Neuman, Appellant, v. Corn Exchange National Bank and Trust Company.
Supreme Court of Pennsylvania
March 24, 1947
reargument refused April 18, 1947
356 Pa. 442
Before MAXEY, C. J., DREW, LINN, STERN, PATTERSON, STEARNE and JONES, JJ.
As to the “adequate chemical or other test” it is conceded that such a test was made. It was described in detail. The foreman testified that, from his tests, he satisfied himself as to the safety of entry. This may have been a mistaken view. The test, it is true, may have been negligently made, but it was against such negligence that the plaintiff was insured and for no other discernible purpose.
The present situation is very different than that in Sgarlat v. Griffith, 349 Pa. 42, 36 A. 2d 330, where the insured failed to provide any watchman. It is more analogous to the case of Lyford v. New England Mutul Life Insurance Company, 122 Pa. Superior Ct. 16, 184 A. 469, where a watchman was furnished, but who failed in his duty. An owner of a business, with employees, is not required to perform all of these services personally. Necessarily such an employer is required to delegate duties to his employees. The purpose of the insurance was to protect the owner where his employees are negligent.
I would, therefore, reverse the judgment and submit the question of substantial performance to a jury.
Morris Wolf, with him Wolf, Block, Schorr & Solis-Cohen, for appellant.
Robert T. McCracken, with him Joseph W. Swain, Jr., and C. Russell Phillips and Montgomery, McCracken, Walker & Rhoads, for appellee.
OPINION BY MR. JUSTICE JONES, March 24, 1947:
This appeal grows out of an action in trespass for deceit. The plaintiff seeks damages which he claims to have suffered in a business transaction through his reliance upon an alleged misrepresentation by the defendant bank concerning the consideration said to have been offered by a third person for certain stock held by the bank as the executor of a decedent‘s estate. Under a subsisting contract that had been entered into by the defendant‘s decedent, the plaintiff and one other person (all owners of stock of like character), the plaintiff had a right of refusal to buy the estate‘s holding of the particular stock at the amount of a third person‘s offer.
The W. A. Haller Co., Inc., a corporation located in Pittsburgh, Pennsylvania, and engaged in the business of rectifying, blending and selling whiskey, had a capital stock consisting of 5000 shares of voting stock (Series B) and a negligible number of non-voting shares (Series A). On July 7, 1941, Theodore G. Stein, Harold S. Laden and Hyman C. Neuman, the present plaintiff-appellant, having negotiated the purchase of 2500 voting shares of Haller stock (Series B), agreed inter se by contract in writing concerning their respective rights and liabilities as the purchasers and owners of such stock. Among other things, they thereby apportioned the 2500 shares, so purchased, in lots of 841 1/3 shares to Laden, 841 1/3 shares to Neuman and 817 1/3 shares to Stein. As Stein already owned 24 shares of like stock, his then aggregate holding was 841 1/3 shares also. By a further provision of the contract, the parties thereto pledged themselves, one to the other, that “. . . should either one, at any future time, desire to sell his holdings, he will before effecting such sale, give the refusal to the two remaining parties, at the same price as he may
Subsequently, Laden, Neuman and Stein acquired additional stock in the Haller company so that, together with one W. A. Haller, they ultimately owned the whole of the 5000 outstanding voting shares (Series B) of the capital stock of the company in approximately equal quarter interests, Stein‘s holding amounting to 1241 1/2 shares. While the option above-mentioned originally attached only to the 841 1/3 shares of Haller stock held respectively by each party at the time of the making of the contract of July 7, 1941, the defendant bank, as Stein‘s personal representative, later extended the option to the whole of his 1241 1/2 shares as will appear.
