79 W. Va. 310 | W. Va. | 1916
The purposes of the suit were, upon grounds alleged, to have cancelled the contract of sale and purchase by plaintiff Sophie R. Poole to defendant Camden, on January 21, 1910, of two hundred and fifty eight (258) shares of the capital stock of the Parkersburg, Marietta and Inter-Urban Railway Company, to have said shares returned to her, and an accounting by Camden of all stock and cash dividends received
The court below upon the pleadings and proofs adjudged and decreed in accordance with the prayer of the bill, that the purchase and sale of said two hundred and fifty eight shares of stock be set aside and annulled and declared void; that upon an accounting thereby decreed defendant Camden should be entitled to receive from plaintiff at the rate of one hundred and seventy five dollars per share for each share recovered by plaintiff with interest thereon from the date' of payment. And the court not being advised of the exact status or present ownersMp of two thirds of the shares of stock sold by plaintiff to defendant, and the dividends declared and paid thereon, and whether he now owns in his own right sufficient additional shares of stock in said railway company which he can and should turn over to plaintiff in lieu of the shares so obtained from her with the dividends thereon and as to other matters referred to in its decree, it was further adjudged and decreed that the cause be referred to a commissioner thereby authorized to ascertain and report upon the matters on which the court wished information as a basis for its final decree adjusting and settling the rights of the parties.
The first point is that it was error to pronounce the decree complained of in the absence of J. N. Camden, Jr., for whom and himself it was alleged in the answer of Sprigg D. Camden he had purchased said stock.
Upon the filing of said answer the court of its own motion required plaintiff to amend her bill bringing in said J. N. Camden, Jr., as- defendant. When so brought in the court sustained his demurrer to the bill, and on final hearing was of opinion that he was not a necessary party, and dismissed the bill as to him, and pronounced the decree now complained of.
The effect of the decree below was to find as a fact that J. N. Camden, Jr., was not a party to the contract of sale and purchase of the plaintiff’s stock, and if interested therein was an undisclosed principal, and if so, Sprigg D. Camden cannot escape personal liability by disclosing the fact that another was interested with him in the transaction. We cannot say from the evidence that the finding of the court was erroneous. Indeed we do not see how it could have found otherwise. The transaction was covered by documentary evidence; the sales order in the broker’s office was signed by Sprigg D. Camden individually; he gave to plaintiff his individual check for $10,000.00, the cash payment, and his individual note for $35,150.00, for the deferred payment, and L. H. Poole, plaintiff’s husband, who represented her as agent in the transaction, swears positively, that the name of J. N. Camden, Jr., was not mentioned in the negotiations, and that he had no dealings with him; and Mrs. Poole herself swears that she did not know J. N. Camden, Jr., in the transaction. The testimony of George Newberger, broker, is that he represented S. D. Camden only, in the negotiation with plaintiff for the purchase of the s*ock.
Although an undisclosed principal, when discovered, may be rendered liable for the contract of his agent, the law is well settled that one dealing with an agent for an undisclosed
The contention, nevertheless, is that, as two tMrds of plaintiff’s stock has been transferred to J. N. Camden, Jr., the. decree against Sprigg D. Camden is erroneons, it being beyond the power of the court to restore to Mrs. Poole all of the stock purchased from her. Upon ample authority we think it entirely competent for a court of equity, under the circumstances of this case, to mould its decree so as to do equity between the parties. If defendant has only a part of the actual stock purchased from plaintiff, he may be decreed to restore that part; and if he has other stock of the railway company, of the same class, he may be compelled to transfer a sufficient proportion of that to make up the deficiency, or if he has not sufficient stock to make restitution there may be a money decree against him for the value of the stock not restored. The bill and the prayer thereof are framed with this end in view. The authorities cited and relied on by counsel for plaintiff fully support tMs proposition. Engeman v. Taylor, 46 W. Va. 699, 714; Worthington v. Collins, 39 W. Va. 406; Krouse v. Woodward, 110 Cal. 638; Marshall v. Marshall, 11 Colo. App. 505; 10 Cyc. 645; 2 Cook on Corporations, (7th ed.) section 475, p. 1323; 4 Thompson on Corporations, (2nd ed.) section 4235; 2 Elliott on Contracts, section 2462, page 614. And this relief is suggested by Judge Brannon in Hogg v. McGuffin, 67 W. Va. 456, 465.
