual meetings and heard the condensed annual statements of the company’s assets and liabilities read by Tweto, but testifies that they were understood only in small paid by him, and we are satisfied from the evidence that, while they may have been read both in English and Norwegian, he was unable to> comprehend their import fully. The defendant Tweto has resided in Abercrombie since 1880, ,and during that time has been- engaged in different lines of business, such as farming, dealing in farm machinery, grain, running an elevator, and banking, and at the time this suit was brought was the presi
Liland, as we have shown, had a desire to retire from farming, and to invest in something which would give him a safe income during the remaining years of his life. He heard that one of the banks in Abercrombie was contemplating an increase of its capital stock, and spoke to one of the officers of the bank with reference to the possibility of exchanging his farm for some of the stock of that bank, but was informed that it could not be done. Tweto was in the bank at the time and overheard this conversation. This led
While, as we have said, the trial court made no finding as to the solvency of the corporation, we deem that fact of prime importance, and the evidence shows beyond controversy that the corporation, at the time the exchange of properties was consummated, was not only insolvent in the statutory sense that it was unable to pay its obligations in the due course of business, but that its property was of such a nature'and in such condition that on the sale of the whole thereof within any reasonable period of time, arid the application of the proceeds to the extinguishment of its indebtedness, little would have been left for the stockholders. According to respondent’s showing, taken from the statement he submitted at the annual meeting January 17, 1907, the assets aggregated $87,988.42, while the liabilities, exclusive of the capital stock, reached $49,718.42, and including the capital stock $87,988.42. These liabilities embraced bills payable of nearly $25,000, accounts payable to wholesale houses over $18,000, surplus, $3,964.39, and 1906 profits, $1,879.82, but did not include a large amount of liabilities in the shape of mortgages on the real estate and as indorser on bills receivable discounted at the bank. We are unable to determine the exact amount of these items. It is sufficient to say that they aggregate a large sum. On the other hand the gross value of the real estate was not included in the assets; the method pursued being to count the value of the equities in the real estáte as an asset, and to disregard the mortgages and indorsements as liabilities. The record shows that the company had to take up its discounted paper in large amounts. In the assets was included the company’s main building, in which it did business at Abercrombie, at over $14,000 valuation. Several witnesses testi
Section 5293, Rev. Codes 1905, so far as pertinent to this inquiry, reads as follows: “Actual fraud within the meaning of this chapter consists in any of the following acts committed by a party to the contract, or with his connivance, with intent to deceive another party thereto or to induce him to enter into the contract: (1) The suggestion as a fact of that which is not true by one who does not believe it to be true. (2) The suppression of that which is true by one having knowledge or belief of the fact.” “(5) Any other act fitted to deceive.” It is urged by the appellant that the representations made by respondent in the course of the negotiations of the parties, not only constituted positive-false and fraudulent representations as to values and the condition of the company and its ability to realize profits and pay dividends, entitling him to rescind, but that, giving the respondent the benefit of the least weight that can properly be attached to such representations, they operated as suggesting as a fact that which was not true, and that respondent did not believe them to be true. It is also maintained that it was incumbent upon the respondent to state the facts within his knowledge regarding the financial condition of the corporation to appellant, and that his failure to do so was a suppression of that which was true by one having knowledge or belief of the fact. It is clear that the parties did not meet upon an equality. Tweto was the corporation. True, others were in its employ as
The learned trial judge, as we have stated, made no finding regarding the condition of the corporation but found that relations of confidence did not exist between the parties. It is apparent that the findings were so made because that court misinterpreted the meaning of relations of confidence in such transactions, and found that the statements of Tweto were mere expressions of opinion, in the absence of such relations between the parties, not amounting to misrepresentations or fraud. No exact definition can be given as to what is necessary in all cases of this kind to create such relations,
In 2 Addison on Torts, section 1186, it is said: “If the representation is as to matter not equally open to both parties, it may be said to be a statement of fact; but, if it is a matter that rests entirely in the judgment of the person making it, and the means of information upon which a fair judgment can be predicated are equally open to both parties, and there is no artifice or fraud used to prevent the person to be affected thereby from making an examination and forming a judgment for himself, the representation is a mere expression of opinion, and does not support an action for fraud.”
In French v. Ryan et al., 104 Mich. 625, 62 N. W. 1016, the Supreme Court of Michigan says: “Representations of the probable earnings of the enterprise were not necessarily fraudulent. They may be mere expressions of opinion, made in good faith, and in such case cannot be made the basis of a recovery; but if made in bad faith, by one who is possessed of superior knowledge respecting such matters, with' design to deceive and mislead, the party making them must respond.”