On June 5, 1943, Stein died. His will named as the executor thereof the defendant bank which duly qualified and began the administration of the decedent‘s estate. In addition to the 1241 1/3 shares of Haller stock owned and held by Stein‘s estate, it also owned warehouse certificates for 1000 barrels of bourbon whiskey stored in the warehouse of an Indiana distillery. The whiskey had an O. P. A. ceiling price of $53,963.79 for the lot. It had a value, however, for “blending”1 purposes far in excess of its legally permissible sale price, as was well known and recognized. The learned trial judge, in his charge to the jury, stated, without exception from anyone, that “It is not denied here that this whiskey had a
The bank sold the whiskey certificates at the ceiling price to one Isadore H. Schweidel under an agreement which required him to make an offer of $45,000 for the Stein estate‘s 1241 1/3 shares of stock in the Haller company, subject, of course, to Neuman‘s and Laden‘s prior right to purchase the stock. On July 30, 1943, the stipulated day of Schweidel‘s settlement with the bank for the whiskey, he conformably signed a written engagement to buy the estate‘s Haller stock at $45,000 unless Neuman or Laden, the surviving parties to the agree-ment of July 7, 1941, elected to buy the shares in exercise of the above-specified option. Schweidel contemporaneously deposited with the bank $45,000 to guarantee performance of his undertaking to purchase the estate‘s stock in the Haller company. He was not interested in acquiring the stock. In fact, he did not want it but made his bid therefor only because he was required by the bank so to do in order to become the purchaser of the whiskey certificates.
Neuman, among a number of others, had offered to purchase the whiskey certificates from Stein‘s executor at their ceiling price but was never informed that the executor was receiving offers for the certificates on the basis that the purchaser thereof would obligate himself to buy the estate‘s stock in the Haller company at a certain price if called upon by the executor so to do.
After the whiskey certificates had been sold to Schweidel, as above stated, and his $45,000 deposit guaranteeing his offer for the stock was in the hands of the executor, the bank wrote Neuman a letter under date of August 6, 1943, which, after reciting the option provision of the 1941 agreement, continued as follows:
“We hereby notify you that as Executor under the Will of the said Theodore G. Stein, deceased, we do desire to sell his holdings, and we wish to advise you that we have entered into a contract of sale with I. H. Schweidel of this City for the decedent‘s 1241 1/3 shares of stock for the sum of $45,000., which will be consummated unless you and Mr. Laden, or either of you, arrange to acquire the said stock at that price.
“This communication constitutes notice to you of our desire to sell and you must perfect your rights under the said agreement of July 7, 1941, within thirty days. If you can advise us within a shorter time whether or not you desire to acquire this stock, it will be appreciated. A notice similar to this is being sent to Mr. Harold S. Laden.”
Laden renounced his right to participate in the purchase of the stock.
Neuman knew of Schweidel as a disbarred lawyer; considered him an undesirable prospective stockholder of a close corporation such as the Haller company; and desired to block his acquisition of the stock. To that end, in part at least, Neuman, on August 9, 1943, paid the bank $45,000 and received the estate‘s 1241 1/3 shares of Haller stock. Neuman had not been told by the bank, nor did he otherwise know, that the bank had sold the whiskey certificates to Schweidel or that Schweidel‘s bid of $45,000 for the Haller stock was a prescribed condition precedent to his becoming the purchaser of the warehouse certificates at their ceiling price. It was August 13th following, or shortly thereafter, that Neuman first learned the true facts in such regard.
Upon an allegation that the actual worth of the Stein estate‘s Haller stock was $20,000, the plaintiff claimed damages accordingly on the theory that neither Schweidel nor anyone else would have bid more than that sum for the stock if sold independently of the whiskey certificates. Apparently finding $27,000 as the
It is apparent that, in entering judgment for the defendant, the learned court below was unduly influenced by the thought that the plaintiff could not be deceived with respect to the value of stock in a company whereof he was a relatively large stockholder. That idea not only permeates the opinion for the court en banc but it is also imbedded in the appellee‘s printed brief both in the counterstatement of questions involved and in its argument. Of course, one cannot be deceived as to the value of stock concerning whose intrinsic worth he is fully informed. But, such a one can readily be deceived as to the price offered by a third person for stock if the owner or holder thereof avows as the offer an inflated price intended to cover additional valuable considerations secretly contemplated by the prospective seller and the outside offeror. The error in the opinion of the court below is due in large measure to its apparent failure to recognize that the instant suit is not based upon the contract for the sale of the stock. This is not an action for damages ex contractu. The cause of action in suit is the defendant‘s wrong in inducing the plaintiff by misrepresentation to pay considerably more for the stock than the amount of any bona fide offer for the stock which the defendant had from Schweidel or anyone else.
