76 F. 909 | 8th Cir. | 1896
delivered the opinion of the court.
This writ of error challenges a judgment of $940,000 against John D. Rockefeller, the plaintiff in error, for fraudulent misrepresentations of the financial standing of two mining corporations, which induced Alfred Merritt, the defendant in error, to make and perform a contract to exchange certain stocks in several corporations for stock in a single corporation. The contract was made on August 28, 1898. The parties to it were Alfred Merritt, 10 other gentlemen named Merritt, some of whom were his brothers, and Charles W. Wetmore, parties of the first part, John D. Rockefeller, party of the second part, and the Lake Superior Consolidated Iron Mines, a corporation, party of the third part. For the sake of brevity, Alfred Merritt, who was the plaintiff in the court below, will be called the “plaintiff”; John D. Rockefeller, the “defendant”; the Lake Superior Consolidated Iron Mines the “Consolidated Mines”; the Penokee & Gogebic Consolidated Mines, a corporation, the “Penokee Corporation”; and the Spanish-American Iron Company the “Spanish Company.”
The plaintiff, Merritt, alleged in his complaint that he was the owner of certain shares of stock in certain mining corporations and in a railway corporation, which were of the reasonable and agreed value of $1,533,000; that the defendant, Rockefeller, was the owner of certain stocks, bonds, and no tes of the Penokee Corporation and of the Spanish Company; that Rockefeller falsely and fraudulently represented to him that these two corporations were solvent and prosperous, and owed little above their funded indebtedness, and thereby induced him to enter into the contract of August 28, 1893, to the effect that he would convey his stocks, for certain prices specified in the contract, to the Consolidated Mines, a new corporation, and take in payment therefor stock in that corporation at 50 per cent, of its par value, and that this new corporation would take the stocks, bonds, and notes of the Penokee Corporation and of the Spanish Company and certain other securities held by Rockefeller at the prices named in the contract, and pay him for them with its bonds at 90 per cent, of their par value, secured by a mortgage on all its property. He alleged that- this agreement was performed, and that he received 30,600 shares of the stock of the Consolidated Mines,
It is assigned as error that the court below refused to permit the defendant to prove that the stocks which the plaintiff exchanged for the stock of the Consolidated Mines were in fact of no greater value than the latter, refused to permit him to show their actual value at all, and charged the jury that the measure of plaintiff's damages was the difference between the values at which the plaintiff’s stocks were estimated in the contract of exchange of August 28, 1893, and the actual market value of the stock of the Consolidated Mines which he received in exchange for them. A brief reference to the facts presented at the trial below which were material to this question of damages is requisite to a full appreciation of the character and effect of these rulings. Prior to August 28, 1893, the Merritts owned stocks in several mining corporations, which either had title to or leasehold interests in actual or prospective mines on the Missabe Range in Minnesota, and they also owned stock in a railway corporation, which had a railroad from Duluth, Minn., to that range. The defendant had some shares of stock and some trust notes of the Penokee Corporation, some shares of stock and some bonds of the Spanish Company, and some shares of stock and some bonds of certain other corporations whose names are not material here. For about two months the Merritts and the defendant had been negotiating and contracting with a view to perfect and carry out a plan by means of which the Merritts might vest the title to all their stocks in their various mining corporations and their stock in the railway company in a single corporation, to be controlled by themselves, might have that corporation give each of the Merritts a just amount of its stock at 50 per cent, of its par value in exchange for his stocks in these original corporations, and might have the new corporation take the stocks and bonds of the defendant, and give him its bonds in exchange for them at 90 per cent, of their par value, secured by a rnort-
“Messrs. Merritt & Wetmore and the Consolidated Mines covenant and agree that the Consolidated Mines will forthwith acquire the following named interest in the following mentioned properties, hereinafter set forth, to wit: Sixty-one (61) per cent, of the capital stock of the Mountain Iron Company, at the rate of three million five hundred thousand dollars for the entire property,”
—And then follows in the same article the description of the other stocks to be acquired- fr.om the Merritts, with the exception of the stock of.the railway company, and the rates at which they were to be
“The Consolidated Mines will pay for the properties abo re mentioned in its capital stock at the rate of fifty per cent, of (he par value thereof; that is to say, two dollars of such capital stock for every dollar of cash valuation as stated above.”
