190 P. 808 | Cal. | 1920
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *208 This is an appeal from a judgment on demurrer entered in favor of the defendants and against the plaintiff. The action was brought by the plaintiff for the rescission of a contract by which he subscribed to a syndicate to be formed by the defendants to acquire certain land, or for damages if rescission should be found to be inequitable.
It is alleged in the complaint that the defendants, J.E. Fishburn, president of the National Bank of California; R.I. Rogers, vice-president of said bank; R. A. Rowan Company, a corporation, and W.H. Joyce, were the owners of options to buy a certain tract of two thousand eight hundred acres of land in Los Angeles County; that a syndicate was formed for the purchase of said land; that for the purpose of inducing the plaintiff to subscribe for shares in the syndicate and thereby become a copurchaser of the land with the defendants and other subscribers, "defendants and each of them represented to plaintiff that the defendants R. A. Rowan Company and W.H. Joyce were the owners of the options to purchase the land"; that the price to the subscribers to the syndicate was $850 per acre, payable as follows: Nine hundred and twenty thousand dollars in cash on December 9, 1912, and the balance in two installments of equal amount in five and ten years, respectively, from the date of the exercise of the said options; that the said price was about $87.50 per acre in excess of the price to the said option owners, who were to receive and retain the difference for their options and services; that Fishburn and Rogers had subscribed to said syndicate and would pay on an equal basis with the other subscribers the sum of twenty-five thousand dollars, respectively, into the said subscription fund of nine hundred and twenty thousand dollars. "That, relying upon said representations that . . . Fishburn and Rogers had each subscribed the sum of twenty-five thousand dollars to said syndicate agreement on an equal basis with plaintiff and would pay in the amount of their said subscriptions, . . . plaintiff on or about the tenth day of November, 1912, signed said syndicate agreement and subscribed thereto the sum of five thousand dollars," and thereafter paid said sum to defendants Rowan Company and Joyce. "That had it been disclosed to plaintiff that . . . Fishburn and *210 Rogers . . . had an interest in said options or in said profits, plaintiff would not have subscribed to said syndicate agreement or paid in the amount of his said subscription or any part thereof, or at all become a party to said syndicate agreement." That these representations were false in this: "That it was understood and agreed by and between defendants . . . that the amounts of said subscriptions . . . made by . . . Rogers and Fishburn, respectively, when paid in by them should be returned to them, respectively, as their shares of the profit of eighty-seven and fifty one-hundredths dollars per acre mentioned in said syndicate agreement as being received and retained by . . . R. A. Rowan Company and Joyce"; that Fishburn and Rogers were the owners of a one-tenth interest, respectively, in the options represented to the plaintiff as being owned exclusively by the disclosed option owners, Rowan Company and. Joyce. That at the time plaintiff signed the syndicate agreement the names of Fishburn and Rogers appeared as subscribers thereto with their subscriptions in the sum of twehty-five thousand dollars each, and that they concealed from and failed to disclose to plaintiff that there was an agreement between them to the effect that the subscriptions of the undisclosed option owners should be returned to them as their share of said profits.
It is further alleged that on December 3, 1912, the amount of the subscription fund having been paid in ahead of time, the purchase of the land was made and a corporation, known as the "Laguna Land and Water Company," organized; that this corporation was capitalized at two million dollars and stock was issued and divided into two million shares of the par value of one dollar each; that nine hundred and twenty thousand shares of this stock were issued to the option owners, Rowan Company and Joyce, in consideration of the transfer of the land to the corporation; that these nine hundred and twenty thousand shares were distributed to the subscribers to the syndicate at the rate of one share for each dollar subscribed; that on the same day twenty-five thousand shares were issued to each of the defendants Fishburn and Rogers, although they did not pay their subscriptions until January 24, 1913; that on the last-mentioned date they made a pretended payment to Rowan Company and Joyce of the *211 amount of their subscriptions, and that at the same time, and pursuant to the agreement that the amount of their subscriptions, when paid, should be returned to them as their share of the profits, they received back from Rowan Company and Joyce the identical amount paid in by them.
The complaint then alleges that the plaintiff first discovered the fraud on June 1, 1915, but was not aware, until some time in November, 1915, of his right to rescind. On November 29, 1915, plaintiff notified the defendants that he rescinded the agreement, tendered back the stock which had been issued to him, demanded his money, and, being refused, brought this suit.