The primary inquiry on the question of liability is whether the plaintiff made out a case of damage to himself as the proximate result of his justifiable reliance
The evidence in the instant case fully supports a finding by the jury that Neuman paid $45,000 for the Stein estate‘s Haller stock because of a material misrepresentation by the bank. Indeed, the facts which so demonstrate are not disputed. As personal representative of Stein‘s estate and in professed recognition of Neuman‘s rights under the 1941 agreement, the bank undertook to inform him with respect to Schweidel‘s putative offer for the stock. The bank did not tell Neuman, however, that the offer for the stock was an enforced “tie-in” price for Schweidel‘s then consummated purchase of the whiskey certificates. The right of a party to the 1941 agreement to purchase, in specified circumstances, the Haller company shares of another of the contracting parties contemplated that the price obtainable upon a bid from a third person would be a bona fide offer for the stock and nothing else. Here, Schweidel‘s offer of $45,000 for the stock was a required condition of his right to purchase the whiskey certificates at their ceiling price which, undeniably, was less than their real
Under the evidence in the case, the questions of misrepresentation and the character of its utterance were for the jury. The bank well knew that its letter to Neuman did not embrace information as to all the considerations moving Schweidel to offer $45,000 ostensibly for the stock or that a valuable, but undisclosed, consideration of a sale of the stock to Schweidel would not pass to Neuman if he became the purchaser of the stock at $45,000. A misrepresentation is fraudulently made if the maker knows of its falsity when uttering it. Stated otherwise, “A misrepresentation in a business transaction is fraudulent if the maker . . . knows or believes the matter to be otherwise than as represented, . . .“:
An intention on the part of the bank that Neuman be induced by the misrepresentation to act or refrain from acting in respect of the subject matter is equally manifest. When, in the opinion of Stein‘s executor, it became advisable to sell the estate‘s holding of Haller company stock, Neuman and Laden each had a contractual right to purchase such stock “at the same price as he [Stein or his executor] may be able to obtain from any other person or persons“. It was in apparent obedience to that requirement that the bank gave Neuman the notice as to Schweidel‘s reputed offer for the stock and, at the same time, called upon Neuman to perfect his rights under the contract within the thirty-day period therein specified for that purpose. Indeed, the bank saw fit to suggest that Neuman accelerate his action if possible. But, regardless of that, on the bank‘s initiative the only course then open to Neuman was either to act or refrain from acting in the matter of the stock on the basis of the misrepresentation made by the bank. It cannot be, nor is it, denied that the bank‘s notice was for the express purpose of inducing Neuman to pursue promptly either one of the attendant two alternatives, viz., to buy or not to buy the stock for $45,000. And, thus, the intention of the maker of the misrepresentation to induce action by the recipient was indisputably present.
The plaintiff‘s reliance upon the bank‘s misrepresentation was justifiable. Such is now to be taken as conclusively established by the jury‘s verdict on the basis of facts and permissible inferences. Did not Neuman pay the bank $45,000 for the stock (more than twice what
We come then to the remaining essential of an action for deceit, viz., that the plaintiff‘s justifiable reliance upon the defendant‘s fraudulently uttered misrepresen-tation was the proximate cause of the damage claimed. On the one hand, causation bears a close relation to the extent of a recipient‘s justifiable reliance upon an alleged misrepresentation while, on the other hand, it is related to the character and quantum of the damage said to have resulted therefrom. In part, the proximity of the cause depends on the degree of the reliance upon the misrepresentation and, in part, on the relationship of the reliance to the ultimate result. The rule in general is that “The maker of a fraudulent misrepresenta-tion in a business transaction is liable for pecuniary loss caused to its recipient by his reliance upon the truth of the matter misrepresented if his justifiable reliance upon the misrepresentation is a substantial factor in determining the course of conduct which results in his loss“:
Of course, a showing of damage must yet be made. Without damage, causation effected by the deceit alleged is of no legal consequence: Peters v. Stroudsburg Trust Company, 348 Pa. 451, 35 A. 2d 341. What, then, were the damages, if any, which the plaintiff suffered and what is the applicable measure for their calculation? In an action for deceit or fraud in Pennsylvania, the plaintiff can recover only “his actual loss” and not “the value of his bargain“. See Peters v. Stroudsburg Trust Company, supra at p. 453; Curtis v. Buzard, 254 Pa. 61, 64, 98 A. 777. Speaking for this Court in the Peters case, supra, Mr. Justice DREW quoted with approval (p. 454) from Cunningham v. Ray, 263 Pa. 492, 497, 106 A. 884, to the effect that “. . . the measure of damages in an action for deceit in the sale of property is the loss which the fraud inflicts, — that is, the difference between the real, or market, value of the property at the time of the trans-action and the higher, or fictitious, value at which it was purchased“. (Emphasis supplied).