The only valuation stated above consisted of the rates at which the stocks of the Merritts were to be taken by the Consolidated Mines, to which reference has been made. The allegation of the plaintiff that he was induced to make this contract by the false and fraudulent representations of the defendant as to the financial standing of the Penokee Corporation and the Spanish Company, and that the securities of those companies were in fact worthless, was supported by some evidence, aud for the purposes of this discussion will be taken as established. The contract was performed. Bonds of the Consolidated Mines to the amount of $1,699,851, payable in 10 years, with 6 per cent, interest, were issued to the defendant for his stocks, trust notes, and bonds of the Penokee Corporation and the Spanish Company, and for $2,599,149 for his other securities, about which no complaint is made; so that the mortgage indebtedness oí the Consolidated Mines became $4,299,000. These bonds were secured by a first mortgage on all the property of the new corporation. In January, 1894, the Penokee Corporation and the Spanish Company were financially embarrassed, and on January 18, 1894, the defendant surrendered to the Consolidated Mines its first mortgage bonds of the par value of $2,14(5,505.34, and took in exchange for these bonds and their accrued interest stock of the corporation at its par value, although it was then worth but 10 per cent, of that value. Bonds to the amount of $1,699,851 of those so surrendered had been issued on account of the securities of the Penokee Corporation and the Spanish Company, and the balance on account of the securities about which no complaint is made. At the same time the defendant took back from the Consolidated Mines 640 shares of the West Superior Iron & Steel Company, which he had sold to that corporation under the eoniract of August 28, 1893, and surrendered to it its first mortgage bonds of the par value of about $652,800, which he had taken therefor. In this way the mortgage indebtedness of the Consolidated Mines was reduced in January, 1894, from about $4,299,000 to about $1,500,000. In February, 1894, the Mer-ritts sold a large portion or all their stock in the Consolidated Mines to the defendant at its market value, which was then 10 per cent, of its par value. During all this time, until the sale of this stock in February, 1894, the plaintiff had continued to own the stock in the Consolidated Mines which he obtained under the contract of August 28, 1893, the president of that corporation and a majority of its directors had been members of the Merritts, and they had held a majority of its stock. ILs hoard of directors had in January, 1894, unanimously adopted the resolutions which authorized the issue of the stock of the corporation, and its exchange at par for the bonds and accrued interest which the defendant had received for the securities of the Penokee Corporation and the Spanish Com
The true measure of the damages suffered by one who is fraudulently induced to make a contract of sale, purchase, or exchange of property is the difference between the actual value of that which he parts with and the actual value of that which he receives under the contract. It is the loss which he has sustained, and not the profits which he might have made by the transaction. It excludes all speculation, and is limited to compensation. Smith v. Bolles, 132 U. S. 125, 10 Sup. Ct. 39; Busterud v. Farrington, 36 Minn. 320, 31 N. W. 360; Reynolds v. Franklin, 44 Minn. 30, 32, 46 N. W. 139; Stickney v. Jordan, 47 Minn. 262, 49 H. W. 980; Fixen v. Blake, 47 Minn. 540, 542, 50 N. W. 612; Wallace v. Hallowell, 56 Minn. 501, 58 H. W. 292; Woolenslagle v. Runals, 76 Mich. 545, 43 N. W. 454; McAleer v. Horsey, 35 Md. 439; Buschman v. Codd, 52 Md. 202, 209; High v. Berret (Pa. Sup.) 23 Atl. 1004. These propositions are unquestioned, and counsel for the plaintiff insist that they were prop
Was he estopped from proving its actual market value? He was not estopped by any agreement as to that value, because, as we have seen, he had made no such agreement. An estoppel in pais arises when one who is ignorant of the material facts which condition a subject is intentionally or recklessly induced by the false representations or action of another to change his relation to it, so that he will be injured if he who made the false representations is permitted to prove the truth. If a vendor represents to a purchaser that a tract of land contains 10 acres more than it actually measures, and thereby induces him to buy and pay for it at the rate of $30 per acre, he is estopped from showing that the land was of less value, because the purchaser has actually paid and lost $30 per acre upon the 10 acres that did not exist. If the plaintiff had induced the defendant to purchase -some of his property for cash by false representations, he would have been estopped from denying that such property was worth.-what the defendant had actually paid for it, because that would have been his actual loss. But there is nothing of this kind in the case-in-hand. .The plaintiff was not ignorant of the actual value