Chilson v. Houston, 9 N. D. 498, 84 N. W. 354, related to representations made regarding the value of a promissory note and the solvency of the maker. The court says: “The question which is decisive of this point is this: Did plaintiff rely and act upon these statements to his damage? Whether he relied upon them is not a question of law but a question of fact purely. The question is not whether the false statements should have induced plaintiff to part with his property, but is this, did they induce him to do so? * * * The misrepresentations must be the operative cause of the transfer. * * * The evidence shows that the plaintiff parted with his land for this note. He supposed he was getting the value of his equity in the farm, a good and collectible note. He knew of its value only from defendant’s statements. In estimating its value he had nothing else to rely upon and under these conditions it is absurd to say that the jury were not justified In concluding that he did rely upon what defendant told him.” This language is as applicable in the present case as it was where used.
In Fargo Gas & Coke Co. v. Fargo Gas & Electric Co., 4 N. D. 219, 59 N. W. 1066, 37 L. R. A. 593, a defense was made on the ground of false and fraudulent representations, which consisted mainly of representations regarding the earning capacity of the plant sold, and the defendant relied chiefly upon its earning capacity in making the purchase, and was induced to believe its net annual earnings would equal 10 per cent of the purchase price, because its net earnings during the previous year had equaled that. The court charged the jury in effect that defendant did not have the right implicitly to rely upon the representations of the plaintiff touching the character of the plant, and that it must make investigation as to their truth or falsity. This court remarked: “It is obvious that something more than a 'mere inspection of an object present before a purchaser was necessary to enable the purchaser in this case to discover the truth or falsity of the plaintiff’s state
The principles announced in that case are directly applicable in the case at bar, and render further citation of authorities unnecessary on this point. We may, however, say that there are numerous authorities holding to the general principle that expressions of opinion as to value do not constitute actionable representations when false; but, as we read the evidence in this case, and notice the relative position and knowledge of the parties and ■all the surrounding circumstances, it is clear to us that it does not come under the general rule, but rather under exceptions to that rule. The complaint only stated express misrepresentations. We think the allegations are sustained by the evidence, as before indicated, but this conclusion is greatly strengthened by the fact that the record discloses,- not only express representations which were fraudulent, but suppression of the truth. The evidence of these is properly considered in determining the effect of the express representations. We think the case may be stated thus: The vendor was familiar with the nature and condition of the assets of the corporation and of their value. He knew whether or not.it was solvent' and in condition to do profitable business. He knew the motive prompting the vendee to make the exchange. He knew Liland’s ignorance of business in general, and that it was impossible for him to ascertain by independent effort the condition of the -corporation and the value of the stock. He sold to him for a sound price his stock in the corporation knowing it to be insolvent, and not in condition to do a profitable business and without disclosing to Liland the true condition. We thus have a sale for a sound price of an article containing a latent defect known to the vendor, which could not be ascertained by the vendee, for a particular purpose known to the vendor, and for which purpose the article was unfit. This alone would render the transaction fraudulent. It amounts to a concealment of latent defects under circum
In Paddock v. Strowbridge, 29 Vt. 470, the court states this principle thus: “There is no positive duty in the vendor to disclose defects in the article, but if he conceals them, even by silence, when he knews the other party has fallen into a delusion in regard to them, and is making a purchase which he otherwise would not make, or at a price materially beyond what he otherwise would pay, in consequence of such delusion, this is equivalent to a false representation or to the use of artifice to disguise the defects of the article.” The plaintiff purchased an article for a certain purpose known to the defendant. It was unsuitable for that purpose, and the defendant knew this fact. Defendant made no representations whatever as to its fitness or qualities, and did not disclose to the purchaser that the article was unfit for the purpose for which it was desired, but did nothing to conceal the defects or to mislead the purchaser, except by concealment. The court held that because the defendant knew the purpose for which the plaintiff bought the article, and that it was unsuitable for that purpose, he was guilty of fraudulent concealment of a material fact particularly within his own knowledge, which he was called upon to disclose, and, that by refraining from making the disclosure he was guilty of a suppression of the truth equivalent to a falsehood, because he knew the plaintiff made the purchase under a fatal delusion regarding the characteristic which induced its purchase.
In McAdams v. Cates, 24 Mo. 223, it was held that an action for deceit in the sale of a horse with a latent defect known to the vendor, and not to the vendee, would lie though no artifice was used or representations were made to' mislead the vendee. The court says: “If he fails to disclose an intrinsic circumstance that is vital to the contract, knowing that the other party is acting on the presumption that no such fact exists, it would seem to be quite as much a fraud as if he had expressly denied it, or asserted the reverse, or used any artifice to conceal it, or to call off the buyer’s attention from it.”