The next proposition relied on for reversal is that it was error for the court below to hold as matter of law that a director of a corporation sustains such fiduciary relationship to the stockholders of his corporation that he cannot buy their stock without incurring the penalty of having the sale set aside at the option of the stockholder. We do not understand from the written opinion of the learned judge who presided in the court below that the court based its decree on the broad
The broad proposition contended for by counsel for plaintiff, and referred to as the West Virginia rule, we do not think is supported by the decisions cited, certainly not when it is sought to apply it to cases like the one here. We have examined all the cases, beginning with Newcomb v. Brooks, 16 W. Va. 32, and ending with Keenan v. Scott, 64 W. Va. 137, and Plant v. Humphries, 66 W. Va. 89. None of them involved a transaction directly between director and -stockholder for the sale by the latter to the former of his stock in a corporation. They relate to the purchase by attorneys from their clients of the subject matter of the litigation, or under decrees procured by themselves, and in which their own interests were in the transaction opposed to the interests of their clients, as in Newcomb v. Brooks and Keenan v. Scott, supra, and Lane v. Black, 21 W. Va. 623; to cases where trustees under deeds of trust, and executors or administrators, undertook to acquire directly or indirectly from themselves in their fiduciary capacity to themselves in their individual capacities the property or subject of the trust, as in Knight v. Watts, 26 W. Va. 175, 212, and Feamster v.
And it is said upon the authority of some of the cases, such as Reilly v. Oglebay, 25 W. Va. 42, 43, that this strict rule extends to every person who by his connection with another person, or who by being employed or concerned in his affairs, has acquired knowledge of his property, and to all persons coming within the reason of this rule. Certainly it can be applied only to cases of the character enumerated, or which do in fact fall within the reason of the rule as exemplified in the eases cited, and in onr opinion the case at bar is not one of the class to which it may rightfully be applied, for we find no case going to the limit of holding that a director sustains any' such relationship to individual stockholders, that regardless of the facts and circumstances surrounding the transaction the stockholder may of right arbitrarily elect to rescind the sale of his stock and recover it or its value from the purchasing director.
What then is the true relationship of directors to individual stockholders of a corporation? Is it the same in all respects as their relationship to the corporate property, precluding them from all dealings with stockholders for the sale and purchase of their stock, except upon penalty, at the mere ■ election of the stockholder, of having the sale set aside regardless of the question of the bona tides of the transaction, or of the facts and circumstances of the transaction? Is the relationship the same as that of partner to partner, attorney to 'client, director to the corporate property, and business of the _corporation? We think not.'
The authorities are apparently conflicting on this question. Some, probably the larger number, hold that a director may deal with an individual stockholder and purchase his stock
In our opinion, and according to the great weight of authority, the true conception of the relationship of director to stockholder of a corporation is that while he is not his agent, trustee, or representative respecting his individual shares in the corporation, and having no possession of the certificates or script representing the stock, nor right or authority as such to deal in, sell or otherwise dispose of the same, and is not any more than a third person precluded from buying or otherwise dealing with the stockholder in reference thereto, he nevertheless does sustain such fiduciary relationship to the stockholder as to impose upon him the utmost good faith respecting such dealings, and when called upon to advise him in relation thereto, and as to the value thereof, and as to the condition of the property and affairs of the corporation. He is bound at his peril to withhold no fact known to him and unknown to the stockholder affecting the value of the stock. 2 Purdy’s Beach on Private Corporations, section 737a; 4 Thompson on Corporations, (2nd ed.) section 4031; Oliver v. Oliver, 118 Ga. 364, 45 S. E. 232; Stewart v. Harris, (Kans.) 66 L. R. A. 261.
And all authorities agree that where a director misrepresents material facts peculiarly within his knowledge as a corporate officer, and the vendee relies thereon to his damage, the contract may be rescinded. Helliwell on Stock and Stockholders, section 184. In Oliver v. Oliver, supra, one of the leading cases cited by counsel for appellant, it is said: “When it is admitted, as it must be, both from the very nature of his duty and from the rulings of nearly all the cases, that he is trustee for the shareholder, how is it possible in
It is conceded by counsel for. appellant who relies upon what he calls the majority rule, denying trust relationship between director and individual stockholder, that special circumstances may create or induce that relationship, citing as instances thereof, Strong v. Repide, 213 U. S. 419, 53 L. Ed. 853, and Oliver v. Oliver, supra. Though adopting the majority rule respecting a director as the general rule, affirmed by counsel, Mr. Cook, 1 Cook on Stock and Stockholders, (3rd ed.) section 320, says: ‘‘There is no confidential relation between him and a stockholder, so far as a sale of the stock between them is concerned; and, so long as he remains silent and does not actively mislead the person with whom he deals, the transaction cannot be set aside for fraud.” In Strong v. Repide, supra, the point of the syllabus applicable to this discussion is: ‘‘Even though a director may not be under the obligation of a fiduciary nature to disclose to a shareholder his knowledge affecting the value of the shares, that duty may exist in special cases, and did exist upon the facts in this case” which “indicate that a director of a corporation owning friar lands in the Philippine Islands, and who controlled the action of the corporation, had so concealed his exclusive knowledge of the impending sale to the Government from a shareholder from whom he purchased,
Conceding the. so called majority rule to be the correct one, we think, upon the principles of the cases just referred to, recognizing the exceptions, that where a stockholder who, as in this case, is first sought by a secret agent of a director, with a proposition to buy his stock, and the stockholder goes to such director to obtain full information respecting the value of his stock and the condition of the corporation, its plans and prospects, the reason for a recent reduction of dividends, and all other information affecting or tending to affect the value of his stock, such director cannot' withhold any information within his knowledge, or in any way mislead or deceive him, or by acts, words, or conduct, induce a sale of the stock to him, except upon penalty of having the sale rescinded at the option of the stockholder; that if he understakes to speak or become active in inducing the sale he must speak fully, frankly, and honestly, and conceal nothing to the disadvantage of the selling stockholder.