The difficulty with the rule applied by the court to measure the damages in this case seems to be its failure to note the difference between the actual value of the plaintiff’s stocks and the value at which they were estimated in the contract for the exchange of securities. In a simple transaction this difference seems clear and radical. If A., by the false representation of good title to a lot that is actually worth $1,000, induces B. to give Mm a lot of the same value in exchange, B.’s damages must be the actual value of the lot which he conveys. If in their contract of exchange of the lots and in their deeds they estimate and recite the value of each lot at five times its actual'value, that fact cannot multiply or increase the damages of B. He loses no more than the $1,000, the actual value of the lot he parts with. As long as he accepts A.’s lot in payment for his, he may be permitted to maintain that his lot paid the debt of $5,000 which he incurred to A. for the latter’s lot, because that was the contract. But the moment he brings Ms suit for damages, and thereby undertakes to collect the value of his lot, or any part of it in money, instead of in land, he is limited to its actual market value and to Ms actual loss. The extent of the defendant’s agreement as to the value of the plaintiff’s stocks was that they were worth $1,-483,816 in the stocks of the Consolidated Mines at 50 per cent, of their par value, in consideration that the plaintiff agreed that the defendant’s securities were worth $4,299,000 in first mortgage bonds of that corporation at certain percentages of their par value. As long as the plaintiff was content to pay the defendant for his securities in these bonds, and to accept the stocks of the new corporation for Ms original stocks, these estimated values stood. But when, in this suit for damages, he undertakes to convert a part of the payment for Ms original stocks from stock of the Consolidated Mines into money, he must be limited in his recovery to the actual market value of Ms original stocks in cash, and thus to the actual loss he has sustained. In an action for damages for material misrepresentations which induce an exchange of property, the difference between the actual market value of the property which is parted with and the actual market value of that which is received under the contract, and not the difference between the price of the property parted with fixed in the agreement of exchange and the actual value of that received, is the true measure of the damages. Reynolds v. Franklin, 44 Minn. 30, 32, 46 H. W. 139; Fixen v. Blake, 47 Minn. 540, 542, 50 N. W. 612; High v. Berret (Pa. Sup.) 23 Atl. 1004. The disregard of this rule resulted in a recovery which violated the fundamental principles by which damages are measured in actions of this character. One of these is that such damages must be merely compensatory, and must not be speculative.: The defendant Vas
Another universal rule for the ascertainment of damages in cases of this character is that they must be the natural and proximate consequence of the injury. They may not be so remote that the wrongdoer might not have reasonably expected them under the circumstances of the particular case. Jex v. Straus, 122 N. Y. 293, 301, 25 N. E. 478; 1 Suth. Dam. 21; 1 Sedg. Dam. (8th Ed.) § 142; 2 Greenl. Ev. § 256; 1 Add. Torts, 6; Ryan v. Railroad Co., 35 N. Y. 210; Knight v. Wilcox, 14 N. Y. 413, 416; Hutchins v. Hutchins, 7 Hill, 104; Lynch v. Knight, 9 H. L. Cas. 577. Who could have reasonably expected that the fraudulent increase of the mortgage indebtedness of a corporation that had issued stock to the amount of $21,000,000 from $2,579,149 to $4,299,000 would injure the corporation and depreciate the value of its stock $6,580,000, or more fha.rt four times the increase of its mortgage debt? Who could have anticipated such an amount of damages as the natural or probable result
The errors in the rulings of the court below relative to the measure of the plaintiff’s damages, which we have been considering, are fatal to this judgment, and necessitate a retrial of the case. There are many other assignments of error, and they present many interesting questions, but their consideration and decision would not change the conclusion at which we have arrived. The judgment below must be reversed, with costs, and the case must be remanded to the court below, with directions to grant a new trial; and it is so ordered.