In Howard v. Gould, 28 Vt. 523, 67 Am. Dec. 728, a statement of another variation of this principle is made. The plaintiff purchased of defendant a horse affected with glanders. The defend
In Stewart v. Wyoming Cattle Ranch Co., 128 U. S. 383, 9 Sup. Ct. 101, 32 L. Ed. 439, it is said: “The gist of the action is fraud producing a false impression upon the mind of the other party, and if this result is accomplished, it is unimportant whether the means of accomplishing it are.words or acts of the defendant or his concealment or suppression of material facts not equally wifhin the knowledge or reach of the plaintiff.” See, also, Marsh v. Webber, 13 Minn. 109 (Gil. 99); Rawdon v. Blatchford, 1 Sandf. Ch. (N. Y.) 344; Brown v. Gray, 51 N. C. 103, 72 Am. Dec. 563; McDonald v. Smith, 139 Mich. 211, 102 N. W. 668; People v. Peckens, 153 N. Y. 593, 47 N. E. 883; Cruess v. Fessler et al., 39 Cal. 336; Cottrill v. Krum, 100 Mo. 397, 13 S. W. 753, 18 Am. St. Rep. 549, and those parts of the note near top of page 556 and middle of page 557; National Bank v. Taylor, 5 S. D. 99, 58 N. W. 297; Waldo v. Ry. Co., 14 Wis. 576; McClellan v. Scott, 24 Wis. 81; Union Nat. Bank v. Hunt, 76 Mo. 439; Merrill v. Fla. Land & I. Co., 60 Fed. 17, 8 C. C. A. 444; Fishback v. Miller, 15 Nev. 428; Brown v. Norman, 65 Miss. 369, 4 South. 293, 7 Am. St. Rep. 663; Harvey v. Smith, 17 Ind. 272; Haygearth v. Wearing, L. R. 12 Eq. 320; 14 Am. Law Rev. 184, 185. We call particular attention to Rawdon v. Blatchford, Cruess v. Fessler, and Cottrill v. Krum, supra.
But it is said that Liland did not rely upon the representations made by Tweto. The record discloses that Tweto told Liland to make inquiry of other parties, and that before consummating the trade Liland went to one Korsvick, who had served as secretary
It is urged by respondent that a rescission should not be decreed because appellant ratified the contract, and by his own action placed the corporation in such a position as to destroy its credit and materially affect the value of the stock. Tweto remained president after he exchanged the property until the 8th'day of March,-1907, when he resigned, and one Lochrem was made president. Lochrem, prior to that date, had no interest in the corporation, but had worked for it on salary. At Tweto’s request he permitted Tweto to transfer to him five shares of stock, and on the ninth of the same month 200 more shares were placed in his name. We are unable to discover from the books whence these 200 shares came, but the record discloses that he neither paid, nor made any agreement to pay, for it, and that it was issued to him by direction of Tweto to qualify him for directorship and the presidency. Liland had been elected a director a few days before Tweto resigned as president, but had taken no active part in the management of the .corporate affairs until a meeting of the directors held on March 8th, when Lochrem was elected president, and at which no other business was transacted. It appears that among the liabilities of the corporation were bills payable in large amount, due the different banks in which Tweto was interested, and that four days after the exchange was consummated between Tweto and Liland, Tweto, as president, and the secretary of the corporation executed chattel mortgages on all the personal property belonging to it to these different banks to secure such indebtedness, and that this was done without authority from the board of directors. But for Tweto’s knowledge of the rottenness of affairs, can. it be said he would have given these mortgages? We think not. These chattel mort
The contention is that the participation of Liland as a director in the meeting which resulted in the execution of the trust deed was a ratification of the exchange of property for the shares of stock. There may be no doubt that had he done this with ■ full knowledge of the condition of the company, it would have ef
In addition to what we have heretofore said in regard to the condition of affairs, we may add that an inspection of the books of the corporation before us as exhibits fails to disclose when the bills payable existing at the time of the transaction in question matured; at least we have found no entries giving that information. The absence of such information in the books only emphasizes the impossibility of Liland determining, from any inspection which
It is also said that the corporation sold and acquired property-after the 15th day of February, 1906, which materially changed its condition. We are not aware that Liland had anything to do with these transactions further than they related to the trust deed; but, even if he did participate in them, they consisted in the purchase and sale, and the payment of indebtedness in the ordinary course of their business, and did not materially change the condition of the corporation financially. If debts were paid with money, such payment decreased the liabilities and the assets at the same time. If goods were purchased on credit, the increase in liabilities was offset by an increase in assets, and no showing is made that extraordinary indebtedness was incurred which materially affected the ability of the corporation to meet its obligations; on the contrary, as far as we are able to ascertain, if any change occurred, it consisted in some reduction in its libilities. The fact that Tweto has disposed of personal property which he acquired from Liland does not mitigate against a judgment in favor of appellant or affect the equities. There is no material controversy as to the value of such property. The trial court can easily take an account of the same, and stidke a balance between it and the amounts paid by Tweto on the indebtedness against the farm, and enter judgment in favor of the proper party for the difference.
The judgment in favor of defendant is reversed,- and the distinct court is directed to enter judgment directing a transfer of the stock and the land to the respective parties, and to take an accounting as prayed for in plaintiff’s complaint.