Here, substantially as in Stewart v. Harris, supra: “Defendant suggests that plaintiff should have himself exercised’ more diligence in investigating the affairs of the bank; that the books of the bank were open to him. By this we are asked to say that in this case a means of knowledge is equivalent to knowledge; that a clue to the facts, which, if dilligently followed up, would lead to a disclosure, is equivalent to a discovery. Plaintiff could not be required to make an investigation of the boobs of the bank to determine its financial condition, simply because it was in his power to do so. The diligence required by one to protect his interests is only such as a person of ordinary prudence would exercise under like circumstances. In a ease like the one under review, the trust relation existing between the parties, the superior opportunities of defendant to know of the condition of the affairs of the bank, and his actual knowledge of its affairs, required
We cannot further review the authorities so well collected on both sides and presented in elaborate briefs of learned counsel. Our statement of the true rule is not, we think, wholly opposed to what is regarded as the rule of the majority ; it is certainly in harmony with the principles of our own decisions, and is supported by reason as well as by authority; it is substantially the rule upon which the court below predicated its decree.
The question then is presented, was there such a breach of duty on the part of the defendant Camden as director towards plaintiff as stockholder, as entitled the latter to the relief decreed or to any relief as against the former? And we wish to observe in this connection, that we are not impressed from the evidence that there was any intention on the part of Mr. Camden to wrong or unjustly injure the plaintiff; that the breach of trust, if any, consisted in his failure to understand and appreciate the full meaning of his duty as director towards stockholder seeking information from him respecting the value of the stock he was seeking to buy. The record shows him to be a man of high standing, and one having the confidence not only of plaintiff, but of all of his associates, and we are not ready to, nor are we justified from the record, in inferring intentional wrong; quite the contrary. An intentional wrong is not to be imputed to him when the authorities defining his duties are in conflict, if not to some
One of the grounds for rescission alleged and supported by~j proof is that when asked by plaintiff’s agent defendant represented that $175.00 per share offered for the stock was more than it was worth and more than its true value. The general rule is that mere expression of opinion though false will not be regarded as fraudulent, but when accompanied by other matters going to establish misrepresentation, imposition, undue influence, undue confidence, mental inability, or surprise, especially when there is a fiduciary relationship between the parties, it may amount to fraud justifying the rescission of aj contract induced thereby. Grim v. Byrd, 32 Grat. 293; “ Schuttler v. Brandfass, 41 W. Va. 201. Defendant in his position as director, treasurer, and officer, had peculiar means ^ of information. According to the evidence of L. H. Poole, defendant’s representation was not only that $175.00 per share was more than the stock was worth, but that that price was more than its true value. This representation was accompanied, moreover, by another, the second ground relied on, namely, that the policies, plans and property of the company would not warrant a better or greater price for the stock, and that the recent reduction in dividends from six per cent to five per cent was due to the United States Corporation tax, afterwards ascertained by plaintiff’s agent to have been but $500.00, when the fact was that the stock had continually grown in .value and the net earnings of the company had for some years been from seventeen to eighteen per cent on the capital stock of the company, justifying much larger dividends, and that within a few months thereafter a stock dividend of one hundred percent, was declared, and at which time defendant insisted on a stock dividend of two hundred per cent., and that a little later he optioned his stock at $240.00 per share. And another representation was that defendant being already owner of a large amount of the stock,
It seems, to us that these facts in connection with other representations and concealments with reference to the condition, plans, and prospects of the corporation, not warranted by the facts, alleged and supported by proof, will not warrant us in reversing the decree, and that it must be affirmed.
Affirmed.