The demurrer was to the second amended complaint as amended, on the following general grounds:
"1. That the same does not state facts sufficient to constitute a cause of action.
"2. That the same is uncertain in the following respects, and each of them:
"a. It cannot be ascertained how the payment of twenty-five thousand dollars made by J.E. Fishburn was a pretended or fictitious payment.
"b. It cannot be ascertained how the payment of twenty-five thousand dollars made by R.I. Rogers was a pretended or fictitious payment."
The demurrer was sustained without leave to amend, and judgment was entered in favor of the defendants with costs.
[1] 1. It is well settled that associates in a common enterprise, under whatever guise, have a duty to each other to make full disclosure of any preference or profit not common to all of the associates. In Lomita Land Water Co. v. Robinson,
The principle of that case was followed inCalifornia-Calaveras Min. Co. v. Walls,
While it is true that in some of the cases just cited — for example, the Calaveras case — it was not disclosed by the promoters that anyone connected with the organization of the enterprise was to get a profit, and in the instant case it was made known to the subscribers that Rowan Co. and Joyce were to receive the profits, nevertheless the same principle applies. Fishburn and Rogers held themselves out to the public as subscribers who had enough faith in the venture to risk twenty-five thousand dollars on it, and, because of this and the position they occupied in the financial world, plaintiff was induced to subscribe to the *213 syndicate — which he alleges he would not have done had he known that they were interested in the options to an extent equal to the amount of their subscriptions. The law imposed upon these defendants the same duty to disclose their interest in the options as it imposed upon Rowan Company and Joyce. [2] There could be no question of plaintiff's right of action if there had been no disclosures as to the profits, for it is well settled that an option holder or promoter will not be allowed to retain profits — realized from the exercise of the option — unless the fact of his interest in the option is disclosed in advance. [3] We think that Fishburn and Rogers, in addition to being option owners, were joint promoters with Rowan Company and Joyce, and hence were equally bound to make known to prospective subscribers the nature and extent of their interest in the enterprise. If we understand defendants' position it is this: That since the amount of the profits to accrue was fully disclosed to the plaintiff, he will not be heard to complain that he was not informed as to whom the profits would go. [4] But this position ignores the claim of the plaintiff that he is entitled to rescission or damages because of the false representations that Fishburn and Rogers had no interest in the options, but were subscribers on the same basis as himself, and that he was induced by these false representations to subscribe, which he would not otherwise have done.
In Talmage v. Sanitary Security Co.,
2. Defendants contend that in any event plaintiff could not have rescission for three reasons: "First — it was impossible to put defendants in statu quo. Second — plaintiff himself was guilty of laches. Third — by paying assessments on the stock with full knowledge of the facts plaintiff himself affirmed the transaction." We think there is no merit in any of these contentions.
[5] As to the first, it is sufficient to point out that the agreement of the defendants was in effect an agreement to sell to the plaintiff one share of the corporate stock for every dollar he subscribed and paid upon the syndicate agreement; that while it is true that the stock was issued to plaintiff directly from the corporation, nevertheless, it was so issued at the instance of the defendants and in compliance with the said agreement; and that if the offer by the plaintiff to return to the defendants the stock received by him had been accepted by them, it would have put them in statu quo.
Upon the second point it may be observed that laches arising solely from a delay of four months is no defense to an action for damages and that this is sufficient to defeat a general demurrer. With regard to the right to rescind the complaint shows that the plaintiff did not discover that Fishburn and Rogers were interested in the profits going to Rowan Company and Joyce until June 1, 1915, and did not learn that, he had a right to rescind on account of that fact until some time in November, 1915, and that *215
the offer to rescind was made on November 29, 1915. Under the peculiar circumstances of this case, and in view of the difficulty of determining the law as to the rights of a person in the position of the plaintiff, it is not surprising that he did not suspect that he had a right to rescind until he learned in November that other subscribers to the agreement, upon discovering the facts, had effected a rescission. [6] Under the rule applied in Hannah v. Steinman,
[7] Nor do we think that defendants' third contention that the payment of assessments by plaintiff after his discovery of the fraud constituted an affirmance of the transaction which bars his cause of action for rescission, if for no other reason than that he was entitled to preserve the property so that he might be in a position to tender it back if he should later seek rescission.