As the foregoing rule has been applied where the mis-representation or deception related to the value of the stock involved, the appellee takes occasion to point out that the value of the stock in the instant case was not misrepresented. That is true enough. Neuman‘s right to purchase the estate‘s stock was not concerned with the stock‘s value. His contractual privilege was to buy the stock for the price that the seller could obtain for it from any other person or persons. Conceivably, that price might readily be more or less than the value of the stock; and, so long as the third party offer was not incor-rectly represented, Neuman could have no just cause for complaint. But, notwithstanding the apparent factual differentiation here present, the rule as to the measure
As was stated by former Chief Justice LEWIS in Bank of Montgomery v. Reese, 26 Pa. 143, 146, “The paramount rule in assessing damages is that every per-son unjustly deprived of his rights should at least be fully compensated for the injury he sustained“. In Kountz v. Kirkpatrick & Lyons, 72 Pa. 376, 387, Mr. Justice AGNEW quoted from Sedgwick on Damages (4th ed., pp. 28, 29; also, pp. 36, 37) to the effect that “the declared object [of damages] is to give compensation to the party injured for the actual loss sustained‘“. The learned Justice further noted that “Among the many au-thorities he [Sedgwick] gives, he quotes the language of C. J. Shippen, in Bussy v. Donaldson, 4 Dallas 206. ‘As to the assessment of damages (said he), it is a ra-tional and legal principle, that the compensation should be equivalent to the injury.’ ‘The rule,’ said C. J. Gibson, ‘is to give actual compensation, by graduating the amount of the damages exactly to the extent of the loss.’ ‘The measure is the actual, not the speculative loss:’ Forsyth v. Palmer, 2 Harris 97. Thus, compensation be-ing the true purpose of the law, it is obvious that the
Here, the compensation to which Neuman is entitled is the amount by which the price he paid the bank for the stock exceeds the probable offer any third person would have made for the stock not coupled with any other valuable considerations. Schweidel‘s “tie-in” bid for the stock is, of course, without any evidentiary value on the inquiry as to what an outsider to the Haller com-pany would have paid for the estate‘s stock in that com-pany on the basis of the stock‘s own separate worth: cf. Kountz v. Kirkpatrick & Lyons, supra, p. 388. The learned trial judge permitted the jury to compute the plaintiff‘s damages on the basis of the actual value of the stock as disclosed by the books of the company. We think the trial court‘s action in such regard was entirely proper. It was at least eminently fair to the defendant. It is a just and reasonable inference that no third person would, in ordinary course, have paid more for the stock, itself, than its intrinsic worth. Indeed, where, as here, the stock for sale is but a minority interest in a close corporation, conducting a more or less speculative business, the prospect of obtaining an out-side purchaser of the stock is slight and the prospect of such a one paying more for the stock than its actual value is slighter still. Cf. Jones v. Costlow, 349 Pa. 136, 140, 36 A. 2d 460.
The appellee bank makes certain contentions which we shall comment upon briefly. It argues that the plain-tiff‘s testimony conclusively shows that he was not de-ceived by the misrepresentation but went ahead and bought the stock in the belief that the circumstances would support him in an action against the bank for damages. On the foregoing assumption of fact, the bank, citing
The judgment is reversed and the cause remanded with directions to the court below to enter judgment on the verdict for the plaintiff.
SUPPLEMENTAL OPINION SUR DEFENDANT‘S PETITION FOR RE-ARGUMENT
PER CURIAM, April 18, 1947:
The petition for re-argument in this case discloses, and the court is further informed by Robert T. McCracken, Esq., of the law firm of Montgomery, McCracken, Walker and Rhoads, that, in the negotiations leading up to and culminating in the sale of both the whiskey certificates and the stock, the defendant Bank, as executor, consulted in such connection with represen-tatives of said law firm whose members desire that it now be noted, as we herewith note at their request, that the bank‘s actions constituting the basis of this suit were taken on the advice of such counsel.
Reargument refused.