Moffat v. Winslow

7 Paige Ch. 124 | New York Court of Chancery | 1838

The Chancellor.

The vice chancellor was clearly right in the conclusion at which he arrived, that Smith could not be considered as the agent of the individual stockholders, so as to make them responsible for his frauds, or to vitiate a contract made by an individual stockholder for the sale of his own stock. Neither is there any pretence in this case that the complainants were induced to purchase from any misrepresentations made by either of the defendants. If they made any representations to the complainants, they represented nothing but what was true; to wit, that Smith had made certain statements in relation to the quantity and quality of the ore which he was obtaining from the Orange mine. These representations, even if made in the hearing of the complainants, and I presume such were made by one of the defendants, were not made for the purpose of inducing them to purchase the stock, but were made while in communication with the complainants as assayers for the corporation. When the complainants afterwards undertook to deal with C. H. Richards, not in their character of assayers but in the character of purchasez's of his individual stock, both parties were acting for themselves in their pi’ivate capacities. Both were therefore under the same obligation to ascertain what reliance should be placed on the z’epresentations of Smith; for he was the agent of neither party in l’elation to such a transaction.

In the case of Colt v. Woollaston Arnold, (2 P. Wms. Rep. 154,) Sir Joseph Jekyll relieved the complainant against a contract for the purchase of stock in a mei’e bubble, fraudulently gotten up for the alleged purpose of extracting oil fz-om z-adishes. In that case, however, the stock was z’eally worth nothing, and the defendants knew that fact, when they induced the complainant and many others to subscribe to the same and took their money. The defendants there also made false representations to the subscribers, by stating that the contributors had landed security which would prevent them from hazarding the amount their subscz’iptions, although the defendants well knew the land was pi’eviously pledged for nearly treble its value. And the decision in that case was put upon the express ground of fz-aud. It was upon that ground also that his honor refused to listen to the objection that the complainants had a remedy at law; the court of chancery having a concurrent jurisdiction with the courts of law in cases of fraud. But if the mere fraud of the dii'ectors and officers of a corporation, to enhance the value of its stock, was of itself sufficient to authorize the court of chancery to rescind contracts for the sale of stocks at extravagant prices, made by those who were not privy to such frauds, nearly all the contz-acts for the sale of stocks in the South Sea Company, at 1000 per cent, which took place the same year in which the radish bubble and many others of the same character were projected, would have been rescinded. In that case the directors and officers of the South Sea Coznpany were guilty of the most outrageous frauds to enhance the value of the stock; for which their whole property was taken fi'om them by act of parliament, for the benefit of the sufferers in consequence of such frauds. But although thousands were ruined by their speculations in this stock, and various questions were brought before the courts upon contracts for the transfer of stocks at the most extravagant prices, between parties who were not privy to those frauds, I have not been able to find a case in which such a contract was set aside on account of any fraud of the officers of the company, of which fraud the vendor of the stock was not cognizant at the time of the making of his contract of sale. Those who purchased the new stock created by act of parliament, from the company itself, at three hundred per cent advance, would undoubtedly have been entitled to relief against the frauds of Sir John Blount, the projector of the South Sea scheme, and his associates in the direction. But as those original purchasers were afterwards enabled to sell that stock at still more extraordinary rates, they probably availed themselves of the opportunity. They thus being gainers instead of losers by the frauds of the officers of the company, and therefore had no grounds of complaint. The subsequent cases in which relief has been given to the purchasers of stock in mere bubbles, some of which are referred to in the opinion of the vice chancellor, all go upon the ground of fraud in the vendors. And the decisions in those cases are professedly based upon that of Sir Joseph Jekyl in the case of the radish-oil bubble. (See 1 Sim. Rep. 37, 45; 2 Idem, 289.)

I am not prepared to say that a vendor of stock, or of any thing else, which at the time of the sale was entirely worthless, and which had not even a speculative value except such as arose from the fraudulent misrepresentations of a third person, could recover upon a note given for the consideration which thus entirely failed. But where the article sold is of some value, and there is neither fraud or warranty on the part of the vendor, this court cannot rescind the sale, or relieve the purchaser, upon the ground that he has made a very bad and improvident speculation. Here the complainants’ bill shows that at the limes when they purchased these stocks they w'ere aware that, if the representations of Smith were all true, the actual value of the shares they were purchasing was much greater than the prices they agreed to give. They therefore intended to secure to themselves the benefit of a very profitable speculation. And as they would have been entitled to those extravagant profits, by the purchase of these shares in a mine worth many millions if their visionary expectations had been realized, they must, as many others have done recently, submit to the loss they have sustained by their improvident and speculative bargains.

There is ano. her objection also to the relief claimed in this case; which is that the complainants affirmed the contracts for the purchase of the stock by giving new notes for the purchase money after the frauds of Smith had been discovered. Smith resigned as superintendent in September, 1833 ; and in October Moffat and Wilmarth went on to work the Orange mine themselves, and the frauds of Smith were then discovered. In the latter part of November thereafter the complainants, and Wilmarth their copartner, took up the note originally given to C. H. Richards, and gave two of the new ones to N. Richards in exchange therefor; knowing that the object of this arrangement was to pay a debt then due to the latter. It would therefore be a fraud upon N. Richards for them to set up as a defence to these notes the existence of the previous misrepresentations of Smith, of which they were well aware when such notes were taken by him in payment of the debt of C. H. Richards. And the notes given upon the purchase of N. Richards’ stock were also renewed repeatedly after that time; and the new notes now in controversy were given after the death of Wilmarth in the fall of 1834. After these repeated recognitions of the validity of the original contracts, long after the facts in relation to Smith’s frauds were fully ascertained, it is too late for the complainants to set up the existence of such frauds as a defence to these new notes.

For these reasons the order appealed from must be affirmed with costs.