3. The cause was argued in Department and submitted for decision. The submission was subsequently vacated and the cause set for further argument on the question, "What injury is it necessary to show in a case where there is a rescission only, as distinguished from a suit for damages?" In this connection defendants, in their memorandum filed following resubmission, contend that "if plaintiff did not show either that the property purchased was worth less than he paid for it or that it would have been worth more than it actually was worth if the representations had been true, in other words, if he did not show pecuniary injury, then he has not shown anything justifying either rescission or damages." As already appears, it is alleged that at the time the plaintiff paid the five thousand dollars to Rowan Company and Joyce the interest which he thereby acquired had "a fictitious market value" of five thousand dollars, which value was created "by reason of the belief of the subscribers" that Fishburn and Rogers had subscribed on the same basis as the other subscribers; that it subsequently became known to the subscribers that Fishburn and Rogers had not subscribed on the same basis but were joint owners of the options with the other defendants, and that, by reason of this knowledge, plaintiff's stock became worth no more than two thousand five hundred *216
dollars, and has never since been of a greater value than three thousand dollars. [8] In our opinion, this is a sufficient allegation of damages for rescission. It is, of course, well settled that in an action of damages for deceit the plaintiff must allege and prove the precise amount thereof. But this is not the rule where rescission is sought. Spreckels v. Gorrill,
In the recent case of Stillwell v. Rankin,
In Vulcan Fire Ins. Co. v. Jorgenson,
The case of Bailey v. Fox,
Plaintiff alleges in effect that he was induced by the false representations to subscribe to the syndicate and that the shares issued to him would, if the representations had been true, have been worth two thousand dollars more than their actual value at the time of the discovery of the fraud. By these false representations, it is alleged, the plaintiff was induced to part with his money, and, to the extent of the difference between the alleged market value of the stock — three thousand dollars — and the sum which such stock would have been worth if the representations had been true — five thousand dollars — the plaintiff has suffered a pecuniary loss of two thousand dollars. In every case of fraud, either where damages or rescission is sought, it must be alleged and proved that the complainant has suffered material injury. But it is the character of the fraud constituting the cause of action which determines the extent to which the pleading and proof must go in order to establish damage. As already pointed out, plaintiff assumes to state his cause of action on the alternative theory — that if he is not entitled to rescission, damages may be awarded. [9] First, as to rescission: It is clear from the authorities we have cited that the exact amount *220 of damage need not be shown, provided it be in an "appreciable" sum. [10] Where the action is for damages, however, the plaintiff must allege and prove that by reason of the fraud he has suffered damage in a definite amount. In the one case damage is predicated on the change in position; in the other on the extent of the pecuniary loss. [11] The measure of damages here would be the amounts paid in by the plaintiff, including the assessments, with interest thereon at the rate of seven per cent from the dates of such payments, less the value of the stock at the time of the discovery of the fraud. Plaintiff alleges that the factor which induced him to subscribe to the syndicate was his confidence in the financial standing and business judgment of Fishburn and Rogers, who, it was represented, had already subscribed for twenty-five thousand shares on the same basis as that upon which he was asked to invest. [12] While the value of the connection of Fishburn and Rogers with the syndicate may not be capable of ascertainment, nevertheless, if the plaintiff was induced by the defendants' false representations to change his position in reliance thereon, the lessened value of the stock would constitute damage for the purpose of rescission — the plaintiff "was placed in a worse position than he otherwise would have been." (2 Pomeroy's Equity Jurisprudence, 4th ed., sec. 898.) We think the complaint is sufficient under either theory.
4. Nor can we agree with defendants' contention, made in their memorandum filed following the resubmission of the case: "If there is any right of rescission . . . it is a right to rescind against the corporation, and there is no right on the part of a subscriber to rescind a subscription as against other shareholders or promoters." The only authorities which defendants cite on this point are Western Bank v. Addie, L.R, 1 H. L. (Sc.) 185; Love v. Love,
It follows that the demurrer should have been overruled.
Judgment reversed.
Shaw, J., and Olney, J., concurred.
Hearing in Bank denied.
All the Justices concurred, except Wilbur, J., and Lennon, J., who were absent, and Sloane, J., who did not vote.